INTRODUCTION TO AMERICAN LEGAL SYSTEM

The United States legal system has multiple layers. The most basic way to think of the system is it
being comprised of 51 legal systems: one for each of the 50 states and tin the United States: one for
each state and the federal system.
Each state has its own constitution, legislative body, set of laws and court system. Then, of course,
the U.S. has its Constitution, Congress and the federal court system.

A. Two Basic Court Systems

As a lawyer, a key question is jurisdiction. You must understand where you are legally, which laws
govern the issue you are handling, and which court system is the appropriate one to resolve it.

Some conduct is governed solely by the state court legal system, while other conduct is governed
solely by the federal court legal system. And then there are some instances in which both federal
and state laws apply.

A client living in New York, driving to California, could find themselves in a traffic accident in
Oklahoma with another driver from Texas, involving a car manufactured in Michigan. If the New
York driver wants to bring a torts suit against the Texas driver and the Michigan manufacturer, the
New York driver could have a choice of venues: New York, were the driver lives; Texas, where the
other driver lives; Oklahoma, where the accident took place; Michigan, where the manufacturer is
based. As the claim involves residents of different states, and assuming it clears the $70,000 hurdle,
the New York driver could bring the suit in federal court.

Torts are an area of law where these jurisdictional questions are frequent and often convoluted. That
is because torts are part of Common Law, they are not statutorily defined but rather have evolved
from the traditions of the courts. Areas of law governed by statutes are less likely to involve
jurisdictional questions. Legal disputes under a statute will most likely be resolved in the courts of
the corresponding system; a dispute under a state statute will be resolved in the courts of that state.
A dispute under the U.S. Constitution or a federal stature can be brought to state court but can then
be appealed at the federal level.

In the example above, the New York driver might also think about which court system gives her a
best chance. If a state has imposed a cap on how much a person can recover from a traffic accident,
a plaintiff might not want to bring suit in that state.

Still, a state statutory dispute could reach the federal level if it involves the U.S. Constitution or a
federal law. For example, in the landmark civil rights case of Brown v. Board of Education, the
United States Supreme Court invalidated a Kansas statute that permitted the segregation of public
schools, holding that the state sanctioned segregation violates the 14th Amendment to the
Constitution.

B. Sources of Law
The laws from both the federal and state legal systems stem from three primary
sources: the Constitution, statutes, and common law.
1. Constitutions
Constitutional provisions are relatively few, however the they are important because they protect
fundamental rights. Under the U.S. Constitution, the right to be free from “unreasonable searches
and seizures” is one such important right.

1
Even though the federal and state court systems are separate legal systems, federal courts, in limited
circumstances, sometimes hear disputes that arise from state laws. Similarly, state courts often times
hear cases involving federal laws, assuming jurisdiction is proper.
I
2. Statutes & Administrative Regulations
Both in the federal and state legal systems, the legislative branch of government also creates law by
enacting statutes that govern the rights and duties of the persons who have the requisite minimum
contacts within that jurisdiction.

Under legislative authority, agencies can also issue regulations to interpret and clarify the meaning
and interpretation of aa statute. For example, Title VII is a statute that makes it illegal for employers
to discriminate against their employees on the basis of their race, religion, gender, or place of birth.
Congress also gave a federal agency the authority to implement regulations and guidelines that help
interpret Title VII and give it practical effect — the Equal Employment Opportunity Commission
(the EEOC).

When it comes to Tax Law, U.S. Congress enacted the Internal Revenue Code, Title 26, which
covers all relevant rules pertaining to income, gift, estate, sales, payroll, and excise taxes. The
Internal Revenue Service (the IRS) is tasked with the enforcement of Title 26.

States may impose their own taxes, created through state laws enacted by state legislature and
enforced by state agencies.

3. Common Law
Some laws do not have their source in a constitution or statute. Instead, these laws evolve solely
from court decisions, and are called the “common law.”

Although the common law originated in England and was brought to the United States by British
colonists, eventually becoming each state’s original body of law. Common law evolved as medieval
judges began to apply the reasoning from previous cases to new disputes. As new factual
controversies arose, the judges expanded on and refined their interpretations of those previous
decisions, focusing on whether a case presented a fact pattern identical to a previous case, or
whether it could be distinguished from a previous case.

Today, although statutes have replaced a fair amount of the common law, common law continues to
exist. Moreover, the reasoning by analogy reasoning by analogy used in common law is still the
primary means by which lawyers evaluate cases and predict what the law might say about their
clients’ conduct.

Common law reasoning when interpreting statutory law

Tax law is a statutory-based area of the law. Still, as new cases arise under tax laws, U.S. courts,
following the logic of common law, will often refer to a previous case to interpret the tax code.

For example, in Commissioner v. Duberstein, 363 U.S. 278 (1960), the U.S. Supreme Court
considered the exclusion of "the value of property acquired by gift" from the gross income of an
income taxpayer. The legal question was what is a “gift” for federal income tax purposes.

Appellate courts consider only the legal questions poses in the appeals; except for narrow
circumstances (i.e. egregious errors), the appellate courts leave it to the lower courts to examine the
facts and are deferential of the factual determinations of those courts, focusing instead on legal

2
questions. In Commissioner v. Duberstein, the Supreme Court heard two cases as they posed the
same legal question.

In the first case, No. 376, Commissioner v. Duberstein, Berman was the president of a company and
Berman the president of another company. They often talked on the phone and gave each other
names of potential customers. After receiving some helpful information, Berman decided to give
Duberstein a Cadillac. Duberstein said he did not need the car but eventually he accepted it. The
corporation headed by Berman later deducted the value of the car as a business expense; Duberstein
did not include the value of the Cadillac in his gross income when he filed his tax return, deeming it
a gift. The Commissioner asserted a deficiency for the car's value against Duberstein. The Tax court
affirmed.

In the second case, No. 546, Stanton v. United States, Stanton worked for the Trinity Church in
New York City as the comptroller of the Church corporation and president of the corporation. He
resigned from both positions to go into business for himself. As a “gratuity” the corporation's
directors awarded Stanton $20,000 in appreciation of the services rendered. While some directors
testified that Stanton had been well liked by all in the Vestry and the $20,000 was a gift to show
that good will, there was also some evidence given that Stanton was being forced to resign. The trial
judge made a simple finding that the payments were a “gift.”

Presented with these cases, the Supreme Court held that when determining whether something is a
gift for U.S. federal income tax purposes, the critical consideration is the transferor's intention. This
is a question of fact that must be determined on a “case-by-case basis.” The agency that levies the
tax must conduct an objective inquiry that looks to “the mainsprings of human conduct to the
totality of the fact of each case.” On review, the trier of fact must consider all of the evidence in
front of it and determine whether the transferor’s intention was either disinterested or involved:
Gifts result from “detached and disinterested generosity” and are often given out of “affection,
respect, admiration, charity or like impulses;” or whether, contrast, the involved payments given as
an “involved and intensely interested” act.

Following in Commissioner v. Duberstein, when hearing a case that involves the question of
whether something should be considered as a “gift” to be excluded from U.S. gross income tax, a
U.S. court will in all likelihood apply the reasoning of that case to interpret the statute.

C. How the Branches of Government Work Together

Each branch of government is meant to be independent from each other. The legislative drafts the
laws that must be ratified and executed or enforced by the executive branch. At the federal level, the
judiciary, following Marbury v. Madison, 5 U.S. (1 Cranch) 137 (1803), exercises judicial review
meaning that federal courts have the power to strike down laws, statutes, and some government
actions that violate the Constitution of the United States.

Constitutions and statutes are often written in broad, general terms that aim at regulating a wide
range of future conduct. Inevitably, when applying the Constitutional provisions or the statutory
language to a particular factual situation, questions arise. Does this specific conduct
fall within the reach of that law? Is this particular individual the type of person the legislature
intended to cover? To resolve these questions as they arise in individual cases, judges are required
to interpret the meaning of specific statutes and constitutions.

When the legislature disagrees with how a court interprets a statute, the legislature might amend the
statutory language to clarify its meaning. New legislation invalidates earlier court decisions that
interpreted the previous version of the statute in a different.

3
D. The Doctrine of Stare Decisis
In the common law tradition, a court must balance the pursuit of decisions that are fair, the
legislative intent, and policy concerns implicated in the interpretation of the law. But also, for
citizens to abide by the law, the must know what behavior is lawful. Therefore, the courts must
consider the predictability and consistency in how laws are interpreted. Courts then look to the
decisions of prior courts for guidance in interpreting the law, and follow the doctrine of stare
decisis — a Latin phrase that means that courts should stand by earlier legal decisions (“precedent”)
and interpret the law in the same way as earlier courts have done.

When considering the relevant decision from a previous case, a court must then determine whether
the specifics of the case at hand are legally the same of the previous case—so that the holding of the
previous case can be applied under the stare decisis principle—or whether they constitute a new fact
pattern such that the case can be distinguished, requiring a new holding.

STARE DECISIS — MANDATORY & PERSUASIVE PRECEDENT

Within the stare decisis doctrine, decisions from previous cases fall under two kinds of precedent:
mandatory and persuasive precedent. Courts are required to follow only earlier cases that are
mandatory precedent; in contrast, courts may follow or disregard earlier cases that are only
persuasive precedent.

Whether a case is mandatory or persuasive precedent depends on two questions: (1) did the
previous case arose within the same jurisdiction as the dispute presently before the court; and (2)
was the earlier case decided by a higher-level court within the same jurisdiction.
A. The Jurisdictional Prong of the Test
Given the amount and complexity of jurisdictions in the U.S. judicial system, resolving the
jurisdictional part of the test can be challenging. The test requires that both the legal precedent case
and the case now before the court arise in the same jurisdiction.
.
1. Federal Courts
Under the U.S. Constitution, Federal courts have jurisdiction to resolve disputes that involve the
U.S. Constitution, federal statutes, and federal regulations. Federal courts may also have jurisdiction
over disputes involving state laws if the parties satisfy other jurisdictional requirements (i.e.,
diversity of citizenship; pendent jurisdiction).

Federal laws are applicable to the entire United States. In contrast, state laws are only applicable
within the state that promulgated the law.
To make the administration of the law more practical, Congress has divided the country into
thirteen federal judicial circuits. There are eleven numbered circuits, such as the United States
Court of Appeals for the First Circuit, the Second Circuit, and so on. In addition to the eleven
numbered circuits, there is also the United States Court of Appeals for the District of Columbia and
the United States Court of Appeals for the Federal Circuit. The Federal Circuit resolves disputes
involving patents, certain international trade disputes, and some cases involving damage
claims against the United States government.

When applying the the doctrine of stare decisis, an earlier case is mandatory, or binding, precedent
only with respect to new federal court cases that arise within the same judicial circuit.
For example, a decision issued by the United States Court of Appeals for the First Circuit is binding
only on future cases that arise within the First Circuit. That decision is not binding within any other
circuit.

4
A judge or court within the Second Circuit is free to agree or disagree with the manner in which the
First Circuit Court of Appeals interprets a federal law. Occasionally, the U.S. Supreme Court will
step up to resolve a Circuit split, that is when circuits disagree on a particular legal question.

2. State Courts
Each state has its own laws and court system. State court judges have sole jurisdiction to resolve
controversies involving their state’s constitution, statutes, and common law. Earlier cases have
binding effect only on future disputes that arise within that same state. A case from one state
has very little persuasive weight on a judge in another state as the laws of the different states differ
from each other. State courts some times hear cases involving questions under the U.S. Constitution
but those can then be appealed in federal court.

B. The Court Hierarchy Prong of the Test

For an earlier case to constitute mandatory precedent, the earlier case must not only arise from
within the same jurisdiction as the current dispute but also must have been decided by a higher-level
court within that jurisdiction.

Federal courts have their own hierarchy. Each state also has its own hierarchy of courts.

1. Federal Court System

The federal court system has three levels: (1) the trial court level (District Courts); (2) the
intermediate appellate court level (United States Courts of Appeals); and (3) and the highest
appellate court level (the United States Supreme Court).

5
Decisions by the United States Supreme Court are binding on all other federal courts. Decisions of
each United States Court of Appeals are binding only on the lower federal courts within their
jurisdiction. Federal district court decisions are not binding on other courts.

There are also federal courts that have special subject matter jurisdiction, such as federal claims
courts, bankruptcy and tax courts, and veterans, armed forces, and international trade courts.

(a) Federal District Courts

To file a federal lawsuit, you would file the lawsuit in a federal district court, which is the name of
the trial level court within the federal judiciary system. Each of the twelve federal circuits (the
eleven numbered circuits and the District of Columbia), has a number of district courts within its
jurisdiction. The size and number of federal district courts within a circuit depends on the size and
caseload of that district. Additionally, each federal district court is typically comprised of more than
one judge, again depending upon the size and caseload of the district.

(b) United States Courts of Appeal

A decision from a Federal District Court can be appealed at the Court of Appeals of the
corresponding circuit. A decision from a Federal District Court in New York would be appealed to
the Second Circuit Court of Appeals. A case tried in a Texas district court, would be appealed to the
Fifth Circuit Court of Appeals.

Cases are heard by three-judge panels during one week of the month. Sometimes, for unusually
significant cases, all active judges on a federal court of appeals hear a case together; these decisions
are called en banc decisions — a French term that refers to the entire bench of judges.

(c) United States Supreme Court

Decision from the Courts of Appeals can be then appealed to the U.S. Supreme Court, composed by
nine justices. The Supreme Court consents to review only a select few appeals each year. Out of
thousands of petitions for appeal every year, the Supreme Court consents to hear only 100 to 200
per year.

Courts taken up by the U.S. Supreme Court usually are of exceptional constitutional or statutory
importance; sometimes, the Supreme Court hears cases where lower courts disagree in their
interpretation, i.e., where two or more federal circuit courts of appeal are split in their interpretation.

6
When the Supreme Court takes or declines to hear an appeal, the technical term is that it has granted
or denied certiorari.

2. State Court Systems

Many, though not all, states have three levels of courts — trial level courts, intermediate appellate
level courts, and a final appellate level court. Most states have courts of limited jurisdiction as well,
such as small claims courts or municipal courts. Some states have only two levels of courts.

In what can be confusing nomenclature, some states call their final appeals court the “Supreme
Court,” while other states call their final appeals court the “Appellate Court.”

Within a state judiciary, the highest level of appellate court binds all lower level courts. Often,
intermediate level appellate courts bind all trial level courts within all districts within the state.

However, court decisions are not binding on other courts at the same level, such that different
intermediate appellate courts within a state can be split on an issue. In such case, the trial court will
be bound to follow the precedent of the appellate court under which it falls.

CORE CONCEPTS
Sources of law
Stare decisis
Mandatory precedent
Persuasive precedent
Separation of branches of government
Jurisdiction
Federal court
State courts