Sunday, November 14, 2010

Federal Court Jurisdiction - Non-Compete Case

A question that often arises in litigation practice is: where do we file suit? We often have a choice of federal or state court. To sue in federal court, one needs either a federal question or diversity jurisdiction. Federal courts have diversity jurisdiction where there is $75,000.00 or more in controversy and the parties are citizens of different states. In JTH Tax Inc. v. Frashier, decided on November 10, 2010, the United States Court of Appeals for the Fourth Circuit issued a decision regarding the amount in controversy for the purposes of diversity jurisdiction under 28 U.S.C. Section 1332(a). In the case, Plaintiff JTH Tax had originally sued a former franchisee in the United States District Court for the Eastern District of Virginia for $80,000.00, and for an injunction for breaches of contract arising out of a franchise agreement including breaches of non-compete obligations. Later, the Plaintiff filed documents with the court showing that its actual monetary damages were only approximately $60,000.00. The District Court dismissed the case on its own motion due to its determination that the amount in controversy was conclusively less than $75,000.00. The Fourth Circuit reversed, holding that District Courts could only dismiss in such cases where there was “legal certainty” that the amount in controversy was less than $75,000.00. The Court found many ways that the controversy could be valued in excess of $75,000.00 even where money damages were only $60,000.00. One such way was to value the injunctive relief sought.

A copy of the full opinion is here.

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