Claim For Injunctive Relief Has Value in Determining The Amount In Controversy For Diversity Jurisdiction

When you are filing a complaint to federal court, or removing one to federal court, the value of a claim for injunctive relief can be included in determining whether the $75,000 amount in controversy required for diversity jurisdiction under 28 U.S.C. §1332(a) is met.

Today in JTH Tax. Inc. v. Frashier  the Fourth Circuit reversed the trial court's sua sponte dismissal of a franchisor's complaint for failing to meet the amount in controversy requirement.

Plaintiff had franchised a tax preparation service to the Defendant.  When Defendant closed the office, Plaintiff sued him for $80,000 and requested injunctive relief enjoining him from competition.  When time for summary judgment rocketed around, Plaintiff requested only $60,000 in damages and the trial court dismissed the complaint on the ground that the required amount in controversy was lacking.

That was error, said the Fourth Circuit, because the burden was on the defendant to show that it was legally impossible for the Plaintiff to recover the jurisdictionally sufficient amount alleged in the complaint. and because the court had failed to consider the value of the injunction asking Defendant to be enjoined from operating a competing tax return business.

The Fourth Circuit said that "like requests for money damages, requests for injunctive relief must be valued in determining whether the plaintiff has alleged a sufficient amount in controversy."  The  value of the injunction could either be measured by its worth to the plaintiff or its cost to the defendant.

Plaintiff proposed two alternative values for the injunction which the Court found to meet the standard of being "facially plausible."  One was the value of the franchise, calculated in line with Plaintiff's regular accounting practice of valuing franchises at 130% of their previous year's receipts.  The Court also considered Plaintiff's loss of goodwill, or its "market credibility."  Plaintiff based that on the $12 million it had spent on advertising during the prior year.

On the cost of the injunction to the Defendant, the Court looked to rental payments of $500 per month that would have been due to the Plaintiff  over the remaining sixteen month term of the franchise agreement.

 

 

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