Federal Jurisdiction and Determining “Jurisdictional Amount”

All U.S. civil litigators know there are some hurdles to get over to get a garden-variety business dispute into federal court. Assuming you do not have a claim under a federal statute or the U.S. Constitution, one of the hurdles is “diversity of citizenship,” requiring “complete diversity” between plaintiffs and defendants and, another prerequisite to “diversity jurisdiction,” a $75,000 “jurisdictional amount.”

K-Tel entered into a contract with Tommy Moeller in 1984 where Tommy would make master recordings of the following musical compositions: “Concrete and Clay” and “You’ve Never Been In Love Like This Before.” In return, K-Tel would pay Tommy $5,400 plus a $1,500 advance, to be collected from promised royalties to Moeller of one-half cent ($0.005) per song sold. Sales still have not been sufficient for K-Tel to get back its $1,500 advance.

So, would the $75,000 jurisdictional amount be met here?

At first glance, obviously not. (And I have not even touched on the fact that K-Tel brought the suit in state court and did not seek any damages at all.)

But it is an interesting question because one has to ask, “What is the dollar value of a contract?” If I pay a musician a pittance for his work but, theoretically, I stand to make a great deal of money with the recordings into perpetuity, how does one settle in a value?

[W]ith few exceptions, when calculating the amount in controversy, the District Court will only consider the amount of damages that have accrued up until the point that the case was filed…The courts have recognized one narrow exception to this rule: ‘Where the validity of the contract itself—rather than the meaning or application of any contractual language—is at issue, the full value of the contract, including any future payments that may possibly become payable to the insured, may be taken into account in computing the amount in controversy.’

Seems to me that things don’t look very promising for Mr. Moeller successfully keeping the lawsuit against him in federal court but time will tell…