A.F.A. Tours, Inc. v. Whitchurch, 937 F.2d 82 (1991): Case Brief Summary

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• Is dismissal of a federal diversity suit on the grounds of insufficient amount in controversy premature if the issue was raised sua sponte at a pretrial oral argument with no prior notice, and the court dismissed the suit at the end of the oral argument?

• A.F.A. Tours, Inc. (AFA) (plaintiff) brought a diversity suit in federal court against Desmond Whitchurch (defendant), a former AFA employee, for misappropriation of trade secrets. AFA sought an injunction and damages “in an amount which [wa]s not . . . ascertainable, but which [wa]s believed to exceed the sum of $50,000.00.”

• ed to exceed the sum of $50,000.00.” AFA also sought punitive damages for at least $250,000.

• Whitchurch filed a motion to dismiss and at the oral argument of that motion, the United States District Court for the Southern District of New York raised sua sponte the issue of amount in controversy. AFA claimed that a single tour could “easily generate more than $50,000.” However, at the close of those oral arguments, the court dismissed the suit for lack of subject matter jurisdiction, holding that AFA would not be able to prove damages equaling more than $50,000. At the time, the amount in controversy needed to exceed $50,000 to maintain federal diversity jurisdiction. AFA appealed.

• At the time of this writing, to maintain a federal diversity suit, the amount in controversy must exceed $50,000. In determining the amount in controversy, the plaintiff’s claimed amount is controlling if it was made in good faith.

• “appear to a legal certainty” that the claim is for less than $50,000.

• Finally, the plaintiff must have had a reasonable opportunity to show that the claim amount was made in good faith.

• In a misappropriation of trade secrets suit the amount recoverable is equal to either the plaintiff’s losses or the defendant’s profits.

• First, the court’s dismissal was premature because the amount in controversy issue was raised sua sponte at a pretrial oral argument with no prior notice, and the court dismissed the suit at the end of the oral argument. AFA was thus not given a reasonable opportunity to show that its claim was made in good faith. Second, it was not a legal certainty that the amount in controversy was going to be less than $50,000. Even based on AFA’s brief statements at the oral argument, the possibility existed for the amount to exceed $50,000. Finally, AFA’s claims for punitive damages may have also helped it reach the $50,000 threshold. Whitchurch did not show with legal certainty that AFA could not show that his conduct was gross and wanton.