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Federal Court vs. State Court: Making the Right Decision in Your Florida Commercial Dispute

Once you find yourself in a business dispute, there are many decisions you’ll have to make, which is why it is beneficial to have a skilled Florida business litigation attorney on your side. Sometimes, as a recent case that originated in South Florida demonstrates, that decision is determining where you will litigate your case. It is extremely important to choose wisely, as picking federal court when there is no federal court jurisdiction can lead to dismissal.

In that case that was recently ruled upon by a federal appeals court, a West Palm Beach LLC was in the business of selling children’s car seats. The LLC held the patents to those seats as an assignee. The LLC inked a patent licensing agreement with a California entity for the latter to market the seats in exchange of for royalty payments. Eventually, a dispute arose over an unpaid royalty the Palm Beach County LLC alleged it was owed, and the dispute proceeded to federal court in South Florida.

During the appeal process, the 11th Circuit pointed out a problem. The case had relied upon something called “diversity jurisdiction,” which is when an action involves “an amount in controversy exceeding $75,000 and a claim between citizens of different states.” The case clearly involved an amount greater than $75,000, and it involved a Florida LLC versus a California LLC, so what, you may ask, was the problem?

When a Florida LLC versus a California LLC doesn’t create federal diversity jurisdiction

The problem was that, when it comes to the citizenship question of federal diversity jurisdiction in cases involving opposing LLCs, it is not enough just to look at where the LLC were formed. Instead, the courts must consider the citizenship of each member of each LLC.

That created a problem because, after looking at the citizenship of each member, both “parties ‘admitted that they are not diverse.’” That left the case headed for dismissal.

The California LLC tried to save the federal case by subsequently arguing that the other type of federal court jurisdiction – federal question jurisdiction – existed. That exists when a dispute involves resolving a question of federal law. Initially, the parties had asserted state law claims like breach of contract and unjust enrichment. Now, for the first time, the California LLC asserted that those claims arose under federal patent law.

The case went back to the trial court in South Florida, back up to the 11th Circuit, and then was transferred to the Federal Circuit appeals court in Washington, D.C. That court ruled that a patent law issue was not raised by the claims asserted in this litigation. In other words, there was no federal question jurisdiction, meaning the federal courts still did not have jurisdiction and the case still had to be dismissed. The case appears to present two opposing parties who spend a great deal of time and money litigating in order make no meaningful progress toward getting their dispute resolved by a court of law.

Pursuing your commercial litigation case involves making many decisions, and making the wrong choice on any one of them can have harmful, or even disastrous, results. Be sure you have everything you need for success, including the right legal counsel. Rely on the experienced Florida business litigation attorneys at Stok Kon + Braverman for the advice and advocacy you need.

Contact us online or by calling (954) 237-1777 to schedule your consultation and find out how this firm can help you.

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