Is Breach of Contract a Federal Question? Jurisdiction & Legal Remedies

Key Takeaways

• Breach of Contract and Federal Jurisdiction: Not all contract breaches qualify as federal cases. A breach must involve a federal law or fall under diversity jurisdiction (plaintiffs and defendants from different states with a claim exceeding $75,000).
• Determining Jurisdiction: The contract’s forum selection clause, where the contract was signed or performed, and whether the breach involves federal statutes influence whether a case is heard in state or federal court.
• Legal Actions for Plaintiffs: Plaintiffs must establish jurisdiction, file in the appropriate court, and prove breach elements, such as contract existence, terms, and damages.
• Defenses to Breach Claims: Defendants can challenge breach claims by asserting lack of consideration, failure to perform due to external factors, or expired statute of limitations.
• Federal Question Jurisdiction: Contracts directly governed by federal law (e.g., government contracts, intellectual property disputes) can qualify as federal cases.

A breach of contract federal law is when a contract governed by federal law has been breached. In most of these cases, the plaintiffs are citizens of one state and the defendants are citizens of another state. Whether or not a matter crosses state lines is one factor that determines whether the issue can be resolved at the federal or state level.

Every party that is part of the agreement concurs to implement the stipulations outlined in the contract. When a breach of contract occurs that signifies that one of the affiliated parties involved in the contract didn't hold up their end of the agreement. If this takes place, then the party that didn't breach the contract has the option to file a lawsuit and ask for legal and financial relief.

Plaintiff’s Legal Options in a Federal Breach of Contract Lawsuit

If a breach of contract falls under federal jurisdiction, the plaintiff may file a lawsuit in a federal court located in:

• The defendant’s state of residence
• A state where the defendant has sufficient minimum contacts
• The state where the contract was signed or negotiated
• If the plaintiff and the defendant are citizens of different states and the amount of money that is being sought is over $75,000
• Any state or federal court where both parties agree to take part in the lawsuit

The plaintiff can choose to file a breach of contract lawsuit in another court that has jurisdiction over the matter if:

• No forum selection clause exists in the contract
• The forum selection clause is deemed unenforceable

Understanding Federal Question Jurisdiction in Contract Cases

Federal courts have jurisdiction over breach of contract cases only under specific conditions. The two main pathways for a breach of contract to be heard in federal court are:

1. Federal Question Jurisdiction: If the contract dispute involves federal law—such as contracts governed by federal statutes like the Federal Acquisition Regulation (FAR) for government contracts—it qualifies for federal court jurisdiction.
2. Diversity Jurisdiction: When the plaintiff and defendant are from different states, and the amount in controversy exceeds $75,000, the case can be heard in federal court.

Additional factors include:

• Contracts with Federal Agencies: If the federal government is a party, the case may automatically qualify for federal jurisdiction.
• Involvement of Constitutional Issues: If a contract dispute implicates federal constitutional rights, federal jurisdiction applies.

When filing a lawsuit, plaintiffs should assess whether their claim meets these criteria. Otherwise, the case will be handled in state court.

Defenses to Breach of Contract Allegations

Usually, in asserting a declaration for breach of a written contract, the plaintiff must prove the contents of the contract, the date that all involved parties signed it, the stipulations of the contract, actions portrayed by the plaintiff, and how the defendant breached the contract which is often due to lack of payment. The plaintiff should also attach a copy of the contract to the complaint about the purpose of documentation.

Often with contractual disagreements, the defendant will deny liability in response to the allegations made in the complaint and provide reasons as to why they aren't guilty of breach of contract, which is legally known as an affirmative defense. The affirmative defense usually includes grounds such as:

• Lack of consideration or failure to provide consideration
• Exceeded the statute of limitations, depending on the state in which the contract was created.
• Lack of payment

Another defense that is a rule of evidence is called the "parole evidence rule." When the stipulations of a contract are being disputed in court proceedings, the parole evidence rule prevents the presentation of any agreements that were made between the parties that conflict with the contract and before the contract was created. So the parole evidence rule could influence the terms and conditions of a contract and the way it can be enforced.

The court of law will refer to the contract and its terms to get the full declaration of the involved parties' agreement and the date it was made. So when drafting a contract, it is vital to include all the terms and conditions of the agreement in the written document. It is essential to note that the parole evidence rule is not applicable to oral agreements between the involved parties because it can be proven to have changed the initial written contract if all legal requirements are there.

To obtain legal and financial relief from the party that has breached the contract, the plaintiff has the option of filing a lawsuit in different courts of law. The laws of one jurisdiction can provide the plaintiff with distinct advantages over another. Strategically choosing your jurisdiction can greatly sway the outcome of your case, so this decision requires serious consideration.

Forum Selection Clauses and Their Impact on Jurisdiction

Contracts often contain forum selection clauses, which dictate where disputes must be litigated. These clauses can specify:

• A particular state court
• A federal court (if jurisdiction exists)
• Arbitration as the exclusive dispute resolution method

If a contract mandates litigation in a federal court but lacks federal jurisdiction, the clause may be unenforceable. Courts analyze:

• Whether the clause was freely negotiated
• If enforcement would be unfair or unreasonable
• Whether another jurisdiction has a stronger interest in the dispute

If the forum selection clause is invalid, the lawsuit can proceed in any court with appropriate jurisdiction.

How Federal and State Courts Handle Breach of Contract Claims

State courts typically handle breach of contract cases unless federal law applies. Here’s how state and federal courts differ in contract disputes:

Choosing the right venue is essential to ensure the case is heard by the most favorable court.

Frequently Asked Questions

1. Is breach of contract a federal question?
   A breach of contract case qualifies as a federal question only if it involves a federal statute, federal regulations, or constitutional issues. Otherwise, it must meet diversity jurisdiction requirements to be heard in federal court.
2. What determines if a breach of contract lawsuit goes to federal court?
   Factors include diversity jurisdiction (parties from different states, $75,000+ claim), federal laws governing the contract, and forum selection clauses in the agreement.
3. Can a contract specify federal court jurisdiction?
   Yes, but it must align with federal jurisdiction rules. A forum selection clause cannot automatically grant federal courts jurisdiction if no federal question or diversity jurisdiction exists.
4. What happens if the forum selection clause is invalid?
   If a forum selection clause is found to be unenforceable, the lawsuit may proceed in any court that has jurisdiction, usually in the state court where the contract was executed or where the defendant resides.
5. How can an attorney help in a breach of contract case?
   An attorney can assess jurisdiction, enforceability of contract terms, and defenses, helping plaintiffs and defendants navigate complex legal procedures. UpCounsel offers access to experienced attorneys specializing in contract law.

Choosing the jurisdiction and court venue are the most difficult and influential aspects of civil lawsuits and can be instrumental in determining the outcome of it. An experienced attorney can aid the plaintiff in making beneficial decisions that will help them win their cases. Post your legal need on UpCounsel's marketplace. UpCounsel has the most knowledgeable and experienced lawyers on their staff that can be of assistance with any legal need. UpCounsel accepts only the top five percent of lawyers, coming from law schools such as Harvard Law and Yale Law, having an average of 14 years of legal experience which includes working with or on behalf of companies like Menlo Ventures, Airbnb, and Google.