Respondent had exclusive rights to solicit passengers and baggage at a train depot under a contract with a railroad company. Respondent sued the Petitioner for interfering with this contract. Under laws of Kentucky, as articulated by its Supreme Court, such contracts were against public policy and invalid. Petitioner alleged that Respondent incorporated in Tennessee for the fraudulent purpose of creating federal district court jurisdiction in order to avoid application of Kentucky law. The district court entered judgment for Respondent. Petitioner appealed. The Court of Appeals affirmed. The Supreme Court granted certiorari.
While the federal court are inclined to determine questions of general law following the decisions of the courts of the states in which the controversy arises, they are free to exercise their own independent judgment.
Pursuant to a contract between Respondent, a Tennessee corporation that carried on a transportation transfer business in Kentucky, and the Louisville & National Railroad Company, Respondent was given exclusive rights and privileges regarding soliciting passengers and baggage from a depot and trains in consideration of monthly payments made to the Railroad Company. Respondent sued Petitioner for interfering with this contract. The Railroad Company was also named as a defendant for failing to comply with the contract. In its answer, Petitioner alleged that Respondent was incorporated in Tennessee for the fraudulent purpose of giving the federal district court jurisdiction, in order to avoid the laws of Kentucky, under which contracts such as the one at issue were held invalid. The district court entered judgment for Respondent. Petitioner appealed. The Court of Appeals affirmed. The Supreme Court granted certiorari.
Did the district court err in holding the contract valid?
No. The district followed the well-established rule that allowed it to exercise its independent judgment in this case to determine a question of “general law” (rather than applying the law of the Kentucky state courts).
The dissent framed the issue as one requiring a determination of the authority by which certain acts (the grant of exclusive privileges in a railroad station in this case) are governed, and asserted that the authority should be that of the state, through its highest court.
Twell-established rule allowed the district court to exercise its independent judgment to determine a question of “general law.” The district court did not err in finding that there was no fraud upon its jurisdiction, holding the contract valid, and finding that Petitioner violated Respondent’s rights under the contract and should be enjoined from continuing to do so. The district court did not err in not applying the law of the Kentucky state courts, under which the contract would have been against public policy and the laws as declared by that state’s highest court.