Diversity jurisdiction

Overview

Diversity jurisdiction refers to the situation in which a federal district court has subject matter jurisdiction to hear a civil case because the parties are "diverse" in citizenship, which generally indicates that they are citizens of different states (corporate parties, and non-U.S. citizens can also be included). Diversity jurisdiction and federal question jurisdiction (i.e., jurisdiction over issues arising under federal law) constitute the two primary sources of subject matter jurisdiction in U.S. federal courts.

Article III of the U.S. Constitution (Article III, § 2), gives Congress the power to permit federal courts to hear diversity cases through legislation authorizing such jurisdiction. The provision was included because the framers of the Constitution were concerned that when a case is filed in one state, and it involves parties from that state and another state, the state court might be biased toward the party from that state. Diversity jurisdiction is presently codified at 28 U.S.C. §1332.

Diversity of parties

Generally, in order for diversity jurisdiction to apply, "complete diversity" is required, where none of the plaintiffs can be from the same state as any of the defendants. A corporation is treated as a citizen of the state in which it is incorporated and the state in which its principal place of business is located. A partnership or limited liability company is considered to have the citizenship of all of its constituent partners/members. Thus, a partnership with one partner sharing citizenship with an opposing party will destroy diversity of jurisdiction.

Cities and towns (incorporated municipalities) are also treated as citizens of the states in which they are located, but states themselves are not considered citizens for the purpose of diversity. An alien (foreign national) who has been granted the status of U.S. permanent resident is treated as a citizen of the state where he/she resides.

The diversity jurisdiction statute also allows federal courts to hear cases in which:

• Citizens of a state are parties on one side of the case, with nonresident alien(s) as adverse parties;
• Complete diversity exists as to the U.S. parties, and nonresident aliens are additional parties;
• A foreign state (i.e. country) is the plaintiff, and the defendants are citizens of one or more U.S. states; or
• Under the Class Action Fairness Act of 2005, a class action can usually be brought in a federal court when there is just minimal diversity, such that any plaintiff is a citizen of a different state from any defendant. Class actions that do not meet the requirement of the Class Action Fairness Act must have complete diversity between class representatives (those named in the lawsuit) and the defendants.

A U.S. citizen who is domiciled outside the United States is not considered to be a citizen of any U.S. state, and cannot be considered an alien. The presence of such a person as a party completely destroys diversity jurisdiction, except for a class action or mass action in which minimal diversity exists with respect to other parties in the case.

Amount in controversy

Congress has placed an additional barrier to diversity jurisdiction, the amount in controversy requirement. This is a minimum amount of money which the parties must be contesting is owed to them. Under 28 U.S.C. §1332(a), a claim for relief must exceed the sum or value of $75,000, exclusive of interest and costs and without considering counterclaims.

A plaintiff may add different claims against the same defendant to meet the amount. Two plaintiffs, however, may not join their claims together to meet the amount, but if one plaintiff meets the amount standing alone, the second plaintiff can piggyback as long as the second plaintiff's claim arises out of the same facts as the main claim.

The amount specified has been regularly increased over the past two centuries. Courts will use the "legal certainty" test to decide whether the dispute is over $75,000. Under the "legal certainty" test, the court will accept the pleaded amount unless it is legally certain that the pleading party cannot recover more than $75,000. For example, if the dispute is solely over a breach of contract by which the defendant had agreed to pay the plaintiff $10,000, a federal court will dismiss the case for lack of subject matter jurisdiction, or remand the case to state court if it arrived via removal.