Permits a federal court to hear a case involving questions of state law if the opposing parties are citizens of different states. A corporation is considered a citizen of the state in which it is incorporated and the state in which it maintains its principal place of business. Incomplete diversity, that is, when one or more plaintiffs or defendants out of a larger number are nondiverse, prevents federal courts from hearing a case. In a case filed in state court, an out‐of‐state (diverse) defendant can seek to remove the case to federal court; however, if removal is challenged, the federal judge must decide whether to remand the case to state court. To enter federal courts under diversity of citizenship jurisdiction, litigants must also satisfy a jurisdictional amount set by Congress. Over the years, this “amount in controversy” has been increased in stages; after having been raised to fifty thousand dollars in 1989, it is now seventy‐five thousand dollars, but that figure is not thought difficult to satisfy. Supporters of diversity jurisdiction advance several justifications for its continued use. First, access to the federal courts permits out‐of‐state litigants to escape the presumed prejudice of local judges and juries—so that defendants are not “home‐fried.” Second, some litigants believe that federal courts are superior to state courts, so allowing a suit in federal court permits them access to the tribunal thought most likely to deliver the highest quality of justice (see Lower Federal Courts). Finally, diversity jurisdiction is thought to foster national economic development (see Capitalism). The ability of the federal courts to fashion a uniform law of commerce in the nineteenth century, for example, stimulated investment in areas where the state law regarding commercial activity was uncertain or inhospitable to speculation.

Opponents of diversity jurisdiction counter that these concerns are now irrelevant. The professionalization of state judiciaries has reduced parochialism and increased the quality of justice. The Supreme Court's decision in Erie Railroad Co. v. Tompkins (1938) required federal tribunals to apply state law in diversity cases, halting the federal courts' ability to administer uniform economic development. More generally, Erie left the federal courts to decide diversity of jurisdiction cases on the basis of state law, including state court rulings, and the states could change their laws, thus making the federal court rulings irrelevant. State judges also feel insulted by the implication that they are not as well qualified as the federal courts to decide matters of their own law. Diversity jurisdiction is also said to crowd federal court dockets needlessly with cases involving only state law, thus impairing federal judges' ability to resolve important federal issues (see Business of the Court). Every so often, an effort is made in Congress to abolish diversity jurisdiction. Such efforts have not, however, been successful, although the result may be a compromise in which the amount in controversy is increased.

See also Judicial Power and Jurisdiction.

— Eric W. Rise

A phrase used with reference to the jurisdiction of the federal courts which, under the U.S. Constitution, Art. III, § 2, extends to cases between citizens of different states designating the condition existing when the party on one side of a lawsuit is a citizen of one state and the party on the other side is a citizen of another state, or between a citizen of a state and an alien. The requisite jurisdictional amount must, in addition, be met.

Diversity of citizenship is one of the factors that will allow a federal district court to exercise its authority to hear a lawsuit. This authority is called diversity jurisdiction. It means that a case involving questions that must be answered according to state laws may be heard in federal court if the parties on the two sides of the case are from different states. No matter how many parties are involved in a lawsuit, there must be complete diversity in order for the federal court to exercise this type of authority. If a single plaintiff is a citizen of the same state as any defendant, there is no diversity and the case must be pursued in a state court.

Being a citizen of a state is something more than simply owning property or being physically present within the state. Citizenship means that the individual has a residence in the state and intends to have that residence as his or her present home. Residence plus this intent makes that place the individual's domicile, and a party can have only one domicile at a time. Citizenship does not mean that the individual must swear that he or she never intends to move, but the residence and the intent to consider it home are essential. Students, prisoners, and service personnel can establish a domicile in a state even though they are living in it involuntarily or temporarily.

Corporations are citizens of the state in which they are incorporated and also of the state where they maintain their principal place of business. This citizenship in two places has the effect of narrowing the number of cases that qualify for a federal court's diversity jurisdiction because a corporation's citizenship is not diverse from the citizenship of anyone else in either of those two states.

The citizenship of each party must be determined as of the time the lawsuit is commenced. A party's domicile at the time of the events that give rise to the cause of action or a change of domicile during the course of proceedings does not affect the court's jurisdiction. This rule, of course, gives a person contemplating a lawsuit the opportunity to change his or her domicile just before serving legal papers that start an action. This tactic has been challenged on a few occasions on the ground that it violates another federal law that prohibits collusion to create federal jurisdiction. Generally, the courts have ruled that a plaintiff's motives in moving to a new state are not determinative, and the only question is whether in fact the plaintiff's domicile is different from that of the defendants at the time the lawsuit begins.

The right of an individual to take his or her case into a federal court is assured by Article III, § 2 of the U.S. Constitution. This provision extends the federal judicial power to controversies between the citizen of a state and the government of a different state, citizens of a different state, or between a state or its citizens and a foreign government or its citizens. It is put into effect by a statute that limits federal diversity jurisdiction to cases involving a dispute worth more than $10,000. This minimum is intended to keep small cases from clogging the calendars of federal courts. Cases worth less than $10,000 must be brought in a state court even though diversity of the parties' citizenship otherwise would entitle them to be brought in federal court.

The origin and purposes of federal diversity jurisdiction have long been debated. It was created when the Constitution was first adopted, a time when loyalty to one's state was usually stronger than feelings for the United States. It was undoubtedly intended to balance national purposes with the independence of the states. Chief Justice John Marshall of the Supreme Court wrote in Bank of United States v. Deveaux, 9 U.S. (5 Cranch) 61, 87, 3 L. Ed. 38 (1809):

However true the fact may be, that the tribunals of the states will administer justice as impartially as those of the nation, … it is not less true that the constitution itself either entertains apprehensions on this subject, or views with such indulgence the possible fears and apprehensions of suitors, that it has established national tribunals for the decision of controversies … between citizens of different states.

Some scholars believe that the opportunity to take business and commercial disputes into an impartial federal court helped to encourage investment in the developing South and West. People from the industrialized Northeast felt more secure when their financial transactions in other states were not necessarily at the mercy of local prejudices.

Even if diversity jurisdiction did help the economic growth of the United States, many people question whether it continues to be useful. Because these cases require substantial investments of time and energy by the federal judiciary in cases that arise under state law, proposals to curtail or abolish diversity jurisdiction have been introduced repeatedly in Congress since the 1920s. None of the proposals have been adopted, however.

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In United States law, diversity jurisdiction is a concept used in civil procedure to refer to the situation in which a U.S. (federal) district court has subject matter jurisdiction to hear a civil case due to the parties being "diverse" in citizenship, generally indicating 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.

The United States Constitution, Article III, § 2 gives the U.S. 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, where a case was brought in one state involving parties from both that state and another, the state court might be biased towards the party from its own state. Congress first exercised that power and granted federal trial district courts diversity jurisdiction in the Judiciary Act of 1789. Diversity jurisdiction is presently codified at 28 U.S.C. § 1332.

Diversity of parties

Usually, in order for diversity jurisdiction to apply, none of the plaintiffs in a case can be from the same state as any of the defendants (complete diversity). 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, though 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 the alien resides.

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

• Citizens of a U.S. 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—i.e., any plaintiff is a citizen of a different state from any defendant. Class actions that do not meet the (not very stringent) requirements of the Class Action Fairness Act must have complete diversity between class representatives (not all class members) and the defendants.

A United States 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.

If the case requires the presence of a party who is from the same state as an opposing party, or a party who is a U.S. citizen domiciled outside the country, the case must be dismissed, the absent party being deemed "indispensable". The determination of whether a party is indispensable is made by the court following the guidelines set forth in Rule 19 of the Federal Rules of Civil Procedure.

Amount in controversy

The United States 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. As of mid 2007, under 28 U.S.C. §1332(a), civil actions must exceed the sum or value of $75,000. 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 the breach of a 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 the removal process.

Removal as distinguished from Remand

If a case is originally filed in state court, and the requirements for federal jurisdiction are met (diversity and amount in controversy requirements are met; or case involves a federal question; or supplemental jurisdiction exists), only the defendant may remove the case to federal court. (Removal signifies transfer of forum.) There is no such thing as "removal" to a state court. To remove to a federal court, the defendant must file a notice of removal with both the state court in which the case was filed and the federal court to which it will be transferred (other procedural requirements must be met).

If a party (the plaintiff or another defendant) opposes removal, the party may request a remand, asking the federal court to send the case back to the state court. Remands are rarely granted if the diversity and amount in controversy requirements are met, but a remand may be granted if non-diverse parties are brought into the litigation, or if the parties settle some claims between them, leaving an amount in controversy below the jurisdictional amount.

Law applied

Main article: Erie doctrine

The United States Supreme Court determined in Erie Railroad Co. v. Tompkins (1938) that the law to be applied in a diversity case would be the law of whatever state in which the action was filed. This decision overturned precedents that had held that federal courts could create a general federal common law, instead of applying the law of any particular state. The holding in Erie discourages litigants from forum shopping, going to federal courts instead of state courts to get a different result.

The Erie doctrine applies only to matters of substantive law, i.e., the law governing the claims at issue in the case. Matters of procedural law, such as evidence, motion practice, and discovery, are governed by the Federal Rules of Civil Procedure—the state of original filing, or state origin of parties, etc. , has no bearing on procedural issues.

See also

• Class Action Fairness Act of 2005
• Federal question jurisdiction
• Federalist No. 80

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