Diversity jurisdiction
Encyclopedia
In the law of the United States
, diversity jurisdiction is a form of subject-matter jurisdiction
in civil procedure
in which a United States district court
(the trial court
s of general jurisdiction
in the federal judiciary
) has the power to hear a civil case
where the persons that are parties
are "diverse" in citizenship
, which generally indicates that they are citizens of different states or non-U.S. citizens
. (Corporation
s, as legal persons, may also be included). Diversity jurisdiction and federal-question jurisdiction (jurisdiction over issues arising under federal law) constitute the two primary categories of subject matter jurisdiction in U.S. federal courts.
The United States Constitution
, in Article III, § 2, gives the 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. Congress first exercised that power and granted federal trial circuit courts diversity jurisdiction in the Judiciary Act of 1789
. Diversity jurisdiction is presently codified at .
s can be from the same state as any of the defendant
s. 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, an LLC or partnership with one member or 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. U.S. citizens are citizens of the state in which they are domiciled
, which is the last state in which they resided and had an intent to remain. An alien (foreign national) who has been granted the status of permanent resident status is treated as a citizen of the state where the alien is domiciled. A national bank
chartered under the National Bank Act is treated solely as a citizen of the state which it designates as the location of its home office in its articles of association.
The diversity jurisdiction statute also allows federal courts to hear cases in which:
A U.S. citizen who is domiciled
outside the U.S. 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
.
developed in which some judges held that the latter states could also be treated as the corporation's principal place of business. The rationale was that those states were where the business was actually occurring or being transacted.
On February 23, 2010, the United States Supreme Court unanimously held in Hertz Corp. v. Friend that a corporation's principal place of business is presumed to be the place of the corporation’s "nerve center" from where its officers conduct the corporation’s important business.
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), a claim for relief must exceed the sum or value of $75,000, exclusive of interests 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. See the article on federal supplemental subject matter jurisdiction here: supplemental jurisdiction
.
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 removal.
A case cannot be removed to a state court. To remove to a federal court, the defendant must file a notice of removal with both the state court where the case was filed and the federal court to which it will be transferred. The notice of removal must be filed within 30 days of the first removable document. For example, if there is no diversity of citizenship initially, but the non-diverse defendant is subsequently dismissed, the remaining diverse defendant(s) may remove to a federal court. However, no removal is available after one year of the filing of the complaint.
A party's citizenship at the time of the filing of the action is considered as the citizenship of the party. If a defendant later moves to the same state as the plaintiff while the action is pending, the federal court will still have jurisdiction. However, if any defendant is a citizen of the state where the action is first filed, diversity does not exist. 28 U.S.C. §1441(b).
If a plaintiff or a co-defendant opposes removal, he may request a remand, asking the federal court to send the case back to the state court. A remand is rarely granted if the diversity and amount in controversy requirements are met. A remand may be granted, however, if a non-diverse party joins the action, or if the parties settle some claims among them, leaving the amount in controversy below the requisite amount.
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 precedent
s that had held that federal courts could create a general federal common law
, instead of applying the law of the forum state. This decision was an interpretation of the word "laws" in 28 U.S.C. 1652, known as the Rules of Decision Act.
Under the Rules of Decision Act, the laws of the several states, except where the constitution or treaties of the United States or Acts of Congress otherwise require or provide, shall be regarded as rules of decision in civil actions in the courts of the United States, in cases where they apply.
The Court interpreted "laws" to include the states' judicial decisions, or "common law." Thus, it is an overstatement to state that Erie represents the notion that there is no federal common law. Federal courts do adjudicate "common law" of federal statutes and regulations.
Because the RDA provides for exceptions and modifications by Congress, it is important to note the effect of the Rules Enabling Act (REA), 28 U.S.C. 2072. The REA delegates the legislative authority to the Supreme Court to ratify rules of practice and procedure and rules of evidence for federal courts. Thus, it is not Erie, but the REA, which created the distinction between substantive and procedural law.
Thus, while state substantive law is applied, the Federal Rules of Civil Procedure and the Federal Rules of Evidence still govern the "procedural" matters in a diversity action, as clarified in Gasperini v. Center for Humanities
. The REA, 28 U.S.C. 2072(b), provides that the Rules will not affect the substantive rights of the parties. Therefore, a federal court may still apply the "procedural" rules of the state of the initial filing, if the federal law would "abridge, enlarge, or modify" a substantive right provided for under the law of the state.
Law of the United States
The law of the United States consists of many levels of codified and uncodified forms of law, of which the most important is the United States Constitution, the foundation of the federal government of the United States...
, diversity jurisdiction is a form of subject-matter jurisdiction
Subject-matter jurisdiction
Subject-matter jurisdiction is the authority of a court to hear cases of a particular type or cases relating to a specific subject matter. For instance, bankruptcy court only has the authority to hear bankruptcy cases....
in civil procedure
Civil procedure
Civil procedure is the body of law that sets out the rules and standards that courts follow when adjudicating civil lawsuits...
in which a United States district court
United States district court
The United States district courts are the general trial courts of the United States federal court system. Both civil and criminal cases are filed in the district court, which is a court of law, equity, and admiralty. There is a United States bankruptcy court associated with each United States...
(the trial court
Trial court
A trial court or court of first instance is a court in which trials take place. Such courts are said to have original jurisdiction.- In the United States :...
s of general jurisdiction
General jurisdiction
A court of general jurisdiction is one that has the authority to hear cases of all kinds - criminal, civil, family, probate, and so forth.-Courts of general jurisdiction in the United States:All federal courts are courts of limited jurisdiction. Many U.S...
in the federal judiciary
United States federal courts
The United States federal courts make up the judiciary branch of federal government of the United States organized under the United States Constitution and laws of the federal government.-Categories:...
) has the power to hear a civil case
Civil law (common law)
Civil law, as opposed to criminal law, is the branch of law dealing with disputes between individuals or organizations, in which compensation may be awarded to the victim...
where the persons that are parties
Party (law)
A party is a person or group of persons that compose a single entity which can be identified as one for the purposes of the law. Parties include: plaintiff , defendant , petitioner , respondent , cross-complainant A party is a person or group of persons that compose a single entity which can be...
are "diverse" in citizenship
Citizenship
Citizenship is the state of being a citizen of a particular social, political, national, or human resource community. Citizenship status, under social contract theory, carries with it both rights and responsibilities...
, which generally indicates that they are citizens of different states or non-U.S. citizens
United States nationality law
Article I, section 8, clause 4 of the United States Constitution expressly gives the United States Congress the power to establish a uniform rule of naturalization. The Immigration and Naturalization Act sets forth the legal requirements for the acquisition of, and divestiture from, citizenship of...
. (Corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
s, as legal persons, may also be included). Diversity jurisdiction and federal-question jurisdiction (jurisdiction over issues arising under federal law) constitute the two primary categories of subject matter jurisdiction in U.S. federal courts.
The United States Constitution
United States Constitution
The Constitution of the United States is the supreme law of the United States of America. It is the framework for the organization of the United States government and for the relationship of the federal government with the states, citizens, and all people within the United States.The first three...
, in Article III, § 2, gives the Congress
United States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
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
Founding Fathers of the United States
The Founding Fathers of the United States of America were political leaders and statesmen who participated in the American Revolution by signing the United States Declaration of Independence, taking part in the American Revolutionary War, establishing the United States Constitution, or by some...
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. Congress first exercised that power and granted federal trial circuit courts diversity jurisdiction in the Judiciary Act of 1789
Judiciary Act of 1789
The United States Judiciary Act of 1789 was a landmark statute adopted on September 24, 1789 in the first session of the First United States Congress establishing the U.S. federal judiciary...
. Diversity jurisdiction is presently codified at .
Diversity of parties
Mostly, in order for diversity jurisdiction to apply, complete diversity is required, where none of the plaintiffPlaintiff
A plaintiff , also known as a claimant or complainant, is the term used in some jurisdictions for the party who initiates a lawsuit before a court...
s can be from the same state as any of the defendant
Defendant
A defendant or defender is any party who is required to answer the complaint of a plaintiff or pursuer in a civil lawsuit before a court, or any party who has been formally charged or accused of violating a criminal statute...
s. 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, an LLC or partnership with one member or 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. U.S. citizens are citizens of the state in which they are domiciled
Domicile (law)
In law, domicile is the status or attribution of being a permanent resident in a particular jurisdiction. A person can remain domiciled in a jurisdiction even after they have left it, if they have maintained sufficient links with that jurisdiction or have not displayed an intention to leave...
, which is the last state in which they resided and had an intent to remain. An alien (foreign national) who has been granted the status of permanent resident status is treated as a citizen of the state where the alien is domiciled. A national bank
National bank
In banking, the term national bank carries several meanings:* especially in developing countries, a bank owned by the state* an ordinary private bank which operates nationally...
chartered under the National Bank Act is treated solely as a citizen of the state which it designates as the location of its home office in its articles of association.
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 2005Class Action Fairness Act of 2005The U.S. Class Action Fairness Act of 2005, 28 U.S.C. Sections 1332, 1453, and 1711–1715, expanded federal jurisdiction over many large class-action lawsuits and mass actions taken in the United States....
, a class actionClass actionIn law, a class action, a class suit, or a representative action is a form of lawsuit in which a large group of people collectively bring a claim to court and/or in which a class of defendants is being sued...
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
Domicile (law)
In law, domicile is the status or attribution of being a permanent resident in a particular jurisdiction. A person can remain domiciled in a jurisdiction even after they have left it, if they have maintained sufficient links with that jurisdiction or have not displayed an intention to leave...
outside the U.S. 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
Federal Rules of Civil Procedure
The Federal Rules of Civil Procedure govern civil procedure in United States district courts. The FRCP are promulgated by the United States Supreme Court pursuant to the Rules Enabling Act, and then the United States Congress has 7 months to veto the rules promulgated or they become part of the...
.
Diversity is determined at the time that the action is filed
Diversity is determined at the time that the action is filed, and on the basis of the residency of the parties at that time. A change in domicile by a party before or after that date is irrelevant.Corporate citizenship based on principal place of business
Congress never defined exactly what is a "principal place of business." The question of what that phrase meant became hotly disputed during the late 20th century as many areas of the American economy came under the control of large national corporations. Although these corporations usually had a headquarters in one state, the majority of their employees, assets, and revenue were often physically located at retail sites in the states with the largest populations, and hence a circuit splitCircuit split
In the context of United States federal courts, a circuit split exists when two or more circuits in the United States court of appeals system have different interpretations of federal law....
developed in which some judges held that the latter states could also be treated as the corporation's principal place of business. The rationale was that those states were where the business was actually occurring or being transacted.
On February 23, 2010, the United States Supreme Court unanimously held in Hertz Corp. v. Friend that a corporation's principal place of business is presumed to be the place of the corporation’s "nerve center" from where its officers conduct the corporation’s important business.
Amount in controversy
The United States CongressUnited States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
has placed an additional barrier to diversity jurisdiction, the amount in controversy
Amount in controversy
Amount in controversy is a term used in United States civil procedure to denote the amount at stake in a lawsuit, in particular in connection with a requirement that persons seeking to bring a lawsuit in a particular court must be suing for a certain minimum amount before that court may hear the...
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), a claim for relief must exceed the sum or value of $75,000, exclusive of interests 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. See the article on federal supplemental subject matter jurisdiction here: supplemental jurisdiction
Supplemental jurisdiction
Supplemental jurisdiction is the authority of United States federal courts to hear additional claims substantially related to the original claim even though the court would lack the subject-matter jurisdiction to hear the additional claims independently. is a codification of the Supreme Court's...
.
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
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
by which the defendant had agreed to pay the plaintiff
Plaintiff
A plaintiff , also known as a claimant or complainant, is the term used in some jurisdictions for the party who initiates a lawsuit before a court...
$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.
Removal and remand
If a case is originally filed in a state court, and the requirements for federal jurisdiction (diversity and amount in controversy are met, the case involves a federal question, or a supplemental jurisdiction exists), the defendant (and only the defendant) may remove the case to a federal court.A case cannot be removed to a state court. To remove to a federal court, the defendant must file a notice of removal with both the state court where the case was filed and the federal court to which it will be transferred. The notice of removal must be filed within 30 days of the first removable document. For example, if there is no diversity of citizenship initially, but the non-diverse defendant is subsequently dismissed, the remaining diverse defendant(s) may remove to a federal court. However, no removal is available after one year of the filing of the complaint.
A party's citizenship at the time of the filing of the action is considered as the citizenship of the party. If a defendant later moves to the same state as the plaintiff while the action is pending, the federal court will still have jurisdiction. However, if any defendant is a citizen of the state where the action is first filed, diversity does not exist. 28 U.S.C. §1441(b).
If a plaintiff or a co-defendant opposes removal, he may request a remand, asking the federal court to send the case back to the state court. A remand is rarely granted if the diversity and amount in controversy requirements are met. A remand may be granted, however, if a non-diverse party joins the action, or if the parties settle some claims among them, leaving the amount in controversy below the requisite amount.
Law applied
The United States Supreme CourtSupreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
determined in Erie Railroad Co. v. Tompkins
Erie Railroad Co. v. Tompkins
Erie Railroad Co. v. Tompkins, 304 U.S. 64 , was a decision by the Supreme Court of the United States in which the Court held that federal courts did not have the judicial power to create general federal common law when hearing state law claims under diversity jurisdiction...
(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 precedent
Precedent
In common law legal systems, a precedent or authority is a principle or rule established in a legal case that a court or other judicial body may apply when deciding subsequent cases with similar issues or facts...
s that had held that federal courts could create a general federal common law
Federal common law
Federal common law is a term of United States law used to describe common law that is developed by the federal courts, instead of by the courts of the various states...
, instead of applying the law of the forum state. This decision was an interpretation of the word "laws" in 28 U.S.C. 1652, known as the Rules of Decision Act.
Under the Rules of Decision Act, the laws of the several states, except where the constitution or treaties of the United States or Acts of Congress otherwise require or provide, shall be regarded as rules of decision in civil actions in the courts of the United States, in cases where they apply.
The Court interpreted "laws" to include the states' judicial decisions, or "common law." Thus, it is an overstatement to state that Erie represents the notion that there is no federal common law. Federal courts do adjudicate "common law" of federal statutes and regulations.
Because the RDA provides for exceptions and modifications by Congress, it is important to note the effect of the Rules Enabling Act (REA), 28 U.S.C. 2072. The REA delegates the legislative authority to the Supreme Court to ratify rules of practice and procedure and rules of evidence for federal courts. Thus, it is not Erie, but the REA, which created the distinction between substantive and procedural law.
Thus, while state substantive law is applied, the Federal Rules of Civil Procedure and the Federal Rules of Evidence still govern the "procedural" matters in a diversity action, as clarified in Gasperini v. Center for Humanities
Gasperini v. Center for Humanities
Gasperini v. Center for Humanities, 518 U.S. 415 , was a decision by the Supreme Court of the United States, in which the Court further refined the Erie doctrine which regards when and how federal courts were to apply state law in cases brought under diversity jurisdiction...
. The REA, 28 U.S.C. 2072(b), provides that the Rules will not affect the substantive rights of the parties. Therefore, a federal court may still apply the "procedural" rules of the state of the initial filing, if the federal law would "abridge, enlarge, or modify" a substantive right provided for under the law of the state.
See also
- Strawbridge v. CurtissStrawbridge v. CurtissStrawbridge v. Curtiss, 7 U.S. 267 , was a case in which the Supreme Court of the United States first addressed the question of complete diversity. In a 158 word opinion the court held that for federal diversity jurisdiction under section 11 of the Judiciary Act of 1789, every party on one side...
- Class Action Fairness Act of 2005Class Action Fairness Act of 2005The U.S. Class Action Fairness Act of 2005, 28 U.S.C. Sections 1332, 1453, and 1711–1715, expanded federal jurisdiction over many large class-action lawsuits and mass actions taken in the United States....
- Federal question jurisdictionFederal question jurisdictionFederal question jurisdiction is a term used in the United States law of civil procedure to refer to the situation in which a United States federal court has subject-matter jurisdiction to hear a civil case because the plaintiff has alleged a violation of the Constitution or law of the...
- Federalist No. 80Federalist No. 80Federalist No. 80 is an essay by Alexander Hamilton and the eightieth of the Federalist Papers. It was published on June 21, 1788 under the pseudonym Publius, the name under which all the Federalist Papers were published...
- Supplemental jurisdictionSupplemental jurisdictionSupplemental jurisdiction is the authority of United States federal courts to hear additional claims substantially related to the original claim even though the court would lack the subject-matter jurisdiction to hear the additional claims independently. is a codification of the Supreme Court's...