Diversity jurisdiction allows federal courts to hear cases between parties from different states, promoting fairness and providing a neutral forum. This concept stems from the U.S. Constitution and aims to protect out-of-state litigants from potential local bias in state courts.

To qualify for diversity jurisdiction, cases must meet specific requirements, including a minimum amount in controversy and complete diversity between parties. Various factors determine citizenship for individuals, corporations, and unincorporated associations, with exceptions and removal procedures adding complexity to this legal concept.

Definition of diversity jurisdiction

• Diversity jurisdiction grants federal courts authority to hear cases between parties from different states
• Promotes fairness by providing a neutral forum for out-of-state litigants
• Allows federal courts to adjudicate disputes that might otherwise be subject to state court bias

Constitutional basis

• Article III, Section 2 of the U.S. Constitution establishes diversity jurisdiction
• Extends federal judicial power to controversies between citizens of different states
• Framers intended to protect out-of-state litigants from potential local prejudice in state courts

Statutory requirements

Amount in controversy

• Minimum amount in dispute must exceed $75,000 to qualify for diversity jurisdiction
• Calculated at the time of filing the lawsuit
• Excludes interest and costs from the amount in controversy calculation
• Plaintiff must demonstrate a good faith claim for the jurisdictional amount

Complete diversity rule

• Requires all plaintiffs to be diverse from all defendants
• Prevents federal jurisdiction if any plaintiff shares citizenship with any defendant
• Applies to cases with multiple parties on either side
• Supreme Court established this rule in Strawbridge v. Curtiss (1806)

Types of diversity cases

State vs state citizens

• Involves citizens of different states as opposing parties
• Most common type of diversity case in federal courts
• Includes disputes between individuals, corporations, or combinations thereof
• Requires complete diversity between all plaintiffs and all defendants

Citizens vs foreign states

• Encompasses cases between U.S. citizens and foreign states or their citizens
• Federal courts have jurisdiction over suits involving foreign governments
• Includes cases where a U.S. citizen sues a foreign corporation
• Subject to exceptions under the Foreign Sovereign Immunities Act

Alien vs alien cases

• Generally not subject to diversity jurisdiction in federal courts
• Exceptions exist for lawsuits between citizens of foreign states and U.S. citizens
• Federal courts may have jurisdiction if a U.S. citizen is joined as a party
• Alien corporations deemed citizens of their state of incorporation and principal place of business

Citizenship determination

Individuals

• Based on domicile, not mere residence
• Requires physical presence in a state and intent to remain indefinitely
• Considers factors such as voting registration, driver's license, and tax filings
• Dual citizenship does not affect diversity jurisdiction analysis

Corporations

• Deemed citizens of their state of incorporation
• Also citizens of the state where they have their principal place of business
• Principal place of business determined by "nerve center" test (Hertz Corp. v. Friend, 2010)
• Focuses on where corporation's high-level officers direct, control, and coordinate activities

Unincorporated associations

• Includes partnerships, limited liability companies, and labor unions
• Citizenship based on citizenship of all members
• Can destroy diversity if any member shares citizenship with an opposing party
• Creates challenges for determining diversity in cases involving large associations

Exceptions to diversity jurisdiction

Domestic relations cases

• Federal courts generally lack jurisdiction over family law matters
• Includes divorce, child custody, and alimony disputes
• Based on longstanding precedent and policy considerations
• State courts considered better equipped to handle these sensitive issues

Probate matters

• Federal courts typically cannot adjudicate probate proceedings
• Involves administration of deceased person's estate
• Exception does not apply to inter vivos trusts or other non-probate assets
• State courts have specialized expertise and procedures for probate cases

Removal to federal court

Procedural requirements

• Defendant may remove case from state to federal court if diversity exists
• Must file notice of removal in federal court within specified time frame
• Requires consent of all defendants in multi-defendant cases
• Plaintiff cannot remove case to federal court, even if diversity exists

Time limitations

• Generally, 30 days from receipt of initial pleading or service of summons
• One-year limit for removal in diversity cases, subject to exceptions
• Time limits strictly enforced by federal courts
• Late removal may result in remand to state court

Fraudulent joinder

• Occurs when plaintiff joins non-diverse defendant to defeat diversity jurisdiction
• Federal courts can disregard fraudulently joined parties when determining diversity
• Requires clear and convincing evidence of fraud or no possibility of recovery against joined party
• Imposes heavy burden on defendant seeking to prove fraudulent joinder

Supplemental jurisdiction

Relation to diversity cases

• Allows federal courts to hear related claims lacking independent jurisdictional basis
• Codified in 28 U.S.C. § 1367
• Applies to claims forming part of the same case or controversy
• Restrictions on supplemental jurisdiction in diversity cases to prevent circumvention of diversity requirements

Erie doctrine application

• Requires federal courts to apply state substantive law in diversity cases
• Stems from Erie Railroad Co. v. Tompkins (1938) Supreme Court decision
• Aims to prevent forum shopping and inequitable administration of laws
• Complex analysis to determine whether law is substantive or procedural

Forum selection considerations

Plaintiff strategy

• May choose federal court for perceived advantages (broader jury pool, uniform procedures)
• Consider potential for summary judgment or dismissal in federal court
• Evaluate differences in discovery rules between state and federal courts
• Assess potential for faster resolution in federal versus state court

Defendant strategy

• May remove to federal court to avoid perceived state court bias
• Consider differences in jury selection and composition between forums
• Evaluate potential for more favorable evidentiary rulings in federal court
• Assess impact of federal court's familiarity with complex litigation

Diversity jurisdiction criticism

Pros and cons

• Pros include providing neutral forum and promoting interstate commerce
• Cons include increased federal caseload and potential encroachment on state authority
• Debate over whether local bias remains a significant concern in modern era
• Questions about efficiency and cost-effectiveness of diversity jurisdiction

Reform proposals

• Suggestions to increase or eliminate amount in controversy requirement
• Proposals to modify citizenship determination rules for corporations
• Discussions about restricting diversity jurisdiction to complex, multi-state cases
• Considerations of alternative mechanisms to address concerns about state court bias

Recent Supreme Court decisions

• Hertz Corp. v. Friend (2010) established "nerve center" test for corporate citizenship
• Dart Cherokee Basin Operating Co. v. Owens (2014) clarified removal notice requirements
• Home Depot U.S.A., Inc. v. Jackson (2019) limited third-party counterclaim defendants' removal rights
• Decisions continue to refine and clarify diversity jurisdiction rules and application

Practical implications for litigants

• Careful consideration of forum selection essential to litigation strategy
• Proper determination of citizenship crucial to avoid jurisdictional challenges
• Awareness of removal procedures and timing critical for defendants
• Understanding of Erie doctrine necessary for predicting applicable law in federal court