Diversity jurisdiction is a term used in 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 parties are diverse , meaning that they come from different states.
Article III of the United States Constitution gives the U.S. Congress the power to permit federal courts to hear such cases. The provision was placed in that article because the writers of the Constitution were concerned that, where a case was brought in one state involving parties both from that state and from another, state courts might be biased towards the party from their own state. One of the first statutes enacted by Congress, the Judiciary Act of 1789 authorized the newly created federal courts to hear such cases.
Diversity of parties
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. If a non-diverse-party (an opposing party from the same state) is later brought into the case, diversity is destroyed, and the case must be dismissed.
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. Currently, the amount is $75,000, and it has been regularly increased over the past two centuries. A federal court will usually take the plaintiff's word as to the amount being contested, unless it is clear from all the pleadings that the plaintiff is really asking for a lesser amount. 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 remand the case to the state court, or dismiss the case for lack of subject matter jurisdiction.
If a case is originally filed in state court, and the diversity and amount in controversy requirements are met, either party may remove the case to the federal court, by filing a notice of removal with both the state court in which the case has been filed, and the federal court to which it will be transfered. Because plaintiffs have the power to decide which court they will initially file in, it is usually defendants who remove a case. A party opposing removal of a case may request a remand , asking the federal court to send it 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.
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 the action was filed in. This decision overturned precedents, which had held that federal courts could create a federal common law, instead of applying the law of any particular state. The holding in Erie dicourages litigants from forum shopping, going to federal courts instead of state courts to get a different result.
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