Diversity Jurisdiction

Diversity Jurisdiction 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

; revised by

Stephen L. Wasby