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The following was reprinted from Law Shelf

Subject Matter Jurisdiction in Federal Court, continued: Diversity Jurisdiction

Federal courts are courts of "limited" jurisdiction. This means that federal judicial power extends only to specific and limited types of cases. In our previous presentation, we looked at federal question jurisdiction under 28 U.S.C. 1331. Next, we turn to federal subject matter jurisdiction under section 1332, based on diversity of citizenship.

Diversity jurisdiction applies when the plaintiff and defendant are from different states and the amount in controversy is more than $75,000. If there are multiple plaintiffs and multiple defendants, no plaintiff can be from the same state as any defendant.[1]So, for example, if plaintiffs from Texas, Georgia and Illinois jointly sue three defendants from Missouri, Maine and New Jersey, there is diversity jurisdiction. However, if plaintiffs from Texas, Georgia and Illinois jointly sued three defendants from Missouri, one from Georgia and two from New Jersey, there is no diversity jurisdiction because a plaintiff and a defendant each hail from Georgia.

The rationale behind diversity of citizenship jurisdiction was discussed by the Supreme Court in the caseGuaranty Trust Co. v. York,[2]where the Court reasoned that "Diversity jurisdiction is founded on assurance to nonresident litigants of courts free from susceptibility to potential local bias."

Diversity jurisdiction is based on the "citizenship" of the parties. While citizenship of a country is a well-defined term, citizenship of the state is more complex as it is seldom relevant for any other purpose. The general rule is that a person is a citizen of the state in which she is "domiciled," which means the state in which she makes her permanent home.[3]Domicile has two basic elements: residing in the state and intent to stay in the state for the foreseeable future.

Domicile is not the same thing as "residence," as a person may have more than one residence, but can only haveonedomicile.[4]InWilliamson v. Osenton,[5]the Supreme Court clarified this rule. There, the ex-wife of a West Virginia citizen moved to Virginia, where she then brought an action against her ex-husband in federal court. Though her husband argued that her move to Virginia was solely for purposes of the divorce, the Supreme Court held that since domicile is determined at the time the complaint is filed, the wife had provided enough evidence that Virginia was her new domicile, as she was in Virginia and intended to stay there. That she had been there for only a short period of time was irrelevant.

As corporations can also be parties to federal actions, it is also often necessary to determine the citizenship of a corporation. The rule there is that a corporation is a citizen of each state in which it is incorporated and the one state in which it has its "principal place of business."[6]As a result, a corporation can be a citizen of many states, as a business may incorporate in as many states as it chooses.

Different courts adopted different approaches to define "principal place of business" until 2010, when the Supreme Court endorsed the "nerve center" approach to principal place of business determination in the caseHertz Corp. v. Friend.[7]Under this approach, the principal place of business is the "nerve center" of the business, which means the state where the corporate headquarters are located and from which the corporation's highest officers control, coordinate, and direct its activities.[8]

The amount in controversy must exceed $75,0000, exclusive of interest and costs.[9]The amount in controversy means the minimum judgment that could be supported "by competent proof."[10]Competent proof means evidence supported by estimates or reasonable accounting methods, which need not necessarily be formal.

If multiple claims are brought by one plaintiff against one defendant, the total dollar amount of all claims can be aggregated to reach the $75,000 threshold. However, if one person brings claims against multiple defendants and each one is based on a different cause of action, these cannot be aggregated to satisfy the threshold.[11][12]

It's important to note that most diversity of citizenship cases (and many federal question cases) are instances of "concurrent jurisdiction." This means that these cases can be brought in federal court or in state court. However, if the case is eligible to be brought in federal court and is brought in state court instead, the other party may "remove" the case to federal court. In other words, if there is federal subject matter jurisdiction, either party may decide that the case should be heard in federal court. It stays in state court only if both parties agree to leave it there.

There are, however, certain types of cases that can only be brought in federal court. These are cases in which federal courts have "exclusive" jurisdiction. Examples of cases in which federal courts have exclusive jurisdiction include bankruptcy filings,[13]seizures of property under federal law[14]and federal criminal prosecutions.[15]

While federal courts are courts of limited jurisdiction, they have original and sometimes exclusive jurisdiction where the case is based on federal law and concurrent jurisdiction with the states when there is diversity of citizenship and the amount in controversy is more than $75,000.