Diversity of Citizenship

A phrase used with reference to the jurisdiction of the federal courts which, under the U.S. Constitution, Art. III, § 2, extends to cases between citizens of different states designating the condition existing when the party on one side of a lawsuit is a citizen of one state and the party on the other side is a citizen of another state, or between a citizen of a state and an ALIEN. The requisite jurisdictional amount must, in addition, be met.

Diversity of citizenship is one of the factors that will allow a federal district court to exercise its authority to hear a lawsuit. This authority is called diversity jurisdiction. It means that a case involving questions that must be answered according to state laws may be heard in federal court if the parties on the two sides of the case are from different states. No matter how many parties are involved in a lawsuit, there must be complete diversity in order for the federal court to exercise this type of authority. If a single plaintiff is a citizen of the same state as any defendant, there is no diversity and the case must be pursued in a state court.

Being a citizen of a state is something more than simply owning property or being physically present within the state. Citizenship means that the individual has a residence in the state and intends to have that residence as his or her present home. Residence plus this intent makes that place the individual's domicile, and a party can have only one domicile at a time. Citizenship does not mean that the individual must swear that he or she never intends to move, but the residence and the intent to consider it home are essential. Students, prisoners, and service personnel can establish a domicile in a state even though they are living in it involuntarily or temporarily.

Corporations are citizens of the state in which they are incorporated and also of the state where they maintain their principal place of business. This citizenship in two places has the effect of narrowing the number of cases that qualify for a federal court's diversity jurisdiction because a corporation's citizenship is not diverse from the citizenship of anyone else in either of those two states.

The citizenship of each party must be determined as of the time the lawsuit is commenced. A party's domicile at the time of the events that give rise to the CAUSE OF ACTION or a change of domicile during the course of proceedings does not affect the court's jurisdiction. This rule, of course, gives a person contemplating a lawsuit the opportunity to change his or her domicile just before serving legal papers that start an action. This tactic has been challenged on a few occasions on the ground that it violates another federal law that prohibits collusion to create federal jurisdiction. Generally, the courts have ruled that a plaintiff's motives in moving to a new state are not determinative, and the only question is whether in fact the plaintiff's domicile is different from that of the defendants at the time the lawsuit begins.

The right of an individual to take his or her case into a federal court is assured by Article III, § 2 of the U.S. Constitution. This provision extends the federal judicial power to controversies between the citizen of a state and the government of a different state, citizens of a different state, or between a state or its citizens and a foreign government or its citizens. It is put into effect by a statute that limits federal diversity jurisdiction to cases involving a dispute worth more than $10,000. This minimum is intended to keep small cases from clogging the calendars of federal courts. Cases worth less than $10,000 must be brought in a state court even though diversity of the parties' citizenship otherwise would entitle them to be brought in federal court.

The origin and purposes of federal diversity jurisdiction have long been debated. It was created when the Constitution was first adopted, a time when loyalty to one's state was usually stronger than feelings for the United States. It was undoubtedly intended to balance national purposes with the independence of the states. Chief Justice JOHN MARSHALL of the Supreme Court wrote in Bank of United States v. Deveaux, 9 U.S. (5 Cranch) 61, 87, 3 L. Ed. 38 (1809):

However true the fact may be, that the tribunals of the states will administer justice as impartially as those of the nation, … it is not less true that the constitution itself either entertains apprehensions on this subject, or views with such indulgence the possible fears and apprehensions of suitors, that it has established national tribunals for the decision of controversies … between citizens of different states.

Some scholars believe that the opportunity to take business and commercial disputes into an impartial federal court helped to encourage investment in the developing South and West. People from the industrialized Northeast felt more secure when their financial transactions in other states were not necessarily at the mercy of local prejudices.

Even if diversity jurisdiction did help the economic growth of the United States, many people question whether it continues to be useful. Because these cases require substantial investments of time and energy by the federal judiciary in cases that arise under state law, proposals to curtail or abolish diversity jurisdiction have been introduced repeatedly in Congress since the 1920s. None of the proposals have been adopted, however.