Understanding Diversity Jurisdiction And Applicable Laws

Diversity jurisdiction is a form of subject-matter jurisdiction that gives federal courts in the United States the power to hear lawsuits that do not involve a federal question. For a federal court to have diversity jurisdiction, there must be diversity of citizenship between the parties, meaning the plaintiffs and defendants must be citizens of different states. The lawsuit's amount in controversy must also exceed $75,000. When federal courts exercise diversity jurisdiction, they must apply state law to substantive law issues and federal law to procedural law issues. This principle, known as the Erie doctrine, stems from the Supreme Court's landmark decision in Erie Railroad Co. v. Tompkins (1938).

The Erie Doctrine

• Discourage forum shopping among litigants: The doctrine aims to prevent litigants from choosing a legal forum simply because of the probability of a more favorable ruling.
• Avoid inequitable administration of the laws: This objective is sometimes referred to as "vertical uniformity" and is based on the idea that the outcome of litigation in a given state should not be significantly different just because a litigant filed a claim in a state court rather than a federal court or vice versa.

When applying the Erie Doctrine, the federal court must first determine if state law is clear regarding the case in controversy. If not, the court must then consider whether the state's highest court has ruled specifically on a similar case. If there is no clear state law or ruling, the federal court must determine how the state's highest court would potentially rule on the matter. This determination is called an "Erie guess", although it is not a mere guess as the federal court must make a reasoned determination. Alternatively, the court may certify the question to the state's highest court for a ruling on state law.

Diversity of citizenship

According to 28 U.S.C § 1332, a corporation is considered to be a citizen of both the state in which it is incorporated and the state where its principal place of business is located. Unincorporated associations, such as partnerships, are considered to be citizens of each state where at least one of its members is a citizen.

For a court to exercise diversity jurisdiction, the amount in controversy must exceed $75,000 and complete diversity of citizenship must exist. Complete diversity of citizenship occurs when no plaintiff and defendant are domiciled in the same state. Diversity jurisdiction is somewhat modified in class action lawsuits, where minimal diversity is required. Minimal diversity occurs when at least one plaintiff is a resident of a different state from at least one defendant.

Amount in controversy

In the United States, for a federal court to have diversity jurisdiction, the amount in controversy must exceed $75,000. This means that the value of the matter being disputed must be greater than $75,000, excluding interest and costs. This requirement is set by the United States Congress in 28 U.S.C. § 1332(a).

The amount in controversy requirement was first established by Congress in the Judiciary Act of 1789, with the amount set at $500. Since then, the amount has been increased several times, with the current threshold of $75,000 being set in 1996.

It is important to note that the use of the word "exceeds" in the legislation implies that the amount in controversy must be more than $75,000. If the amount is exactly $75,000, the case must be remanded back to the state court.

The legal certainty test is used to determine whether the amount in controversy requirement is met. This test sets a high standard, requiring it to be legally certain that the claim is for less than the jurisdictional amount for a case to be dismissed.

In cases with a single plaintiff and multiple unrelated claims against a single defendant, the plaintiff can aggregate those claims to meet the amount in controversy requirement. However, in cases with multiple defendants, the plaintiff can only aggregate the amounts claimed against multiple defendants if the defendants are jointly liable.

Choice of law

The choice of law is a set of rules used to select which jurisdiction's laws to apply in a lawsuit. Choice-of-law questions most frequently arise in lawsuits in federal courts based on diversity jurisdiction, where the plaintiff and defendant are from different states. In these cases, the courts are often confronted with the question of which jurisdiction's laws should apply. The choice-of-law rules establish a method by which the courts can select the appropriate law.

The Erie doctrine assists federal courts and attorneys in assessing the appropriate law that should be applied in diversity jurisdiction situations. The doctrine follows from the Supreme Court's landmark decision in Erie Railroad Co. v. Tompkins (1938). The case overturned Swift v. Tyson, which allowed federal judges sitting in a state to ignore the common-law local decisions of state courts in the same state in diversity actions. The Erie doctrine mandates that a federal court called upon to resolve a dispute not directly implicating a federal question must apply state substantive law. When the legal question is based on a procedural issue, the federal courts should apply federal law.

The Rules of Decision Act (RDA) is a federal statute created by Congress in 1789. It states that, in the absence of a federal law, Constitutional provision, or treaty, the courts should apply state law where it applies. It is one of the foundations of the Erie doctrine. The RDA provides for exceptions and modifications by Congress, and it is important to note the effect of the Rules Enabling Act (REA), which delegates legislative authority to the Supreme Court to ratify rules of practice and procedure and rules of evidence for federal courts.

The REA created the distinction between substantive and procedural law. While state substantive law is applied, the Federal Rules of Civil Procedure and the Federal Rules of Evidence still govern the "procedural" matters in a diversity action. The REA provides that the rules will not affect the substantive rights of the parties. Therefore, a federal court may still apply the "procedural" rules of the state of the initial filing if the federal law would "abridge, enlarge, or modify" a substantive right provided for under the law of the state.

Procedural law

The Rules Enabling Act (REA), 28 U.S.C. 2072, grants the Supreme Court the authority to establish rules of practice and procedure for federal courts. This act distinguishes between substantive and procedural law, allowing federal courts to apply their own procedural rules while adhering to state substantive law in diversity jurisdiction cases.

The Federal Rules of Civil Procedure outline the procedures for civil cases in federal court, including diversity jurisdiction cases. These rules cover various aspects of the legal process, such as filing a lawsuit, conducting discovery, and presenting evidence in court. They ensure that cases proceed in a consistent and fair manner, protecting the rights of all parties involved.

Additionally, the Federal Rules of Evidence play a crucial role in procedural law for diversity jurisdiction. These rules govern the admissibility and presentation of evidence during trials, ensuring that relevant and reliable evidence is considered while excluding inadmissible or prejudicial information.

In summary, while state substantive law takes precedence in diversity jurisdiction cases, the procedural aspects are governed by federal rules and regulations. These procedural laws ensure that cases are handled efficiently, fairly, and in accordance with established legal principles.

Frequently asked questions