Citizenship Diversity: Laws And Their Applications

Diversity of citizenship is a requirement for diversity jurisdiction, which allows a plaintiff to file (or a defendant to remove) their case in federal court. Diversity jurisdiction is a form of subject-matter jurisdiction that gives federal courts the power to hear lawsuits that do not involve a federal question. For a federal court to have diversity jurisdiction over a lawsuit, two conditions must be met. Firstly, there must be diversity of citizenship between the parties, meaning the plaintiffs and defendants are all citizens of different states. Secondly, the lawsuit's amount in controversy must be more than $75,000.

Diversity jurisdiction

For a federal court to have diversity jurisdiction over a lawsuit, two conditions must be met. Firstly, there must be "diversity of citizenship" between the parties, meaning the plaintiffs must be citizens of different US states than the defendants. Secondly, the lawsuit's "amount in controversy" must be more than $75,000. If a lawsuit does not meet these two conditions, federal courts will normally lack the jurisdiction to hear it unless it involves a federal question, and the lawsuit would need to be heard in state court instead.

The United States Constitution, in Article III, Section 2, grants Congress the power to permit federal courts to hear diversity cases through legislation authorizing such jurisdiction. This provision was included because the Framers of the Constitution were concerned that when a case is filed in one state, and it involves parties from that state and another state, the state court might be biased toward the party from that state.

Congress first exercised that power and granted federal trial circuit courts diversity jurisdiction in the Judiciary Act of 1789. In 1969, the American Law Institute explained in a 587-page analysis of the subject that diversity is the "most controversial" type of federal jurisdiction because it "lays bare fundamental issues regarding the nature and operation of our federal union."

Because diversity jurisdiction is a form of concurrent jurisdiction, parties can choose to bring their case in state court even if the requirements for diversity jurisdiction are met. However, if diversity jurisdiction is available, a defendant in a state court case can unilaterally choose to move the case to federal court through the process of removal.

Amount in controversy

The "amount in controversy" is a key factor in determining whether a case falls under diversity jurisdiction, which allows US federal courts to hear lawsuits that do not involve a federal question. Diversity jurisdiction applies when there is a diversity of citizenship between the parties, meaning the plaintiffs and defendants are citizens of different US states.

For a federal court to have diversity jurisdiction, the amount in controversy must exceed a certain threshold, currently set at $75,000. This means that the value of the claim or the relief sought by the plaintiff must be more than $75,000, excluding interest and costs. This amount has been regularly increased over the years, with previous thresholds being $5,000 and $10,000.

The amount in controversy requirement serves as a barrier to diversity jurisdiction, ensuring that only cases involving substantial sums are heard in federal court. If a lawsuit does not meet this requirement, it will typically be heard in a state court instead, unless it involves a federal question.

In class action lawsuits, the Class Action Fairness Act of 2005 (CAFA) sets a higher amount in controversy threshold of $5 million. Additionally, in cases involving citizens of different states and citizens or subjects of a foreign state, the amount in controversy must also exceed $75,000.

It is worth noting that the amount in controversy is determined at the time the action is filed or removed to federal court. If the amount in controversy falls below the threshold during the course of the litigation, it does not affect the court's jurisdiction.

Citizenship of corporations

Diversity of citizenship refers to a situation where there is no common state citizenship between the plaintiffs and defendants in a lawsuit. In other words, all the parties on one side of the dispute are citizens of different states from all the parties on the opposing side. When such diversity is present, and the amount in controversy requirement is met, plaintiffs may bring their claims to federal court instead of state court, and defendants may remove suits from state court to federal court. Diversity of citizenship is a requirement for diversity jurisdiction, which aims to provide out-of-state litigants with the opportunity to defend themselves in an unbiased court.

According to US law, a corporation is considered a citizen of both the state in which it is incorporated and the state where its principal place of business is located. This definition of corporate citizenship is important for determining when corporations can sue and be sued in federal court.

The concept of corporate citizenship has evolved over time. Before 1958, a corporation was deemed a citizen only of the state in which it was incorporated. This became problematic when corporations began to incorporate in one state but set up their headquarters in another. This led to concerns about unfair access to federal courts, as corporate defendants could remove diversity cases from state courts to federal courts, while individual and unincorporated defendants could not.

In 1958, a bill was passed that deemed corporations to be citizens of both their state of incorporation and their principal place of business. However, the term "principal place of business" remained undefined, leading to differing interpretations by lower federal courts. Some courts focused on the corporation's "nerve center" (the location of its high-level officers and core functions), while others considered the state where the corporation conducted most of its business activities.

In 2010, the US Supreme Court's decision in Hertz Corp. v. Friend clarified the test for corporate citizenship. The Court unanimously held that a corporation's principal place of business is its "nerve center," or the place where its high-level officers direct, control, and coordinate its activities. This decision provided a uniform interpretation of federal law and helped corporations predict when they could remove cases to federal court.

In conclusion, the concept of corporate citizenship is crucial for determining diversity jurisdiction in US federal courts. The current understanding, as established by the Hertz case, defines a corporation's citizenship by its state of incorporation and the location of its nerve center. This definition ensures fairness and predictability in determining the appropriate jurisdiction for corporate legal disputes.

Citizenship of unincorporated associations

Diversity of citizenship is a requirement for diversity jurisdiction, which allows a case to be moved from a state court to a federal court. Diversity of citizenship occurs when there is no common state citizenship between the plaintiffs and defendants in a suit. In other words, all parties on one side of the controversy are citizens of different states from all parties on the opposing side.

According to 28 U.S.C § 1332, unincorporated associations, such as partnerships, LLCs, and business trusts, are considered to be citizens of each state where at least one of its members is a citizen. This means that an unincorporated association has the citizenship of each of its members or partners.

For example, in the case of Carden v. Arkoma Assoc., a limited partnership was found to have the citizenship of each of its partners, whether general or limited. This ruling caused issues for LLCs and other unincorporated forms in accessing federal courts based on diversity jurisdiction.

Another case, Americold Realty Trust v. ConAgra, addressed how the Carden decision should be applied in the context of a modern business trust. The Supreme Court unanimously ruled that the citizenship of every beneficial owner in the trust would be considered for assessing diversity jurisdiction.

In the case of Wells Fargo Bank, N.A. v. Transcontinental Realty Investors, Inc., Wells Fargo, an unincorporated entity, was the trustee of a trust. The court held that Wells Fargo must establish the diverse citizenship of all of the trust's members to establish diversity jurisdiction. As the award of relief would benefit the trust and not Wells Fargo alone, the trust was considered the real party in interest, and therefore, the citizenship of all beneficiaries was attributed to it.

In Lincoln Benefit Life Co. v. AEI Life, LLC, et al., Lincoln Benefit sought to challenge two life insurance policies owned by two LLCs. Lincoln Benefit researched the background of each LLC and its members but was unable to determine the citizenship of all members. Lincoln Benefit pled that diversity jurisdiction existed "upon information and belief," but the LLC defendants moved to dismiss the complaint on the basis that diversity jurisdiction had not been adequately pled. The district court dismissed the complaint for lack of subject-matter jurisdiction, but Lincoln Benefit appealed to the Third Circuit, which issued a precedential decision. The Third Circuit explained that a plaintiff should "consult the sources at its disposal, including court filings and other public records," and if the plaintiff "has no reason to believe that any of the association's members share its state of citizenship, it may allege complete diversity in good faith."

In summary, unincorporated associations, such as partnerships and LLCs, are considered citizens of each state where its members are citizens. This has been established through several court cases, which have clarified the application of diversity jurisdiction to these entities.

Class action lawsuits

Diversity jurisdiction allows a plaintiff to file (or a defendant to remove) their case in federal court. This type of jurisdiction is one of two ways federal courts may hear disputes. Diversity jurisdiction is a form of subject-matter jurisdiction that gives United States federal courts the power to hear lawsuits that do not involve a federal question.

For a federal court to have diversity jurisdiction over a lawsuit, two conditions must be met. First, there must be "diversity of citizenship" between the parties, meaning the plaintiffs must be citizens of different U.S. states than the defendants. Second, the lawsuit's "amount in controversy" must be more than $75,000. If a lawsuit does not meet these two conditions, federal courts will normally lack the jurisdiction to hear it unless it involves a federal question, and the lawsuit would need to be heard in state court instead.

The Class Action Fairness Act of 2005 (CAFA) provides that courts may exercise diversity jurisdiction to hear class-action lawsuits as long as "minimal diversity" exists. This means that any plaintiff must be a citizen of a different state from any defendant. The court only considers the named plaintiff's citizenship for diversity purposes, so class members may share citizenship with the defendant. CAFA also sets a $5 million amount in controversy requirement for class-action lawsuits.

In addition, per 28 U.S.C. § 1332, federal courts may only exercise diversity jurisdiction over disputes in which the relief claimed exceeds $75,000 in value. Therefore, if the plaintiff claims exactly $75,000, the court cannot exercise jurisdiction over the dispute.

Frequently asked questions