What Are Diversity Cases in Federal Court?

Diversity jurisdiction in federal court is the authority of a U.S. district court to hear a civil case between citizens of different states (or between a U.S. citizen and a foreign citizen) when more than $75,000 is in dispute. It exists so that an out-of-state party doesn’t have to litigate in the other side’s home courthouse. The rules for qualifying are technical, and getting any piece of the analysis wrong — citizenship, the dollar amount, or who’s on which side of the “v.” — can send the case back to state court.

The Two Requirements

Federal courts hear only the cases Congress has authorized them to hear. Diversity jurisdiction comes from 28 U.S.C. § 1332, which requires two things at once: the parties must be citizens of different states, and the amount in controversy must exceed $75,000.¹ Miss either one and the court has no power over the case.

Diversity is measured at the moment the complaint is filed. If the parties are diverse that day, someone later moving to a new state won’t destroy jurisdiction. And if diversity wasn’t there at filing, a post-filing move can’t create it.

How Citizenship Is Determined

Individuals

For a person, citizenship means domicile, not just current address. Your domicile is the state where you have a permanent home and intend to stay indefinitely. You can rent in three cities but you have only one domicile. Courts look at where you vote, pay taxes, hold a driver’s license, and keep your family. Someone temporarily working in another state hasn’t necessarily changed citizenship for diversity purposes.

Corporations

A corporation is a citizen of every state where it is incorporated and the one state where it has its principal place of business.¹ That often means a corporation holds citizenship in two states at once, making diversity harder to establish. The Supreme Court’s decision in Hertz Corp. v. Friend defined principal place of business as the “nerve center” — the place where officers actually direct, control, and coordinate the company’s activities, usually the real headquarters.² A mail drop or empty office doesn’t count.

LLCs and Partnerships

This is where diversity becomes genuinely difficult. An LLC or partnership does not take citizenship from where it was formed or where it operates. It takes on the citizenship of every one of its members. An LLC with 50 members scattered across 30 states is a citizen of all 30. If one member is itself an LLC, you trace through to that entity’s members too. The practical result: diversity jurisdiction is often impossible for large, multi-member LLCs, and anyone bringing or removing such a case has to know the domicile of every individual at the bottom of the ownership chain.

Representatives and Permanent Residents

When someone sues on behalf of an estate, a minor, or an incapacitated person, the representative’s own citizenship doesn’t count. The statute treats the representative as a citizen of the state the represented person is from.¹ A New York executor of a deceased Texan’s estate stands in as a Texas citizen.

Lawful permanent residents are treated as citizens of the state where they are domiciled. If a permanent resident shares a state of domicile with a U.S. citizen on the other side of the case, diversity jurisdiction isn’t available.¹

Complete Diversity: No Shared Citizenship Allowed

Federal courts require complete diversity. No plaintiff can share state citizenship with any defendant. One matching pair contaminates the whole lawsuit. A Texas plaintiff suing a California defendant and a Texas defendant cannot use diversity jurisdiction, even though one of the defendants is from a different state.

The Supreme Court reinforced this in Exxon Mobil Corp. v. Allapattah Services, explaining that incomplete diversity destroys original jurisdiction over all claims in the case.³

Courts also police attempts to game the alignment. Under 28 U.S.C. § 1359, a federal court will dismiss a case if a party was added or assigned a claim solely to manufacture diversity.⁴ Nominal parties with no real stake, on the other hand, are ignored for the diversity analysis.

The $75,000 Amount in Controversy

The claim must exceed $75,000, not counting interest and costs. That threshold has stood since 1996. Courts take the plaintiff’s claimed amount at face value unless it appears to a legal certainty that the case is actually worth $75,000 or less. That’s a forgiving standard. A defendant’s belief that the number is inflated isn’t enough to defeat jurisdiction.

There is a cost to overclaiming, though. A plaintiff who files directly in federal court and ends up recovering $75,000 or less can be denied litigation costs or ordered to pay the other side’s costs.¹

A single plaintiff can add together all of its claims against one defendant to reach the threshold, even if the individual claims are small. Multiple plaintiffs generally can’t pool their claims, and a single plaintiff can’t combine claims against different defendants, unless all share a common undivided interest in the same dispute.

Class Actions Are Different

Class actions follow their own rules under the Class Action Fairness Act. CAFA requires only minimal diversity, meaning at least one class member and one defendant need to be citizens of different states. The dollar threshold also changes: the aggregate claims of the entire class must exceed $5,000,000.¹ CAFA was designed to move large, multi-state class actions into federal court.

Cases Federal Courts Won’t Hear Even With Diversity

Two long-standing judge-made exceptions keep certain cases in state court even when the diversity requirements are perfectly met.

The domestic relations exception bars federal courts from granting divorces, awarding alimony, or issuing child custody orders. It is construed narrowly. A tort or contract dispute between divorcing spouses can still be heard in federal court, as long as the court isn’t being asked to dissolve the marriage or decide custody.

The probate exception prevents federal courts from probating a will, administering an estate, or taking over functions of a state probate court. A claim for money that happens to involve estate assets can still proceed federally, so long as the court isn’t being asked to assume control over the probate process itself.

Getting Into Federal Court

If diversity exists at the outset, a plaintiff can file directly in federal district court. If a plaintiff files in state court, a defendant can move the case to federal court through removal by filing a notice of removal in the appropriate federal district.⁵ The defendant generally has 30 days from receiving the complaint, with all state-court pleadings and orders attached.⁶ If the complaint doesn’t initially show the case is removable but a later filing does, a fresh 30-day window opens.

Two limits matter. The forum defendant rule blocks removal on diversity grounds if any properly joined and served defendant is a citizen of the state where the suit was filed.⁵ The concern about local bias doesn’t apply when the defendant is already at home. There is also a one-year outer limit: a diversity case generally cannot be removed more than one year after it was filed in state court.⁶ That year can be extended if the plaintiff acted in bad faith to prevent removal, such as hiding the real damages to run out the clock.

Some defendants exploit a gap in the forum defendant rule. Because the statute says “properly joined and served,” a forum-state defendant who learns of the lawsuit before being formally served can race to remove the case before service is completed. This is called snap removal. Federal appellate courts are split on whether to allow it, and the Supreme Court hasn’t resolved the question.

Sending the Case Back

If a plaintiff thinks removal was improper, they can move to remand. For procedural defects, like a missed 30-day deadline, the motion must be filed within 30 days after the notice of removal. If the problem is a lack of subject-matter jurisdiction, meaning the parties aren’t actually diverse or the amount falls short, the court must remand at any time, including on its own. No deadline applies, and subject-matter jurisdiction cannot be waived. When remanding, the court can order the removing party to pay the costs and attorney fees that the removal caused.⁷

Who Has to Prove Jurisdiction Exists

The party trying to be in federal court has to prove diversity jurisdiction exists. A plaintiff who files there must establish diverse citizenship and a sufficient amount in controversy. A defendant who removes from state court carries that same burden. Any ambiguity is resolved against federal jurisdiction, reflecting the rule that federal courts are courts of limited authority and shouldn’t hear cases unless the statutory requirements are clearly satisfied.

1
Office of the Law Revision Counsel. 28 USC 1332 – Diversity of Citizenship; Amount in Controversy; Costs
2
Library of Congress. Hertz Corp. v. Friend, 559 U.S. 77 (2010)
3
LII / Legal Information Institute. Exxon Mobil Corp. v. Allapattah Services, Inc.
4
Office of the Law Revision Counsel. 28 USC 1359 – Parties Collusively Joined or Made
5
Office of the Law Revision Counsel. 28 USC 1441 – Removal of Civil Actions
6
Office of the Law Revision Counsel. 28 USC 1446 – Procedure for Removal of Civil Actions
7
Office of the Law Revision Counsel. 28 USC 1447 – Procedure After Removal Generally