Statutory Grant of Diversity

Statutory Grant of Diversity

A case between citizens of different states can pass one test for federal jurisdiction and fail another, because two separate sources of law are in play. The first is Article III of the Constitution. Section 2 extends the judicial power of the United States to controversies between citizens of different states, and it is satisfied by what is called minimal diversity: at least one plaintiff is a citizen of a different state than at least one defendant.¹ That standard describes the outer boundary of what federal courts may be authorized to hear. It does not by itself give any particular district court the power to hear anything.

The reason lies in how the lower federal courts come into existence. Article III creates only the Supreme Court directly and leaves it to Congress whether to create other federal courts. The Supreme Court has held that because Congress could have declined to create lower courts at all, it may create them and give them less than the full range of jurisdiction Article III permits. Article III marks the boundary within which Congress may confer jurisdiction on the inferior courts, and the courts receive their jurisdiction from the statute and not from the Constitution.² The practical consequence is that Congress may confer all of the constitutional diversity grant, some of it, or none, and a district court is limited to whatever Congress actually conferred.³

Congress has chosen to confer only part of the grant. The statute, 28 U.S.C. § 1332(a), gives the district courts original jurisdiction of civil actions in which the matter in controversy exceeds $75,000, exclusive of interest and costs, and which are between the listed kinds of parties.⁴ Two features make the statute narrower than Article III. The first is the amount requirement, which appears nowhere in the Constitution. A suit between an Oregon citizen and an Idaho citizen for $35,000 falls within Article III, yet Congress has not authorized the district courts to hear it.⁵ The second is the complete diversity rule, taken from Strawbridge v. Curtiss, which requires that no plaintiff share state citizenship with any defendant.⁶

The complete diversity rule is worth a closer look because it shows the gap between the two layers. In State Farm Fire and Casualty Co. v. Tashire the Supreme Court held that Strawbridge interpreted the statute and not Article III, so the rule is one Congress chose and Congress could change.⁷ Suppose a Massachusetts plaintiff sues one defendant from Virginia and a second from Massachusetts. At least one plaintiff and one defendant are citizens of different states, so the suit is a constitutionally proper diversity case. Because the plaintiff and one defendant share a state, however, § 1332(a) does not authorize the district court to hear it.⁸ The same pattern holds for the amount requirement. Congress could amend the statute to allow suits below $75,000, or even to dispense with the threshold entirely, and the jurisdiction would still fall within Article III.⁹

The reason Congress holds back part of the grant follows from why diversity jurisdiction exists. The traditional explanation is that a litigant sued or suing in the courts of an opponent's home state may fear bias, and a federal forum staffed by appointed judges offers a neutral alternative.¹⁰ That concern is strongest in cases that matter enough to justify the cost of a federal forum. The amount threshold screens out small disputes, and complete diversity ensures that every defendant has an out-of-state opponent. Limiting the grant also keeps the federal docket from filling with ordinary local disputes, which is a purpose a legislature can pursue but a constitutional boundary cannot.

Because the statute demands more than the Constitution does, a diversity problem is analyzed in two steps. The first step asks whether the parties fall into one of the pairings § 1332(a) lists, which are citizens of different States, a State citizen and a foreign citizen, and so on. The second asks whether the amount in controversy exceeds $75,000, exclusive of interest and costs.¹¹ Both must be met, and a strong showing on one cannot make up for a failure on the other. A New Mexico plaintiff who sues a Utah defendant on a state tort claim for $120,000 satisfies both steps. The same plaintiff suing the same defendant for $20,000 is within Article III but outside the statute, and the federal court must dismiss for lack of subject-matter jurisdiction.¹² Throughout the statute, the word "States" includes the territories, the District of Columbia, and Puerto Rico.¹³

The rest of the chapter works through these two requirements. It takes up how the parties must line up, how citizenship is determined for each kind of party, when it is measured, and how the amount is counted, and it ends with the special rules for class actions and the limits that sit beside diversity.