Monday, August 4, 2014

Diversity Jurisdiction

The MBE is about to change. Beginning in February of 2015, a new subject, Civil Procedure, will be added to the testable list of subjects. As such, I'll be posting quite a lot on this subject prior to the exam. Today's post is on the topic of diversity jurisdiction.

Subject-matter jurisdiction is the requirement that the court have power to hear the specific kind of claim that is brought to that court. The two primary sources of subject-matter jurisdiction of the federal courts are diversity jurisdiction and federal-question jurisdiction. If jurisdiction is predicated on diversity, then every plaintiff must be of diverse citizenship from every defendant. Stated differently, if one defendant and one plaintiff are co-citizens of the same state, there is no diversity jurisdiction. Though there are exceptions to this rule, which will be discussed in later posts, it's always important to first understand the general rule.

In addition, diversity of citizenship as outlined above must exist as of the time that suit is instituted. As such, it need not exist at the time the cause of action arose, and diversity will not be defeated if after the suit is instituted, a plaintiff and defendant become citizens of the same state.

In determining whether there is complete diversity, it's often necessary to determine the citizenship of each party. For individuals, it's fairly simple: an individual is a citizen of his/her domicile, or the permanent home to which s/he intends to return. A corporation is a citizen of every state of its incorporation and also of its principal place of business. If the corporation performs its business in various states, look to see where the executive office is located, as that state will be deemed the principal place of business for determining citizenship. It's a bit different for unincorporated businesses such as partnerships. There, you'll want to determine the citizenship of each member, as the business will be deemed a citizen of each state of which any member is a citizen.

When analyzing diversity, in addition to determining that the citizenship requirement has been satisfied, it's also necessary to determine that the jurisdictional amount has been satisfied. When subject-matter jurisdiction is based on diversity, actions must be in excess of $75,000 exclusive of interests or costs. The amount is entirely determined by plaintiff's good faith allegations. In other words, if the plaintiff alleges an amount in excess of $75,000, the complaint can be dismissed only if it appears there is no legal possibility for the plaintiff to recover the amount alleged. And importantly, if the plaintiff ends up not recovering an amount in excess of $75,000, this has no effect on jurisdiction, as jurisdiction is not retroactively defeated. For purposes of satisfying the jurisdictional requirement, plaintiff may aggregate all claims against a single defendant (and against multiple defendants if those defendants are jointly liable to plaintiff).

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