Pursuant to Article III, §§ 2 of the Constitution, Congress enacted 28 U.S.C. §1332 giving federal courts jurisdiction over cases or controversies between citizens of different states.

THE STATUTE:

• The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between—
  • (1) citizens of different States;
  • (2) citizens of a State and citizens or subjects of a foreign state;
  • (3) citizens of different States and in which citizens or subjects of a foreign state are additional parties

. . .

For the purposes of this section, section 1335, and section 1441, an

alien admitted to the United States for permanent residence shall be

deemed a citizen of the State in which such alien is domiciled.

. . .

Also note that under §1332 (d) the word “States” includes the territories, the District of Columbia and the Commonwealth of Puerto Rico.

This statute allows plaintiffs to bring STATE LAW claims into FEDERAL COURT as long as you meet the requirements of (1) amount in controversy and (2) diversity of citizenship of parties.

NOTE: §1332 is a general “default rule”. Congress can change it for specific actions. We’ll discuss two special cases relating to mass torts and class actions at end of this section and the end of the course.  

THE THEORY:

Historic Arguments for Diversity Jurisdiction in Federal Courts

• Allows federal courts to hear disputes between parties from different states prevents discrimination against the out-of-state party by state tribunals. This is the most widely accepted historical argument for diversity jurisdiction and was discussed by Chief Justice Marshall in United States v. Deveaux, 9 U.S. (5 Cranch) 61, 87, 3 L.Ed. 38, 45 (1809). 
• It also encouraged investment during formative periods of the country in developing the Southern and Western portions of the U.S by giving more security to investors. Note that today this argument is not as applicable because most investors are national
• Some legal historians believe that allowing diversity cases in federal courts was intended to protect creditors because federal officials could channel cases into federal court where they could control composition of juries.

Arguments Against Allowing Diversity Jurisdiction in Federal Courts

• Adds to congestion in federal court dockets. Some commentators believe that raising the amount in controversy requirement would help ease such congestion. Thus far, Congress has only been willing to raise it to $75,000.
• State judges, not federal judges should make determinations about state law (this is related to the Erie doctrine, which we will discuss later, which requires federal courts to apply state law to substantive issues in certain cases). Federal judges have less expertise on state law.
• There is no incentive for state courts to improve if all the litigants who would normally push for improvements instead get to litigate state claims in federal court.
• Lastly, it encourages forum shopping.  However, it’s not clear that forum shopping is inherently a bad thing. Perhaps the problem is that only certain litigants are institutionally capable of forum shopping.

Current Arguments for Allowing Diversity Jurisdiction in Federal Courts

• The historic bias against out of state defendants persists, especially among jurors
• If federal courts are better courts why not channel more cases there? Consider whether this is an unfunded mandate on federal courts.
• If there is cross-pollination of state and federal law, arguably the competition between two systems perhaps competing to hear the same cases spurs innovation.