Diversity of citizenship lets a case between residents of different states be heard in federal court, and the choice between the two systems is made under a short clock. This subject covers how citizenship is determined for people and for companies, what counts toward the amount in controversy, the removal deadline and what waives it, the grounds for sending a case back, and what happens when two courts hear related matters at once.
Where a federal court has jurisdiction over a claim, it may also hear other claims so related that they form part of the same case or controversy, meaning they arise from a common nucleus of operative fact. The statute limits this in diversity cases to protect the complete diversity requirement. A court may decline where the state claim raises a novel or complex issue, substantially predominates, or where all claims within original jurisdiction have been dismissed.
Diversity jurisdiction allows a federal court to hear a claim arising under state law where the parties are citizens of different states and the amount in controversy exceeds the statutory threshold. Diversity must be complete: no plaintiff may share citizenship with any defendant. Citizenship for an individual means domicile; for a corporation it means both the state of incorporation and the state of its principal place of business.
A civil action otherwise removable on diversity grounds may not be removed if any party properly joined and served as a defendant is a citizen of the state where the action was brought. The rationale is that the concern about local prejudice does not apply to a defendant sued at home. The words properly joined and served have produced snap removal, in which a defendant removes before the forum defendant is served, and courts have divided on it.
Removal on diversity grounds is barred more than one year after commencement of the action, regardless of when the case first became removable. The limit exists to prevent disruption of proceedings that have advanced substantially in state court. Congress added an exception where the district court finds that the plaintiff has acted in bad faith to prevent removal, with a specific provision addressing deliberate failure to disclose the amount in controversy.
Federal question jurisdiction exists where a civil action arises under the Constitution, laws or treaties of the United States, and the well-pleaded complaint rule determines when it does: the federal issue must appear on the face of a properly pleaded complaint. Anticipated federal defenses, including preemption raised as a defense, do not create jurisdiction. A narrow category of state law claims raising a substantial and disputed federal issue can qualify.
A defendant must generally file a notice of removal within thirty days after receiving the initial pleading, or after service of summons where that is required first. Where the case is not removable as initially pleaded, a second thirty-day period runs from receipt of an amended pleading, motion, order or other paper from which removability can first be ascertained.
Diversity jurisdiction requires the citizenship of every plaintiff to differ from the citizenship of every defendant, so the first question in any removal or federal filing is what citizenship each party actually has. A corporation has two: the state where it is incorporated and the one state where its principal place of business sits, identified by the nerve center test rather than by where operations are largest.
A removed case returns to state court on remand, and the grounds fall into two categories with very different timing. Procedural defects — a late notice, missing consent from a co-defendant, the forum defendant rule, waiver by conduct — must be raised within thirty days of the notice of removal or they are waived. A lack of subject matter jurisdiction may be raised at any time and requires remand whenever it appears.
Parallel proceedings arise where the same or related disputes are pending in more than one court — two state courts, a state and a federal court, or two federal districts. Between federal districts the first-filed rule generally gives priority to the earlier action, and transfer or consolidation follows. Between state and federal courts, both may proceed concurrently, because federal courts have a strong obligation to exercise the jurisdiction given to them. Stays are available but exceptional.
Diversity jurisdiction requires the amount in controversy to exceed a statutory threshold, exclusive of interest and costs. Compensatory and punitive damages both count where punitive damages are recoverable on the claim. Attorney fees count where a contract or statute provides for them. The value of injunctive or declaratory relief counts, measured by its value to the party asserting it or by the cost of compliance depending on the approach used.
Federal courts have a strong obligation to exercise the jurisdiction Congress has given them, and abstention doctrines are limited exceptions to that duty. They permit deferring where an unsettled question of state law could avoid a constitutional ruling, where a state has established a complex regulatory scheme with its own review, where a federal ruling would interfere with ongoing state enforcement proceedings, and where exceptional circumstances make duplicative litigation clearly wasteful.
Beyond the statutory deadline, a defendant can lose the right to remove by conduct manifesting an intent to litigate in state court. Filing a permissive counterclaim, seeking substantive relief, or proceeding to a hearing on the merits are the clearest examples; taking purely defensive or procedural steps generally is not. A contractual forum selection clause naming a state court can also waive removal where its wording is sufficiently clear and mandatory.
