Federal Jurisdiction and Diversity

Federal courts are courts of limited jurisdiction. Unlike state courts, which have general power to hear nearly any case, a federal court can only preside over a lawsuit if it is authorized to do so by the Constitution and federal statute. For any bar exam taker or legal practitioner, mastering the rules of subject matter jurisdiction—the court's power to decide the kind of case before it—is non-negotiable. Two primary pillars support federal court authority: federal question jurisdiction and diversity of citizenship jurisdiction. This article will focus on the intricate and commonly tested rules of diversity jurisdiction, breaking down its requirements, nuances, and the critical role of supplemental jurisdiction.

The Foundations of Federal Subject Matter Jurisdiction

The bedrock principle is that federal courts possess only the jurisdiction granted to them. A party invoking federal court authority bears the burden of proving it exists. The two main statutory grants are found in 28 U.S.C. § 1331 (federal question) and 28 U.S.C. § 1332 (diversity). Federal question jurisdiction exists when the plaintiff's well-pleaded complaint asserts a claim arising under the U.S. Constitution, federal laws, or U.S. treaties. In contrast, diversity jurisdiction exists to provide a neutral federal forum for disputes between citizens of different states, insulating out-of-state litigants from potential local bias. It is purely about the parties' citizenship, not the legal issues involved.

The Complete Diversity Requirement

The rule of complete diversity, established in Strawbridge v. Curtiss, requires that every plaintiff must be of diverse citizenship from every defendant. It is not enough that some parties are from different states. For bar exam purposes, you must be methodical in mapping each party's citizenship against every other party.

Determining citizenship is straightforward for natural persons: an individual is a citizen of the state where they are domiciled. Domicile requires both physical presence in a state and the intent to make that state their indefinite home. A change in domicile is not complete until both elements are satisfied. For corporations, the statute is specific: a corporation is deemed a citizen of both its state of incorporation and the state where it has its principal place of business. The "nerve center" test, established in Hertz Corp. v. Friend, defines the principal place of business as the place where the corporation's high-level officers direct and control its activities, typically its headquarters.

For other entities like LLCs or partnerships, the rule is different and often tested. Unincorporated associations (including partnerships and LLCs) take the citizenship of each and every one of their members or partners. This can destroy diversity if a single member shares citizenship with an opposing party.

The Amount in Controversy and Aggregation Rules

Even with complete diversity, the second statutory requirement is that the "matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs." The amount claimed by the plaintiff in good faith controls unless it appears to a legal certainty that the claim is for less. This is a high bar for a defendant to overcome.

Aggregation rules dictate how multiple claims can be combined to meet the $75,000threshold.Asingleplaintiffmayaggregate\ast all\ast claimstheyhaveagainstasingledefendant,regardlessofwhethertheclaimsarerelated.However,multipleplaintiffscannotaggregatetheir\ast separateanddistinct\ast claimstomeettheamount.Conversely,asingleplaintiffwithclaimsagainstmultipledefendantscanonlyaggregateiftheclaimsareconsideredacommon,undividedinterest(likejointliability).OntheMBE,watchforfactpatternswhereoneplaintiffhastwounrelatedclaimsagainstadefendantfor$40,000 and $40,000—theycanaggregateto$80,000 and satisfy the requirement.

Supplemental Jurisdiction Under 28 U.S.C. § 1367

Often, a case properly in federal court under diversity jurisdiction will include additional claims that, by themselves, do not meet the diversity or amount requirements. Supplemental jurisdiction (or pendent party jurisdiction) under 28 U.S.C. § 1367 allows a federal court to hear these additional claims if they form part of the same "case or controversy" as the anchor claim over which the court has original jurisdiction.

The statute's structure is critical for the bar exam. Section 1367(a) is the broad grant: if you have a claim with original jurisdiction (the diversity anchor), you get jurisdiction over all other claims that are so related they form part of the same constitutional case. However, Section 1367(b) creates a major exception in diversity-only cases: supplemental jurisdiction is not available over claims by plaintiffs against persons made parties under specific joinder rules (like Fed. R. Civ. P. 14, 19, 20, or 24) if exercising it would destroy complete diversity. For example, if a defendant brings in a third-party defendant (Rule 14), the original plaintiff may have a related claim against that third-party defendant. If that claim would destroy diversity, supplemental jurisdiction is not available to the plaintiff.

Common Pitfalls

1. Misapplying Complete Diversity to Unincorporated Entities: A common trap is treating an LLC like a corporation. Remember, an LLC's citizenship is that of all its members. If an LLC member is a citizen of the same state as any opposing party, complete diversity is destroyed.
2. Confusing Aggregation Rules: Students often incorrectly allow multiple plaintiffs to aggregate separate claims. You cannot combine Plaintiff A's $50,000claimandPlaintiff{B}^{\prime }s$30,000 claim to reach $80,000. They are separate and distinct claims, and each plaintiff's claim must independently satisfy the amount requirement (unless they have a joint, undivided interest).
3. Overlooking the Section 1367(b) Exception: The broad grant of supplemental jurisdiction in (a) is frequently undone by the exception in (b) in diversity cases. Always check if the party attempting to add the supplemental claim is a plaintiff (not a defendant) and if the claim is against a person joined under a rule listed in 1367(b). If both are true and diversity would be destroyed, jurisdiction is barred.
4. Assuming Domicile Equals Simple Residence: An individual may live in New York but intend to return to their home in California permanently. They remain domiciled in California. Always look for facts indicating intent, such as voter registration, driver's license, or testimony about future plans.

Summary

• Federal courts are courts of limited jurisdiction. A party must affirmatively demonstrate either federal question or diversity jurisdiction for the case to proceed.
• Diversity jurisdiction under 28 U.S.C. § 1332 requires (1) complete diversity of citizenship between every plaintiff and every defendant, and (2) an amount in controversy exceeding $75,000.
• Citizenship rules vary: individuals are citizens of their domicile; corporations are citizens of state of incorporation and principal place of business; unincorporated entities are citizens of all their members.
• Aggregation rules allow a single plaintiff to combine all claims against a single defendant to meet the amount, but prohibit multiple plaintiffs from aggregating separate claims.
• Supplemental jurisdiction (§ 1367) allows related claims, but in pure diversity cases, it is barred for claims by plaintiffs against parties joined under specific rules if it would destroy complete diversity.