Legal Definitions - diversity of citizenship

Diversity of citizenship is a legal concept that refers to a situation in a lawsuit where all parties on one side of a legal dispute are citizens of different U.S. states than all parties on the opposing side. This means there is no overlap in state citizenship between the plaintiffs (those bringing the suit) and the defendants (those being sued).

The primary purpose of diversity of citizenship is to allow certain cases to be heard in federal court, rather than state court, when there's a risk that a state court might be biased against an out-of-state litigant. If all parties are from the same state, this particular concern about bias is generally considered absent.

For a corporation, citizenship is determined by two factors: the state where it is officially incorporated, and the state where it has its principal place of business (often considered its "nerve center" or headquarters). For unincorporated associations, such as partnerships or limited liability companies (LLCs), citizenship is determined by the state citizenship of every single one of its members or partners.

When diversity of citizenship is present, and the financial value of the dispute (known as the "amount in controversy") meets a specific federal threshold, a case can be filed directly in federal court or moved from state court to federal court.

• Example 1: An Individual Suing Another Individual Across State Lines

  Imagine a situation where Sarah, a permanent resident of Oregon, is involved in a car accident with Mark, a permanent resident of Idaho, while both were traveling in Montana. Sarah believes Mark was at fault and caused significant damage to her vehicle and personal injuries. If Sarah decides to sue Mark for damages exceeding the federal amount in controversy threshold, she could file her lawsuit in federal court.

  Explanation: In this scenario, Sarah (Oregon citizen) is completely diverse from Mark (Idaho citizen). There is no common state citizenship between the plaintiff and the defendant, satisfying the diversity of citizenship requirement.

• Example 2: A Corporation Sued by an Individual

  Consider a resident of Florida, Mr. Henderson, who purchases a defective product manufactured by "Global Gadgets Inc." Mr. Henderson suffers a significant financial loss due to the defect. Global Gadgets Inc. is incorporated in Delaware, but its main operational headquarters and decision-making hub are located in Georgia. If Mr. Henderson sues Global Gadgets Inc. for damages above the federal threshold, the case could potentially be heard in federal court.

  Explanation: Global Gadgets Inc. is considered a citizen of both Delaware (incorporation) and Georgia (principal place of business). Mr. Henderson is a citizen of Florida. Since Mr. Henderson's citizenship (Florida) is different from both Delaware and Georgia, diversity of citizenship exists between the parties.

• Example 3: Multiple Parties Including a Partnership

  Suppose a group of investors, including Ms. Chen from California and Mr. Rodriguez from Arizona, decide to sue "Summit Financial Advisors," a financial planning partnership, for alleged mismanagement of their funds. Summit Financial Advisors has three partners: one is a resident of Nevada, another is a resident of Utah, and the third is a resident of Colorado. The investors seek damages well above the federal threshold.

  Explanation: The plaintiffs are Ms. Chen (California) and Mr. Rodriguez (Arizona). The defendant, Summit Financial Advisors, is considered a citizen of Nevada, Utah, and Colorado (the states of its partners). Since none of the plaintiffs' states (California, Arizona) overlap with any of the defendant partnership's states (Nevada, Utah, Colorado), complete diversity of citizenship is present, allowing the case to proceed in federal court.