Diversity jurisdiction · Federal court
Diversity jurisdiction: when out-of-state parties can be in federal court
“Diversity jurisdiction” lets a federal court hear a case when the two sides are from different states and the claim is worth more than $75,000. It must be complete: no one suing can be from the same state as anyone being sued. A company’s home state is often the deciding question.
The two rules
Federal courts can hear ordinary state-law cases in one special situation. The people on each side must be from different states. And the claim must be worth more than $75,000.
$75,000
The claim must be worth more than this amount, not counting interest and court costs. A claim for exactly $75,000 is not enough (28 U.S.C. § 1332).
This covers many everyday disputes. A contract fight with an out-of-state supplier. A crash with a truck from another state. A business claim against a company based elsewhere.
The federal judge still uses Missouri law to decide who is right. But the case follows federal court rules.
No overlap allowed
The difference must be complete. If anyone suing shares a home state with anyone being sued, the rule fails. One overlap is enough to keep the whole case out of federal court on this basis.
Here is an example. A St. Louis homeowner sues an Illinois builder and a Missouri roofer. The builder is from a different state. The roofer is not. As long as the roofer stays in the case, it cannot be in federal court on this basis.
That is why the choice of who to sue matters. Dropping one defendant later can change which court hears the case.
How the law decides where a party is “from”
Every party gets a home state for this purpose. The rules depend on what kind of party it is.
Corporations
A corporation is from two places. One is the state where it was formed. The other is the state where its headquarters is, meaning where its top officers run the company.
LLCs
An LLC is treated differently. It is from every state where any of its owners (called members) is from. Where it was formed does not matter.
If an owner is another LLC, you look at that LLC’s owners too. You keep going until you reach people or corporations. One Missouri owner, several layers up, can keep the case out of federal court.
Estates and children
If a case is brought for someone who died, the estate is from the state where that person lived. The same idea applies to a child or someone who cannot manage their own affairs. The adult bringing the case does not change it.
Proving it early
In these cases, each side must file a short form listing its home state. An LLC must list its owners and their home states. The form is due with the party’s first filing. In St. Louis federal court, any change must be reported within seven days.
Judges check these forms early. A missing link in an LLC’s ownership chain is a common reason a judge asks the parties to explain why the case belongs in federal court.
Why it matters to your case
This is not a technical detail. If the federal court never had the power to hear the case, it must dismiss it or send it back. That can happen at any stage, even after trial. The parties cannot fix it by agreeing.
It also affects your strategy. It decides if a case can be moved from state court. It decides which rules apply and where an appeal goes. Before recommending a court, Harjot Singh Padda, JD works through these steps:
- List everyone suing and everyone being sued.
- Find each one’s home state, following LLC ownership all the way up.
- Confirm no one on one side shares a state with anyone on the other.
- Check the evidence that the claim is worth more than $75,000.
- Check again whenever a party is added or dropped.
Common questions
Can two Missouri residents sue each other in federal court?
Only if the case is about federal law, like a civil rights claim. The out-of-state rule needs people from different states.
Do interest and court costs count toward $75,000?
No. Only the claim itself counts, like the money owed in a breach of contract case.
Is my LLC from the state where I formed it?
Not for this rule. An LLC is from every state where its owners are from. See forming an LLC in Missouri.
What if the person who was hurt has died?
The estate is treated as being from the state where that person lived. See wrongful death for how Missouri claims work.
Can the other side use this to move my case out of state court?
Yes, if the sides are fully from different states, the claim is over $75,000, and no served defendant is from Missouri. See moving a case to federal court.
Related reading
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Sources
- 28 U.S.C. § 1332 (diversity of citizenship; amount in controversy). Cornell Legal Information Institute
- OnePoint Solutions, LLC v. Borchert, 486 F.3d 342 (8th Cir. 2007). CourtListener
- Hertz Corp. v. Friend, 559 U.S. 77 (2010). CourtListener
- GMAC Commercial Credit LLC v. Dillard Department Stores, Inc., 357 F.3d 827 (8th Cir. 2004). CourtListener
- Fed. R. Civ. P. 7.1 (disclosure statement). Cornell Legal Information Institute
- Local Rules of the U.S. District Court for the Eastern District of Missouri (incl. L.R. 2.03, 2.04, 2.09, 3.04, 4.01, 5.01–5.04, 6.01). U.S. District Court, E.D. Mo.
- 28 U.S.C. § 1447 (procedure after removal; remand). Cornell Legal Information Institute