Diversity Jurisdiction - Diversity of Parties

Diversity of Parties

Mostly, in order for diversity jurisdiction to apply, complete diversity is required, where none of the plaintiffs can be from the same state as any of the defendants. A corporation is treated as a citizen of the state in which it is incorporated and the state in which its principal place of business is located. A partnership or limited liability company is considered to have the citizenship of all of its constituent partners/members. Thus, an LLC or partnership with one member or partner sharing citizenship with an opposing party will destroy diversity of jurisdiction. Cities and towns (incorporated municipalities) are also treated as citizens of the states in which they are located, but states themselves are not considered citizens for the purpose of diversity. U.S. citizens are citizens of the state in which they are domiciled, which is the last state in which they resided and had an intent to remain. An alien (foreign national) who has been granted the status of permanent resident status is treated as a citizen of the state where the alien is domiciled.

A national bank chartered under the National Bank Act is treated as a citizen of the state in which it is "located." In 2006, the Supreme Court rejected an approach that would have interpreted the term "located" to mean that a national bank is a citizen of every state in which it maintains a branch. The Supreme Court concluded that “a national bank . . . is a citizen of the State in which its main office, as set forth in its articles of association, is located.” The Supreme Court, however, left open the possibility that a national bank may also be a citizen of the state in which it has its principal place of business, thus putting it on an equal footing with a state-formed corporation. This remains an open question, with some lower courts holding that a national bank is a citizen of only the state in which its main office is located, and others holding that a national bank is also a citizen of the state in which it has its principal place of business.

The diversity jurisdiction statute also allows federal courts to hear cases in which:

• Citizens of a U.S. state are parties on one side of the case, with nonresident alien(s) as adverse parties;
• Complete diversity exists as to the U.S. parties, and nonresident aliens are additional parties;
• A foreign state (i.e. country) is the plaintiff, and the defendants are citizens of one or more U.S. states; or
• Under the Class Action Fairness Act of 2005, a class action can usually be brought in a federal court when there is just minimal diversity, such that any plaintiff is a citizen of a different state from any defendant. Class actions that do not meet the requirement of the Class Action Fairness Act must have complete diversity between class representatives (those named in the lawsuit) and the defendants.

A U.S. citizen who is domiciled outside the U.S. is not considered to be a citizen of any U.S. state, and cannot be considered an alien. The presence of such a person as a party completely destroys diversity jurisdiction, except for a class action or mass action in which minimal diversity exists with respect to other parties in the case.

If the case requires the presence of a party who is from the same state as an opposing party, or a party who is a U.S. citizen domiciled outside the country, the case must be dismissed, the absent party being deemed "indispensable". The determination of whether a party is indispensable is made by the court following the guidelines set forth in Rule 19 of the Federal Rules of Civil Procedure.