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Diversity of citizenship is a legal principle that exists when a lawsuit involving citizens of different states requires the case to be heard by a federal district court. This principle was established by the United States (US) Constitution to assure that citizens of one state would get a fair trial and not be at the mercy of the local court of the opposing party. Cases involving diversity jurisdiction can also include corporations, state governments, or foreign individuals or governments. The established residences of the different parties is the determining factor in establishing diversity of citizenship, as opposed to the location of the cause of action. It is also necessary that the amount of money in question in the lawsuit exceed a certain amount before the statute takes effect.
The Constitution established the principle of diversity of citizenship and the right of citizens of different states to have a lawsuit between them heard by a federal district court. At the time of the law's enactment, the balance of power between states' rights and the power of the federal government was still being established. Diversity jurisdiction had the effect of spurring on the expansion of business enterprise in other parts of the expanding country by industrial powers in the Northeast, as it gave them protection from any possible prejudices of local courts.
In addition to the most common example of lawsuits involving cases between citizens of different states, diversity of citizenship may also exist in other instances. Citizens who file a lawsuit against the government of a state different from their own, or against a foreign citizen or government, also may require diversity jurisdiction. A corporation is also eligible, although its established residence includes both the state, or states, in which it is incorporated, and the state in which it is located. This makes it more difficult for corporations to establish diversity of citizenship.
For an individual, diversity of citizenship is determined by his or her domicile at the time the case is brought to court. A person must live in the state and establish to the court an intent to remain there to be considered a resident of that state. The location of the cause of action at the heart of the complaint is irrelevant when considering diversity jurisdiction.
Since federal district courts generally have busy schedules, the diversity of citizenship provision only kicks in when the lawsuit can gain the plaintiff a predetermined amount of money. This amount, also known as the amount of controversy, has risen over the years and, as of 2010, is set at $75,000 US Dollars (USD). Even if the parties' residences are diverse, cases involving less than this amount still fall under the jurisdiction of local courts.