Article III of the Constitution provides that a federal court may hear a controversy between citizens of different states or citizens of the United States and citizens of foreign nations. Congress in Title 28 of the United States Code limits this power by requiring that the amount in controversy exceed $75,000. The broad purpose behind diversity jurisdiction is that a state court may show bias towards its own citizen to the detriment of the citizen from another state. Diversity jurisdiction, to say the least, has long been a source of controversy.
One initial question in a diversity case is whether each of the parties does, in fact, reside in different states. For individuals, the question focuses on the individual’s domicile rather than mere residence in a state. Thus, for example, if a party has a residence in both Texas and California, but his true domicile is Texas, then the party will be considered a citizen of Texas rather than a citizen of both states. Diversity jurisdiction requires complete diversity by all plaintiffs and all defendants in the suit, though there are limitations to this rule in the United States Code. For example, federal courts may have diversity jurisdiction to hear a case because all parties have diverse citizenship, but the court will not have supplemental jurisdiction over parties that are joined as plaintiffs in the case or over parties that intervene as plaintiffs in the case.
More difficult questions often arise when a corporation or association is a party to the suit. The right of a corporation is, in many respects, no different than the rights of an individual, since a corporation can sue or be sued. However, a corporation does not have a “domicile” that is similar to an individual. For diversity jurisdiction purposes, Congress provides that a corporation is a citizen in the state in which it is incorporated and in the state where it has its principal place of business. For smaller corporations, this question is usually not difficult, especially if the corporation has most of its offices and business in a single state. However, large national corporations may have offices in every state, so the question is much more complex. For these types of corporations, courts look to the so-called “nerve center” of the corporation, meaning the state in which most of the corporation’s business is conducted.