America runs two court systems side by side, and where a lawsuit lands changes the judge, the jury pool, and sometimes the outcome. The rules that sort cases between them — including the $75,000 "diversity" rule — are simpler than they sound.
Two Parallel Court Systems
The United States doesn't have one court system — it has fifty-one of them, and then some. Every state runs its own courts, with trial courts, appeals courts, and a state supreme court applying that state's law. Alongside them sits the federal system: 94 district courts, 13 courts of appeals, and the U.S. Supreme Court.State courts do the overwhelming majority of the work — well over 90 percent of the country's litigation, from traffic tickets and evictions to divorces and car-crash suits. State courts are courts of "general jurisdiction": they can hear almost anything. Federal courts are the opposite — courts of "limited jurisdiction" that can only hear cases Congress and the Constitution allow them to hear. A lawsuit gets into federal court through one of two main doors.
Door One: The Case Is About Federal Law
The first door is the intuitive one, called "federal question" jurisdiction: if a claim arises under federal law, a federal court can hear it. Suits under the Telephone Consumer Protection Act, the Fair Credit Reporting Act, federal securities and antitrust laws, civil rights statutes, and ERISA all walk through this door — which is why so many of the cases we cover are federal. The subject matter, not the size of the case or where the parties live, is what counts.Door Two: Diversity Jurisdiction — the "Road Game" Rule
The second door has nothing to do with what the case is about. "Diversity" jurisdiction lets a federal court hear ordinary state-law disputes — a contract fight, a slip-and-fall, a fraud claim — when two things are true:- The plaintiffs and defendants are citizens of different states (no plaintiff shares a state with any defendant — lawyers call this "complete diversity"), and
- More than $75,000 is plausibly at stake, not counting interest and court costs.
The reason this rule exists is best understood as a sports fan: nobody loves playing a road game with hometown referees. The Constitution's framers worried that a Georgia company sued in a Massachusetts state court, in front of a locally elected judge and an all-Massachusetts jury, might not get a fair shake against a Massachusetts plaintiff. Diversity jurisdiction offers a neutral field — a federal court, with a life-tenured judge who doesn't stand for local election — for disputes between citizens of different states. The $75,000 floor just keeps small cases where they belong, in state court.
One wrinkle worth knowing for class action readers: a corporation is a "citizen" of two places — the state where it's incorporated and the state of its headquarters. That's why a Delaware-incorporated, California-headquartered tech company counts as a citizen of both Delaware and California when courts check whether the parties are diverse.
Removal: The Defendant's Escape Hatch
The plaintiff picks the court first, but the choice isn't final. If a case filed in state court could have been brought in federal court, the defendant can "remove" it to the local federal district court, generally within 30 days of being served. If the federal judge decides the requirements weren't actually met, the case gets "remanded" — sent back to state court.There's a fairness-flavored exception here too: a defendant sued in its own home state generally can't remove a case based on diversity. The rule exists to protect out-of-staters from hometown bias, and a defendant playing at home doesn't need the protection.
Class Actions: CAFA Changed the Map
For class actions, Congress redrew the boundaries with the Class Action Fairness Act of 2005 (CAFA). Under CAFA, federal courts can hear a class action when the class has at least 100 members, the total amount at stake exceeds $5 million, and just one class member is from a different state than a defendant — "minimal diversity," a far easier test than the complete diversity ordinary cases require.Since a nationwide consumer class almost always includes members from all fifty states, virtually any large class action can now be filed in or removed to federal court — which is exactly what CAFA's drafters intended, and why nearly every settlement on this site carries a federal district court case number. The full history and mechanics are in our CAFA glossary entry, and related federal cases filed around the country often end up consolidated through multidistrict litigation.
Does It Matter Which Court Hears a Case?
Legally, both systems are full-service courts, and state courts decide federal-law issues all the time. Practically, the differences are real: federal judges are appointed for life while many state judges are elected; federal juries are drawn from a whole district while state juries come from one county; and the two systems run on different procedural rules and timelines. Lawyers on both sides think hard about those differences — it's why removal fights and remand motions are a routine opening act in class actions.For everything else about how the two systems differ — including who prosecutes crimes versus who files lawsuits — see our companion explainers on civil vs. criminal cases and representing yourself pro se.
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Frequently Asked Questions
What is diversity jurisdiction?
Diversity jurisdiction lets a federal court hear a case based purely on state law when the plaintiffs and defendants are citizens of different states and more than $75,000 is at stake. The idea is fairness: an out-of-state party shouldn't have to worry about hometown favoritism in the other side's local courts.
What does the $75,000 amount in controversy mean?
To use diversity jurisdiction, the amount the plaintiff plausibly seeks must exceed $75,000, not counting interest and court costs. Congress set that threshold in 1996. If a claim can't plausibly clear it, a state-law dispute between citizens of different states stays in state court.
Can a defendant move a case from state court to federal court?
Often, yes. If the case could have been filed in federal court in the first place, the defendant can "remove" it there, generally within 30 days of being served. The plaintiff can ask the federal judge to send it back — a remand — if the requirements aren't actually met. One wrinkle: a defendant sued in its own home state generally can't remove based on diversity.
Why are most big class actions in federal court?
The Class Action Fairness Act of 2005 (CAFA) gives federal courts jurisdiction over most class actions with 100 or more class members, more than $5 million at stake in total, and at least one class member from a different state than a defendant. Since nationwide consumer classes almost always meet those tests, most large class actions are filed in or removed to federal district court.
Sources
• U.S. Courts — Comparing Federal & State Courts• 28 U.S.C. § 1332 — Diversity of Citizenship (Cornell LII)
• Cornell Law School LII — Diversity Jurisdiction
