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Understanding diversity jurisdiction

According to the Cornell University Law School’s Legal Information Institute, a civil case can be tried in federal court if that court has diversity jurisdiction—that is, the litigation involves citizens from different states and the amount of money at issue is at least $75,000. When a Nevada civil lawsuit is considered by a federal court sitting in diversity, one of the major issues that must be determined is whether state or federal laws will be applied. 

As noted by the Notre Dame Law Review, the Erie doctrine is used to ascertain the applicable law for a case that is being heard by a federal court utilizing its power of diversity jurisdiction. This doctrine stems from a 1938 ruling by the United States Supreme Court, Erie R.R. Co. v. Tompkins. The case essentially established that federal courts sitting in diversity must apply state law when necessary to discourage forum shopping, as this leads to an inequitable administration of law.

The Notre Dame Law Review explains that forum shopping is a behavior in which litigation parties choose a court because it would apply laws that are more favorable to their claims. If, for example, the statute of limitations for a plaintiff’s negligence claim is three years under federal law but two years under state law, and the accident occurred over two years prior, the plaintiff would be inclined to pursue the case in federal court. In such a situation, Erie would dictate that state law be applied by the federal court, as the failure to do so would lead to unfair applications of laws.  

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