What criteria must be met for federal courts to exercise diversity jurisdiction?

Diversity jurisdiction in federal courts is meant to provide a neutral forum for litigants from different states to resolve their disputes. For federal courts to exercise this type of jurisdiction, two primary criteria must be satisfied: the parties involved must be citizens of different states, and the amount in controversy must exceed a specific threshold. Currently, that threshold is set at more than $75,000.

This means that if a plaintiff is a citizen of one state and a defendant is a citizen of another, the plaintiff can choose to bring the case in federal court, provided the amount in dispute exceeds $75,000. The rationale behind this requirement is to avoid local biases that might affect the outcome of the case if heard in a state court where one party is a local citizen.

The criteria regarding amounts less than $75,000 or both parties being from the same state do not meet the necessary requirements for diversity jurisdiction. Additionally, stating that all parties must be U.S. citizens for federal jurisdiction to apply does not accurately reflect the actual guidance, as diversity jurisdiction specifically involves citizens of different states. Thus, the selection correctly identifies the essential components of diversity jurisdiction, ensuring that cases arising between diverse state citizens can be fairly adjudicated in a federal court setting.