Diversity of Citizenship in Federal Court Jurisdiction?

Question

According to this thread, one of the three criteria in filing suit to compel arbitration in federal court is diversity of citizenship.

Suppose Party A enters into a business contract with Party B. Party B sells the business to Party C in such a way that Party C inherits any previous contractual agreements signed by Party B.

Party A and Party C now dispute the interpretation of the contract signed between Party A and Party B. Party A and Party C live in one state. Party B lives in another state.

While Party B is no longer directly liable for the contract, he is able to provide testimony (if subpoenaed) regarding the interpretation of the contract that would be helpful to Party A.

Does any of this constitute diversity of citizenship in regards to federal jurisdiction? Or once Party B sells the business the fact that he signed the agreement with Party A and/or can testify as to the intent of the lease is meaningless?

Answer 1

Diversity of citizenship concerns parties to an action. In the given circumstances, Party B is a witness, not a party. That is, whether A sues C or vice versa, neither would name B as a defendant.

The determination of diversity jurisdiction occurs in the initial stages of the suit. Because A and C are citizens of the same state, there is no diversity of citizenship. Similarly, if Bob and Alice sign a contract when they live in different states, but then one moves to the other's state, and then a controversy arises under the contract, there is no diversity of citizenship.

For reference, 28 USC 1332(a):

(a) The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between—

(1) citizens of different States;

(2) citizens of a State and citizens or subjects of a foreign state, except that the district courts shall not have original jurisdiction under this subsection of an action between citizens of a State and citizens or subjects of a foreign state who are lawfully admitted for permanent residence in the United States and are domiciled in the same State;

(3) citizens of different States and in which citizens or subjects of a foreign state are additional parties; and

(4) a foreign state, defined in section 1603(a) of this title, as plaintiff and citizens of a State or of different States.