Generally, the federal courts have jurisdiction in two ways. First, federal courts have jurisdiction where the case involves is a federal question. A federal question exists where a court must interpret the US Constitution or a federal law. Second, the federal courts have diversity jurisdiction. Diversity jurisdiction occurs where the parties are citizens of different states and the jurisdictional amount is met.
Under 28 USC § 1332(a), federal courts have jurisdiction where the parties are diverse and “the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs.” If the amount in controversy is not met, then the case will be remanded to the state court.
In Freeland v. Liberty Mutual Fire Insurance Co., the Sixth Circuit Court of Appeals interpreted § 1332(a) and ruled that the federal courts do not have diversity jurisdiction where the amount is exactly $75,000. In Freeland, there was a dispute over the amount of money that an insurance company was required to pay under a policy. The insurance company believed it was required to only pay $25,000, while the plaintiffs claimed that the insurance company was required to pay $100,000. The issue the court had to determine was whether the amount in controversy requirement under § 1332(a) was met.
The sixth circuit ruled that the federal courts lacked jurisdiction in the case because the amount in controversy did not exceed $75,000. Even though there was the potential for a $100,000 recovery by the plaintiffs, the amount in controversy did not exceed $75,000 because “the value of the consequences which may result from the litigation” was not more than $75,000. In other words, because it was undisputed that the plaintiffs were owed at least $25,000, but no more than $100,000, the value of the case was at most exactly $75,000. To meet the jurisdictional threshold for federal court, the amount in controversy had to exceed $75,000 by at least a penny. Since it did not, the court was obligated to remand the case back to the state court.
