Paralegal Advanced Competency Exam (PACE) Practice Exam

What is the purpose of diversity jurisdiction in federal courts?

1. To resolve disputes solely based on federal law

2. To decide disputes between citizens of different states when damages exceed $75,000

3. To provide a legal framework for corporate governance

4. To establish international law guidelines

The correct answer is: To decide disputes between citizens of different states when damages exceed $75,000

Diversity jurisdiction in federal courts serves the purpose of providing a legal mechanism to resolve disputes between parties from different states, particularly when the amount in controversy exceeds $75,000. This purpose is rooted in the desire to prevent potential biases that might arise in local courts, where parties may be influenced by state loyalties or biases against out-of-state litigants. By allowing these types of cases to be heard in federal court, the U.S. legal system aims to ensure a more neutral and impartial forum for such disputes. The threshold of $75,000 serves as a jurisdictional requirement, ensuring that only significant amounts of potential damages justify the federal court's involvement. This threshold helps to filter cases, reserving federal judicial resources for substantial claims that cross state lines. Other options presented focus either on specific legal frameworks or areas that do not align with the core purpose of diversity jurisdiction. For instance, resolving disputes solely based on federal law pertains to federal question jurisdiction, not diversity jurisdiction. While corporate governance and international law are important legal areas, they do not relate to the fundamental objective of diversity jurisdiction, which is primarily concerned with the geography of the parties involved and the value of the claims.