(Well thought-out answer, unlike most on this website) The answer is probably D. All of the above. This is because in A, since they reside in different states, it'd be unfair to hold the proceeding in one of the two states so the federal court takes over. If a state is suing a resident of another state, it'd be unfair to hold the proceedings in one of the two states because one may be biased against the other. The federal court should especially see over a state v. state trial to maintain fairness. If you don't think it's D, I'd go with C because they both would work. Though I think D. would be more appropriate, myself