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Lawsuits between states are argued in front of the Supreme Court. In fact, it is one of the few cases in which the Supreme Court has the "original jurisdiction" rather than hearing appeals from lower-court decisions.

The constitution says, in Article III section II: "In all Cases affecting Ambassadors, other public Ministers and Consuls, and those in which a State shall be Party, the supreme Court shall have original Jurisdiction."

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Q: All lawsuits between states are settled where?
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