Group of professionals discuss finance

Breaking news and expert analysis on legal and compliance issues

[Back To Home][Back To Archives]

From Banking and Finance Law Daily, March 28, 2014

National bank is located only in main office state when diversity jurisdiction is determined

By Richard A. Roth, J.D.

For purposes of federal district court diversity of citizenship jurisdiction, a national bank is located only in the state where the bank’s articles of association place its main office, the U.S. Court of Appeals for the Ninth Circuit has decided. The opinion rejects the assertion that a national bank has dual citizenship and settles, at least for the Ninth Circuit, an open question that has resulted in conflicting district court decisions (Rouse v. Wachovia Mortgage, FSB, March 27, 2014, McKeown, Circuit Judge).

The suit arose from a married couple’s dispute with Wells Fargo Bank and its Wachovia Mortgage division over the consumers’ mortgage and trust deed. The original complaint asserted both federal law and state law claims, allowing Wells Fargo to remove the suit to the federal district court based on both subject matter and diversity jurisdiction. The bank’s claim of diversity jurisdiction was based on the consumers’ California citizenship and the bank’s assertion that it was located only in the state of its main office, South Dakota.

After the district court dismissed all of the consumers’ original claims, they filed an amended complaint that raised only state law issues. With the federal court’s subject matter jurisdiction now eliminated, the district court examined whether it had diversity jurisdiction and determined it did not. Wells Fargo had dual citizenship, the court said, because it was a citizen of both the state where its main office was located—South Dakota—and the state of its principal place of business—California. Since both the bank and the consumers were California citizens, the diversity of citizenship that would create jurisdiction was missing, the district court said.

The district court then returned the suit to the California state court, and Wells Fargo appealed.

Statutory provisions. National bank citizenship is governed by 28 U.S.C. §1348, which provides that a national bank is a citizen of the state in which it is located. However, the law does not define “located.” While there is no dispute that a national bank is located in the state of its main office, there is considerable dispute over whether a bank also is located in the state of its principal place of business.

Ordinarily, the meaning of a word would be established by the definition given in a statute or, in the absence of a definition, by the word’s ordinary meaning. However, the appellate court said that, for purposes of the national bank citizenship statute, “located” could not be defined so easily. Citing the U.S. Supreme Court decision in Wachovia Bank, N.A., v. Schmidt (2006), the appellate court said that it needed to look to the context in which the word appeared and the purpose for which it was used.

Meaning of “located.” The appellate court relied heavily on the Wachovia decision to discern the meaning of “located,” even while conceding the precedent was not precisely applicable. The question decided in Wachovia was whether a national bank was a citizen of every state in which it maintained a branch. The Supreme Court said it was not.

According to the appellate court, the Supreme Court’s concern was to protect national banks’ right to remove state court suits to federal court. The Supreme Court did not decide the principal place of business issue, but it did acknowledge it, the appellate court said. This implied the Supreme Court’s statement that a national bank was a citizen of its main office state was intended to reject citizenship anywhere else.

Prior federal laws. The appellate court also said the “historical landscape” of 12 U.S.C. §1348 supported its conclusion. Federal law on of diversity of citizenship jurisdiction over national banks has changed several times since the first statute. Originally, national banks could remove any suit to federal court, on the principal that a suit against a federally-chartered institution arose under federal laws.

Later, Congress became concerned with establishing jurisdictional parity between national banks and state banks, and then with establishing parity between national banks and individual citizens, the appellate court said. However, the current statute evinces no concern over jurisdictional parity at all.

Moreover, to the extent that 12 U.S.C. §1348 was intended to establish jurisdictional parity, it was to be interpreted according to the jurisdictional provisions for state banks in effect when it was passed. At that time, a state bank was a citizen only of the state where it was incorporated; dual citizenship for state banks did not come until after 12 U.S.C. §1348 was adopted, the court said.

Jurisdictional parity concerns did not support the dual citizenship position, the court concluded.

Dissenting opinion. Judge Gould, writing in dissent, would have relied on the concern for jurisdictional parity between state and national banks. The Supreme Court’s Wachovia Bank opinion never addressed the question of whether a national bank was a citizen of the state of its principal place of business, he argued.

The dissenter also believed that the failure of the statute to define “located” required the court to consider the effect that its decision would have on a point of policy. Wells Fargo was traditionally identified with the state of California and had maintained its principal place of business in California for more than a century, he observed. To permit a national bank in that situation to take suits by citizens of the state away from the state’s courts was “at odds with principles of federalism that give state courts a say in resolving their residents’ disputes,” he said. That would not have been what Congress intended.

The case is No. 12-55278.

Attorneys: Mark T. Flewelling (Angling, Flewelling, Rasmussen, Campbell & Trytten LLP) and Robert A. Long Jr. (Covington & Burling LLP) for Wachovia Mortgage, FSB. No appearance for Robert Rouse and Victoria Rouse.

Companies: NDeX West LLC; Wachovia Mortgage, FSB; Wells Fargo Bank NA; World Savings Bank

MainStory: TopStory BankingOperations ConsumerCredit Loans Mortgages AlaskaNews ArizonaNews CaliforniaNews GuamNews HawaiiNews IdahoNews MontanaNews NevadaNews OregonNews WashingtonNews

Banking and Finance Law Daily

Introducing Wolters Kluwer Banking and Finance Law Daily — a daily reporting service created by attorneys, for attorneys — providing same-day coverage of breaking news, court decisions, legislation, and regulatory activity.

A complete daily report of the news that affects your world

  • View full summaries of federal and state court decisions.
  • Access full text of legislative and regulatory developments.
  • Customize your daily email by topic and/or jurisdiction.
  • Search archives for stories of interest.

Not just news — the right news

  • Get expert analysis written by subject matter specialists—created by attorneys for attorneys.
  • Track law firms and organizations in the headlines with our new “Who’s in the News” feature.
  • Promote your firm with our new reprint policy.

24/7 access for a 24/7 world

  • Forward information with special copyright permissions, encouraging collaboration between counsel and colleagues.
  • Save time with mobile apps for your BlackBerry, iPhone, iPad, Android, or Kindle.
  • Access all links from any mobile device without being prompted for user name and password.