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Ninth Circuit holds that, for purposes of diversity jurisdiction, a national bank is not a citizen of the state in which it maintains its principal place of business

On March 28, 2014 by Schnader in Finance

By Stephen J. Shapiro

For purposes of determining diversity jurisdiction, national banks are “deemed citizens of the States in which they are . . . located.” 28 U.S.C § 1348.  In the recent case Rouse v. Wachovia Mortgage, FSB, the Ninth Circuit held that a national bank is not “located” in the state of its principal place of business, but rather is located only in the state of its main office.

The plaintiffs in Rouse sued Wells Fargo in California state court for claims relating to their home loan. The bank removed the case to federal court, alleging both federal question and diversity jurisdiction. When the plaintiffs, who are citizens of California, amended their complaint to assert only state law causes of action, the district court concluded that it lacked diversity jurisdiction and remanded the case to state court. The district court reasoned that the parties were not diverse because, in addition to being a citizen of South Dakota, the state in which its main office is located, the bank also is a citizen of California, the state in which its principal place of business is located.

On appeal, the Ninth Circuit reversed. The Court first noted that, although the Supreme Court held in Wachovia Bank, N.A. v. Schmidt that a national bank is not “located” for purposes of section 1348 in each state in which it has a branch, it did not address the instant question – whether a national bank is a citizen of the state in which it maintains its principal place of business. Therefore, the Ninth Circuit set out to determine the Congressional intent behind section 1348.

Looking to the history of the diversity statutes, the Court observed that, at the time the current version of section 1348 was enacted (in 1948), state-chartered corporations were deemed citizens only of the states in which they were incorporated. In 1958, though, Congress revised 28 U.S.C. § 1332(c)(1) to provide that state-chartered corporations also would be considered citizens of the states in which they maintain their principal places of business. When it made this change, however, Congress did not amend section 1348 to make a similar change for national banks. Given that history, the Court concluded that: (1) at the time it enacted section 1348, Congress did not intend that a national bank’s principal place of business would determine its citizenship; and (2) Congress purposefully passed on the opportunity to provide otherwise by refraining from amending section 1348 as it had amended section 1332(c)(1). Therefore, the Ninth Circuit (like the Eighth Circuit) held that “under § 1348, a national banking association is a citizen only of the state in which its main office is located.”

Category: Finance