Circuit Split Emerges over National Banks’ Citizenship
By Oran F. Whiting, Litigation News Associate Editor – December 2, 2011

The location of a national bank’s main office—rather than its principal place of business—determines citizenship for diversity purposes, according to a 2–1 decision by the U.S. Court of Appeals for the Eighth Circuit. Wells Fargo Bank, N.A. v. WMR e-PIN LLC [PDF]. The decision departs from other circuits’ precedents in this area.

Court Finds Bank Can Only Be Citizen of One State at a Time
In Wells Fargo, the defendant-appellant sought reversal of the U.S. District Court for the District of Minnesota’s decision denying its motion to dismiss for lack of jurisdiction, among other rulings. Wells Fargo argued that it was a citizen of both California, the home of its principal place of business, and South Dakota, home of its main office, as set forth in its articles of association. Consequently, Wells Fargo’s dual citizenship destroyed federal subject matter jurisdiction pursuant to 28 U.S.C. §1332(a)(1).

The confusion created by juxtaposing 28 U.S.C. § 1332, which governs the jurisdiction of the federal courts, and 28 U.S.C. §1348, the jurisdictional statute for national banks, and the ambiguity of the term “located” contained in 28 U.S.C. § 1348, prompted the Eighth Circuit Court to review 28 U.S.C. § 1348’s legislative history to determine Congressional intent regarding citizenship of, and jurisdiction over, national banks.

Promulgated in 1958, 28 U.S.C. § 1332 deems a corporation to be a citizen of any state by which it has been incorporated and “of the state where it has its principal place of business.” 28 U.S.C. § 1348, promulgated in 1948, subjects any national banking association to the jurisdiction of federal district courts. The statute also provides, in pertinent part, “[a]ll national banking associations shall . . . be deemed citizens of the States in which they are respectively located.”

National banks were created by the National Bank Act of 1863 [PDF]. National banks were initially made subject to the jurisdiction of the federal courts because they were products of federal law. Mercantile Nat. Bank at Dallas v. Langdeau [PDF]. In 1882, Congress limited federal jurisdiction over national banks to only what existed for state banks. Consequently, diversity jurisdiction, which governed state banks and other corporations, was created for national banks. Excelsior Funds, Inc. v. JP Morgan Chase, N.A. [PDF]. In 1887, Congress specifically deemed national banks citizens of the states in which they were located.

The Eighth Circuit determined the statutory framework governing national banks preceding 28 U.S.C. § 1348 demonstrated Congress's desire for jurisdictional parity between national and state banks. Under 28 U.S.C. § 1332, enacted 10 years after 28 U.S.C. § 1348, state banks and corporations became citizens of any state in which they were incorporated and in the state of their principal places of business. The court opined that the concept of jurisdictional parity no longer applies because 28 U.S.C. § 1332 contains no corresponding change in the laws applicable to federal banks’ citizenship.

Congress made no reference to jurisdictional parity, national banks, or 28 U.S.C. § 1348 when it changed the jurisdictional landscape of state banks and state corporations by enacting 28 U.S.C. § 1332. According to Wells Fargo, whether the concept of jurisdictional parity ought to be revived “is a policy question for Congress, not the federal courts.”

The Eighth Circuit followed Wachovia Bank v. Schmidt [PDF], where the U.S. Supreme Court specifically rejected the notion that a national bank is located in every state where it has a branch office. The Supreme Court held instead that a national bank, for purposes of 28 U.S.C. § 1348, is a citizen of the state where its main office is located.

The Eighth Circuit did not apply the jurisdictional concept of principal place of business created in 28 U.S.C. § 1332 to 28 U.S.C. § 1348 retroactively as did the Fifth and Seventh Circuits in Firstar Bank, N.A. v. Faul [PDF] and Horton v. Bank One, N.A.[PDF]. Those two cases had concluded that 28 U.S.C. § 1348 must be interpreted in light of 28 U.S.C. § 1332 to honor the principle of jurisdictional parity. National banks will be on equal footing with state banks and corporations if national banks are citizens of both the state listed in their organization certificates and the state of their principal place of business.

The Eighth Circuit distinguished Faul and Horton noting that the principal place of business and the state of incorporation of the banks in question were located in the same state, not two separate states.

Congress Has Not Acted
“Congress has chosen not to reconfigure the statutory jurisdictional landscape for national banks, as it has done in 28 U.S.C. § 1332, for state banks and corporations,” observes Barrie L. Brejcha, Chicago, codirector of the ABA Section of Litigation’s Substantive Areas of Litigation Division. “The absence of a principal place of business reference in 28 U.S.C. § 1348 may be of limited practical importance because the location of a national bank’s main office and principal place of business are often one and the same,” she adds.

Supreme Court Review Unlikely
Practitioners do not believe the Supreme Court will address the issue. “I am not persuaded that a significant enough conflict between the circuits exists,” opines Thomas J. Donlon, Stamford, CT, cochair of the Section of Litigation’s Appellate Practice Committee. “The issue in Wells Fargo, where two different states are involved, has not been before the other circuits. In Wachovia Bank, the Supreme Court resolved the questions raised in both Firstar and Horton, whether national banking associations are citizens of every state in which they have a branch, holding that a national bank was not a citizen of states where it merely had branches. To have an actual conflict among the circuits, one would need a case involving different states, decided contrary to Wells Fargo. Plus, the Supreme Court would have to be convinced that this is a serious problem, not one only affecting one or two banks.”

“While the term ‘located’ may be ambiguous, the Supreme Court would likely be disinclined to attempt to clarify Congress’s intent in 28 U.S.C. § 1348 where Congress—having enacted 28 U.S.C. § 1332 10 years later—chose to leave the original statutory language of 28 U.S.C. § 1348 undisturbed,” Brejcha offers.

Were the Supreme Court to rule on the issue, it would most likely interpret the applicable statutes narrowly, commentators believe. “Handicapping the Supreme Court is a dangerous business,” according to Donlon. “However, the majority of the Court has tended to read the language of statutes narrowly. Because 28 U.S.C. § 1348 does not have the phrase ‘principal place of business’ and was not amended to add it in 1958 when 28 U.S.C. § 1332 was so amended, I would think the Court would say 28 U.S.C. § 1348 only means the state containing the main office.”

Impact of the Decision
“Through a plaintiff’s lens, this holding is an opportunity, not a limitation,” says Laura McLaughlin, Chesterfield, MO, cochair of the Section’s Business Torts Committee. “To adverse parties, it supports a limited discussion of a national bank’s diversity. To the banks, holding that national banks are only ‘located’ in the state in which their articles of association are filed can be a double-edged sword.” Banks may now be subject to jurisdiction in the jurisdictions of their principle place of business where the circuit’s precedent could be unfavorable.

Keywords: litigation, national bank citizenship, Eighth Circuit, Wells Fargo, 28 U.S.C. § 1332, 28 U.S.C. § 1348

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