• For Federal Court Diversity Purposes, a National Bank Is a Citizen of the State in Which Its Main Office Is Located
  • April 26, 2006 | Author: Michael L. Weissman
  • Law Firm: Holland & Knight LLP - Chicago Office
  • In Wachovia Bank, National Association v. Schmidt, ________ US _______ (No. 04-1186, January 17, 2006), the Supreme Court ruled that 28 U.S.C. §1348, which provides that a national bank is a citizen of the state in which it is located, means it is only a citizen of the state in which its main office, as set forth in its articles of association, is located.

    The effect of this decision is to permit national banks to have access to the federal courts on the same basis as other litigants. Prior to this decision, a number of federal courts had held that a national bank was a citizen of every state in which it had a branch. This often destroyed diversity and mandated that actions be brought in state courts.

    Unlike state banks that are usually chartered under the corporate laws of a particular state, national banks are chartered by the Comptroller of the Currency. Thus, they have no situs in a particular state. Given that, how does a court determine a bank's citizenship in a federal court diversity action? The federal diversity statute simply says that national banks are "... citizens of the States in which they are respectively located."

    Wachovia is a national banking association whose designated main office is in Charlotte, North Carolina. It was sued by Schmidt and others in a South Carolina state court for fraudulently inducing them to participate in an illegal tax shelter. In response, Wachovia filed a petition for arbitration in a South Carolina federal court based on diversity of citizenship. The petition was denied on its merits with the issue of federal court jurisdiction not being raised by either party or the court. On appeal to the United States Court of Appeals for the Fourth Circuit, Wachovia's petition was dismissed for lack of diversity jurisdiction.

    The Fourth Circuit opined that Wachovia was a citizen of every state in which it maintained a branch office. Thus, because Wachovia had branch operations in South Carolina, it was a citizen of South Carolina and there was no diversity jurisdiction. The Supreme Court granted certiorari to resolve a conflict between Wachovia and , 345 F.3d 154 (2nd Cir. 2003) on one hand and Horton v. Bank One, N.A., 387 F.3d 426 (5th Cir. 2004) and Firstar Bank, N.A. v. Faul, 253 F.3d 982 (7th Cir. 2001) on the other.

    Beginning with the proposition that there is no enduring rigidity about the word "located," the Supreme Court called it a chameleon word, whose meaning depended on the context in which and the purpose for which it is used. The Court also said that "... the Court of Appeals decision would severely constrict a national bank's access to diversity jurisdiction as compared to the access available to corporations generally. For purposes of diversity, a corporation surely is not deemed a citizen of every State in which it maintains a business establishment."

    What's the Point?

    The Wachovia case establishes parity for national banks with other litigants in determining whether federal court diversity jurisdiction exists.