Determining Diversity Jurisdiction of National Banks After Wachovia Bank V
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Fordham Law Review Volume 81 Issue 3 Article 6 2012 Determining Diversity Jurisdiction of National Banks After Wachovia Bank v. Schmidt Michael Podolsky Follow this and additional works at: https://ir.lawnet.fordham.edu/flr Part of the Law Commons Recommended Citation Michael Podolsky, Determining Diversity Jurisdiction of National Banks After Wachovia Bank v. Schmidt, 81 Fordham L. Rev. 1447 (2013). Available at: https://ir.lawnet.fordham.edu/flr/vol81/iss3/6 This Note is brought to you for free and open access by FLASH: The Fordham Law Archive of Scholarship and History. It has been accepted for inclusion in Fordham Law Review by an authorized editor of FLASH: The Fordham Law Archive of Scholarship and History. For more information, please contact [email protected]. DETERMINING DIVERSITY JURISDICTION OF NATIONAL BANKS AFTER WACHOVIA BANK V. SCHMIDT Michael Podolsky* Prior to the U.S. Supreme Court’s decision in Wachovia Bank v. Schmidt, some courts held, for diversity jurisdiction purposes, that national banks were citizens of each and every state in which they had a branch. In Schmidt, the Supreme Court made it clear that this approach was incorrect, but failed to provide an alternative one. Not surprisingly, in the wake of that decision another court split developed. While some courts have found that national banks are citizens only of the state listed on their charters as their main office, others have found that national banks are also citizens of the state that is their principal place of business. This Note contends that congressional intent and equitable considerations mandate that national banks be considered citizens of both the state listed on their charter as their main office and the state that is their principal place of business. Also, this Note suggests that Congress should amend the relevant statute to clarify that the two-state approach is the correct one, and thereby prevent courts from wasting valuable time and resources on this issue. TABLE OF CONTENTS INTRODUCTION ........................................................................................ 1449 I. THE HISTORY OF NATIONAL BANKS AND THEIR ACCESS TO FEDERAL COURT ..................................................................... 1450 A. Diversity 101: The Power of a Federal Court To Hear a Case ...................................................................................... 1450 B. What Is a National Bank Anyway? ......................................... 1451 C. Easy Come, Easy Go: National Banks’ Access to Federal Court ..................................................................................... 1452 D. Why the Option to Access Federal Court Matters .................. 1454 II. WACHOVIA BANK V. SCHMIDT: RESOLVING ONE CIRCUIT SPLIT WHILE CREATING ANOTHER ........................................................ 1455 * J.D. Candidate, 2013, Fordham University School of Law; B.S., 2010, Macaulay Honors Program at Brooklyn College, City University of New York. Thank you to Professor Richard Squire for his help in writing this Note, and thank you to my fiancée and my family for their encouragement and support throughout this process. 1447 1448 FORDHAM LAW REVIEW [Vol. 81 A. The Supreme Court’s Earlier Decision on Venue................... 1455 B. The Fifth and Seventh Circuits: “Located” Limited to Only Two Places—The State of the Bank’s Main Office and the State of Its Principal Place of Business ................................ 1456 C. The Second and Fourth Circuits: “Located” Refers to Any State in Which a National Bank Operates a Branch ............. 1460 D. The Supreme Court Sides With the Fifth and Seventh Circuits: “Located” Does Not Mean Each and Every State Where There Is a Branch; But What Does It Mean? ............ 1464 III. POST-SCHMIDT: WHAT HAPPENS WHEN A NATIONAL BANK’S MAIN OFFICE AND PRINCIPAL PLACE OF BUSINESS ARE IN DIFFERENT STATES? ..................................................................... 1467 A. A National Bank Is a Citizen Only of the State Where It Has Its Main Office ................................................ 1467 1. The Eighth Circuit Follows the One-State Approach ...... 1467 2. District Courts Since Schmidt That Have Followed the One-State Approach ........................................................ 1470 B. Courts Holding That a National Bank Is a Citizen Both of the State That Is Its Principal Place of Business and the State of Its Main Office ......................................................... 1472 1. The Wells Fargo Dissent .................................................. 1472 2. The Continued Authority of the Seventh and Fifth Circuits After Schmidt ..................................................... 1474 3. District Courts Since Schmidt That Have Followed the Dual-Test Approach ........................................................ 1475 IV. THE DUAL-TEST APPROACH: A NATIONAL BANK SHOULD BE DEEMED A CITIZEN OF BOTH THE STATE THAT IS DESIGNATED AS ITS MAIN OFFICE BY ITS CHARTER AND THE STATE THAT IS ITS PRINCIPAL PLACE OF BUSINESS ............................................. 1478 A. Wachovia Bank v. Schmidt Left the Door Open for a Further Circuit Split .......................................................... 1478 B. The Textual Canons of Statuary Interpretation Are Insufficient to Define “Located” .......................................... 1479 1. The Term “Located” Is Ambiguous on Its Face and Thus Its Definition Cannot Be Derived From Its Plain Meaning .......................................................................... 1479 2. The Presence of “Established” and “Located” in § 1348 Is Most Likely a Coincidence of Statutory Drafting ....... 1480 3. The Canon of In Pari Materia Cannot Be Applied to the Venue Statute and the Diversity Statute .......................... 1480 C. Congressional Intent Supports the Dual-Test Approach ........ 1481 D. Equitable Considerations Require That National Banks Be Placed on the Same Footing As State Banks ......................... 1482 E. Congress Should Amend § 1348, As It Did § 1332(c), by Adding the Words “Principal Place of Business” To End 2012] DETERMINING DIVERSITY JURISDICTION 1449 the Confusion and Stop the Inequitable Results Reached by Some Courts .......................................................................... 1483 CONCLUSION ........................................................................................... 1483 INTRODUCTION There are many things people consider when choosing a bank with which to do business. Some people choose based upon convenience, others based upon stability, and still others based upon customer service. What most people do not consider, however, is where they can sue or be sued by the bank if a dispute arises. Yet this factor, in certain circumstances, may have a significant impact on their substantive rights as a litigant. For example, according to the Eighth Circuit and many district courts, a resident of California who chooses to bank at the local branch of a state- chartered bank whose principal place of business is California will be able to keep her suit in California state court.1 Yet, if the same California resident instead chooses to bank at a branch of a nationally chartered bank—for example, Wells Fargo—she may be forced to litigate her case in the federal court system. This is true despite the fact that Wells Fargo’s principal place of business is California.2 The reason for the different outcomes stems from the fact that courts use two different tests to determine the citizenship of each bank for diversity jurisdiction purposes. In a footnote to Wachovia Bank v. Schmidt,3 the U.S. Supreme Court declined to decide whether national banks, for diversity jurisdiction purposes, are considered citizens of both their principal place of business and the state listed in their charter as their main office.4 The Court stated that the question “may be of scant practical significance for, in almost every case . the location of a national bank’s main office and of its principal place of business coincide.”5 However, the cases since Schmidt suggest otherwise, as the principal places of business of the country’s largest nationally chartered banks are in different states than their main offices.6 Part I of this Note explores the history of national banks and their access to the federal court system. Part II discusses the circuit split the Supreme Court resolved in Schmidt, which ultimately led to a new circuit split. Part III presents the current split over whether a national bank should be considered a citizen of the state that is its principal place of business in addition to the state its charter designates as its main office. Part IV 1. See infra Part III.A. 2. The same is true of New York residents with respect to Chase Manhattan Bank. Under the Eighth Circuit’s rationale, Chase Bank would be able to remove a case brought by a New York resident to federal court even though Chase’s principal place of business is New York. 3. 546 U.S. 303 (2006). 4. Id. at 317 n.9. 5. Id. 6. See infra Part III. 1450 FORDHAM LAW REVIEW [Vol. 81 contends that a dual-test approach most closely comports with the Supreme Court’s rationale in Schmidt, best captures Congress’s intent to achieve jurisdictional parity, and is the most equitable result. Part IV also suggests that Congress should amend 28 U.S.C. § 1348 with language similar to that found in the diversity statute for corporations, 28 U.S.C. § 1332, in order to unequivocally clarify any uncertainties. I. THE HISTORY OF NATIONAL