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Ninth Circuit Rules National Banks are Residents Only of Their Home State

Financial Services Blog

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April 02, 2014

The United States Court of Appeals for the Ninth Circuit (encompassing nine Western states and two Pacific islands) has held that for purposes of diversity jurisdiction a national bank is a citizen only of the state in which its main office is located, and not of every state where it does business, or even the state of its principal place of business. The 2-1 decision came in a case involving Wells Fargo, which the Ninth Circuit held was a citizen of South Dakota, the location of its “main office” (as set forth in its articles of association), not California, the location of its principal place of business.

As Circuit Judge M. Margaret McKeown wrote in the majority opinion, “[t]he relevant statute is ambiguous, the courts are split on the question, and the Supreme Court has not squarely decided the issue.” The statute at issue is 28 U.S.C. § 1348, which says banks are residents “of the states in which they are respectively located.” The Ninth Circuit noted that the statute contains “sparse text” and that the U.S. Supreme Court previously determined the word “located” to be contextually ambiguous.

Ruling Could Allow Banks to Remove Cases to Federal Court Regardless of Principal Place of Business

For consumers, loan originators, mortgage insurers and others who may be plaintiffs in a dispute with a national bank within the Ninth Circuit, the ruling could allow the bank to remove cases to federal court where it would otherwise be forced to litigate in state court. Because of this, Circuit Judge Ronald M. Gould, who dissented, said that the majority decision put national banks on superior footing in their access to federal courts as compared to other corporations, and argued that Congress did not intend for Section 1348 to mean that national banks could largely circumvent state courts:

To say that a bank like Wells Fargo, traditionally identified with California and with its principal place of business there for more than a century, is not a citizen of California for diversity purposes, would mean that any bank broadly identified with a state in which it started its business and maintained its principal place of business could ensure federal court diversity actions, and rule out the state courts, even when pitted against adverse citizens of the state where it is most closely identified and understood to operate. I do not think that idea, at odds with principles of federalism that give state courts a say in resolving their residents’ disputes, is what Congress had in mind.

Depending on where (in which Circuit) litigation is commenced involving national banks, plaintiffs may find themselves subject to motions by the bank to remove the case to federal court based on diversity jurisdiction, even where the bank is largely identified with the state in which suit was brought. Potential plaintiffs should keep this in mind as they plan their litigation strategy.

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Philip R. Stein

Philip R. Stein

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