Sunday, January 22, 2006

SCOTUS holds that national banks are citizens of states where their office is located

Lots of attention has been paid to the assisted suicide case decided last week. However, a day after that case SCOTUS decided a major case dealing with federal-court diversity jurisdiction. The case is styled Wachovia Bank v. Schmidt.

The suit began when citizens of South Carolina sued Wachovia in a South Carolina state court for fraudulently inducing them to participate in an illegitimate tax shelter. Shortly thereafter, Wachovia filed a petition in the United States District Court for the District of South Carolina, seeking to compel arbitration of the dispute. As the sole basis for federal-court jurisdiction, Wachovia alleged the parties' diverse citizenship. The District Court denied Wachovia's petition on the merits; neither the parties nor the court questioned the existence of federal subject-matter jurisdiction. On appeal, a divided Fourth Circuit panel determined that the District Court lacked diversity jurisdiction over the action; it therefore vacated the judgmentand instructed the District Court to dismiss the case. In the Fourth Circuit, a panel essentially held that for purposes of federal-court diversity jurisdiction, a national bank is a citizen of every State in which it has established a branch. Hence, Wachovia could not claim that it was a citizen of North Carolina when it had myriad offices in South Carolina.

SCOTUS reversed, holding that

a national bank, for section 1348 purposes, is a citizen of the State in which its main office, as set forth in its articles of association, is located. Were we to hold, as the Court of Appeals did, that a national bank is additionally a citizen of every State in which it has established a branch, the access of a federally chartered bank to a federal forum would be drastically curtailed in comparison to the access afforded state banks and other state-incorporated entities. Congress, we are satisfied, created no such anomaly.

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