Centuries Haven’t Yet Set Bank’s Jurisdiction

(CN) - For purposes of jurisdiction, Wells Fargo is a citizen of South Dakota, not California, the 9th Circuit ruled Thursday, lamenting that such questions remain unsettled after more than a century.

A decision by the Supreme Court may be necessary to resolve the issue.

"One might think that 150 years after Congress established national banks in 1863, the question of their citizenship for purposes of diversity jurisdiction would be well established," the ruling states. "Not so. The relevant statute is ambiguous, the courts are split on the question, and the Supreme Court has not squarely decided the issue."

Robert and Victoria Rouse sued Wells Fargo Bank and its Wachovia Mortgage arm in a California superior court, but the bank removed the action to federal court. After Wells Fargo had the federal action dismissed, the couple amended their complaint to allege only violations of state law.

U.S. District Judge Dolly Gee ruled in Riverside that she lacked jurisdiction to consider the claims because Wells Fargo, like the Rouses, was a citizen of California. Concluding that a national bank is a citizen of both the state with its "principal place of business" and the state listed in its articles of association, Gee sent the issue back to the superior court where it started.

The 9th Circuit reversed Thursday, 2-1, finding that a "national bank is a citizen only of the state in which its main office is located."

Wells Fargo was founded in the 1850s in San Francisco and has long been associated with California and the history of the Old West. The bank's operating company is headquartered in Sioux City, S.D.

It does not fit with Supreme Court precedent and 150 years of national banking legislation to contend that the statutory term "located" refers to both "a national bank's principal place of business and its main office," the ruling states.

"To the extent Congress intended to provide for jurisdictional parity between nationally chartered and state-chartered banks, as the district court suggested, parity almost certainly meant that national banks were citizens of only one state because state-chartered banks were, at the time, citizens of only one state," Judge M. Margaret McKeown wrote for the majority.

The "current version of the statute," McKeown explained, "does not include an ethereal incorporation of any principle of jurisdictional parity between state-chartered banks and national banks for suits asserting diversity as a basis for federal jurisdiction."

Judge Ronald Gould dissented on the court's purported failure to consider an "important policy implication" after finding the statute's use of the word "located" to be ambiguous.

"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," Gould wrote.

"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."

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