Wachovia Bank, National Ass'n v. Schmidt

Background

Wachovia Bank, a federally chartered national bank with its designated main office in North Carolina, was sued in South Carolina state court by Daniel Schmidt and other South Carolina citizens over an alleged fraudulent tax shelter. Wachovia asked a federal court to compel arbitration and said the parties were citizens of different States, so federal diversity jurisdiction applied. The district court decided the arbitration petition on the merits. On appeal, the Fourth Circuit concluded that, because Wachovia operates branches in many States, it was a citizen of South Carolina and federal courts lacked jurisdiction.

Reasoning

The Supreme Court considered what the phrase “located” in the federal statute governing national-bank citizenship means. Looking at the law’s history and other provisions, the Court explained that venue rules that allow suit where a bank has branches serve different purposes than rules about subject-matter jurisdiction. The Court held that for diversity purposes a national bank is a citizen of the State where its articles of association list its main office. The result favored Wachovia and reversed the Fourth Circuit.

Real world impact

The decision means many national banks will be treated as citizens of only one State for federal diversity suits, usually the State of their main office. That makes it easier for banks to bring or remove cases to federal court when their main office is in a different State from plaintiffs. Consumers and plaintiffs may have fewer opportunities to force cases into state court by pointing to branch locations.

Dissents or concurrances

The opinion was unanimous on the merits; Justice Thomas did not participate. A dissenting judge in the Fourth Circuit had urged parity with corporations but the Supreme Court disagreed.