Today’s Opinion in Wachovia Bank v. Schmidt

In an 8-0 opinion, the Supreme Court ruled on Tuesday that for the purposes of diversity jurisdiction, national banks are citizens of the state where they have their main office. The Court rejected the contrary view that the banks are citizens of every state in which they maintain a branch.

Most corporations are citizens of both the state where they are incorporated, as well as the state where they maintain their principal place of business. But national banks, which are federally chartered, are not incorporated by any state. Thus federal law specifically provides, in 28 U.S.C. 1348, that for purposes of diversity jurisdiction national banks “shall . . . be deemed citizens of the States in which they are respectively located.”

In the instant litigation, Wachovia Bank v. Schmidt, petitioner Wachovia is a national bank with its main offices in North Carolina, and branch offices in a number of states, including South Carolina. Respondent Schmidt and several other citizens of South Carolina filed a state-law action against Wachovia in a South Carolina state court. Wachovia removed the case to federal court, where the district court proceeded to rule on the merits of Wachovia’s motion to compel arbitration. On appeal, a divided panel of the Fourth Circuit held that the court lacked subject-matter jurisdiction. The panel concluded that Section 1348 should be read to make a national bank a citizen of every state in which it maintained a branch. First, it pointed to dictionary definitions in which the word “located” referred to physical presence. Second, the court noted that Section 1348 used both the words “established” and “located,” and so the court sought to give independent meaning to each of these words. Third, the court referred to an earlier Supreme Court case, Citizens & Southern Nat. Bank v. Bougas, in which the Court interpreted the word “located” in a prior venue statute for national banks; under the in pari materia canon the Fourth Circuit sought a consistent construction for diversity jurisdiction.

In an 8-0 decision written by Justice Ginsburg (Justice Thomas did not participate), the Supreme Court reversed. Justice Ginsburg began by noting that throughout the National Bank Act, the word “located” has an ambiguous meaning. In some provisions pertaining to stock and aspects of corporate governance, the term “located” clearly refers to the bank’s designated main office. In other sections, the word clearly refers to places where the bank has branch offices.

Rejecting a contrary argument by the lower court, Justice Ginsburg thought that in this context it was likely that Congress meant the words “located” and “established” to have the same meaning, which would make the banks citizens of the state where they have their designated main office. At the time of Section 1348’s enactment, national banks were almost always located in the same state as their main office. Additionally, in light of the various statutory re-codifications of Section 1348 over the years, and provisions saying that the re-codifications were not meant to be new enactments if they were “substantially similar” to their predecessors, Justice Ginsburg again thought it likely that “located” and “established” were meant to have the same meaning.

Justice Ginsburg also explicitly rejected the Fourth Circuit’s belief that the Bougas opinion, and the in pari materia canon, controlled the case. The in pari materia canon is meant to govern similar subject matters. Bougas’ interpretation of a venue statute was not on a similar subject matter because venue is different from jurisdiction: venue is about convenience and can be waived by the parties, while jurisdiction is about the court’s competence and cannot be waived. Indeed, Bougas’ reasoning in part relied on convenience to the bank. Additionally, Justice Ginsburg thought it important that Bougas’ interpretation meant that for venue purposes national banks would be treated the same way as state banks and corporations. But to extend its interpretation to jurisdiction would create a rift: state banks and corporations are not citizens of every state where they have places of business, so it would be odd to find that national banks are citizens of every place where they have a branch. Perversely, extending Bougas’ interpretation to jurisdiction would significantly impede a national bank’s access to a federal forum. It seems unlikely that Congress would have desired this result.

The Court’s decision is available Here

SCOTUSblog’s pre-argument write-up of the case is available Here