A national bank is a resident only of the state designated as its main office—not the state where the principal place of business is located, the U.S. Court of Appeals for the Ninth Circuit held in a split decision.

The dispute centered around 28 U.S.C. Section 1348, which states that national banking associations are “citizens of the States in which they are respectively located.” The term “located” is not defined in the statute.

Robert and Victoria Rouse filed suit against Wells Fargo Bank in California state court, raising causes of action under both state and federal law about their home loan and deed of trust. Wells Fargo removed the suit to federal court on the basis of federal questions and diversity of citizenship.

Seeking to return to state court, the Rouses filed an amended complaint limited to state law claims, leaving diversity jurisdiction as the basis for keeping the case in federal court. The judge determined that national banks are citizens not just of the state where the main office is located but also of the state where their principal place of business is located, in part relying upon the principle of jurisdictional parity between state and federally chartered banks.

Because Wells Fargo’s principal place of business is in California, where the Rouses are citizens, the district court remanded the case to state court for lack of jurisdiction.

Wells Fargo appealed and the Ninth Circuit struggled to interpret the meaning of “located.” Finding that the “sparse text of the statute offers no definitions,” the federal appellate panel noted that the U.S. Supreme Court has held, in the context of Section 1348, that the word “located” is ambiguous on its face and “a chameleon word.” So the court looked beyond the statutory text and ordinary use of the term to discern its meaning.

The panel began with a 2006 Supreme Court decision, Wachovia Bank v. Schmidt, which addressed a similar but distinct issue: whether a federally chartered national bank is a citizen of every state where it operates a branch in addition to the state where its main office is designated. That case settled a circuit split on the issue and held that for Section 1348 purposes, a national bank is “a citizen of the state in which its main office, as set forth in its articles of association, is located.”

The Ninth Court did not end its analysis with Wachovia Bank, however, distinguishing that decision because the justices did not squarely address whether a national bank is also a citizen of the state where it has its principal place of business.

After reviewing case law since Wachovia Bank as well as the historical landscape of Section 1348, the Ninth Circuit concluded that “a national bank is ‘located’ only in the state designated as its main office.”

The panel also found that the principle of jurisdictional parity relied upon by the district court was no longer in play. “Congress began its treatment of jurisdiction for national banks with a notion of jurisdictional parity that it later affirmatively deleted from the statute,” the court said. “Nothing in the current version of the statute or in its history suggests that Congress intended to revive the principle of jurisdictional parity between state-chartered banks and national banks.”

The statute itself does not contain any reference to jurisdictional parity, the court added.

“[T]he current version of the statute 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,” the panel wrote. “We hold that, under Section 1348, a national banking association is a citizen only of the state in which its main office is located. Accordingly, Wells Fargo is a citizen only of South Dakota, where its main office is located.”

Therefore, diversity jurisdiction exists between the parties as the Rouses are citizens of California, the Ninth Circuit held, and it reversed the district court’s order remanding the case to state court.

A dissenting opinion criticized the majority for neglecting the jurisdictional parity between state and federal banks and placing “national banks on superior footing in their access to federal courts as compared to other corporations.” Policy implications should also have been considered, the dissent added, because a bank closely identified with a given state could ensure diversity jurisdiction by designating its main office in a different state.

To read the opinion in Rouse v. Wachovia Mortgage, click here.

Why It Matters: Despite the fact that Congress established national banks in 1863, the question of their citizenship for diversity jurisdiction purposes remains unsettled 150 years later, the Ninth Circuit noted. The courts are split on the issue (the Eighth Circuit has reached a similar conclusion with contrary results in federal district courts), and the U.S. Supreme Court has not squarely addressed it. At least in the Ninth Circuit, for national banks the state of their designated main office is the state where they are “located” for purposes of diversity jurisdiction.