The Ninth Circuit Court of Appeals has ruled in Rouse v. Wachovia Mortgage, FSB that under 28 U.S.C. § 1348, “a national bank is ‘located’ only in the state designated as its main office.”  This ruling resolves the important federal court diversity jurisdiction question of “whether under 28 U.S.C. § 1348, a national bank is a citizen of both the state in which its principal place of business is located and the state where its main office is located as designated in the bank’s articles of association.”

As a result, Rouse creates a significant federal court removal advantage for national banks by allowing them to choose a remote state as the location of their main office to create federal court diversity jurisdiction in all other states where the banks have significant business activities.

In Rouse, the plaintiffs/appellees, residents of California, sued their mortgage lender, Wachovia, FSB, in California state court, alleging federal and state causes of action.  Wachovia was acquired by Wells Fargo Bank, N.A. in 2008.  While Wells Fargo’s principal place of business has long been in California, its main office is in South Dakota.  Wells Fargo removed the case to federal court, invoking federal question jurisdiction on the federal claims and diversity of citizenship on the state claims. 

In an attempt to remain in California state court, the Rouses dropped their federal claims.  The federal court then dismissed the case, finding diversity was destroyed as Wells Fargo was both a resident of South Dakota (state where main office is located) and California (state of principal place of business). 

On appeal, the Ninth Circuit in late March reversed and remanded, holding that Wells Fargo is only a resident of South Dakota, its designated location for its main office, pursuant to Wachovia Bank, N.A. v. Schmidt.  In Wachovia Bank, the US Supreme Court, considering the question of whether, for diversity jurisdiction purposes, national banks are citizens of every state where they operate a bank branch, held that “a national bank, for § 1348 purposes, is a citizen of the state in which its main office, as set forth in its articles of association, is located.”  The Ninth Circuit, in its Rouse opinion, acknowledged thatWachovia Bank did not reach precisely the same question as Rouse because it did not address whether a national bank is also a citizen of the state where it has its principal place of business, since Wachovia’s main office and principal place of business were in the same state.  See the opinion on this page.

Despite the Ninth Circuit’s favorable ruling in Rouse, there is an unresolved split among the Circuits on this issue, with the Second and Fourth Circuits finding that national banks may be citizens of two or more states, and the First, Sixth, Seventh, Eighth and Ninth Circuits finding national banks are citizens of only their “main office” state. It will likely fall to the US Supreme Court to provide a definitive answer.

Notably, the dissenting opinion in the case notes that the ruling may create difficulties for state chartered banks. The practical result for state chartered banks, the dissent observed, is a lack of jurisdictional parity with national banks due to more limited options to remove to federal court based on diversity jurisdiction.

In sum, while for the moment national banks should enjoy the outcome of Rouse, the question of the location of a national bank for diversity jurisdiction purposes will be ongoing unless resolved by the Supreme Court.