Taheny v. Wells Fargo Bank, N.A.

Citations: 878 F. Supp. 2d 1093; 2012 U.S. Dist. LEXIS 47195; 2012 WL 1120140Docket: No. CIV. S-10-2123 LKK/EFB

Court: District Court, E.D. California; April 3, 2012; Federal District Court

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The court reaffirms its previous ruling in Guinto v. Wells Fargo Bank, determining that under Ninth Circuit authority, specifically American Surety Co. v. Bank of California, a national bank is considered a citizen of the state where it has its principal place of business. Consequently, Wells Fargo is recognized as a citizen of California while also being a citizen of South Dakota based on its main office location, as established in Wachovia Bank v. Schmidt. The lack of complete diversity—given that the plaintiffs share Wells Fargo's California citizenship—leads to the conclusion that there is no basis for federal jurisdiction, necessitating remand to state court under 28 U.S.C. 1447(c).

The background indicates that defendants removed this breach of contract lawsuit to federal court, claiming diversity jurisdiction due to the plaintiffs being California citizens and Wells Fargo claiming citizenship solely in South Dakota. However, the court emphasizes its duty to assess its own subject matter jurisdiction and notes that Wells Fargo's arguments, which referenced various cases on national bank citizenship, failed to acknowledge the binding precedent of American Surety. The court clarifies that the Ninth Circuit has established that for diversity purposes, a national bank is a citizen of the state where it has its principal place of business, which in this instance is California.

The Supreme Court did not address the Ninth Circuit's ruling in American Surety regarding a bank's citizenship based on its principal place of business. Consequently, the court determined that for federal diversity jurisdiction, Wells Fargo was a citizen of California, the same as the plaintiffs, thus negating diversity jurisdiction. The court exercised its discretion under 28 U.S.C. § 1367(c)(3) to decline supplemental jurisdiction over remaining claims and remanded the case to state court. Despite the intra-circuit split, Wells Fargo chose not to appeal the Guinto decision, which clearly identified its authority to remand based on § 1367(c), as the discretionary remand of pendent state claims is reviewable and not subject to the non-appealability rule of § 1447(d). Following Guinto, the court consistently sought briefing on remanding cases where Guinto was relevant, reaffirming that Wells Fargo is a citizen of California and thus lacking diversity jurisdiction. Wells Fargo challenged this view, asserting that it is only a citizen of South Dakota and urging the court to reconsider its reliance on American Surety to avoid creating a jurisdictional split. The court reiterates the standards for removal based on diversity jurisdiction, emphasizing the burden on the removing defendant to prove the propriety of removal and the presumption against it, as well as the mandate for remand if subject matter jurisdiction is absent.

Wells Fargo is classified as a "national banking association," which is treated as a citizen of the states where it is located for diversity jurisdiction under 28 U.S.C. 1348. Legal interpretations of "located" have varied, with courts examining several definitions: the location of the bank's "main office," its branches, its "principal place of business," or a combination of these. The Supreme Court clarified that a national bank's location is determined by its main office, not its branches. Furthermore, the Ninth, Fifth, and Seventh Circuits, along with the Comptroller of the Currency, have established that a national bank can be considered a citizen of the state where its principal place of business is located, even if it also has a main office elsewhere. The Seventh Circuit noted that a bank may have dual citizenship for diversity purposes, while the Fifth Circuit emphasized that a national bank is only considered located in its principal place of business and the state specified in its organization certificate, excluding branch locations from this determination.

The Supreme Court and the Ninth Circuit have not definitively ruled that a national bank is not considered located in the state of its principal place of business. In the case of Schmidt, the Supreme Court refrained from addressing the definition of "established" for national banks but referenced potential interpretations, including the bank's main office and principal place of business. The Court noted that while Section 1348 does not explicitly mention "principal place of business," it deems national banking associations as citizens of the states where they are located. There is often overlap between a national bank’s main office and its principal place of business. 

Wells Fargo contends that American Surety is inconsistent with the Supreme Court's decision in Schmidt. The bank argues that American Surety applied a singular standard for citizenship, which contradicts Schmidt's findings. However, this assertion is incorrect; both cases identify different standards for determining citizenship without excluding one another. American Surety did not dismiss the main office test, nor did Schmidt disregard the principal place of business test; rather, both cases acknowledge multiple valid criteria for establishing citizenship.

Guinto acknowledged that as a district court, it is bound by the precedents of the Ninth Circuit and the Supreme Court regarding national bank citizenship. The court referenced American Surety, which ruled that a defendant is only a citizen of its principal place of business, California, rather than other states where it maintains branch offices. The term "only" clarified that it excludes other potential states, such as Oregon, where the bank had branches. Both Schmidt and American Surety addressed whether a national bank is a citizen of every state with branch offices, concluding that it is not; rather, it is a citizen of the state of its main office or principal place of business. The district court in American Surety reiterated that a national bank should be regarded as a citizen of the state where its principal place of business is located, regardless of branches in other states. The Ninth Circuit’s interpretation of the relevant statute supports this view, asserting that Congress would have explicitly stated otherwise if it intended for banks to have citizenship in multiple states based on branch locations. The analysis contrasted the principal place of business with branch offices, affirming the former as the relevant "location" for diversity jurisdiction. Wells Fargo argued against using American Surety to supplement Schmidt, claiming it predates interstate banking and dual corporate citizenship. However, this assertion was challenged, as banks had interstate operations prior to the 1994 Interstate Banking Act, with the Bank of America in American Surety being an example.

The Supreme Court serves as the authoritative source on the history of interstate banking. The case of Bank of America in American Surety illustrates that, despite Wells Fargo's claim, interstate banking existed prior to 1994. Initially, national banks were prohibited from operating branch offices; however, Congress allowed state banks converting to national banks to keep their branches in 1865 and authorized limited branching in their home states in 1927 and 1933 under strict "grandfather" provisions. Significant legislative changes permitting broad interstate banking did not occur until 1994. Despite this, Bank of America was engaged in interstate banking during the timeframe of American Surety.

Wells Fargo erroneously asserts that, in 1943, a national bank’s principal place of business (PPB) and main office had to be in the same state, based on a flawed interpretation that Bank of America was not involved in interstate banking. The bank's supporting cases, Guinto and the district court decision in American Surety, do not substantiate its conclusion. Additionally, Wells Fargo fails to provide any legal basis for its claims and has not identified laws requiring that a bank's main office and PPB be located in the same state.

Wells Fargo further argues that American Surety is no longer relevant, citing that Schmidt did not mention it due to obsolescence post-1994. However, this court will not speculate on the Supreme Court's reasoning. Notably, American Surety was highlighted in relation to the circuit split regarding national banks' citizenship, signaling its continued significance in the context of federal diversity jurisdiction.

The Petition references three appellate courts: the Fifth Circuit (Horton), the Seventh Circuit (Firstar Bank), and the Ninth Circuit (American Surety), all of which determined that a national bank's citizenship is based on its "principal place of business" or "main office." The Ninth Circuit, in American Surety, clarified that a national bank is not considered a citizen of every state where it has branches. The Supreme Court has granted certiorari to resolve discrepancies among these circuits regarding the interpretation of Section 1348.

Wells Fargo argues that the Ninth Circuit has not cited American Surety since the Supreme Court's decision in Schmidt, despite two opportunities to do so. In Lowdermilk v. U.S. Bank, the district court examined whether the jurisdictional amount was properly asserted under the Class Action Fairness Act (CAFA). It found that the defendant, a national bank, had met the minimum diversity requirement because it was a citizen of Ohio (where its main office is located), not Oregon, despite having its principal place of business there. This finding, while implicit, suggests a rejection of the "principal place of business" test for citizenship. The Ninth Circuit upheld the district court's decision, confirming that the bank was a citizen of Ohio without addressing the "principal place of business" factor.

The Ninth Circuit did not address the citizenship of national banks in its decision regarding Lowdermilk because it was not contested on appeal. Neither the district court nor the Ninth Circuit referenced American Surety or clarified whether a national bank is a citizen solely where its main office is located or also at its principal place of business. The court emphasizes that Lowdermilk lacks binding language on this issue, as any related comments were made in an unpublished district court order not challenged on appeal. Furthermore, the Ninth Circuit's discussion of "minimal diversity" was irrelevant to its ruling, which primarily concerned the plaintiffs' jurisdictional allegations. Although Wells Fargo acknowledges that it is a citizen where its main office is located, it urges this court to recognize the significance of the absence of reference to American Surety in Lowdermilk. In citing Peralta v. Countrywide, Wells Fargo argues that the Ninth Circuit's lack of mention of American Surety suggests it is no longer considered viable. However, the argument that the Ninth Circuit implicitly overruled American Surety by omitting it in an unpublished decision is deemed implausible.

The Ninth Circuit has not abandoned the precedent set by American Surety, despite Wells Fargo's claims that it has not been cited post-Schmidt. The court acknowledges that the Ninth Circuit has not needed to reference American Surety in a published opinion since Schmidt, but it counters Wells Fargo's insinuation that the case has been disregarded entirely. In fact, American Surety has been cited alongside Section 1348 in determining a national bank's citizenship, as illustrated in Bank of California Nat. Ass’n v. Twin Harbors Lumber Co. and U.S. Nat. Bank v. Hill, which clarified that a national bank is considered a citizen of the state where its principal place of business is located.

Wells Fargo further argues that a 1994 statute supersedes American Surety's definition of "located." However, the court finds this argument flawed, as the 1994 legislation defined "home State" without addressing the concept of "located" for diversity jurisdiction purposes. The legislation specified the home state as where the bank’s main office is situated, but did not equate this with the jurisdictional definition of "located." The court points out that Schmidt did not rely on this definition for jurisdictional determinations, and the Supreme Court has clarified that the definitions regarding interstate banking regulations do not apply to jurisdictional contexts.

The panel majority concluded that jurisdiction and venue statutes regarding national banking associations in federal court should be interpreted consistently under the in pari materia canon. However, in Wachovia Bank v. Schmidt, the Supreme Court rejected the notion that "located" in venue context equated to the same in diversity jurisdiction, noting the absence of the term "located" in the 1994 legislation. Wells Fargo contends that the Ninth Circuit was "simply wrong" in American Surety, but this argument is not valid as the court is bound by that decision unless overridden by an en banc ruling or higher authority. The claim that the holding in American Surety is non-precedential because it is dicta is flawed; both the district court and Ninth Circuit provided thorough analyses of the term "located" in the diversity jurisdiction statute. The jurisdictional determination was necessary prior to addressing the case's merits, thus it cannot be dismissed as mere prelude. 

Wells Fargo argues for deference to the 2006 Congress's supposed understanding of "Main Office" concerning citizenship under 28 U.S.C. 1348, despite that statute being last amended in 1948. The court rejects this notion, citing that the actions of a later legislature do not clarify earlier legislative intent, as reinforced by precedent. Furthermore, the legislation referenced by Wells Fargo pertains to Federal Savings Associations, not national banks, and does not amend the relevant statute for national bank citizenship, making it irrelevant to the interpretation of "located" in 28 U.S.C. 1348. Lastly, Wells Fargo's plea to avoid a split of authority in the Ninth Circuit is deemed untimely.

The Ninth Circuit district courts are divided regarding the interpretation of Section 1348, particularly following the Schmidt decision. Although Wells Fargo had the opportunity to address this split by appealing the Guinto case, it chose not to do so. Consequently, the court maintains its stance from Guinto, concluding that Wells Fargo is a citizen of both California and South Dakota. Plaintiffs are also considered citizens of California, thus precluding the existence of diversity jurisdiction at the time of case removal. The court orders the case be remanded to state court due to the lack of federal jurisdiction. 

Within the Ninth Circuit, conflicting rulings have emerged regarding Wells Fargo's citizenship, with some courts asserting that a national bank is only a citizen of the state where its main office is located, while others, including the court in Guinto, have determined that it is also a citizen of the state of its principal place of business. The Second Amended Complaint filed by the plaintiffs includes claims such as breach of contract and negligence, with no federal claims asserted. The plaintiffs' primary residence in El Dorado Hills, California, provides prima facie evidence of their California citizenship. The court explains that a natural person's citizenship is based on domicile, defined as the permanent home where one intends to remain or return. Furthermore, the defendants argue that the citizenship of Golden West is irrelevant due to claims of fraudulent joinder, a legal concept indicating that a non-diverse defendant can be disregarded if there is no legitimate basis for the claims against them.

The court determines that diversity jurisdiction is absent due to Wells Fargo's citizenship, rendering the issue of fraudulent joinder unnecessary to address. Jurisdictional requirements must be recognized by both the district court and legal counsel in all cases, regardless of whether they are filed initially in federal court or removed from state court, as reaffirmed in Grupo Dataflux v. Atlas Global Group. Wells Fargo failed to reference the court's prior ruling in Country Nat. Bank v. Mayer, which established that a national bank is considered a citizen of the state where it has its principal place of business. Additionally, Wells Fargo did not seek reconsideration based on the court’s reliance on binding Ninth Circuit authority that the bank did not address in its submissions. The court clarifies that 28 U.S.C. § 1447(d) does not prevent appellate review of the remand order since it is not based on subject matter jurisdiction or removal procedure defects. While plaintiffs did not respond to the court's request for further briefing, the statute allows district courts original jurisdiction over certain civil actions involving national banks. The Comptroller's Interpretive Letter indicates that a national bank is a citizen of the state where its principal place of business and main office are located, and the Ninth Circuit accords significant weight to such regulatory interpretations. The court notes that only the Eighth Circuit has ruled differently regarding national banks' citizenship, while the Seventh Circuit's interpretation, cited by WMR, does not exclude the principal place of business from citizenship considerations. Before Wachovia Bank v. Schmidt, there was uncertainty about whether national banks could be considered citizens of all states where they operated offices.

Wachovia Bank established that national banks are citizens solely of the states where their main offices are located. The court critiques American Surety's interpretation, which suggested that a bank could only be considered located in the state of its principal place of business. It highlights that Wells Fargo’s view aligns with other rulings, such as in Flores v. Wells Fargo Bank, which determined that national banks could potentially be considered citizens of two states for diversity jurisdiction. This dual citizenship includes the state of the principal place of business and the state listed on the bank’s organization certificate. The court notes that American Surety's position would not have necessitated determining Bank of America's citizenship across states if it were indeed limited to its principal place of business. The discussion encompasses historical banking acts and precedents that support the notion of interstate banking. The case on appeal, Wachovia Bank v. Schmidt, reinforced that a national bank could be a citizen of every state where it has branch offices. The excerpt addresses a novel question under the Class Action Fairness Act of 2005 regarding the burden of proof for defendants when plaintiffs claim damages below the jurisdictional threshold for federal court removal.

The court clarifies that its reference to the "main office" does not constitute an alternative holding, as the central issue was solely whether the jurisdictional amount had been adequately alleged. The question of minimal diversity would only be pertinent if the jurisdictional amount was confirmed to be properly alleged. Wells Fargo's reliance on the district court's ruling, which was not presented or briefed in the appeal, is deemed inappropriate. Additionally, the court criticizes Wells Fargo for misrepresenting its use of Peralta, asserting it should only relate to the doctrines of law of the case or claim/issue preclusion. The court finds Wells Fargo's arguments illogical, noting that if the jurisdictional issue is complex, it may stem from Schmidt's ambiguity regarding the "principal place of business." The case reinforces that American Surety remains valid law, and while Twin Harbors may suggest a different interpretation of "principal office," it does not support the notion that American Surety was discredited by the Ninth Circuit. The Hill decision is problematic as it conflates the definitions of "located" in jurisdictional and venue statutes, a distinction clarified by the Supreme Court. Lastly, Wells Fargo's appeal regarding the Section 1367(c) remand in Rouse v. Wachovia Mortgage is noted.