Financial Software System v. First Union Nat. Bank

• Decision Date: 23 November 1999
• Docket Number: No. CIV.A. 99-CV-623.,CIV.A. 99-CV-623.
• Citation: 84 F.Supp.2d 594
• Parties: FINANCIAL SOFTWARE SYSTEMS, INC., Plaintiff, v. FIRST UNION NATIONAL BANK, Defendant.
• Court: U.S. District Court — Eastern District of Pennsylvania

84 F.Supp.2d 594

FINANCIAL SOFTWARE SYSTEMS, INC., Plaintiff, v. FIRST UNION NATIONAL BANK, Defendant.

No. CIV.A. 99-CV-623.

United States District Court, E.D. Pennsylvania.

November 23, 1999.

Joseph A. McGinley, Lavin, Coleman, O'Neil, Ricci, Finarelli & Gray, Philadelphia, PA, for plaintiff.

Joseph G. DeRespini, Robert J. Dougher, Raeder & DeRespino, Philadelphia, PA, for defendant.

Memorandum and Order

YOHN, District Judge.

In 1997, Financial Software Systems contracted with First Union National Bank to develop and customize banking software for First Union. Within months, defendant stopped making payments due under the contract. Plaintiff filed this suit, alleging numerous violations of state law.

Defendant has filed a motion to dismiss the complaint for lack of subject matter jurisdiction, alleging that there is no diversity of citizenship between plaintiff and defendant.

Plaintiff is a citizen of Pennsylvania by both incorporation and principal place of business. Defendant is a national banking association with its principal place of business in North Carolina and branches in Pennsylvania. Defendant's motion to dismiss argues that as a national banking association with branches in Pennsylvania, defendant is also a citizen of Pennsylvania and the parties are not of diverse citizenship. Resolution of the motion requires a construction of a provision of the National Bank Act, which makes national banking associations "citizens of the states in which they are respectively located." Because I find that a national banking association is not a citizen of each state in which it maintains a branch, I will deny the motion to dismiss.

BACKGROUND

The facts, as alleged in the complaint and construed in the light most favorable to the plaintiff, are as follows.¹ On September 5, 1997, a contract was fully executed whereby plaintiff contracted to develop and customize banking software for defendant. See Amended Complaint ¶ 4 (Doc. No. 7 filed Apr. 1, 1999) [hereafter "Amend. Compl."]. Subsequently, defendant merged with CoreStates, a Pennsylvania bank. See Amend. Compl. ¶ 7; Defs. Ans. to Amend. Compl. ¶ 7 (Doc. No. 8 filed Apr. 23, 1999) [hereafter "Defs. Ans."]. Thereafter, defendant stopped making payments due under the contract and plaintiff's demands for payment went unanswered. See Amend. Compl. ¶¶ 10-17.

Plaintiff filed its complaint followed by an amended complaint to which defendant responded with a motion to dismiss. Because all of the claims in the action are for violations of state law,² no federal question was raised. Instead, plaintiff premised jurisdiction on diversity of citizenship under 28 U.S.C. § 1332. See Amend. Compl. ¶ 3; see also 28 U.S.C. § 1332(a)(1) (1994 & Supp.1999). Plaintiff is a corporate citizen of Pennsylvania, by incorporation and principal place of business. See Amend. Compl. ¶ 1. Defendant is a national banking association ("national bank") with its principal place of business in North Carolina and branch banks in Pennsylvania.³ See Amend. Compl. ¶ 2; Aff. of Ronald I. Nagel in Support of Defs. Mot. to Dismiss for Lack of Subject Matter Juris. ¶ 2 (Doc. No. 12 filed Oct. 4, 1999) [hereafter "Nagel Aff."]. Defendant argues that it is a Pennsylvania citizen because it is a national bank with branch banks in Pennsylvania. See Mem. of Law in Support of Defs. Mot. to Dismiss at 3-4 (Doc. 12) [hereafter "Defs. Mot."]. Defendant has filed a motion to dismiss the complaint for lack of subject matter jurisdiction pursuant to Rule 12(b)(1). See Fed.R.Civ.P. 12(b)(1).

STANDARD OF REVIEW

A motion to dismiss under Rule 12(b)(1) challenges the existence of subject matter jurisdiction. Plaintiff bears the burden to prove that the relevant jurisdictional requirements are met. See Development Fin. Corp. v. Alpha Housing & Health Care, 54 F.3d 156, 158 (3d Cir.1995); Mellon Bank (East) PSFS v. Farino, 960 F.2d 1217, 1223 (3d Cir.1992).

A motion to dismiss under Rule 12(b)(1) may present either a facial or a factual challenge to subject matter jurisdiction. See Mortensen v. First Federal Savings and Loan Ass'n, 549 F.2d 884, 891 (3d Cir.1977). A facial challenge contests the existence of subject matter jurisdiction on the face of a complaint, while a factual challenge contests the existence of subject matter jurisdiction in fact. Id.

"[W]hen there is a factual question about whether a court has jurisdiction, the trial court may examine facts outside the pleadings .... [b]ecause at issue in a factual 12(b)(1) motion is the trial court's jurisdiction-its very power to hear the case.'" See Robinson v. Dalton, 107 F.3d 1018, 1021 (3d Cir.1997) (citing Mortensen, 549 F.2d at 891). Plaintiff's factual allegations need not be accepted as true. See Robinson v. Dalton, 107 F.3d at 1021. The court is free to consider and weigh evidence outside the pleadings to resolve factual issues bearing on the jurisdictional issue. See Gotha v. United States, 115 F.3d 176, 179 (3d Cir.1997). Consequently, plaintiff must present "affidavits or other competent evidence that jurisdiction is proper." See Dayhoff, Inc. v. H.J. Heinz Co., 86 F.3d 1287, 1302 (3d Cir.1996). Where the complaint and affidavits are relied upon to satisfy its burden, the plaintiff succeeds by making a prima facie showing that jurisdiction exists. See Friedman v. Israel Labour Party, 957 F.Supp. 701, 706 (E.D.Pa.1997). "Factual discrepancies created by affidavits are generally resolved in favor of the nonmoving party." Id.; see also Carteret Savings Bank v. Shushan, 954 F.2d 141, 142 n. 1 (3d Cir.1992).

All factual and legal issues must be addressed as jurisdictional issues, rather than on their merits. See White v. United States Gov't Dep't of Treasury, 969 F.Supp. 321, 323 (E.D.Pa.1997) (citing Growth Horizons, Inc. v. Delaware County, 983 F.2d 1277 (3d Cir.1993)). Under Rule 12(b)(1), dismissal is proper only if "the claim clearly appears to be immaterial and made solely for the purpose of obtaining jurisdiction or ... is wholly insubstantial and frivolous." Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1409 (3d Cir.1991) (quoting Bell v. Hood, 327 U.S. 678, 682, 66 S.Ct. 773, 90 L.Ed. 939 (1946)).

DISCUSSION

Plaintiff alleges that defendant is a citizen of North Carolina, the state in which it is located by organization certificate⁴ and in which it maintains its principal place of business. See Amend. Compl. ¶ 2. Defendant counters that it is a citizen of each state in which it operates a branch bank, which would include Pennsylvania. See Defs. Mot. at 9. The argument turns on the meaning of the word "located" under 28 U.S.C. § 1348 (1994), which provides that national banks are "deemed citizens of the States in which they are respectively located." See id.

I. DIVERSITY OF CITIZENSHIP MUST BE COMPLETE.

"[F]ederal courts are courts of limited jurisdiction." See Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994). Federal courts have "diversity" jurisdiction over cases and controversies between citizens of different states for a necessary amount in controversy. See 28 U.S.C. § 1332(a)(1); Brown v. Francis, 75 F.3d 860, 865 (3d Cir.1996). The rule means that no plaintiff may be a citizen of the same state as any defendant. See Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 267, 2 L.Ed. 435 (1806), overruled on other grounds by, Louisville, Cincinnati & Charleston R.R. Co. v. Letson, 43 U.S. 497, 555-56, 2 How. 497, 11 L.Ed. 353 (1844) (regarding corporate citizenship); Mennen Co. v. Atlantic Mut. Ins. Co., 147 F.3d 287, 290 (3d Cir.1998). Thus, diversity jurisdiction does not exist if plaintiff and defendant each are citizens of Pennsylvania. See Mennen, 147 F.3d at 290; Kelly v. United States Steel Corp., 284 F.2d 850, 854 (3d Cir.1960).

A. Citizenship of Plaintiff and State Corporations.

Ordinarily, corporate citizenship is defined by 28 U.S.C. § 1332, which makes corporations citizens of states in which they are incorporated and also of the state in which they maintain their principal place of business. See § 1332(c)(1). Plaintiff is incorporated in Pennsylvania and maintains its principal place of business in Pennsylvania. See Amend. Compl. ¶ 1. Consequently, plaintiff is a Pennsylvania citizen.

B. Citizenship of Defendant and National Banks.

The citizenship of a national bank is addressed specially in 28 U.S.C. § 348, which provides that national banks are "citizens of the States in which they are respectively located." See 28 U.S.C. § 1348 (1994). A national bank has no state of incorporation. See Berkowitz v. Midlantic Corp., No. 90-CV-1811, 1997 WL 452206, *4 (D.N.J. July 18, 1997). Rather, a national bank is incorporated by the federal government. See 12 U.S.C. § 24 (1994 & Supp.1999). To incorporate, a national bank must file an organization certificate stating, among other things, the place where the bank's "operations of deposit and discount are to be carried on." See 12 U.S.C. §§ 22 & 24 (1994). Once so incorporated, a national bank may now establish both intra-state and interstate branches, subject to limitation. See 12 U.S.C. § 36 (1994 & Supp.1999).

At the time of suit, defendant had branches in Pennsylvania. See Defs. Ans. ¶ 7; Nagel Aff. ¶ 3. Based on the following analysis, I conclude that those branches do not make defendant a citizen of Pennsylvania.

II. UNDER § 1348, A NATIONAL BANKING ASSOCIATION IS A CITIZEN OF THE STATE OF ITS PRINCIPAL PLACE OF BUSINESS.

Resolution of defendant's motion requires construction of statutory law. Jurisdiction in suits by or against a national bank is provided in § 1348 as follows:

The district courts shall have original jurisdiction of any civil action commenced by the United States, or by direction of any officer thereof, against any national banking association, any civil action to wind up the affairs of any such association, and any action by a banking association established in the district for which ...