Navy Fed. Credit Union v. LTD Fin. Servs., LP

• Decision Date: 20 August 2020
• Docket Number: No. 19-1341,19-1341
• Citation: 972 F.3d 344
• Parties: NAVY FEDERAL CREDIT UNION, Plaintiff – Appellant, v. LTD FINANCIAL SERVICES, LP; Advantage Assets II, Inc.; Debt Management Partners, LLC ; John Does #1 - #3; Bayview Solutions LLC, Defendants – Appellees. Credit Union National Association; National Association of Federally-Insured Credit Unions, Amici Supporting Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

972 F.3d 344

NAVY FEDERAL CREDIT UNION, Plaintiff – Appellant,

v.LTD FINANCIAL SERVICES, LP; Advantage Assets II, Inc.; Debt Management Partners, LLC ; John Does #1 - #3; Bayview Solutions LLC, Defendants – Appellees.

Credit Union National Association; National Association of Federally-Insured Credit Unions, Amici Supporting Appellant.

No. 19-1341

United States Court of Appeals, Fourth Circuit.

Argued: April 7, 2020

Decided: August 20, 2020

ARGUED: Michael Julian Gottlieb, WILLKIE, FARR & GALLAGHER LLP, Washington, D.C., for Appellant.Virginia Whitner Hoptman, REDMOND, PEYTON & BRASWELL, Alexandria, Virginia; David E. Gutowski, ZDARSKY SAWICKI & AGOSTINELLI, Buffalo, New York, for Appellees.ON BRIEF: Joshua Riley, Jon R. Knight, BOIES SCHILLER FLEXNER LLP, Washington, D.C., for Appellant.James S. Kurz, REDMOND, PEYTON & BRASWELL, Alexandria, Virginia; J. William Eshelman, III, Bradford G. Hughes, CLARK HILL PLC, Washington, D.C., for Appellees.Michael H. Pryor, Washington, D.C., Christine A. Samsel, Nicholas R. Santucci, BROWNSTEIN HYATT FARBER SCHRECK, LLP, Denver, Colorado, for Amicus Credit Union National Association.William M. Jay, Andrew Kim, GOODWIN PROCTER LLP, Washington, D.C., for Amicus National Association of Federally-Insured Credit Unions.

Before WILKINSON and RICHARDSON, Circuit Judges, and Thomas E. JOHNSTON, Chief United States District Judge for the Southern District of West Virginia, sitting by designation.

Reversed by published opinion.Judge Richardson wrote the opinion, in which Judge Wilkinson and Judge Johnston join.

RICHARDSON, Circuit Judge:

This appeal centers on the meaning of a seemingly simple, three-letter word connecting two clauses: and .For establishing diversity jurisdiction, Congress provides that a corporation "shall be deemed a citizen of every State and foreign state by which it has been incorporated and of the State or foreign state where it has its principal place of business."28 U.S.C. § 1332(c)(1)(emphasis added).We regularly apply this subsection to your bread-and-butter, state -chartered corporations.But federally chartered corporations (not incorporated in a State or foreign state) do not "fit comfortably" under the first clause.Wachovia Bank v. Schmidt , 546 U.S. 303, 306, 126 S.Ct. 941, 163 L.Ed.2d 797(2006).What of the second?

According to defendants and the district court, a federal corporation is not a citizen of the place where it has its principal place of business under § 1332(c)(1).In their view, the use of the word and between the clauses means that § 1332(c)(1) applies only to those corporations that satisfy both: those chartered by a "State or foreign state," not by the federal government.Plaintiff Navy Federal Credit Union, a federally chartered credit union, disagrees.Acknowledging the first clause of § 1332(c)(1) does not grant state citizenship to a federal corporation, Navy Federal argues the second clause deems it a citizen of Virginia.

In our view, § 1332(c)(1)'s text, structure, and context show that Navy Federal is correct.The plain meaning of and in context here is ‘in addition to,’ and when we add something to nothing, something remains.Section 1332(c)(1) thus requires us to interpret and to give effect to the second clause even when the first clause does not specify a citizenship.Moreover, the district court's and defendants' understanding of and conflicts with circuit precedent.SeeAthena Automotive, Inc. v. DiGregorio , 166 F.3d 288, 290(4th Cir.1999).Finally, this approach to § 1332(c)(1) is supported by the Supreme Court's holding in Bankers' Trust Co. v. Texas & Pacific Railway Co. , 241 U.S. 295, 36 S.Ct. 569, 60 L.Ed. 1010(1916).There, the Court asked whether the common law, the constitution, or the legislature spoke to the issue of corporate citizenship.But with no existing constitutional or legislative provision on point, the Court found a federal corporation not diverse under then-existing federal-common-law rules.Id. at 309-10, 36 S.Ct. 569.Congress has since plainly provided a general rule for corporate citizenship, and that text grants a federal corporation the citizenship of its principal place of business.For these reasons, we find Navy Federal to be a citizen of Virginia, and we reverse.

I.Background

This case arises from a contract dispute.In April 2012, Plaintiff Navy Federal Credit Union sold a portfolio of debt instruments to defendant Advantage Assets II.Advantage then turned around and resold those assets to its codefendants.This resale ostensibly violated Advantage's asset-purchase agreement with Navy Federal.Adding insult to breach, the codefendants supposedly employed unscrupulous debt-collection practices that defamed the credit union, interfered with its business, and injured its members.

So Navy Federal filed this lawsuit in federal district court, asserting only state-law claims and invoking diversity jurisdiction.The substance of Navy Federal's claims is not at issue today.Rather, this appeal concerns the federal courts' jurisdiction over the controversy in the first place.Defendants' citizenship—Delaware, Florida, New York, and Texas—is uncontested.And Navy Federal is seeking damages above the jurisdictional minimum.See§ 1332(a).The primary issue here is whether Navy Federal, as a federally chartered credit union, is a citizen of any state.

A.Navy Federal Credit Union

Navy Federal Credit Union is a federally chartered, not-for-profit credit union.On July 17, 1947, the Bureau of Federal Credit Unions issued a certificate of incorporation to the "Navy Department Employees Federal Credit Union" under the Federal Credit Union Act of 1934.At the time of its incorporation, the credit union limited its membership to "military personnel [and employees] of the Navy Department in Washington, D.C. and adjoining counties of Maryland and Virginia," as well as employees of the credit union and their families.J.A. 100.And at first, the credit union ran its operations from Washington, D.C.

Over the next seventy years, the credit union experienced explosive growth.Navy Federal now has over eight-million members in thirty states, the District of Columbia, two U.S. territories, and twelve foreign countries.All "[m]ilitary and civilian personnel regularly employed by the Department of Defense[, Coast Guard, or National Guard] ... at any Government installation, facility, or unit, afloat or ashore" may join the credit union today.J.A. 104.Additionally, several idiosyncratic constituencies scattered across the country have since become eligible for membership.¹As of December 2017, Navy Federal had accumulated over $63 billion in shares and member deposits.

Completing the transformation, the "Navy Department Employees Federal Credit Union" eventually shortened its name to "Navy Federal" and moved its corporate headquarters to Vienna, Virginia (nearby the Pentagon).This Vienna complex is home to 20 out of 21 executives serving on the Credit Union's management committee.It is where Navy Federal's directors and officers meet and where all of its operations (except customer service) are managed.Most of the credit union's branches and members are located outside of Virginia, and a plurality of its employees now live and work in Florida.

B.Proceedings below

After Navy Federal initiated this suit in federal court, one defendant, Debt Management Partners, moved to dismiss it for lack of subject-matter jurisdiction.SeeFed. R. Civ. P. 12(b)(1).It argued that Navy Federal is not diverse under § 1332, so the district court lacked federal-diversity jurisdiction.And with no other grounds for federal jurisdiction, the case must be dismissed.See generallyNorthern Virginia Foot & Ankle Assocs., LLC v. Pentagon Federal Credit Union , No. 10-cv-1640-RWT, 2011 WL 280983(D. Md.Jan. 26, 2011).

The district court agreed.SeeNavy Federal Credit Union v. LTD Financial Services, LP , 368 F. Supp. 3d 889, 900(E.D. Va.2019).First, the court reasoned that federal credit unions are, in fact, corporations under the plain language of the Federal Credit Union Act ("FCUA").Seeid. at 894.But the court found that § 1332(c)(1), in which Congress provides for the citizenship of corporations, does not apply to federal corporations.The district court reasoned that § 1332(c)(1)"states that a corporation is a citizen of the state in which it was incorporated and in which it has its principal place of business[, so][t]he use of the word ‘and’ between the clauses ... suggests that the provision contemplates only those corporations that have both, i.e., those chartered under state law."Id.And since Navy Federal was chartered under federal law, the district court held that § 1332(c)(1) does not apply, meaning Navy Federal was not diverse.Seeid. at 898.²Thus the court dismissed the case for lack of subject-matter jurisdiction.

Navy Federal timely appealed, and we have jurisdiction.See28 U.S.C. § 1291.³

II.Discussion

We review de novo the district court's determination that it lacked subject-matter jurisdiction for lack of diversity.Elliott v. American States Insurance Co. , 883 F.3d 384, 394(4th Cir.2018).

The judicial Power of the inferior federal courts extends only as far as Article III permits and Congress chooses to confer.SeeU.S. Const. Art. III, § 1, cl. 2;Sheldon v. Sill , 49 U.S. (8 How.) 441, 448–49, 12 L.Ed. 1147(1850);cf.Martin v. Hunter's Lessee , 14 U.S. (1 Wheat.) 304, 328–31, 4 L.Ed. 97(1816).Among the several constitutional bases for jurisdiction, Article III § 2 permits courts to decide "Controversies ... between Citizens of different States."Christened "diversity jurisdiction," this constitutional font allows for the judicial Power to flow where the citizenship of any plaintiff differs from that of any defendant.SeeState Farm Fire & Casualty Co. v. Tashire , 386 U.S. 523, 531, 87 S.Ct. 1199, 18 L.Ed.2d 270(1967).This we call " ‘minimal diversity.’ "Id. at 530, 87 S.Ct. 1199.

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