State of N. D. v. Merchants Nat. Bank and Trust Co., Fargo, N. D.

Decision Date06 August 1980
Docket NumberNo. 79-1342,79-1342
Citation634 F.2d 368
PartiesThe STATE OF NORTH DAKOTA, d/b/a Bank of North Dakota, Appellant, v. MERCHANTS NATIONAL BANK AND TRUST COMPANY, FARGO, NORTH DAKOTA; Red River National Bank and Trust Company, Grand Forks, North Dakota; Jamestown National Bank, Jamestown, North Dakota; Union National Bank, Minot, North Dakota; Wahpeton National Bank, Wahpeton, North Dakota, Appellees.
CourtU.S. Court of Appeals — Eighth Circuit

Peter B. Work, Crowell & Moring, Washington, D.C., and Maurice E. Cook, Sp. Asst. Atty. Gen., Bismarck, N. D., for appellant.

Frank J. Magill, Fargo, N. D., and David A. Ranheim, Paul J. Scheerer, and Darron C. Knutson, Minneapolis, Minn., for appellees.

Stuart E. Schiffer, Acting Asst. Atty. Gen., Washington, D. C., James R. Britton, U. S. Atty., Fargo, N. D., Ronald R. Glancz and Linda Jan S. Pack, Attys., Dept. of Justice, Civil Division, Appellate Staff, and Dorothy A. Sable and Marilyn Britwar, Attys., Washington, D. C., for amicus curiae, Comptroller of Currency.

Before LAY, Chief Judge, and HEANEY, BRIGHT, ROSS, STEPHENSON, HENLEY and McMILLIAN, Circuit Judges, En Banc.

HENLEY, Circuit Judge.

The State of North Dakota appeals from an order of the district court, 1 granting the motion of the five defendant national banks to dismiss the State's complaint for failure to state a claim on which relief could be granted. The State had sought to enjoin defendants from using their newly adopted names, on the ground that the names were confusingly similar to that of the State's central bank and would thus violate the North Dakota common law of unfair competition. The district court based its dismissal on the finding that all state law otherwise applicable to name changes of national banks was preempted by section 30 of the National Bank Act (NBA). Although we conclude that the preemption effected by section 30 is somewhat limited in scope, we affirm the judgment of the district court.


In September, 1976 the five appellee national banks, all of which are located in North Dakota, applied to the Comptroller of the Currency under section 30 of the NBA 2 to change their names to "First Bank of North Dakota (N.A.)-(city or town where located)." The State, which operated its central financial institution under the name "Bank of North Dakota," objected to the proposed changes and was allowed to present its arguments and evidence at a hearing before the Regional Administrator of the Comptroller's office. Subsequently, in February, 1977, the Comptroller approved all five name changes.

In March, 1977 the State brought this action against the Comptroller and the banks in the federal district court of North Dakota, seeking review of the Comptroller's decision and an injunction barring the banks from implementing the name changes. Shortly after the action was commenced, a preliminary injunction was denied, and in May, 1977 the new names became effective. In September, 1977 the district court held the Comptroller's decision was not arbitrary or capricious and dismissed the suit.

On appeal the State abandoned its argument that the Comptroller's decision was invalid, and this court therefore affirmed the district court's dismissal of all claims against the Comptroller. State of North Dakota v. Merchants National Bank & Trust Co., 579 F.2d 1112, 1113, 1115 (8th Cir. 1978). The State maintained, however, that the district court had ignored its pendent claim against the banks for violation of the state common law of unfair competition. Although this court found only an "oblique" reference to state common law in plaintiff's complaint and was "inclined to hold that the matter had not been properly presented to the District Court," the appellee banks "strenuously contend(ed) that the claim had been presented to and decided by the District Court." Id. at 1114. Therefore, this court considered the issue and, finding no mention of the common law claim in the trial court's opinion, remanded the case for further proceedings on that claim.

Upon remand, Judge Benson requested memoranda from the parties on whether the North Dakota common law of unfair competition was preempted by federal law in the area of name changes by national banks. Along with their memorandum on this point, defendants filed a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. In March, 1979 the court granted that motion. State of North Dakota v. Merchants National Bank & Trust Co., 466 F.Supp. 953 (D.N.D.1979).

The district court began its analysis by noting that "(t)he National Bank Act is a comprehensive code creating and regulating the national banks of the United States, 'constituting by itself a complete system for the establishment and government of national banks ....' " Id. at 954 (quoting Cook County National Bank v. United States, 107 U.S. 445, 448, 2 S.Ct. 561, 564, 27 L.Ed. 537 (1883)). The court then observed that some sections of the NBA expressly incorporate state law, whereas section 30 does not. The court concluded that "(b)y making reference to state law in other sections of the (NBA) and omitting all such reference in Section 30, Congress has signalled its clear intent that Section 30 is meant to be pre-emptive." Id. at 955. Finding that the state law of unfair competition, on which the State based its claim, was preempted, the court dismissed the suit. The State has appealed this decision.


A threshold question on this appeal, though not raised by either party, is whether the district court had subject matter jurisdiction of the State's common law unfair competition claim. In the opinion on the previous appeal of this case, then-Chief Judge Gibson noted:

Unless independent jurisdictional grounds are shown, the District Court may determine whether it should hear the case as within its pendent jurisdiction or dismiss without prejudice to relief being sought in state courts.

579 F.2d at 1115. On remand, the district court requested the parties to submit memoranda on whether the common law claim was properly before the court, and both parties responded that it was, as a pendent claim. The court proceeded to consider the claim on the merits, apparently concluding there was pendent jurisdiction. For the reasons stated below, we hold that pendent jurisdiction of the unfair competition claim existed and that its exercise in this case was proper.

The difficulty with finding pendent jurisdiction in the present case stems less from the nature of the claims themselves than from the fact that the two claims involved different defendants. If the difference in defendants is for the moment disregarded, it is clear that the case satisfied the constitutional requirements of pendent jurisdiction as set out in United Mine Workers v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966). 3 First, the claim arising under federal law was jurisdictionally "substantial." Second, the federal and state claims had a "common nucleus of operative fact" in the defendant banks' adoption of new names and the Comptroller's approval thereof. And third, plaintiff would ordinarily be expected to try both claims in one proceeding because a single interest of plaintiff's was affected.

Assuming these constitutional prerequisites are met, Gibbs further requires that, as a matter of discretion, pendent jurisdiction be exercised only when "considerations of judicial economy, convenience and fairness to litigants" will be served. 4 In the present case, there are several reasons for assuming jurisdiction of the state claim. First, the substantial investment of judicial time and resources in the case, by both the district court and this court on the previous appeal, to a degree justifies the exercise of jurisdiction over the state claim, even after the federal claim has been dismissed from the suit. 5 Second, the question whether the state claim is preempted by federal law is, as recognized in Gibbs, 6 particularly suited for resolution in federal court. Finally, as regards "fairness to (the) litigants," both plaintiff and defendants urged the district court to decide the state claim.

Thus, the Gibbs requirements were fully satisfied in this case. Remaining is the question whether pendent jurisdiction of the unfair competition claim existed despite the fact that the defendants to that claim, the appellee banks, were not parties to the claim for review of the Comptroller's decision, upon which federal jurisdiction was based. The pre-Gibbs rule was that pendent jurisdiction would lie only if the federal and state claims involved the same parties. Someone like the appellee banks, as to whom there was no independent grounds for federal jurisdiction, could not be haled into federal court as the defendant on a pendent state claim. Although Gibbs broadened the general test for pendent jurisdiction, the facts in Gibbs did not require departure from this "same-parties" limitation. 3A Moore's Federal Practice P 20.07(5.-1), at 20-72 to -73 (2d ed. 1977); 13 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 3567, at 456-57 (1975).

On the other hand, nothing in the language or reasoning of Gibbs necessarily limited its applicability to cases where the defendant to the pendent claim was also a party to the federal claim. See Aldinger v. Howard, 427 U.S. 1, 20-21, 96 S.Ct. 2413, 2423, 49 L.Ed.2d 276 (1976) (Brennan, J., dissenting); Leather's Best, Inc. v. S. S. Mormaclynx, 451 F.2d 800, 809 (2d Cir. 1971) (quoting Astor-Honor, Inc. v. Grosset & Dunlap, Inc., 441 F.2d 627, 629 (2d Cir. 1971)). Thus, after Gibbs but before Aldinger v. Howard, supra, many of the lower federal courts held that when the Gibbs standards are met, a district court has jurisdiction of a state law claim against a "pendent party," i. e., a defendant who is not a party to the federal claim and as to whom no independent...

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