Rouse v. Wachovia Mortg.

Full title: ROBERT ROUSE, et al., Plaintiffs, v. WACHOVIA MORTGAGE, FSB, et al.…

Court: UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

Date published: Jan 13, 2012

Case No. EDCV 11-00928 DMG (DTBx) (C.D. Cal. Jan. 13, 2012)

Opinion

Case No. EDCV 11-00928 DMG (DTBx)

01-13-2012

ROBERT ROUSE, et al., Plaintiffs, v. WACHOVIA MORTGAGE, FSB, et al., Defendants.

DOLLY M. GEE UNITED STATES DISTRICT JUDGE

ORDER REMANDING ACTION TO SAN BERNARDINO COUNTY SUPERIOR COURT

The Court is presented with the issue of whether, for diversity of citizenship purposes, a national banking association is a citizen of the state where its principal place of business is located. For the reasons set forth below, the Court concludes that it is. As complete diversity is therefore lacking and this action no longer raises a federal question, the Court declines to exercise supplemental jurisdiction over Plaintiffs' state law claims. Accordingly, this case is REMANDED to San Bernardino County Superior Court.

I.

PROCEDURAL HISTORY

On May 16, 2011, Plaintiffs Robert and Victoria Rouse filed this action in San Bernardino County Superior Court against Defendants Wells Fargo Bank, N.A. and its Wachovia Mortgage division (collectively, "Wells Fargo"), Wells Fargo and Company, NDeX West LLC, and Does 1 through 50.¹ The original complaint raised 23 causes of action under state and federal law pertaining to Plaintiffs' home loan and deed of trust.

1 Both parties identify Wachovia Mortgage as a division of Wells Fargo. As discussed below, Wells Fargo and Company is no longer a party to this action and is assumed to be a sham defendant for the purpose of determining diversity of citizenship at the time of removal.

Wells Fargo Bank removed the action to this Court on June 10, 2011 [Doc. # 1], asserting both the existence of a federal question and diversity of citizenship as bases for subject matter jurisdiction. See 28 U.S.C. §§ 1331, 1332(a). On June 17, 2011, Wells Fargo Bank filed a motion to dismiss the complaint [Doc. # 9], in which NDeX West joined [Doc. # 12]. The Court granted the motion to dismiss with leave to amend [Doc. # 16].

On September 20, 2011, Plaintiffs filed the operative first amended complaint, containing solely state law claims [Doc. # 19].² On October 3, 2011, Wells Fargo moved to dismiss the first amended complaint and strike portions thereof [Doc. ## 20, 22]. NDeX West joined in the motion to dismiss [Doc. # 23].

2 The named defendants in the first amended complaint are Wachovia, Cal-Western Reconveyance Corporation, and Mortgage Electronic Registration Systems, Inc. ("MERS"). Plaintiffs later identified Doe 1 as NDeX West [Doc. # 25] and requested dismissal of Cal-Western and MERS [Doc. # 26]. Thus, the first amended complaint involves the same parties as the original complaint except for Wells Fargo and Company, which is omitted from the first amended complaint.

Because Plaintiffs' operative pleading no longer raises a substantial federal question and it was uncertain whether Wells Fargo is in fact diverse from Plaintiffs, the Court issued an Order to Show Cause ("OSC") why this action should not be remanded to state court [Doc. # 28]. The Court took Defendants' pending motions under submission and set the hearing on the OSC for January 13, 2012 [Doc. ## 36, 38].

II.

LEGAL STANDARD

It is a "bedrock principle" that federal courts are of limited jurisdiction. Alcala v. Holder, 563 F.3d 1009, 1016 (9th Cir. 2009) (citing Cary v. Curtis, 44 U.S. (3 How.) 236, 244, 11 L.Ed. 576 (1845)). Consequently, a district court must remand a case removed from state court "[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction." 28 U.S.C. § 1447(c). There is a "strong presumption against removal jurisdiction," and courts must reject it "if there is any doubt as to the right of removal in the first instance." Geographic Expeditions, Inc. v. Estate of Lhotka ex rel. Lhotka, 599 F.3d 1102, 1107 (9th Cir. 2010) (quoting Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992) (per curiam)) (internal quotation marks omitted).

The burden of establishing federal subject matter jurisdiction lies with the party seeking removal. Washington v. Chimei Innolux Corp., 659 F.3d 842, 847 (9th Cir. 2011) (citing Abrego Abrego v. Dow Chem. Co., 443 F.3d 676, 686 (9th Cir. 2006)). Nonetheless, district courts have an independent duty to establish subject matter jurisdiction over a removed action regardless of whether a party raises the issue. United Investors Life Ins. Co. v. Waddell & Reed Inc., 360 F.3d 960, 967 (9th Cir. 2004) (citing Feidt v. Owens Corning Fiberglas Corp., 153 F.3d 124, 128 (3d Cir. 1998)); see also Dahl v. Rosenfeld, 316 F.3d 1074, 1076 (9th Cir. 2003) ("Upon removal, the district court must determine whether it has subject matter jurisdiction and, if not, it must remand.") (citing Lyons v. Alaska Teamsters Employer Serv. Corp., 188 F.3d 1170, 1171 (9th Cir. 1999)).

III.

DISCUSSION

A. Diversity Jurisdiction

The Constitution extends the judicial power of federal courts "to Controversies . . . between Citizens of different States." U.S. Const. art. III, § 2. By statute, Congress has bestowed district courts with original and removal jurisdiction over civil actions involving diversity of citizenship. 28 U.S.C. §§ 1332(a)(1), 1441(a). Subject to exceptions not applicable here, "[d]iversity jurisdiction requires complete diversity between the parties—each defendant must be a citizen of a different state from each plaintiff." Diaz v. Davis (In re Digimarc Corp. Derivative Litig.), 549 F.3d 1223, 1234 (9th Cir. 2008) (citing Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 267, 2 L.Ed. 435 (1806)). For natural persons, citizenship is determined by the state of domicile. Kanter v. Warner-Lambert Co., 265 F.3d 853, 857 (9th Cir. 2001). When the "citizen" at issue is a business entity, citizenship depends on the nature of the entity. Johnson v. Columbia Props. Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006).

In general, the citizenship of an artificial entity depends on the citizenship of all of the entity's owners or members. Carden v. Arkoma Assocs., 494 U.S. 185, 195-96, 110 S.Ct. 1015, 108 L.Ed.2d 157 (1990); Johnson, 437 F.3d at 899. The most common exception to the general rule, a state-chartered corporation, derives its citizenship from its state of incorporation and, if different, "the State where it has its principal place of business." 28 U.S.C. § 1332(c)(1).

For national banks, the relevant statute provides as follows: "All national banking associations shall, for the purposes of . . . actions by or against them, be deemed citizens of the States in which they are respectively located." 28 U.S.C. § 1348. Where a national bank is "located" is an issue that has long bedeviled the courts.

1. Jurisdictional Facts

The jurisdictional facts here are not in dispute. Plaintiffs are California citizens because they reside at real property located in this State (1st Am. Compl. ¶ 9) and through this very lawsuit intend to continue residing at that property. See Kanter, 265 F.3d at 857 ("A person's domicile is her permanent home, where she resides with the intention to remain or to which she intends to return."). NDeX West, a limited liability company with no owners or members who are California citizens (Notice of Removal, Ex. D ¶ 4), is diverse from Plaintiffs. See Johnson, 437 F.3d at 899 (holding that "an LLC is a citizen of every state of which its owners/members are citizens"). According to Wells Fargo, Wells Fargo and Company was fraudulently joined and should be disregarded in the diversity analysis (Notice of Removal at 4-6), which the Court assumes without deciding to be true.

That leaves only Wells Fargo as a potentially non-diverse party. Wells Fargo is a national banking association chartered pursuant to the National Bank Act, 12 U.S.C. § 21 et seq. (Notice of Removal at 3.) Because its articles of association designate Sioux Falls, South Dakota as the location of its main office (id., Ex. C at 177),³ Wells Fargo is a citizen at least of South Dakota. See Wachovia Bank v. Schmidt, 546 U.S. 303, 318, 126 S.Ct. 941, 163 L.Ed.2d 797 (2006).

3 Throughout this Order, the term "main office" means the place designated by a bank's articles of association, not necessarily the bank's "principal place of business" as defined in Hertz Corp. v. Friend, ___ U.S. ___, 130 S.Ct. 1181, 1192, 175 L.Ed.2d 1029 (2010).

The question raised by the Court in the OSC is whether Wells Fargo is also a citizen of the state in which it maintains its principal place of business. Wells Fargo's principal place of business is in San Francisco, California.⁴ See, e.g., Wells Fargo Bank, N.A. v. WMR e-PIN, LLC, 653 F.3d 702, 705 (8th Cir. 2011); DeLeon v. Wells Fargo Bank, N.A., 729 F. Supp. 2d 1119, 1121 (N.D. Cal. 2010) (citations omitted). Thus, if a national bank is a citizen of both the place designated in its articles of association and its principal place of business, then Wells Fargo is not diverse.

4 The Court ordered Wells Fargo to present evidence showing that its principal place of business is not in California if in fact it so contends. (OSC at 2.) In Wells Fargo's response to the OSC, it does not dispute that its principal place of business is in California or offer any evidence that its principal place of business is elsewhere.

2. Historical Context

a. The "Principal Place Of Business" Test

In the nineteenth century, the phrase "principal place of business" was frequently used to describe a business entity's main office—either nationally or within a state—as designated in its articles of incorporation or association, see, e.g., Wash. & Idaho R.R. v. Coeur D'Alene Ry. & Navigation Co., 160 U.S. 77, 81, 16 S.Ct. 231, 40 L.Ed. 355 (1895) (quoting articles of incorporation designating the plaintiff's "principal place of business" at both Helena, Montana and Coeur d'Alene, Idaho); St. Louis, Iron Mountain & S. Ry. v. Commercial Union Ins. Co., 139 U.S. 223, 234, 11 S.Ct. 554, 35 L.Ed. 154 (1891) (discussing Arkansas statute "contemplating that a foreign insurance company would have no principal place of business within the state, but would transact its business in the usual manner through agents at different places"—in contrast to state law "concerning foreign corporations generally, which required a certificate to be filed with the secretary of state, designating an agent upon whom service might be made, and stating the principal place of business of the corporation within the state"), though use of the phrase in its more familiar sense was not unknown, see, e.g., Proprietors of Charles River Bridge v. Proprietors of Warren Bridge, 24 Mass. (7 Pick.) 344, 392 (1829) ("Charlestown square is the principal place of business in that town, and through which much the greatest part of the travel between Boston and Charlestown usually passes.").

The phrase gained jurisdictional cachet as a test for corporate citizenship in the Bankruptcy Act of 1898. Act of July 1, 1898, ch. 541, 30 Stat. 544, repealed by Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, 92 Stat. 2549. The Bankruptcy Act provided district courts with jurisdiction to "adjudge persons bankrupt who have had their principal place of business, resided, or had their domicile within [the court's] territorial jurisdiction[] for the preceding six months, or the greater portion thereof." Id. § 2. The statute used the phrase "principal place of business" in its "common acceptation," i.e., "the place where . . . business was conducted, whether by receivers or by the corporate officers." Royal Indem. Co. v. Am. Bond & Mortg. Co., 289 U.S. 165, 169, 53 S.Ct. 551, 77 L.Ed. 1100 (1933).

The Bankruptcy Act thus differentiated "principal place of business" from the place of incorporation. This distinction served a "practical purpose":

In these days of corporate activity it is not unusual for a company chartered in one of the states to conduct most, if not all its business in another state far removed from that of incorporation. Considerations of convenience no doubt prompted the Congress to permit the initiation of a bankruptcy in the state where the business is in fact transacted rather than that of the domicile, where often none is done. Unnecessary inconvenience and expense may be

inflicted upon creditors if they are required to participate in a proceeding conducted hundreds or thousands of miles from the situs of the bankrupt's activities, where the books and records are usually kept.

Id.

Outside of the bankruptcy context, corporate citizenship lay solely in the state of incorporation. See, e.g., Germania Fire Ins. Co. v. Francis, 78 U.S. (11 Wall.) 210, 216, 20 L.Ed. 77 (1870) ("[A] corporation can have no legal existence outside of the sovereignty by which it was created. Its place of residence is there, and can be nowhere else. Unlike a natural person, it cannot change its domicile at will, and, although it may be permitted to transact business where its charter does not operate, it cannot on that account acquire a residence there." (citing Ohio & Miss. R.R. v. Wheeler, 66 U.S. (1 Black) 286, 17 L.Ed. 130 (1861); Louisville, Cincinnati, & Charleston R.R. v. Letson, 43 U.S. (2 How.) 497, 11 L.Ed. 353 (1844))).

Black & White Taxicab & Transfer Co. v. Brown & Yellow Taxicab & Transfer Co., 276 U.S. 518, 48 S.Ct. 404, 72 L.Ed. 681 (1928), is illustrative. Brown & Yellow Taxicab, a corporation operating its business in and organized under the laws of Kentucky, became embroiled in a dispute with a competitor, also a Kentucky corporation, over the competitor's interference in Brown & Yellow's contractual relationship with a third party railroad. Desiring to sue the competitor in federal court, Brown & Yellow's shareholders reorganized under the laws of Tennessee, entered into a new contract with the railroad, and dissolved the Kentucky corporation. The reorganized Brown & Yellow, still operating in Kentucky but chartered in Tennessee, then filed suit. The Supreme Court found that the requisite diversity of citizenship existed. Id. at 523-24.

In practice, the principal place of business was frequently the same as the place of incorporation. See Henry N. Butler, Nineteenth-Century Jurisdictional Competition in the Granting of Corporate Privileges, 14 J. Legal Stud. 129, 142 (1985) ("There were very few interstate corporations during the early development of the general business corporation. Incorporation in a state implied that the corporation would locate and operate in that state."). Moreover, courts sometimes found ways to circumvent the state-of-incorporation rule. See, e.g., Lehigh Mining & Mfg. Co. v. Kelly, 160 U.S. 327, 16 S.Ct. 307, 40 L.Ed. 444 (1895) (foreclosing attempt by group of investors to manufacture diversity jurisdiction by transferring corporate assets from non-diverse corporation to out-of-state corporation, finding want of consideration for the transfer); Miller & Lux v. E. Side Canal & Irrigation Co., 211 U.S. 293, 29 S.Ct. 111, 53 L.Ed. 189 (1908) (same result where non-diverse California corporation controlled and directed the defendant, a diverse Nevada corporation that acquired title to the property at issue solely for jurisdictional purposes).

In the wake of Black & White Taxicab, many in Congress and those who testified before it criticized the Supreme Court's interpretation of diversity jurisdiction. Noting the ease with which corporations could manipulate federal court jurisdiction, these critics believed that a virtually absolute "state of incorporation" rule "was at odds with diversity jurisdiction's basic rationale, namely, opening the federal courts' doors to those who might otherwise suffer from local prejudice against out-of-state parties." Hertz, 130 S.Ct. at 1188 (citation omitted). As the size of federal dockets expanded, "many judges began to believe those dockets contained too many diversity cases." Id. at 1189.

Efforts to eliminate or curtail the scope of diversity jurisdiction resulted in a change to the statute in 1958. By adding 28 U.S.C. § 1332(c), Congress both codified the courts' traditional "place of incorporation" test and enacted into law a slightly modified version of the Judicial Conference Committee's proposed "principal place of business" language. Hertz, 130 S.Ct. at 1190. In advancing the "principal place of business" test, the Conference Committee drew upon the precedent in the Bankruptcy Act's jurisdictional provisions. Id. at 1189-90. Early decisions interpreting the "principal place of business" rule in 28 U.S.C. § 1332(c) also looked to bankruptcy law. See, e.g., Sabo v. Standard Oil Co. of Ind., 295 F.2d 893 (7th Cir. 1961) ("The phrase 'principal place of business' is familiar for it has been defined by many court decisions interpreting the Bankruptcy Act, which contains the same language." (internal citation omitted)).

In Hertz, the Supreme Court clarified that, for the purpose of diversity jurisdiction, "principal place of business" means "the place where a corporation's officers direct, control, and coordinate the corporation's activities," i.e., the corporation's "nerve center," as opposed to "simply an office where the corporation holds its board meetings (for example, attended by directors and officers who have traveled there for the occasion)." 130 S.Ct. at 1192; see also id. at 1195 ("[I]f the record reveals attempts at [jurisdictional] manipulation—for example, that the alleged 'nerve center' is nothing more than a mail drop box, a bare office with a computer, or the location of an annual executive retreat—the courts should instead take as the 'nerve center' the place of actual direction, control, and coordination, in the absence of such manipulation.").

b. The National Bank Act

Congress first authorized national banks in 1863. Schmidt, 546 U.S. at 309. Initially, national banks enjoyed favorable access to federal court vis-à-vis state-chartered banks—they could sue and be sued there "solely because they were national banks, without regard to diversity, amount in controversy or the existence of a federal question in the usual sense." Id. at 310 (quoting Mercantile Nat'l Bank at Dallas v. Langdeau, 371 U.S. 555, 566, 83 S.Ct. 520, 9 L.Ed.2d 523 (1963)).

This preferential jurisdictional treatment ended in 1882 when Congress enacted a successor statute providing that the jurisdiction for suits involving national banks "shall be the same as, and not other than, the jurisdiction for suits by or against banks not organized under any law of the United States which do or might do banking business where such national-banking associations may be doing business when such suits may be begun." Id. (quoting Act of July 12, 1882, § 4, 22 Stat. 163 (brackets in Schmidt omitted)). In making this change, Congress intended to place national banks "on the same footing as the banks of the state where they were located." Id. (quoting Leather Mfrs.' Bank v. Cooper, 120 U.S. 778, 780, 7 S.Ct. 777, 30 L.Ed. 816 (1887)).

The present statutory language—that national banks are "deemed citizens of the States in which they are respectively located"—first appeared in 1887 revisions to prescriptions on federal jurisdiction. Id. (quoting Act of Mar. 3, 1887, § 4, 24 Stat. 554-55). This formulation remained in effect through its present codification in 1948. See 28 U.S.C. § 1348; Schmidt, 546 U.S. at 310-12.

c. American Surety

In American Surety Co. v. Bank of California, 133 F.2d 160 (9th Cir. 1943), a diversity action, the Ninth Circuit considered whether a national banking association was "located" in every state in which the bank transacted business or whether it was located only in its principal place of business.⁵ One of the plaintiffs was a citizen of Oregon and the defendant bank—while maintaining its principal place of business in California—had a branch office in Oregon. Thus, diversity jurisdiction turned on whether a national bank is located everywhere it maintains a branch office.

5 American Surety interpreted the prior version of the citizenship statute under the Judicial Code of 1911. The earlier statute employed language that was in all material respects identical to the version currently in force. See Act of Mar. 3, 1911, § 24, para. 16, 36 Stat. 1092 ("And all national banking associations established under the laws of the United States shall, for the purposes of . . . actions by or against them, real, personal, or mixed, and all suits in equity, be deemed citizens of the States in which they are respectively located.").

The Ninth Circuit began by noting that the citizenship statute in its present form "reveals a departure from the old rule that the incorporation of national banking associations under the laws of the United States is a basis for federal jurisdiction." American Surety, 133 F.2d at 162.

There would appear to be a close analogy between such a bank and a corporation national in scope. The citizenship of a corporation is fixed by its principal place of business, a rule which prevails even though it extends its field of endeavor into other states under the sanction of the laws of such other states. In addition, a logical interpretation of the phraseology of [28 U.S.C. § 1348] leads to the conclusion that the "States in which they [national banking associations] are respectively located" are those states in which their principal places of business are maintained.

Id. (internal citations omitted). Therefore, the Ninth Circuit upheld the district court's jurisdiction. Id.

d. Firstar Bank

Other circuits have similarly held that a national banking association is located where it maintains its principal place of business. In Firstar Bank, N.A. v. Faul, 253 F.3d 982 (7th Cir. 2001), the Seventh Circuit confronted the same question that the Ninth Circuit had resolved in American Surety: whether the word "located" in Section 1348 refers to every state where a national bank has a branch. The Seventh Circuit noted a split among the district courts on the issue, "with a majority . . . holding that a bank is located wherever it has a branch." Id. at 985. Rejecting this view, Firstar held that "a national bank is 'located' for purposes of 28 U.S.C. § 1348 in the state where the bank's principal place of business is found and the state listed on its organization certificate." Id. at 994. Thus, the Seventh Circuit concluded that a national bank—like a corporation—has two sources of citizenship and accordingly may be a citizen of two different states.⁶

6 Wells Fargo, relying on an Eighth Circuit decision, suggests that the Seventh Circuit subsequently abandoned its Firstar holding in Hicklin Engineering, L.C. v. Bartell, 439 F.3d 346 (7th Cir. 2006). (Response at 17-18 (citing Wells Fargo Bank, N.A. v. WMR e-PIN, LLC, 653 F.3d 702 (8th Cir. 2011).) It is unlikely that Hicklin scotched Firstar in two breezy sentences without so much as mentioning the case, particularly given that Firstar's author, Judge Flaum, was a member of the Hicklin panel. To the contrary, these sentences merely point out that the Supreme Court's decision in Schmidt, 546 U.S. 303, had the potential to affect the jurisdictional analysis in Hicklin because one of the parties was a national bank:

[U]ntil [Schmidt], issued six days after this appeal was argued, there was a distinct possibility that national banks would be deemed citizens of every state in which they had offices. But [Schmidt] held that national banks are citizens only of the states in which their main offices are located, and that decision saves this case from a jurisdictional dismissal . . . .

Hicklin, 439 F.3d at 348. Hicklin had no reason to decide whether a national bank was also a citizen of its principal place of business—the question that Firstar already answered and Schmidt expressly left open, see 546 U.S. at 315 n.8. It certainly did not do so in dictum. In any event, the three-judge panel in Hicklin could not have overruled Firstar through an ambiguous characterization of Schmidt's holding. See Brooks v. Walls, 279 F.3d 518 (7th Cir. 2002) ("One panel of this court cannot overrule another implicitly.").

In reaching this conclusion, the Seventh Circuit noted that the language in 28 U.S.C. § 1348 "has been consistently interpreted by the Supreme Court to maintain jurisdictional parity between national banks and state banks or other corporations." Firstar Bank, 253 F.3d at 986 (citing Langdeau, 371 U.S. at 565-66; Petri v. Commercial Nat'l Bank, 142 U.S. 644, 650-51, 12 S.Ct. 325, 35 L.Ed. 1144 (1892)). It found nothing in the statutory language suggesting that Congress intended to disrupt "the established background assumption that federal courts have the same jurisdiction over national banks as over any other corporation." Id. at 989 (citing American Surety among other cases as precedent).⁷

7 Firstar purported to "deviate from American Surety . . . by concluding that national banks potentially can be citizens of two states for diversity purposes." 253 F.3d at 989 n.3. American Surety, however, like Firstar, did not consider the "exceedingly rare" case in which "a national bank denominat[es] a state other than its principal place of business in its organization certificate." Firstar Bank, 253 F.3d at 982 n.6. Both American Surety and Firstar interpreted 28 U.S.C. § 1348 to provide jurisdictional parity between national banks and corporations national in scope. At the time that American Surety was decided, 28 U.S.C. § 1332(c)—which provides for jurisdiction based on "principal place of business"—did not exist. Therefore, Firstar is not necessarily incongruent with American Surety, which simply was not presented with a situation where a bank's "principal place of business" was not also the location of its main office.

e. Horton

The Fifth Circuit followed Firstar Bank three years later in Horton v. Bank One, N.A., 387 F.3d 426 (5th Cir. 2004). The plaintiff, a Texas citizen, argued that complete diversity was lacking because the defendant bank—whose main office and principal place of business were both located in Illinois—maintained branches in Texas. The Fifth Circuit disagreed. Noting that every district court to have confronted the issue since Firstar had agreed with the Seventh Circuit, Horton likewise held that "the definition of 'located' is limited to the national bank's principal place of business and the state listed in its organization certificate and its articles of association." 387 F.3d at 436. In reaching its decision, the Fifth Circuit—like the Seventh—sought to preserve Congress' goal of jurisdictional parity among national banks, state banks, and corporations. Id. at 431.

f. Schmidt

In Schmidt, the Fourth Circuit parted ways with the Fifth, Seventh, and Ninth Circuits, concluding that "a national bank is located where it operates branch offices." 388 F.3d 414, 415 (4th Cir. 2004). A unanimous Supreme Court reversed. First, it explained that "the term 'located,' as it appears in the National Bank Act, has no fixed, plain meaning." 546 U.S. at 313. Rather, "its meaning depends on the context in and purpose for which it is used." Id. at 318. Given the Congressional purpose of placing national and state-chartered banks on an equal footing, the Supreme Court faulted the Fourth Circuit for a decision that "rendered national banks singularly disfavored corporate bodies with regard to their access to federal courts." Id. at 319. The Supreme Court pointed out that a corporation "is not deemed a citizen of every State in which it conducts business or is otherwise amenable to personal jurisdiction," but is normally a citizen of no more than two states. Id. at 318. Thus, the Supreme Court opined that it would be "incongruous" to hold that a national bank is a citizen of every state in which it maintains a branch. Id. at 319.

The Supreme Court acknowledged that "[t]o achieve complete parity with state banks and other state-incorporated entities, a national banking association would have to be deemed a citizen of both the State of its main office and the State of its principal place of business." Id. at 317 n.9 (citing Horton, 387 F.3d at 431; Firstar Bank, 253 F.3d at 993-94). Nonetheless, the Schmidt bank's principal place of business and designated main office were both in North Carolina. Id. at 307, 317 n.9. The Supreme Court therefore had no reason to decide whether a bank was located at both locations and "express[ed] no opinion" on the issue. Id. at 315 n.8.

g. WMR e-Pin

In WMR e-PIN, the Eighth Circuit was called on to resolve the question that Schmidt had left unanswered: whether a national bank is located solely in the state where it has its main office as designated by its articles of association, or whether it is also located in the state where it has its principal place of business. A divided Eighth Circuit panel held that a bank's principal place of business was not relevant to its citizenship. Although conceding that the 1882 and 1887 revisions to the National Bank Act evinced Congress' intent to treat national and state banks alike in terms of citizenship, see 653 F.3d at 706-07, the WMR e-Pin majority found that this parity principle did not survive through the 1958 amendments to the diversity jurisdiction statute governing corporate citizenship, 28 U.S.C. § 1332(c). See WMR e-Pin, 653 F.3d at 708-09.

3. Discussion

a. This Court Is Bound By The Ninth Circuit's Precedent In American Surety

The rule from American Surety is clear: "the 'States in which they (national banking associations) are respectively located' are those states in which their principal places of business are maintained." 133 F.2d at 162. More vexing is the meaning of the phrase "principal place of business" in this context. On the one hand, the word "maintained" suggests a focus on a bank's ongoing business operations rather than the static location designated in its articles of association. By 1943, the phrase "principal place of business" had developed jurisdictional significance—at least in the bankruptcy context—as referring to "the place where . . . business was conducted . . . by the corporate officers" rather than the place of incorporation. Royal Indem. Co., 289 U.S. at 169. Moreover, aside from its jurisdictional significance, the phrase "principal place of business" by that time had acquired a different connotation than the state of incorporation. See, e.g., Riehle v. Margolies, 279 U.S. 218, 219, 49 S.Ct. 310, 73 L.Ed. 669 (1929) ("The federal jurisdiction was invoked solely on the ground of diversity of citizenship. The plaintiff, Hatch, a citizen of New York, is the holder of a dishonored check of the sole defendant, the Morosco Holding Company, Inc., a Delaware corporation, apparently with its principal place of business in New York.").

In American Surety, after identifying the "close analogy" between a national bank and a corporation operating nationwide, the Ninth Circuit then made the ambiguous statement that "[t]he citizenship of a corporation is fixed by its principal place of business." 133 F.2d at 162. At that time, of course, a corporation was a citizen solely of its state of incorporation—not its principal place of business.

In all likelihood, this linkage between a corporation's citizenship and its principal place of business, rather than an erroneous exposition of the law, reflected American Surety's failure to consider the case where a corporation's principal place of business was not in its state of incorporation.⁸ This was a common conflation. See, e.g., Barron v. Burnside, 121 U.S. 186, 198, 7 S.Ct. 931, 30 L.Ed. 915 (1887) ("[A] corporation is a citizen of the state by which it is created, and in which its principal place of business is situated, so far as its right to sue and be sued in the federal courts is concerned . . . ." (citing Home Ins. Co. of N.Y. v. Morse, 87 U.S. (20 Wall.) 445, 453, 22 L.Ed. 365 (1874))).

8 Another possibility—not advanced by Wells Fargo—is that American Surety repeatedly used "principal place of business" as shorthand for the place designated by a corporation's articles of incorporation or a bank's articles of association. Yet, even if this were true, the outcome here would not change. Lower courts are "bound not only by the holdings of higher courts' decisions but also by their 'mode of analysis.'" Miller v. Gammie, 335 F.3d 889, 900 (9th Cir. 2003) (en banc) (quoting Antonin Scalia, The Rule of Law as a Law of Rules, 56 U. Chi. L. Rev. 1175, 1177 (1989)). American Surety's basic holding—affirming the Congressional intent to achieve jurisdictional parity between state and national banks—would require the consideration of a national bank's principal place of business after Congress changed the jurisdictional benchmark for corporations in 1958. (See discussion infra part III.A.3.c.)

Nonetheless, the issue before the Ninth Circuit was whether a national bank is a citizen of every state in which it maintains a branch. Answering this question in the negative (as did the Supreme Court six decades later in Schmidt), the Ninth Circuit needed to positively describe the place in which a bank was located notwithstanding that it was not incorporated in any particular state. Given American Surety's analogy between a national bank and a corporation and the fact that a corporation's principal place of business frequently was in its state of incorporation, the Ninth Circuit evidently concluded that a bank's principal place of business was the appropriate measure of its citizenship.

Wells Fargo urges the Court to disregard American Surety, describing it as "a holding 'made casually and without analysis, . . . uttered in passing without due consideration of the alternatives, or . . . merely a prelude to another legal issue that commands the panel's full attention . . . .'" (Response at 21 (quoting V.S. ex rel. A.O. v. Los Gatos-Saratoga Joint Union High School Dist., 484 F.3d 1230, 1232 n.1 (9th Cir. 2007)) (emphasis in Response omitted; first and last ellipses in Response).). The V.S. panel was justifying its decision to apply a de novo standard of review even though a previous panel had "applied the abuse of discretion standard without discussion." 484 F.3d at 1232 n.1. American Surety, in contrast, engaged in a substantial discussion of the citizenship issue. That portion of the opinion comprises three paragraphs out of only 21 in total and is set apart under a separate subheading ("The Jurisdictional Question").

In fact, the passage quoted by Wells Fargo has no precedential value.⁹ It is a quote from a minority opinion in the context of an en banc decision in United States v. Johnson, 256 F.3d 895 (9th Cir. 2001) (en banc). Even so, this excerpt is taken out of context. Indeed, the minority opinion cautioned courts not to disregard Circuit precedent lightly:

9 V.S. fails to acknowledge this, identifying only the quotation's source.

If later panels could dismiss the work product of earlier panels quite so easily, much of our circuit law would be put in doubt. No longer would the question be whether an issue was resolved by an earlier panel. Rather, lawyers advising their clients would have to guess whether a later panel will recognize a ruling that is directly on point as also having been necessary. We decline to introduce such uncertainty into the law of our circuit.

We follow, rather, the approach we have taken in deciding whether an issue is "necessarily decided" for purposes of collateral estoppel. As Chief

Judge Schroeder explained in United States v. Weems, 49 F.3d 528, 532 (9th Cir. 1995), "in order to justify invoking collateral estoppel, a factual determination must have been 'necessarily' (and not 'presumably') decided in the first proceeding." But "necessarily," she noted, means only that the court undeniably decided the issue, not that it was unavoidable for it do so. . . . Weems held that where the court heard evidence and argument from both parties, and specifically ruled on the issue, a party may not escape the ruling's binding effect on the ground that it was not logically essential to the court's ultimate determination. See id. at 532.

Of course, not every statement of law in every opinion is binding on later panels. Where it is clear that a statement is made casually and without analysis, where the statement is uttered in passing without due consideration of the alternatives, or where it is merely a prelude to another legal issue that commands the panel's full attention, it may be appropriate to re-visit the issue in a later case. However, any such reconsideration should be done cautiously and rarely—only where the later panel is convinced that the earlier panel did not make a deliberate decision to adopt the rule of law it announced. Where, on the other hand, it is clear that a majority of the panel has focused on the legal issue presented by the case before it and made a deliberate decision to resolve the issue, that ruling becomes the law of the circuit and can only be overturned by an en banc court or by the Supreme Court.

Johnson, 256 F.3d at 915-16 (emphasis added; footnote omitted).

Wells Fargo cites three cases as "evidence" that American Surety has no precedential force. First, it notes that Schmidt did not mention American Surety even though the Supreme Court "did discuss other Circuit opinions as well as other historical cases." (Response at 19.) While there are undoubtedly situations in which the absence of something is itself significant,¹⁰ the Supreme Court's failure to cite every relevant circuit decision is not one of them.

10 For example, Sherlock Holmes points out one such instance to Inspector Gregory in "The Adventure of Silver Blaze":

"Is there any other point to which you would wish to draw my attention?"
"To the curious incident of the dog in the night-time."
"The dog did nothing in the night-time."
"That was the curious incident," remarked Sherlock Holmes.

Arthur Conan Doyle, The Adventures of Sherlock Holmes, in 4 Strand Mag. 645, 656-57 (1892), http://etext.lib.virginia.edu/toc/modeng/public/DoyBlaz.html.

Next, Wells Fargo points to Lowdermilk v. U.S. Bank National Association, 479 F.3d 994 (9th Cir. 2007), in which the Ninth Circuit cited Schmidt for the proposition that the defendant, a national bank, was a citizen of Ohio, where its main office was located. Id. at 997. Wells Fargo flags the fact that Lowdermilk "did not even consider U.S. Bank's principal place of business, which is in Minnesota." (Response at 19.) If Lowdermilk considered American Surety precedential, Wells Fargo maintains that it would have been bound to apply the principal place of business test. (Id. at 20.)

"When a potential jurisdictional defect is neither noted nor discussed in a federal decision, the decision does not stand for the proposition that no defect existed. The Court would risk error if it relied on assumptions that have gone unstated and unexamined." Ariz. Christian Sch. Tuition Org. v. Winn, ___ U.S. ___, 131 S.Ct. 1436, 179 L.Ed.2d 523 (2011) (internal citations omitted). In Lowdermilk, neither party challenged diversity. 479 F.3d at 997. Furthermore, as jurisdiction was based on the Class Action Fairness Act ("CAFA"), 28 U.S.C. § 1332(d), only minimal diversity was required. Id. The Ninth Circuit found minimal diversity present because at least one plaintiff was a citizen of Oregon and the defendant was a citizen of Ohio. Whether the defendant was additionally a citizen of Minnesota would not have changed this result.

Finally, Wells Fargo relies on the unpublished and non-precedential case of Peralta v. Countrywide Home Loans, Inc., 375 Fed. Appx. 784 (9th Cir. 2010). In Peralta, the panel declined to address whether the defendant bank was located in California, allegedly its principal place of business, pursuant to 28 U.S.C. § 1348. Instead, it "decline[d] to resolve the complex jurisdictional issue of a national bank's citizenship on a limited record, with abbreviated briefing, and a decisional deadline." 375 Fed. Appx. at 785 (citing 28 U.S.C. § 1453(c)(2), (3)).

Latching onto this language, Wells Fargo posits that "[i]f American Surety had already decided the issue, Peralta would not have considered the question 'complex' and would have simply cited to it and found lack of diversity." (Response at 20.) Wells Fargo's 25-page response to the Court's OSC belies this argument. It is manifest from the foregoing discussion that this issue—however resolved—is not straightforward. See also WMR e-Pin, 653 F.3d at 706 ("[E]very court to consider the meaning of § 1348 for purposes of jurisdiction has recognized that the term 'located' is ambiguous."). In addition, Wells Fargo misses the thrust of Peralta: the appeal was dismissed because the jurisdictional question pertaining to a national bank's citizenship was clearly not pertinent to the CAFA statute granting discretionary appellate jurisdiction. See 375 Fed. Appx. at 785 ("[T]he presence of an important, but non-CAFA issue, does not warrant interlocutory appellate review of a remand order.").

In short, because it is clear that American Surety focused on the jurisdictional issue and made a deliberate decision to resolve it, the principal place of business test is binding precedent for this Court. The Court thus declines Wells Fargo's invitation to ignore the Ninth Circuit's holding. See Firstar, 253 F.3d at 989 ("To be sure, [American Surety and other cases of that vintage] were not decided yesterday. Nevertheless, stare decisis counsels that we follow their reasoning unless [the defendant] can, in fact, demonstrate that subsequent statutory changes or judicial decisions have rendered them infirm.").

b. Schmidt Did Not Abrogate American Surety

District courts are bound by prior Ninth Circuit precedent except where "clearly irreconcilable" Supreme Court authority intervenes, in which case "district courts should consider themselves bound by the intervening higher authority and reject the prior opinion of [the Ninth Circuit] as having been effectively overruled." Day v. Apoliona, 496 F.3d 1027, 1031 (9th Cir. 2009) (quoting Miller, 335 F.3d at 900). Wells Fargo asserts that American Surety is "inconsistent" with Schmidt. (Response at 19.) "Inconsistent" is not the same as "clearly irreconcilable," but no matter; neither label applies.

Both Schmidt and American Surety held that a national bank is not a citizen of every state in which it maintains a branch. American Surety determined citizenship based on a national bank's principal place of business. Schmidt looked to the state where the bank's main office is located and left open the possibility that the bank's principal place of business provides an additional source of citizenship.

Congress may well have comprehended the words 'located' and 'established,' as used in § 1348, not as contrasting, but as synonymous or alternative terms. . . . [O]ne might read 'established' as referring to the bank's main office as set forth in its articles of association. Other readings mentioned in Court of Appeals opinions are the bank's principal place of business and the place listed in the bank's organization certificate. Because this issue is not presented by the parties or necessary to today's decision, we express no opinion on it.

Schmidt, 546 U.S. at 314-15 & n.8. (citations omitted) (citing Horton and Firstar).

These two cases are thus easily reconciled: To the extent the holding in Schmidt differed from American Surety at all, it did so only insofar as it provided an additional basis for citizenship. By giving effect to both holdings, the Court interprets Ninth Circuit law on this topic in accord with the majority view among the Circuits.

c. Jurisdictional Parity Requires Treating National Banks As Citizens Of Their Principal Place of Business

Even if the Court were not bound by American Surety, the Court would still follow the persuasive opinions in Firstar and Horton rather than the less convincing rationale offered by the majority in WMR e-Pin. First, the Court disagrees with the WMR e-Pin majority's suggestion that "the fairest reading of footnote nine is that the Supreme Court expressed skepticism over whether the term 'located' in § 1348 included a national bank's 'principal place of business,' in view of the absence of such term in the statute." 653 F.3d at 708 (quoting Excelsior Funds, Inc. v. JP Morgan Chase, N.A., 470 F. Supp. 2d 312, 317 (S.D.N.Y. 2006)). Footnote nine merely points out the obvious—that 28 U.S.C. § 1348 "does not refer to 'principal place of business'; it simply deems such associations 'citizens of the States in which they are respectively located.'" 546 U.S. at 317 n.9. Yet, there is no reason that "located" cannot encompass "principal place of business." The Supreme Court suggests as much when it ventures that the terms "located" and "established" are employed alternatively or synonymously and notes that "established" might refer to a national bank's principal place of business. Id. at 314-15 & n.8.

In an attempt to bolster support for its position, the WMR e-Pin majority mischaracterizes the Seventh Circuit as having repudiated Firstar's acceptance of principal place of business as an alternative basis for citizenship. As discussed above, this is plainly not true. (See discussion supra note 6.)

Ultimately, the fundamental disagreement between Firstar and Horton, on the one hand, and WMR e-Pin, on the other, is whether to apply a "dynamic" interpretation of 28 U.S.C. § 1348 and its predecessor statutes governing the citizenship of national banks. The Eighth Circuit recognized that Section 1348's predecessor statutes "demonstrated Congress's intent 'to put national banks on the same footing as the banks of the state where they were located for all the purposes of the jurisdiction of the courts of the United States' and to 'limit the access of national banks to, and their suability in, the federal courts to the same extent to which non-national banks were so limited.'" WMR e-Pin, 653 F.3d at 706 (quoting Leather Mfrs.' Nat'l Bank, 120 U.S. at 780; Schmidt, 546 U.S. at 311) (internal citations omitted). Nonetheless, the Eighth Circuit found that Congress abandoned any intent to maintain jurisdictional parity when it enacted 28 U.S.C. § 1332(c):

In 1948, when Congress last amended § 1348, it had not yet created principal-place-of-business citizenship. At that time the term "located" referred to the state in which the national bank had its main office, as designated by its articles of association. Moreover, when Congress introduced principal-place-of-business citizenship for state banks and corporations in § 1332(c)(1), it made no reference to jurisdictional parity, nor to national banks or § 1348. And nothing in § 1348 indicates that it would incorporate by reference any subsequent change in the statutes governing jurisdiction over state banks and corporations. These circumstances strongly suggest that, with the passage of § 1332(c)(1), Congress reconfigured the jurisdictional landscape of state banks and state corporations, but left that of national banks undisturbed.

Id. at 708.

There are two problems with this reasoning. To begin with, it rests on the doubtful assumption that Congress, upon updating a jurisdictional statute affecting state-chartered corporations, would have actually considered (and implicitly rejected) making a change to a jurisdictional statute affecting national banks.

More fundamentally, the Eighth Circuit's interpretation ignores Schmidt's instructions how to properly interpret Section 1348. In ascertaining the meaning of where a national bank is "located," Schmidt cautions that the word "located" has "no enduring rigidity." 546 U.S. at 314 (quoting Citizens & S. Nat'l Bank v. Bougas, 434 U.S. 35, 44, 98 S.Ct. 88, 54 L.Ed.2d 218 (1977)). To the contrary, it "is a chameleon word; its meaning depends on the context in and purpose for which it is used." Id. at 318 (emphasis added).

Interpreting 28 U.S.C. § 1348, the current version of which was promulgated in 1948, by referencing 28 U.S.C. § 1332(c)(1), enacted ten years later in 1958, might strike some as incongruous. However, the "classic judicial task of reconciling many laws enacted over time, and getting them to

'make sense' in combination, necessarily assumes that the implications of a statute may be altered by the implications of a later statute." United States v. Fausto, 484 U.S. 439, 453, 108 S.Ct. 668, 98 L.Ed.2d 830 (1988); see also Vermont Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 786 n.17, 120 S.Ct. 1858, 146 L.Ed.2d 836 (2000).

Firstar Bank, 253 F.3d at 993 n.5.

Schmidt makes three things clear: (1) when interpreting the word "located" in 28 U.S.C. § 1348, courts should not look to whatever denotative meaning Congress may have had in mind in 1948 or even 1887, but rather should apply the word in terms of Congress' purpose; (2) Congress intended to achieve jurisdictional parity between national banks and state-chartered banks; and (3) complete parity between national and state-chartered banks requires that national banks be deemed citizens of both their main office and their principal place of business. Given these precepts, the outcome here is not difficult.

This Court holds that national banking associations are citizens of the state where they have their principal place of business as well as the state where they have their main office as designated by their articles of association. Wells Fargo, having its principal place of business in California and main office in South Dakota, is a citizen of both states. Because Plaintiffs are also California citizens, complete diversity was lacking at the time of removal. Therefore, diversity of citizenship is not a possible jurisdictional basis. B. Supplemental Jurisdiction

Notwithstanding the lack of diversity jurisdiction, the Court may continue to exercise supplemental jurisdiction over Plaintiffs' remaining state law claims. 28 U.S.C. § 1367(a). Where, as here, "the district court has dismissed all claims over which it has original jurisdiction," it "may decline to exercise supplemental jurisdiction." 28 U.S.C. § 1367(d)(3).

It would be inappropriate for the Court to exercise supplemental jurisdiction over Plaintiff's remaining state law claims because doing so would not serve the interests of judicial economy, convenience, fairness, and comity. See 28 U.S.C. § 1367(c)(3); Sanford v. MemberWorks, Inc., 625 F.3d 550, 561 (9th Cir. 2010) (quoting Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350 n.7, 108 S.Ct. 614, 98 L.Ed.2d 720 (1988)). This Court has no interest in adjudicating tort claims involving real property whereas California courts have a strong interest in applying California law.

IV.

CONCLUSION

In light of the foregoing, this action is hereby REMANDED to San Bernardino County Superior Court. Defendants' pending motions to dismiss and strike portions of the first amended complaint are DENIED as moot.

IT IS SO ORDERED.

DATED: January 13, 2012

/s/_________

DOLLY M. GEE

UNITED STATES DISTRICT JUDGE