The Court of Appeals for the Fourth Circuit has overturned a lower court’s dismissal of a lawsuit in which the seller of a portfolio of loans sued the buyer for allegedly violating the terms of their agreement when the buyer turned around and re-sold the loans to someone else, determining that a federally chartered credit union is a citizen of the state in which it has its principal place of business.
A copy of the ruling in the case of Navy Federal Credit Union v. LTD Financial Services can be accessed by clicking here.
The plaintiff sold a portfolio of loans to Advantage Assets II. That entity turned around and re-sold the loans to other debt buyers, who are co-defendants in this case. The resale of the loans allegedly violated the terms of the agreement between Navy Federal and Advantage Assets. The co-defendants were accused of using unscrupulous debt collection practices to collect on the unpaid debts, which defamed the credit union and injured its members, according to the suit.
The plaintiff sued, invoking diversity jurisdiction. But the defendants successfully argued that the credit union is not diverse under Section 1332 because it is a federally chartered institution. In Section 1332(c)(1), Congress establishes diversity jurisdiction by saying 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.” A District Court judge granted the defendants’ motion to dismiss on the grounds of a lack of subject matter jurisdiction.
But Navy Federal appealed, and the Fourth Circuit sided with the credit union thanks to three letters — and. In Section 1332(c)(1), it says that corporations “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.” The word “and” in that definition means “in addition to” according to the Fourth Circuit, establishing Navy Federal as a citizen of Virginia and allowing it to invoke diversity jurisdiction.
