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American Airlines Federal Credit Union v. Eck

United States District Court, N.D. Illinois, Eastern Division

May 23, 2018

American Airlines Federal Credit Union, Plaintiff,
v.
Shaun Eck and Merrill Lynch, Pierce, Fenner & Smith, Incorporated, Defendants.

          MEMORANDUM OPINION AND ORDER

          Ronald A. Guzmán United States District Judge.

         For the reasons stated below, this case is dismissed without prejudice for lack of subject matter jurisdiction. Civil case terminated.

         STATEMENT

         American Airlines Federal Credit Union (“AAFCU”) is a federally-chartered credit union seeking to invoke this Court's diversity jurisdiction in its case against Shaun Eck and Merrill Lynch, Pierce, Fenner & Smith, Incorporated, which alleges state-law claims for breach of contract, misappropriation of trade secrets, unjust enrichment, tortious interference with business relationships and existing contracts, and conversion. “For a case to be within the diversity jurisdiction of the federal courts, diversity of citizenship must be ‘complete, ' meaning that no plaintiff may be a citizen of the same state as any defendant.” Snyder v. Wal-Mart Stores, Inc., No. 18 C 583, 2018 WL 1586246, at *5 (N.D. Ill. Apr. 2, 2018) (internal quotation marks and citation omitted). In its complaint, AAFCU alleges that it is a citizen of Texas, and because Defendants are citizens of Illinois, New York, and Delaware, complete diversity exists. (Pl.'s Br. Supp. Jurisdiction, Dkt. # 27, at 5-6.)

         The Supreme Court held in Bankers' Trust Co. v. Texas & Pacific Railway, Co., 241 U.S. 295, 309-10 (1916), that a “corporation chartered pursuant to an Act of Congress with activities in different states . . . [is] not a citizen of any state for diversity jurisdiction purposes.” Fed. Home Loan Bank of Chi. v. Banc of Am. Funding Corp., 760 F.Supp.2d 807, 808-09 (N.D. Ill. 2011). Applying Bankers' Trust to the instant case, diversity jurisdiction is lacking as Plaintiff would not be considered a citizen of any state, and the Court would therefore be required to dismiss the case without prejudice for lack of subject matter jurisdiction. Additional analysis, however, is required for the reasons explained below.

         While Congress eventually enacted a provision declaring that federally-chartered savings associations are considered citizens for diversity jurisdiction purposes “only of the State in which such savings association has its home office, ” 12 U.S.C. § 1464(x), [1] it has not spoken on the citizenship of a federally-chartered credit union. Following in line with the rule articulated in Bankers' Trust, certain courts have concluded that “federal credit unions are not considered to be a citizen of any particular state for the purpose of establishing diversity of citizenship.” Parks Heritage Fed. Credit Union v. Fiserv Sols., Inc., No. 16-CV-7734 (KBF), 2017 WL 74280, at *4 (S.D.N.Y. Jan. 4, 2017) (citation and internal quotation marks omitted). Nevertheless, many courts recognize a limited exception to the general rule, which has become known as the “localization doctrine.” Arlington Cmty. Fed. Credit Union v. Berkley Reg'l Ins. Co., 57 F.Supp.3d 589, 593 (E.D. Va. 2014) (noting that ”[i]n 1956, an Oregon district court . . . judicially created what is now generally known as the ‘localization doctrine, ' extending diversity jurisdiction to federally chartered corporations by deeming such corporations citizens of states where their business was localized.”). “[T]he Third Circuit became the first Court of Appeals to endorse the localization doctrine in Feuchtwanger Corp. v. Lake Hiawatha Fed. Credit Union, 272 F.2d 453 (3d Cir. 1959).” Id.

         Although the Seventh Circuit has not spoken on the citizenship of federally-chartered credit unions, it has acknowledged that with respect to federally-chartered corporations, “courts sometimes recognized an exception [to the rule established in Bankers' Trust] if activities were localized in one state.” Hukic v. Aurora Loan Servs., 588 F.3d 420, 428 (7th Cir. 2009); see also Fed. Home Loan Bank, 760 F.Supp.2d at 808-09 (rejecting argument that Bankers' Trust rule does not apply to a federal home loan bank, and with respect to localization doctrine, concluding that the “Bank's extensive outside-of-Illinois business activities in Wisconsin alone, as well as its other highly material nonlocalized activities . . . take it well out of the limited exception recognized in some cases for ‘localized' federally chartered corporations”). In Hukic, the Seventh Circuit neither adopted nor expressed any opinion on the viability of the localization doctrine; nevertheless, the Court will, in the instant case, assess whether AAFCU's activities are localized in Texas, both because the localization doctrine appears to be widely accepted and, for the reasons discussed below, the Court finds that the exception does not apply based on the current record, so its application does not alter the result of the citizenship analysis.

         In two filings supplementing its jurisdictional allegations, AAFCU asserts that its activities are localized in Texas, and thus it should be found to be a citizen of Texas for diversity jurisdiction purposes. In support, it cites the following facts:

• It is headquartered in Fort Worth, Texas, and all of its senior officers work from that office.
• All of its operations are directed from its Texas offices.
• Texas residents constitute its largest membership percentage, accounting for 30% or 84, 959 out of 285, 919 members.
• Texas residents hold 40% or $2.3 billion of its $5.8 billion deposit balances.
• Texas resident members hold 42.76% or $1.2 billion of the open loan ...

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