RICHMOND, Va.–The U.S. Court of Appeals for the Fourth Circuit has overturned a lower-court decision and ruled federal credit unions have the right to file a federal lawsuit. Both CUNA and NAFCU had filed briefs in support of the plaintiff in the case, Navy Federal Credit Union.
The ruling involves the case Navy Federal Credit Union v. LTD Financial Services that had been filed in the U.S. District Court for the Eastern District of Virginia, which had found the credit union, although headquartered in Vienna, Va., is not a citizen of Virginia or any other state based on statutory language that says federal credit unions are corporations. Navy Federal had argued the ruling was contrary to how courts have long viewed the issue.
To sue in federal court, certain criteria must be met: the plaintiff and defendant either have to have a federal case or controversy, or be citizens of different states. If these criteria are not met, then the lawsuit must be filed in state court, noted NAFCU.
At the core of the argument was the principle of “diversity jurisdiction,” which is one of the key ways that companies and private citizens can access federal courts, specifically so that litigants from different states are not afforded a “home court advantage” in state court, said NAFCU in its analysis. The federal district judge’s ruling, now overturned, had sharply limited such access for Navy Federal and all FCUs.
The Appeals Court ruled Congress has plainly provided a general rule for how entities establish state citizenship for purposes of bringing a federal lawsuit. "For these reasons, we find Navy Federal to be a citizen of Virginia, and we reverse," the decision read.
Unanimous Decision
The Appeals Court judges voted 3-0 in the case, and further stated the defendant's proposed reading of the statute was "nonsensical" and the textual reading offered was "simply implausible given [its] text, structure, and context."
"[Thursday's] ruling in the 4th Circuit is a huge victory for Navy Federal and its members, and ensures that federal credit unions will have the same access to federal courts that all state-incorporated companies have enjoyed for decades," said Mary McDuffie, president and CEO of Navy Federal Credit Union in a statement. "Special thanks to our partners at the Credit Union National Association and National Association of Federally-Insured Credit Unions for their support in this case."