ARLINGTON, Va.–A decision last week by the U.S. Court of Appeals for the Fourth Circuit could lead to significant cost and time savings for federal credit unions, according to NAFCU’s general counsel.
As CUToday.info reported here, the Fourth Circuit 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 involved 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.
“It’s important because litigation is complex, and in general the federal courts handle more sophisticated cases than do the state courts,” said Carrie Hunt, EVP and general counsel with NAFCU. “In addition, for a credit union like Navy Federal, which operates in different states, having to (engage in litigation on) a state by state basis can be very difficult and you can end up with different results.”
Moreover, added Hunt, cases in federal court create precedents that are typically followed by other federal courts.
‘Diversity Jurisdiction’
At the core of the argument in the Navy Federal case 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."