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Journal of American Arbitration (JAA) - Vol. 5, No. 2

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ARTICLES

Motion to Compel Arbitration Leads
United States Supreme Court to Define
“Location” in the National Bank Act for
Purposes of Federal Diversity Jurisdiction
in Wachovia Bank, Nat. Assoc. v. Schmidt
By Brian Matt

I. OVERVIEW
Daniel G. Schmidt III and other citizens of South Carolina brought
suit against Wachovia Bank, National Association (Wachovia). Schmidt
alleged that Wachovia fraudulently induced him to enter into an
illegitimate tax shelter. Schmidt filed suit in South Carolina state court.
Wachovia responded by petitioning the United States District Court for
the District of South Carolina to compel arbitration. Wachovia Bank,
Nat. Assoc. v. Schmidt, 126 S. Ct. 941, 946 (2006).
Wachovia argued for federal jurisdiction under 28 U.S.C. § 1332
based on diversity of citizenship. Id. Neither the parties nor the district
court “questioned the existence of federal subject-matter jurisdiction,”
and the district court denied Wachovia’s petition on the merits. Id.
Nevertheless, when Wachovia appealed, the United States Court of
Appeals for the Fourth Circuit vacated the district court’s judgment and
“instructed the District Court to dismiss the case,” because the case
lacked the requisite diversity of citizenship. Id. The court considered the
language of 28 U.S.C. § 1348, which states that “national banking
associations shall, for the purposes of all other actions by or against
them, be deemed citizens of the States in which they are respectively
located.” Id. at 948. The Fourth Circuit held that Wachovia is “‘located’
in, and therefore a ‘citizen’ of, every State in which it maintains a branch
office.” Id. Because Wachovia had a branch office in South Carolina,
Schmidt and Wachovia were both citizens of South Carolina for purposes
of diversity jurisdiction. Id. at 946. Therefore, according to the Fourth
Circuit, the federal court lacked the jurisdiction to rule on the motion to