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Tct Federal Credit Union v. Cumis Insurance Society

March 2, 2011


The opinion of the court was delivered by: Scullin, Senior Judge



On April 22, 2010, the Court heard oral argument in support of, and in opposition to, Defendant Cumis Insurance Society Inc.'s ("Defendant Cumis") motion to dismiss or stay this action on abstention grounds based on the "First-to-File" rule and Plaintiff's motion to remand this case to New York Supreme Court, Saratoga County, on the ground that the requisite "complete diversity" between Plaintiff and Defendants was lacking and that, therefore, this Court lacked subject matter jurisdiction over this action under 28 U.S.C. § 1332(a).*fn1

At the conclusion of oral argument, the Court reserved decision, concluding that it required additional information before it could determine whether Plaintiff was a national citizen for purposes of diversity jurisdiction.*fn2 On April 27, 2010, the Court issued an Order in which it instructed Plaintiff to respond to six questions and to provide any other information relevant to the determination of whether Plaintiff was a national citizen for purposes of diversity jurisdiction. See Dkt. No. 31 at 1-2. The Court also provided Defendant Cumis with an opportunity to respond to Plaintiff's submission. See id. at 2. Both parties have filed their submissions, and Plaintiff's motion to remand is now ripe for review.


Since 1959 Plaintiff has been a federally chartered credit union with its principal place of business in Saratoga County, New York. Between 2000 and 2009, Plaintiff contracted the servicing aspects of its first mortgage loans to CU National, which was located in New Jersey.

In early 2009, Plaintiff discovered that CU National had fraudulently and illegally sold a number of Plaintiff's loans, without Plaintiff's authority, and had diverted the proceeds to benefit CU National's principal, Michael McGrath. The mortgage loans that the individual Defendants owed to Plaintiff were some of the loans that CU National sold without Plaintiff's authority.

Plaintiff filed a proof of loss under its bond with Defendant Cumis. Defendant Cumis denied coverage on the ground that the insurance provided in that bond did not cover the types of losses that Plaintiff had suffered as a result of CU National's actions.

On or about December 16, 2009, Plaintiff filed this action in New York Supreme Court, Saratoga County, and, on or about December 31, 2009, filed a supplemental summons and amended complaint. The individual Defendants, all New York residents, timely answered the complaint. Rather than answer the state-court complaint, Defendant Cumis removed the action to this Court on February 8, 2010. See Dkt. No. 1.


A. Plaintiff's citizenship for purposes of diversity jurisdiction

In its Notice of Removal, Defendant Cumis stated that "[t]his action is properly removable from state to federal court because [Defendant] Cumis is the only properly joined and served Defendant, there is complete diversity of citizenship between [Defendant] Cumis and [Plaintiff], and the amount in controversy exceeds $75,000." See Notice of Removal at ¶ 6 (citing 28 U.S.C. §§ 1332, 1441(a)). Defendant Cumis further asserted that Plaintiff "is alleged to be a credit union resident in the [sic] New York State with offices at 416 Rowland Street, Ballston, Spa, New York, and is thus a citizen of New York for purposes of 28 U.S.C. § 1332(a)(1)." See id. at ¶ 29 (citation omitted). The parties do not dispute that the amount in controversy exceeds $75,000 nor do they dispute Defendant Cumis' citizenship. Thus, the only question before the Court is whether Plaintiff is a citizen of New York or a "national" citizen for purposes of diversity jurisdiction.

As the party that removed this case, Defendant Cumis bears the burden to show that removal was proper, that is, that this Court has subject matter jurisdiction over this matter. See Auriemma Consulting Group, Inc. v. Universal Sav. Bank, F.A., 367 F. Supp. 2d 311, 312 (E.D.N.Y. 2005) (citations omitted). "Federalism and the limited jurisdiction of federal courts require that . . . all doubts be resolved in favor of remand." Id. at 313 (citations omitted).

As noted, Plaintiff was chartered as a Federal Credit Union in 1959 and has continued as such until the present time. See Declaration of Curt Cecala dated March 2, 2010, at ¶ 2. "The general rule with respect to such institutions is that . . . [they are] not considered to be a citizen of any particular state for the purpose of establishing diversity of citizenship." Auriemma Consulting Group, 367 F. Supp. 2d at 313 (citations omitted). There is, however, a limited exception to this rule, which exists "if the corporation's activities are 'localized' within a single state." Id. (citation omitted). If that is the case, the corporation will be considered a citizen of that state. See id. Conversely, "where a federally chartered institution does business in several states, it will be deemed to have only national citizenship." Id. (citation omitted).

To determine whether the "localization" exception applies, courts look at a number of factors, including "the corporation's principle [sic] place of business, the location of branch offices, the volume of business transacted in different states and 'any other evidence that tends to show the local or national nature of the corporation's plans and operations.'" Id. (quotation and other citations omitted). In Auriemma Consulting Group, after considering these factors, the court concluded that the localization exception did not apply because, although the bank's principal office was in Wisconsin, all funds from deposits were ultimately deposited in Wisconsin, and its Wisconsin office funded all its loans, the bank's website stated that it maintained administrative offices in California and Arizona, in addition to those located in Wisconsin and Michigan, it solicited business throughout the country through its website, mortgages and credit card applications could be processed on line, and the majority of its credit card customers (54.4%) was located outside of Wisconsin with only 2.5% of those customers located in Wisconsin. Id. at 314.

Based on this information, the court concluded that the defendant's website makes perfectly clear that the bank intends to exercise the full powers granted by its charter and to do business on a nationwide basis. There is . . . nothing wrong with this. It does, however, support a finding that [the defendant's] business is not so localized as to make it a citizen only of the State of Wisconsin and leads to the legal conclusion that for purposes of the diversity statute, [the defendant] is to be considered only a national citizen.


Therefore, the court concluded that, in light of the fact that the defendant had the burden to prove localization and that the court must resolve all doubts in favor of remand, it had "little difficulty holding that [the defendant] [was] a national citizen only and therefore [could not] invoke this court's diversity jurisdiction." Id.; see also Iceland Seafood Corp. v. Nat'l Consumer Coop. Bank, 285 F. Supp. 2d 719, 725-26 (E.D. Va. 2003) (holding that localization was not established where the defendant bank's charter "authorize[d] nationwide activities," that the bank made loans to entities in at least five states, and that these activities were "clearly national in scope, and [the bank's] secured collateral [was] similarly disbursed"). But see Waldron Midway Enters., Inc. v. Coast Fed. Bank, No. CV-91-1750, 1992 WL 81724, *2 (E.D.N.Y. Apr. 10, 1992) (concluding that the localization exception applied where the defendant bank maintained no out-of-state branch offices, originated most of its loans on single family in-state residences, targeted its business activities to a single state and out-of-state loans accounted for less than five percent of the bank's business (citations omitted)); Loyola Fed. Sav. Bank v. Fickling, 58 F.3d 603, 606 (11th Cir. 1995) (applying the same factors and holding that the localization exception applied where thirty of the plaintiff bank's thirty one branches were located in one state and two-thirds of the bank's residential mortgages and the loans it serviced were secured by in-state properties)

In the present case, although neither party submitted Plaintiff's charter, there is no dispute that the charter does not limit Plaintiff's activities to the State of New York. Nor does the Federal Credit Union Act, under which Plaintiff is chartered, contain any such limitation. In support of its position that it is a national citizen for purposes of diversity jurisdiction, Plaintiff asserts the following facts:

(1) It "provides a wide array of financial services to its members including on-line loan application, payroll deduction, direct deposit, on-line bill paying, on-line banking, auto response banking and ATM access throughout the United States." See Cecala Decl. at ¶ 3.

(2) Its "loan products include boat and RV, education, mortgage, home equity, Visa Platinum ...

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