FCU’s Can Access Federal Courts

November 24, 2020 at 10:01 am Leave a comment

Executives at larger credit unions have one more thing to be thankful for as they celebrate Thanksgiving on Thursday. The Court of Appeals for the Fourth Circuit reversed an earlier lower-court ruling which would have denied federal credit unions access to the federal courts in most circumstances. This may not sound like a big deal, but as credit unions grow larger and serve members in multiple states, the access to federal courts is crucial for these institutions going forward.

Federal law provides that a corporation  “shall be deemed a citizen of every State and foreign state by which it has been incorporated and of the State or foreign state where it has its principal place of business.” 28 U.S.C. § 1332(c)(1) (emphasis added). 

Navy FCU was suing a company based in Florida, Delaware and New York to which it sold some of its loans for violating its contract by reselling the loans to another party. The defendant successfully argued that under 1332, a federally chartered credit union was not able to obtain jurisdiction or access to the federal courts. In the type of argument that thrills textualists on steroids, the district court interpreted the statute as requiring that a credit union must be both chartered by a state and have a principal place of business in order to be eligible to start a suit in federal court. Federal credit unions are chartered by the federal government, not states.

Fortunately for the home team, common sense prevailed. In reversing the lower court, the Fourth Circuit reached three conclusions that are fundamental to credit union operations. First, credit unions are corporations even though they are cooperatives. Second, the statute covers federally chartered credit unions which are either chartered by a state or have a principal place of business in a state. Third, as a result, Navy FCU with it’s C-suite of top executives located mainly in Virginia, qualified as a Virginia resident. This decision is not binding on other federal circuits. Still, it does represent persuasive authority if, and I believe when, federal credit unions face similar challenges in places like New York. 

After Further Review…

It took a mere three weeks to figure it out, but at long last, the electorate in New York has solidified Democratic control in the State Senate. Yesterday, Senate Majority Leader Stewart-Cousins and her top deputy Michael Gianaris announced that when all the votes were counted, Senate Democrats would hold at least 42 seats, but with other races still to be decided, this majority may grow. 42 is a magic number not just because it was worn by Jackie Robinson, but because it is also the threshold for a supermajority in this chamber, giving the Senate the ability to override a Governor’s budget proposal. The Assembly already has a supermajority. 

On that note, enjoy your Thanksgiving. I’ll be back next week.

Entry filed under: Legal Watch, New York State, Political. Tags: , , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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