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Navy Federal Credit Union v. Ltd Financial Services, LP

United States District Court, E.D. Virginia, Alexandria Division

March 18, 2019

NAVY FEDERAL CREDIT UNION, Plaintiff,
v.
LTD FINANCIAL SERVICES, LP, et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          Anthony J. Trenga, United States District Judge.

         In this action, Plaintiff Navy Federal Credit Union ("Navy Federal") alleges that it sold certain accounts to Defendant Advantage Assets II, Inc. ("AAII") pursuant to a written contract, and that AAII subsequently resold those accounts to Defendant Debt Management Partners, LLC ("DMP") in violation of that contract, after which DMP allowed holders of those accounts to be subjected to unscrupulous debt-collection activities. DMP has filed a Motion to Dismiss [Doc. 55] ("the Motion") on the basis that the Court lacks subject matter jurisdiction.[1] For the foregoing reasons, the Motion is GRANTED and the action is DISMISSED.

         I. BACKGROUND

         Navy Federal alleges the following, which the Court assumes to be true for the purpose of the Motion:

         Navy Federal is a federally chartered, not-for-profit credit union based in Vienna, Virginia. [Doc. 52 at 1, 6]. Historically, Navy Federal has not sold its members' accounts to any third parties. Id. at 2. However, on April 30, 2012, it sold certain of its accounts to AMI pursuant to a Consumer Loan Purchase and Sale Agreement ("the CLPSA"). Id. The CLPSA, which was structured to protect Navy Federal's members from harassment and to protect Navy Federal's reputation, prohibited AAII from transferring accounts to any other third party without Navy Federal's consent. Id.

         Nevertheless, on September 20, 2018, AAII sold the accounts to DMP through AAII's agent, LTD Financial Services, LP ("LTD"), without notifying Navy Federal of the transfer. Id. DMP subsequently sold some of those accounts to other parties, including to Defendant Bayview Solutions LLC ("Bayview"). Id. at 2-3. Thereafter, Navy Federal learned that some of the holders of the transferred accounts had been subjected to "improper, unfair, deceptive, misleading, aggressive, intimidating, and/or harassing tactics and practices from debt collectors who purported to be acting with respect to the Accounts." Id. at 2. Navy Federal promptly demanded that AAII, LTD, and DMP do something to stop these tactics. Id. at 3. Upon receiving this demand, LTD's Chief Executive Officer and President admitted that AAII and LTD failed to notify Navy Federal of the transfer and obtain its consent, which was required by the CLPSA. Id. However, these Defendants refused to take any action until after Navy Federal filed this suit. Id. After this suit was filed, AAII and LTD reacquired some of the transferred accounts but still allowed Bayview to retain 322 of the accounts. Id. The holders of those 322 accounts continue to be subjected to the alleged improper debt-collection practices. Id.

         Plaintiff filed this action on November 16, 2018, and then filed a six count Amended Complaint on December 17, 2018. [Docs. 1, 52]. Counts One through Five allege various breaches of the CLPSA by AMI and LTD. Id. at 12-17. Count Six alleges that Bayview intentionally made defamatory statements concerning Navy Federal to the account holders by "expressly stat[ing] or impl[ying] that Bayview and its debt collectors, agents, or contractors, were acting as Navy Federal's agents or that Navy Federal sponsored, approved of, or was connected to the unlawful conduct." Id. at 18. All six counts seek relief pursuant to Virginia law. Id.

         Navy asserts jurisdiction solely under 28 U.S.C. § 1332(c) based on diversity of citizenship. In that regard, Navy Federal alleges that diversity jurisdiction exists because the amount in controversy exceeds $75, 000 and the parties are citizens of different states. Id. at 3-4. Specifically, Navy Federal alleges that Defendants maintain their principal places of business in Texas, New York, and Florida, while Navy Federal maintains its principal place of business in Virginia. Id. at 3.[2]

         II. LEGAL STANDARD

         A motion to dismiss under Fed.R.Civ.P. 12(b)(1) places the burden on the plaintiff, as the party asserting jurisdiction, to prove that federal jurisdiction is proper. White v. CMA Const. Co., Inc., 947 F.Supp. 231, 233 (E.D. Va. 1996) (citing McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 189 (1936); Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir. 1982)). A Rule 12(b)(1) motion may challenge subject matter jurisdiction in two different ways. First, a Rule 12(b)(1) motion may attack the complaint on its face, asserting simply that the complaint "fails to allege facts upon which subject matter jurisdiction can be based." Id. (quoting Adams, 697 F.2d at 1219). Under such a facial challenge to jurisdiction, "the facts alleged in the complaint are assumed to be true and the plaintiff, in effect, is afforded the same procedural protection as he would receive under a Rule 12(b)(6) consideration." Id.

         A defendant may also challenge "the existence of subject matter jurisdiction in fact, quite apart from any pleadings." Mortensen v. First Fed. Sav. and Loan Ass 'n, 549 F.2d 884, 891 (3d Cir. 1977). In such a fact-based challenge, the district court's "very power to hear the case" is at issue; and the district court is then free to weigh the evidence to determine the existence of jurisdiction. See Adams, 697 F.2d at 1219. "[N]o presumptive truthfulness attaches to the plaintiffs allegations, and the existence of disputed material facts will not preclude the trial court from evaluating for itself the merits of jurisdictional claims." Mortensen, 549 F.2d at 891. When such a factual challenge is made to jurisdiction, the jurisdictional facts must be determined with the same procedural safeguards as afforded through a motion for summary judgment. See Kerns v. United States, 585 F.3d 187 at 192-93 (4th Cir. 2009).

         III. ANALYSIS

         As a threshold matter, DMP contends that here is a lack of complete diversity on the ground that Navy Federal is a "cooperative association," rather than a corporation, and therefore that it is a citizen of every state in which one of its millions of members is a citizen, some whom are citizens of the same states as the defendants. [Doc. 150 at 2]. However, according to the plain language of the statute under which they are created, federal credit unions are corporations. See 12 U.S.C. § 1754 (stating that upon approval by the board of a federally chartered credit union, the credit union's certificate "shall be the charter of the corporation" and that upon such approval "the Federal credit union shall be a body corporate and as such ... shall be vested with all of the powers and charged with all of the liabilities conferred and imposed by this chapter upon corporations organized hereunder"). Diversity jurisdiction is therefore not defeated on that basis.

         Having established that Navy Federal is a corporation, the Court must next decide two interdependent questions, neither of which has been previously considered by the Supreme Court or the Fourth Circuit: (1) whether 28 U.S.C. § 1332(c), which sets forth the criteria for assessing the state citizenship of state-chartered corporations, also applies to federally chartered corporations; and (2), if not, how is the state citizenship, if any, of federally chartered corporations determined? With respect to these issues, the Court concludes (1) that § 1332(c) does not apply to federally chartered corporations and Navy Federal, as a federally chartered corporation, cannot establish that it is a citizen of any state under the terms of § 1332(c); and (2) diversity jurisdiction may not be established outside the terms of Section 1332(c), through the "localization test" or otherwise.

         A. 28 U.S.C. § 1332(c) Does Not Apply to Federal Credit Unions

         Navy Federal first argues that it is a citizen of Virginia pursuant to 28 U.S.C. § 1332(c) because Virginia is its principal place of business. [Doc. 151 at 20]. Neither Congress, the Supreme Court, nor the Fourth Circuit have addressed whether § 1332(c) applies to federally chartered corporations. Further, the courts that have considered the question are split as to § 1332(c)'s applicability.[3] The majority, however, have concluded that ...


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