United States District Court, E.D. Virginia, Alexandria Division
MEMORANDUM OPINION AND ORDER
Anthony J. Trenga, United States District Judge.
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. For the foregoing reasons, the Motion is
GRANTED and the action is DISMISSED.
Federal alleges the following, which the Court assumes to be
true for the purpose of the Motion:
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
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.
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.
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.
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.
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).
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.
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.
28 U.S.C. § 1332(c) Does Not Apply to Federal Credit
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. The majority, however, have concluded that