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Appeals court: FCUs can file suit in federal court
In a win for federal credit unions, the U.S. Court of Appeals for the Fourth Circuit overturned a lower-court decision and determined that they have diversity jurisdiction to file a federal lawsuit. NAFCU filed an amicus brief in support of Navy Federal Credit Union as the credit union appealed the lower court's decision.
"[Thursday's] ruling in the 4th Circuit is a huge victory for Navy Federal and its members, and ensures that federal credit unions will have the same access to federal courts that all state-incorporated companies have enjoyed for decades," said Mary McDuffie, president and CEO of Navy Federal Credit Union. "Special thanks to our partners at the Credit Union National Association and National Association of Federally-Insured Credit Unions for their support in this case."
To sue in federal court, certain criteria must be met: the plaintiff and defendant either have to have a federal case or controversy, or be citizens of different states. If these criteria are not met, then the lawsuit must be filed in state court.
Navy Federal challenged the U.S. District Court for the Eastern District of Virginia's ruling that the credit union is not a citizen of Virginia – where it is headquartered – or any other state based on statutory language that says federal credit unions are corporations. This is contrary to how courts have long looked at this issue.
NAFCU had argued that if this precedent were to stand, it would have wide-ranging impact.
The court said that Congress has plainly provided a general rule for how entities establish state citizenship for purposes of bringing a federal lawsuit. "For these reasons, we find Navy Federal to be a citizen of Virginia, and we reverse," Thursday's decision stated.
The appeals court also said the defendant's proposed reading of the statute was "nonsensical" and the textual reading offered was "simply implausible given [its] text, structure, and context."
NAFCU stood by Navy Federal throughout its hearings in this case. The association remains committed to advocating for federal- and state-charted credit unions.