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17 January 2006

Supreme Court Victory for Wachovia and Other National Banks

17 January 2006, Washington, D.C. - The U.S. Supreme Court ruled 8-0 in a case of significance to all national banks, that a national bank is a citizen only of the state in which its main office is located and not, as the U.S. Fourth Circuit had held, of every state in which it has a branch. Mayer, Brown, Rowe & Maw LLP partner Andrew Frey argued the case on behalf of Wachovia Corp, working with partner Evan Tager and counsel Charles Rothfeld. It was Mr. Frey's 63rd Supreme Court argument, the most of any active member of the Bar.

Under the Fourth Circuit's ruling, national banks were effectively stripped of access to federal court diversity jurisdiction. The unanimous ruling of the Supreme Court restored to national banks full access to federal diversity jurisdiction on essentially the same footing as state banks and other corporations. This is of practical significance because national banks generally prefer to litigate their significant cases in federal court.

Justice Ginsburg wrote: "Were we to hold, as the Court of Appeals did, that a national bank is additionally a citizen of every State in which it has established a branch, the access of a federally chartered bank to a federal forum would be drastically curtailed in comparison to the access afforded state banks and other state-incorporated entities. Congress, we are satisfied, created no such anomaly."

Wachovia had filed a petition in federal court seeking to compel arbitration of claims by a South Carolina businessman, Daniel Schmidt, and others who had sued the bank in state court over tax shelters. The U.S. Justice Department supported Wachovia's position on the diversity jurisdiction issue. Wachovia v. Schmidt


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