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PenFed loses on citizenship.

A federal judge in Maryland has ruled that Pentagon Federal Credit Union can't have a lawsuit transferred from state to federal court by making a claim that it is not a corporate citizen of a state.

U.S. District Judge Roger W. Titus ruled that a federal court cannot confer state citizenship on a federal credit union without congressional authority. Therefore he dismissed PenFed's request to move a lawsuit filed in Montgomery County Circuit Court to federal court.

PenFed had claimed that because it is headquartered in Virginia, it wasn't a corporate citizen of Maryland and therefore the case should be heard in federal not state court.

But Titus cited a U.S Court of Appeals for the Third Circuit's decision in a 1959 case, Feuchtwanger Corp. vs. Lake Hiawatha FCU, that the Federal Credit Union Act said nothing about the citizenship of federal credit unions. Therefore, the court ruled that federally charted corporations were only citizens of a given state if its activities were so localized that it was essentially a local institution.

He also rejected a contention by PenFed that a decision by the U.S. Supreme Court last year regarding the locality of state-charted corporations shouldn't apply to federally charted corporations. Te high court ruled in Hertz Corp. vs. Friend that a state-charted corporation's principal place of business is where "a corporation's officers direct, control and coordinate the corporation's activities."

Titus ruled that "Congress has in no way indicated its intent to afford federally charted credit unions state citizenship. If it wishes to do so, Congress-and only Congress-has the authority to expand removal jurisdiction by deeming federally charted credit unions to be citizens in which their principal places of businesses are located. It simply has not done so."

PenFed had sought to transfer a lawsuit filed by Northern Virginia Foot & Ankle Associates, a podiatric medical practice, from state court to federal court.

Northern Virginia Foot & Ankle sued PenFed for $400,000, alleging that the credit union credited funds to the account of a former employee of the medical practice who "intentionally and unlawfully took physical possession and removed at least 140 checks totaling more than $400,000."

The suit alleged that PenFed and the former employee, Lydia McCaskill, interfered with Northern Virginia Foot & Ankle Associates' personal property. Te suit alleges that McCaskill endorsed the checks with the unauthorized endorsements of one of the doctors in the practice. It alleges that because PenFed didn't question McCaskill's actions and deal with the matter in good faith, it caused substantial economic harm to the practice.


* READ the court decision at
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Title Annotation:LITIGATION
Publication:Credit Union Times
Date:Feb 9, 2011
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