Some Banks May Be Able to Edge Plaintiffs Out of State Court

Walter Evans Edge

A little known statute, the Edge Act, provides, in relevant part, as follows:

[A]ll suits of a civil nature at common law or in equity to which any corporation organized under the laws of the United States shall be a party, arising out of transactions involving international or foreign banking, . . . or out of other international or foreign financial operations, . . . shall be deemed to arise under the laws of the United States, and the district courts of the United States shall have original jurisdiction of all such suits; and any defendant in any such suit may, at any time before the trial thereof, remove such suits from a State court into the district court of the United States for the proper district by following the procedure for the removal of causes otherwise provided by law.

12 U.S.C. § 632.

In Sollitt v. KeyCorp, Nos. 09-4143, 10-3408, 2012 Fed. App. 0123N, 2012 U.S. App. LEXIS 1910 (6th Cir. Feb. 1, 2012), the plaintiff filed suit against his former employer, KeyCorp, in state court in Ohio for wrongful termination.  KeyCorp had a foreign currency exchange group, which was divided into two desks, the sales desk and the trading desk.  The sales desk sold foreign currencies, and the trading desk executed trades for the sales.  Plaintiff complained internally that the manager of the sales desk was defrauding customers.  Several months after the plaintiff’s initial complaint, the company installed new software to conduct a company-wide “sweep” of all employee email, scanning for pornography, nudity, or other offensive content.    As a result of the sweep, KeyCorp identified pornographic or offensive material on the accounts of 90 employees and fired 20 of them, including plaintiff.  Plaintiff’s email account revealed over 80 emails containing nude images or other pornographic content, some of which the court described as “extremely graphic.”

As KeyCorp is engaged in “transactions involving international or foreign banking,” it removed Mr. Sollitt’s case to federal court, on the basis of Section 632 of the Edge Act.  The district court, No. 1:09-cv-43, 2009 U.S. Dist. LEXIS 156 (N.D. Ohio Feb. 11, 2009), denied plaintiff’s motion to remand, finding that Mr. Sollitt’s claim for wrongful termination arose out of a transaction involving international or foreign banking, as required by the Edge Act.  The Sixth Circuit, Judge Batchelder, writing for the panel, reversed, finding that although Mr. Sollitt’s allegations involved foreign currency transactions, which are international or foreign banking activities, the case nonetheless did not satisfy the jurisdictional requisite that it arise out of such a transaction. 

The court, recognizing that the issue was not without some ambiguity, stated that the federal courts had divided on the question whether the Edge Act should be interpreted as providing “a broad basis for federal jurisdiction or whether the statute should be read more narrowly.” (quoting New Mexico ex rel. Foy v. Vanderbuilt Capital Advisors, LLC, No. 09-0178, 2009 U.S. Dist LEXIS 105528 (D.N.M. Apr. 13, 2009).  For example, in Pinto v. Bank One Corp., No. 02 Civ. 8477, 2003 U.S. Dist. LEXIS 9348 (S.D.N.Y. June 4, 2003), the court held that the Edge Act’s jurisdictional requisites were satisfied if “any part” of the suit arose out of transactions involving international or foreign banking.  The Sixth Circuit rejected what it characterized as a “limitless” view of the Edge Act’s language, and instead aligned itself with the First Circuit’s holding in Diaz v. Pan American Fed. Savings and Loan Assoc., 635 F.2d 30 (1st Cir. 1980), in which that court declined to read the statue so broadly.  In Diaz, the plaintiff bounced a couple of checks.  Pan American filed criminal charges, and Diaz sued in federal court for malicious prosecution.  The First Circuit declined to find jurisdiction under the Edge Act, holding that the filing of a criminal complaint was not an aspect of “banking” and that, accordingly, Diaz’s claim did not “arise out of” a banking transaction. 

Following the reasoning of the First Circuit, the Sixth found that the firing of the plaintiff was not an aspect of “banking,” and that, accordingly, plaintiff’s claim did not “arise out of” a banking transaction, even though the entire episode could be traced back to the foreign currency transaction. 

Following the reversal by the Sixth Circuit, KeyCorp filed a petition for certiorari, which is currently pending.

Putting aside whether the holdings in Sollitt and Diaz correctly interpret the Edge Act, it has been argued that the Act is unconstitutional. See Elizabeth R. Sheyn, The (Un)Constitutionality of Section 632 of the Edge Act: An Analysis Under Article III and Theories of Protective Jurisdiction, 41 Loy. U. Chi. L.J. 587 (Apr. 8, 2010).

In those courts that have more broadly construed Section 632 of the Edge Act or where there simply is no jurisprudence, the Edge Act can be a weapon in the defense arsenal to remove cases from what many in the defense bar view as a hostile environment, many state courts, to federal district court.

 For those who are curious about the derivation of this statute’s name, the statute is named after its sponsor, then Republican Senator from New Jersey, Walter Evans Edge.  Senator Edge lived an interesting life.  Not only was he a United States Senator for ten years (1919-1929), he was also governor of New Jersey from 1917 to 1919 and then again from 1944 to 1947.  He was a leading supporter of General Eisenhower for the Presidency, our ambassador to France for a period of time, and a newspaper magnate.  Then Senator Edge sponsored what came to be known as the Edge Act, a 1919 amendment to the Federal Reserve Act.

A tip of the hat to Jason Rossiter’s February 1, 2012 article in The Personnel Files Blog for calling this to our attention.

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