Online Presence and Out of State Jurisdiction

In all likelihood, most business people don’t really think much about jurisdiction or venue.  These are legal concepts that someone may think about in terms of where a lawsuit would be filed.  A lawyer, on the other hand, may think of jurisdiction or venue as being significant tools in their litigation arsenal or a quagmire of contradictory law.  Credit Unions just need to have an understanding of the fact that how and where they do business may affect where they can be hailed into court. 

The Eastern District Court in Kentucky recently decided a case with significant implications to financial institutions.  In Community Trust Bancorp., Inc. v. Community Trust Financial Corp., Civil Action No. 7:10-CV-062-KKC (US Dist. Ct. E.D. Kentucky, February 17, 2011) the court considered a bank in Kentucky that had used the name Community Trust Bank since 1995 and had been in business since 1993.  It sued Community Trust Financial in Kentucky for trademark infringement even though Community Trust Financial did business in Texas.  The court allowed this case to go forward in Kentucky.  Nine of the Texas bank’s, 69,000 accounts had a Kentucky address.  Because the Texas bank had a home banking program and because their customers had to fill out an online application including their address to get a password, the Court held that the Texas bank had voluntarily subjected itself to jurisdiction of a Court in Kentucky. 

At this point you might be thinking, “Wow, our Credit Union has an online banking program, I wonder where our members live?”  That would be a good question to ask yourself. 

Believe me, this is just the tip of the jurisdictional iceberg.  There are many different standards with respect to jurisdiction.  Moreover, there is difference between personal jurisdiction, subject matter jurisdiction and even after the issue of jurisdiction may be decided, venue may change the analysis further. 

With respect to the online banking issue, however, consider also the new FFIEC guidance on authentication in an internet banking environment.  The FFIEC is advising financial institutions not to “rely solely on any single control for authorizing wireless transactions, but rather institute a system of layered security, as described herein.”  Layered security programs include “the use of dual customer authorization through different access devices…and a transaction verification notice immediately following implementation of the submitted access or application changes.”  The concept here being that the FFIEC is suggesting the same kind of verification requirements that would subject a Credit Union to jurisdiction in a state which it is not otherwise doing business.  Certainly the know your member requirements of the Bank Secrecy Act and the Red Flag Requirements of the Fair and Accurate Credit Transactions Act, already require Credit Unions to know where their members live.

Robert Rutkowski. Rob is the Managing Partner of WWR’s Credit Union department. He can be reached at 216.739.5004 or


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