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October 31, 2014
  Lightfoot v. Cendant Mortgage Corp.
Headline: Ninth Circuit Affirms the Dismissal of Claims Against Fannie Mae and Affirms the Holding that Fannie Mae's Federal Corporate Charter Confers Federal Question Jurisdiction Over Claims.

Area of Law: Civil Procedure; Federal Question Jurisdiction

Issue(s) Presented: Whether the sue-and-be-sued clause in Fannie Mae's federal corporate charter confers federal question jurisdiction over claims brought by or against Fannie Mae.

Brief Summary:

The Ninth Circuit panel held that the sue-and-be-sued clause in Fannie Mae's federal charter conferred federal question jurisdiction over suits in which Fannie Mae is a party and that the district court had subject matter jurisdiction over plaintiffs' claims. The Court thus affirmed the district court's dismissal of plaintiffs' claims against Fannie Mae.

First, the majority opinion discussed the language of the sue-and-be sued clause in Fannie Mae's charter, which authorizes Fannie Mae "to sue and be sued, and to complain and to defend, in any court of competent jurisdiction, State or Federal." The Court held that this language confers federal question jurisdiction over claims brought by and against Fannie Mae, based on the clear rule for construing sue-and-be sued clauses for federally chartered corporations set forth in Red Cross which held that "a congressional charter's 'sue and be sued' provision may be read to confer federal court jurisdiction if, but only if, it specifically mentions the federal courts.".

Second, the majority opinion addressed the phrase "court of competent jurisdiction" contained in Fannie Mae's sue-and-be sued clause, and opined that Congress was simply modernizing Fannie Mae's charter. The opinion reasoned that the Fannie Mae's sue-and-be-sued clause (1) retained specific reference to federal courts sufficient to confer federal question jurisdiction and (2) could be read to emphasize that the clause did not authorize or require the exercise of subject matter jurisdiction by a state court with narrow specialized jurisdiction.

Third, the majority opinion discussed the legislative history of the 1954 and 1974 amendments to the Fannie Mae charter, and found no evidence that the change to Fannie Mae's sue-and-be sued clause was part of the move toward privatization of Fannie Mae.

Lastly, the majority opinion addressed the language regarding Fannie Mae's principal place of business in the 1974 amendment and opined that the referenced "jurisdiction" is almost certainly a reference to personal jurisdiction.


Dissent: District Judge Stein dissented from the majority opinion and opined that the phrase "of competent jurisdiction" does not confer automatic federal subject matter jurisdiction over any action to which Fannie Mae is a party and, thus, jurisdiction must arise from some other source.


Extended Summary: Following foreclosure proceedings initiated by the Federal National Mortgage Association ("Fannie Mae"), Plaintiffs Beverly Ann Hollis-Arlington and Crystal Monique Lightfoot filed two suits in the United States District Court for the Central District of California, alleging numerous state- and federal-law claims against Fannie Mae and other defendants. The district court dismissed both suits and this Court affirmed on appeal. Plaintiffs then filed the present suit in California state court, and Fannie Mae removed to federal court. Plaintiffs' motion to remand was denied, and the district court dismissed all of Plaintiffs' claims as barred by res judicata and collateral estoppel. Plaintiffs appealed the district court's judgment, arguing that the district court lacked subject matter jurisdiction over their claims. This Court initially affirmed in an unpublished opinion and later withdrew that disposition, ordering the parties brief whether Fannie Mae's federal charter granted the district court subject matter jurisdiction.

First, the majority opinion discussed the language of the sue-and-be sued clause in Fannie Mae's charter, which authorizes Fannie Mae "to sue and be sued, and to complain and to defend, in any court of competent jurisdiction, State or Federal." The opinion held that this language confers federal question jurisdiction over claims brought by and against Fannie Mae, based on the clear rule for construing sue-and-be sued clauses for federally chartered corporations set forth in American Red Cross v. S.G., 505 U.S. 247 (1992).

The majority opinion walked through the reasoning in Red Cross, summarizing the line of cases that established the "rule" that when federal charters "expressly authoriz[e] the organization to sue and be sued in federal courts . . . the provision extends beyond a mere grant of general corporate capacity to sue, and suffices to confer federal jurisdiction." See Osborn v. Bank of the United States, Bank of the United States v. Deveaux, Bankers Trust Co. v. Texas & Pacific Railway, and D'Oench, Duhme & Co. v. FDIC.

Second, the majority opinion addressed the phrase "court of competent jurisdiction" contained in Fannie Mae's sue-and-be sued clause. The opinion disagreed with the dissent's argument that Congress eliminated federal question jurisdiction by replacing the phrase "court of law or equity" with "court of competent jurisdiction." The opinion reasoned that such elimination would impose a severe new restraint on Fannie Mae's ability to litigate in federal court and, since neither the House nor the Senate commented on a change of that sort, there was no indication that Congress intended to eliminate federal question jurisdiction.

The opinion also reasoned that the most likely explanation for replacing the phrase "court of law or equity" with "court of competent jurisdiction" is that Congress was simply modernizing Fannie Mae's charter, since the federal courts and almost every state had abandoned the law/equity division, and since Congress had removed a number of references to "law or equity" in the statutes that defined federal district court jurisdiction.

The opinion then reiterated that cases from Deveaux to D'Oench put Congress on notice that a specific reference to federal courts was sufficient to confer jurisdiction. Here, the 1954 amendment of Fannie Mae's sue-and-be-sued clause retained "the very words the Court had recently held sufficient to confer such jurisdiction in D'Oench." Further, the opinion emphasized that Congress knew how to eliminate federal question jurisdiction because it did so by deleting the reference to federal courts in the Federal Savings and Loan Insurance Corporation ("FSLIC") charter that same year.

The majority opinion next disagreed with the dissent's argument that this majority holding rendered superfluous the phrase "court of competent jurisdiction." The opinion found that Fannie Mae's sue-and-be-sued clause could be read to emphasize that the clause did not authorize or require the exercise of subject matter jurisdiction by state courts with narrow specialized jurisdiction (citing Osborn), reasoniing that Congress added the phrase "court of competent jurisdiction" to Fannie Mae's charter in the 1950's in response to a general concern about the extent of federal authority to require state courts to hear cases brought pursuant to federal statutes.

Third, reviewing the legislative history of the 1954 and 1974 amendments to the Fannie Mae charter, the majority found no evidence that the change to Fannie Mae's sue-and-be sued clause was part of the move toward privatization of Fannie Mae. The majority opinion reasoned that Congress used the phrase "court of competent jurisdiction" in contexts that had nothing to do with either Fannie Mae or privatization; that the House Report never mentioned the change to Fannie Mae's sue-and-be-sued clause despite going into great detail on other provisions designed to privatize Fannie Mae; that Congress eliminated federal question jurisdiction from the FSLIC charter; and that Congress changed the Home Loan Bank Board's sue-and-be-sued clause without relation to privatization.

The opinion further noted that in 1968 Congress split Fannie Mae into two corporations - Fannie Mae and the Government National Mortgage Association ("Ginnie Mae") - and both corporations kept the same sue-and-be-sued clause, despite the fact that Fannie Mae was entirely privately owned and Ginnie Mae was entirely federally owned. The majority thus concluded that, if the phrase "court of competent jurisdiction" had been used in 1954 as part of an overall plan to privatize Fannie Mae and to limit its access to federal courts, then Congress would not have used the same phrase in Ginnie Mae's charter.

Lastly, the majority opinion addressed the language regarding Fannie Mae's principal place of business in the 1974 amendment, which was changed to read as: "Fannie Mae shall maintain its principal office in the District of Columbia or the metropolitan area thereof and shall be deemed, for purposes of jurisdiction and venue in civil actions, to be a District of Columbia corporation." The majority disagreed with the dissent's argument that this change showed that Congress sought to authorize diversity jurisdiction over suits in which Fannie Mae was a party. The majority opined the 1974 amendment reference to "jurisdiction" is almost certainly a reference to personal jurisdiction, and reasoned that legislative history was consistent with Congress' intent to move its principle place of business to the suburbs without effecting any change to the place where it would be subject to general jurisdiction. The majority further reasoned that, unlike other statutes that expressly refer to the corporation as a "citizen" so as to authorize diversity jurisdiction, Fannie Mae's 1974 amendment does not use the word "citizen" and provides only that Fannie Mae is a "District of Columbia corporation."

Based on the above discussion, the Ninth Circuit panel concluded that the sue-and-be-sued clause in Fannie Mae's federal charter conferred federal question jurisdiction over suits in which Fannie Mae is a party and that the district court had subject matter jurisdiction over plaintiffs' claims. The Court thus affirmed the district court's dismissal of plaintiffs' claims against Fannie Mae.

Dissent: District Judge Stein dissented from the majority opinion and opined that the phrase "of competent jurisdiction" does not confer automatic federal subject matter jurisdiction over any action to which Fannie Mae is a party and, thus, jurisdiction must arise from some other source.

First, the dissent looked to the plain language of Fannie Mae's sue-and-be-sued clause and argued that Red Cross did not announce a new rule of law but, rather, simply restated the rule established in Osborn and Deveaux to assist Congress and courts in writing and interpreting sue-and-be-sued clauses.

The dissent did not agree with the majority's alternative readings of the "of competent jurisdiction" provision. With respect to Congress' drive to modernize the U.S. Code, the dissent argued that Congress simply deleted references to courts of law and equity and did not replace phrases with new references to "courts of competent jurisdiction." With respect to state and federal courts of specialized jurisdictions not being required to hear cases involving Fannie Mae, the dissent argued that this is an unduly narrow reading of the clause.

The dissent then argued that the majority's reading of the proviso would render it entirely superfluous and that the historical backdrop for the majority's interpretation of the clause was irrelevant to the issue presented. In sum, the dissent argued that the only natural reading of the phrase requires the Court to look for a source outside of Fannie Mae's sue-and-be-sued clause for federal subject matter jurisdiction.

Second, the dissent looked to the history of Congress' amendments to reinforce its conclusion that the clause does not confer federal subject matter jurisdiction. The dissent emphasized that, when Congress acts to amend a statute, courts presume it intends its amendment to have real and substantial effect. The dissent reasoned that the 1954 amendment to Fannie Mae's sue-and-be-sued clause was part and parcel of Congress' overall intention to eventually take the federal government out of the secondary mortgage market, and that Congress elected the default option for federally chartered corporations, i.e., no automatic access to the federal courts unless the government owns more than half of the corporation's capital stock.

Lastly, the dissent opined that, by the adding the word "jurisdiction" in the 1974 amendment, Congress intended to allow Fannie Mae to access the federal courts via diversity jurisdiction, reasoning that if Fannie Mae's sue-and-be-sued clause conferred subject matter jurisdiction, then Congress amended the company's charter in 1974 for no reason whatsoever.

For the full opinion: http://cdn.ca9.uscourts.gov/da...14/10/02/10-56068.pdf

Panel: Stephen S. Trott and William A. Fletcher, Circuit Judges, and Sidney H. Stein, District Judge

Date of Issued Opinion: October 2, 2014

Docket Number: 10-56068

Decided: Affirmed

Case Alert Author: Beverly E. Bashor

Counsel: Thomas Ogden (argued), Law Offices of Thomas Ogden, Alhambra, California; Crystal Monique Lightfoot, West Hills, California, for Plaintiffs-Appellants; Jonathan Hacker (argued), O'Melveny & Myers LLP, Washington, D.C., Jan T. Chilton, Severson & Werson, San Francisco, California, for Defendants-Appellees.

Author of Opinion: W. Fletcher, Circuit Judge

Case Alert Circuit Supervisor: Professor Glenn Koppel

    Posted By: Glenn Koppel @ 10/31/2014 06:21 PM     9th Circuit  

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