and that issue is whether an exemption of a private entity from quote all state and local taxation is a valid exercise of congress's commerce power as applied to a wholly local tax on the transfer of real property i understand othe have come to a different conclusion the one i'm advocating for however those courts as well as the court below urge in several important respects first this is conceded the knot of channels or an instrument held his case but a substantial substantial tax task is not satisfied here because there is no jurisdictional limitation in the statute at issue and there is nothing in the legislative record nor in the factual record of this case suggesting that transfer taxes have any effect let alone a substantial on an interstate commerce second who would otherwise would exceed the outer limits of the commerce clause by giving congress power to displace any local regulation that impacts the prices paid for real estate simply because of the impact on price regardless of whether the activity itself has substantial effect on interstate commerce so such a holding is inconsistent with supreme court precedent as such this exemption as applied to transfer taxes exceeds congress's commerce power i'd like to begin by pointing out that there is a presumption against federal interference with state taxation as national as a supreme court said in national private truck council but a federal statutes must be interpreted in light of the strong against federal interference with state taxation and the supreme court explained this in a go brick deburring white coal mining company when it said there are many forms of tax whose burdens when distributed through the play of economic forces a fact interstate commerce which nevertheless falls short of the regulation of the commerce which the constitution leaves to congress so are you saying then that congress could not exempt these two entities from one where the taxes incurred a mortgage transfer taxes on the transfer of the mortgage which would more directly impact the secondary mortgage market operations in as much as it would correctly increase the price paid for that mortgage in a secondary mortgage market why wouldn't the real estate transfer  in this case and real property taxes are levied on an ongoing basis that is more than once and at a higher rate than the transfer tax at issue in finney may and freddie mac have never contended to my knowledge that the their payment of property taxes impacts their secondary mortgage market operations that's governed by a particular provision of the statute that allows for taxation of real property taxes by the state yes your honor so why would they be if  business thereby decreasing their ability to reinvest in mortgages and stimulate the reinvestment of mortgages in the primary mortgage market so if their argument is that these taxes increase our cost of business thereby decreasing in our ability to reinvest  you could say that about any tax but they pay these property taxes which are levied at a higher rate in an ongoing basis and they've never argued that those taxes impact their ability to reinvest but it's up to congress congress made that judgment it would be a different case if they were conceding without legislation that they had to pay property taxes but they have no argument to make about that because congress decided for them your honor congress decided that quote unquote fa exempt from our state and local taxation but there is simply nothing in the legislative record indicating that congress about these transfer taxes that issue and under the commerce clause case law you must examine examine the regulated activity in the regulated activity here is the transfer taxes again this is an as applied challenge will you say that it's a matter of interpretation that this is actually a property tax we do make the argument in the brief your honor that this would fall within the real property exception t exception to the exemption if you will i'm happy to discuss that and you know but i think maybe i misunderstood your last statement i thought that ok so for the purpose of this argument you're conceding that congress made this distinction they said pay property taxes you don't have to pay other taxes and yours ok so your position is that congress can't do that no congress could exempt from some taxation some state taxation but not this one but not this one correct here and that's because there is absolutely nothing in the legislative record or in the factual record of this case indicating that these taxes have a substantial effect alone or court explained in wickard perhaps as the supreme court said and as the farthest reaching example of congress's commerce power questions of the power of congress are not to foreclose consideration of actual facts of the activity in question upon interstate commerce and there's so you mention that all of the other circuits have ruled against you where did they go wrong on this point yes your honor i believe that those circuits conflated the secondary mortgage market with the primary housing market where these taxes are  incur they are two different markets in fact there's three markets here there's the secondary mortgage market the primary mortgage market and the primary real estate market these taxes are incurred at the primary real estate market which is three levels and are two levels removed from where  mac are supposed to be operating but and that's of importance to you because in order for this court to conclude that congress rationally consider this or rationally concluded that these taxes could impact the secondary mortgage market you'd have to say that congress considered that fannie mae and freddie mac were were considered to be part of the primary housing market but there's important limitations in fannie mae and freddie mac's charters that limit the types of mortgages that they can invest in in the secondary mortgage market so the putting those limits in place i believe was so that these mortgages would never enter foreclosure such that fair he may and freddie mac would never even be liable for these taxes in the first instance well explain this to me when you have  house of fannie mae or freddie that house that's on the market which happens yes i mean when i'm not talking about the mortgage at them selling the mortgage or buying ok so you have the house it's on the market now how does this tax not affect that market which market your honor how does that not affect the ability to sell that house that has been for there's not any evidence that it does impact i have this is a traditional closing cost in the i believe thirty seven states indeed fannie mae and freddie met can negotiate who pays this transfer tax and a number of states and i believe they may have done so in ohio  invokes the commerce clause no i don't believe that they do your honor but the supreme court in lopez in morrison made clear and also sebelius that legislative findings especially in close cases in cases where congress is asserting power over purely local activities such as the transfer of real property here that legislative findings help the court reach that conclusion they hope the court determined that congress considered this that considered that they had this reach within their co no legislative findings and that supreme court sorry i was going to sort of ask you a basic question which is you started out saying that they're private and yes and freddie if they were  instrumentalities would this argument that you're making on the commerce clause go away yes it would your honor if any man freddie mac or federal instrumentalities for tax purposes they would be constitutionally exempt vs statutorily exempt from transfer from off state taxation congress would have the power to say otherwise but they are not federal instrumentalities for tax purposes in commodities export company but the detroit international bridge this court in two thousand and twelve  ruled that that is the detroit international bridge company even though it received authorization from congress a charter from congress in played a role in facilitating international commerce but that alone was not enough to make it a federal instrumentality for tax purposes and indeed the clip pointed to six different factors for example whether it was private or for profit fannie mae and freddie mac are undoubtedly for profit companies whether the government controls the day to day operations up until the conservat were controlled by i believe their shareholders they were a shareholder own company with independent board of directors so under the the commodities export company test which apply the le bron standard they're simply not federal instrumentalities that would be constitutionally immune so this court needs to reach the statutory question and this is another thing that the supreme court looks to is whether or not there's a jurisdictional statement in the statute and jurisdictional statement would limit the application of the law to those instances which have a substantial effect on interstate commerce indeed this court and united states speech has any eighty six f thirty five sixty four in one thousand nine hundred sixty noted that section nine twenty two g one on like the section eight issue and lopez which was section nine twenty two q they are same this part of the same statutory scheme contained the jurisdiction element in that this court found that existence of a jurisdictional element employer and finding that that statute or that section that statute was constitutional in that case wickard again by this reach an example of congress's power in nope thirty the supreme court noted that farms with less than fifteen acres of wheat were exempted from the quotas so there was no doubt in that case that the had issue far more than fifteen acres are such that it brought it within but that jurisdictional statement was important because congress had considered that some farms were outside of congress's commerce power we simply do not have that here and thank you your honors good morning and may it please the court i'm michael johnson from arnold and porter i represent the federal housing finance agency and i'm arguing this morning on behalf of all the defendant appellee use will rest on our briefs on the carve out issue as the pelleas position strongly in re the supreme court held that if a general regulatory statute bears a substantial relation to commerce the de minimus character of individual instances arising under that statute is of no consequence in the lopez case the supreme court noted that if a federal statute is part of a larger regulation of economic activity in which the regulatory scheme would be undercut unless the interest state activity is regulated  congressional statute would stand in lopez the supreme court also notice that congress can regulate activities that arise out of or are connected with a commercial transaction which viewed in the a substantially affects interstate commerce your honor those excerpts fit the facts of this case like a glove like a glove congress enacted a comprehensive scheme to facilitate and regulate the secondary mortgage market the secondary mortgage market inherently involves it is comprised of investing in mortgages it is inherent in mortgage investing that there will be unfortunately foreclosures and there from there will be sales of property now if that's an interesting eight activity the sale of property it's and in trust state activity that is connected with an interstate commercial transaction the financing of the mortgage that's the raise on tetra of fannie mae and freddie mac to collect capital from money centers in the united states new york cincinnati chicago los angeles and deploy it throughout the country places like albuquerque or tallahassee or indianapolis that's interstate commerce that's what fannie and freddie do that's what congress facilitated and regulated when it enact in their comprehensive charters would it under cut that comprehensive regulatory scheme if states could impose selective taxes on fannie mae and freddie mac of course it would are these selective taxes or are these just regular transfer taxes i mean any taxes i mean taxes other then real estate taxes other than taxes to which real property is subject why would it undercut the regulatory scheme if fannie and freddie were subject to the panoply of taxes that states could come up with two reasons it would increase the cost congress is objective in creating a secondary mortgage market and chartering fannie mae and freddie mac to facilitate that market was to reduce the cost of mortgage finance so adding any cost is going to counteract congress's objective in an acting the statute secondly congress had the objective of making mortgage credit available more equitably throughout the nation now if states could settle on their own tax schemes and states would choose different was extremely sensitive to the fact that anything that affects market conditions that affects supply and demand in a nationwide market is fair game for congress to regulate and that's exactly what congress did here now is there something people just mortgage companies in that are independent or just the mortgage company they're obviously not covered under these  statutes so would that make f h a in and me more competitive or less competitive they had to do the same thing as a commercial fannie mae and freddie mac would be they would have less of the advantage that congress deemed fit to confer on them if they were subject to the same taxes as other sources of funding the whole purpose for congress's creation of fannie mae in the great depression was because there was no secondary mortgage market congress deemed it appropriate to confer these advantages to create this nationwide market it did it happened the market florist fannie mae did its job well so well that in the late sixty's and early seventy's congress thought it was appropriate to create freddie mac and create a competitor on the same terms it did that freddie mac florist did well provided mortgage credit equitably throughout the nation at a low cost fulfilling the federal mission that congress chartered both enterprises with congress has amended both statutes from time to time over the years and at each point it has seen fit to leave the tax exemptions in place that is congress judgment to make and congress has made that judgment that keeping these advantages in place facilitates its objectives of providing mortgage credit at a reasonable cost in an equitable terms throughout the nation that's i guess i could agree with your early human probably this circuit adopted the governing test not in the detroit international bridge case but in the u s versus michigan case which in vaal federal credit unions and the three factors that the court deemed of great significance in holding that a federal credit union was a federal instrumentality in that case where one was the enterprise chartered by congress credit unions yes now mr getting says the detroit international bridge company had a federal charter  that's true but only in a very limited and semantic sense the detroit international bridge corporation was a private company chartered under the laws of michigan permitted to pursue all corporate objectives that michigan permitted it was granted a federal license to operate the bridge it's not a corporation chartered by congress given a federal mission limited to that mission that fannie mae and freddie mac created by congress their charters give them a mission congress deemed important what we've been talking about providing credit equitably and at a low cost throughout the nation fannie mae and freddie mac are subject to perve a sieve federal supervision at all times those are the three factors this court deemed important for the federal instrumentality test in michigan chartered by congress given a federal mission and limited to that federal mission and subject to pervasive and constant federal supervision to ensure that the statutory exemptions no the supreme court looked at that exact question that exact question in the first agricultural bank of berkshire county case where the dispute this involved a federal statute that prescribe the limits by which states could tax national banks again financial institutions chartered by congress limited to a mission congress thought was important pervasively supervised by federal regulators the supreme court the question before the court was could massachusetts put an excise tax on national banks the state of massachusetts said only if national banks are federal instrumentalities is that a fair statute the supreme court had its debate the majority said we don't need to decide that it is unnecessary that's the supreme court's word on necessary to decide whether today national banks or federal instrumentalities before we apply the statute that was the principal point of contention between the majority and the dissent so what the supreme court determined in first ag is that it's not necessary to decide if an entity protected by a federal statutory exemption is a federal instrumentality first ag isn't the only case we can look at cases where the supreme court has decided whether entities that are clearly not federal instrumentalities are exempt from certain kinds of state and local taxation government contractor cases u s versus new mexico that's a case where you mexico was trying to tax a federal contractor a private entity providing services to the federal government contractor said hey we're entitled to share in the government's constitutional immunity supreme court said no but in the course of saying no the supreme court first in one paragraph noted the sensitivity to issues of state sovereignty in the state power to tax and then in the very next paragraph said if congress wants to change this that it's parag if so the supreme court is telling congress if you think it's very important for federal contractors to be exempt from state and local taxation go ahead and enact the statute what kind of showing do you have to make with any i mean the main objection in relation to the commerce clause here today is that there's no showing that these transfer taxes would have any impact whatsoever on the agency we it's a it's a rational basis so there does not need to be an evidentiary showing it's apparent to the naked eye because this is an increased cost and the possibility of variation among the states is obvious so this is under the standards articulated in lopez and good solid versus rake it's a situation where the impact on supply and demand market conditions in a nationwide market is apparent to the naked eye there did not need to be any findings mr giddings your your opponent argues that those cases really do require that there be findings not not so your honor their statements are quite clear vs rate that findings can be helpful but they are not required it is a rational basis standard where the court's job is not to evaluate the rationale congress provided but only to determine whether congress could have had a rational basis it certainly could have and i think the evidence just from the language of the statute we don't i don't believe there is a great deal of legislative history on point on why these provisions were included but just from looking at the statute it's apparent what congress was trying to do and it is rational to reduce all those costs mr giddings talked a lot about whether there is a drug addiction provision in the statute that again is something that could be helpful but is not required but there is a jurisdictional provision in the statute this statute doesn't exempt anyone selling a house in foreclosure it covers only the two federally chartered federal mission federally supervised enterprises the jurisdiction of the statute is limited to those two entities so there is a jurisdictional provision there's no reason this court should split with the third fourth seventh or eighth circuits or depart from the reasoning inherent in the prior panel decision i see my time is up i appreciate the court's attention  it please the court patrick heard of for the united states your honour's congress had a rational basis for concluding that the statutory exemptions with facilitate interstate commerce and judge white your question mr johnson got it totally right it's a question of did congress how about rational basis and that is pretty obvious from the supreme court's holdings in hodell dealing with the displacement of traditional police powers which is analogous statutes not a heightened constitutional standard of review so the normal rational basis standard of review applies here what does that tell us just what is the rational basis for this i think that the t o the two considerations that mr johnson pointed out both the equivalence across the nation of mortgage lending capital and then secondly to preserve the entities the entities fisk are those two rational bases and it makes sense because that's exactly what congress was trying to do i mean there was a substantial effect and i think that even mr giddings agreed to this on interstate commerce by fannie and freddie he tries to break it down into three different markets but as mr johnson correctly pointed out those markets are intertwined so the real question is when congress exempted as part of this grand statutory scheme creating fannie and freddie to facilitate the interstate traffic and mortgage lending capital whether these exemptions were reasonably related to facilitating those missions they certainly are for those two reasons so that rational basis is there judge more one point on federal instrumentality mr johnson made and we would like to echo as we seem to be doing all day you don't need to reach the federal instrumentality question the supreme court's been pretty clear for the contractor cases even the case believe it's united states versus district of columbia the mr getting cited in his brief expressly conceded that congress has the ability through its commerce power to exempt private entities so the question judges not so much can they only do it through the establishment of fannie and freddie's is federal instrumentalities but rather whether this is a clear exemption granted by congress it is and is within the commerce power but there are no questions yours they made several points that i'd like to briefly address the first one i and i think it's interesting they don't ever say that these taxes themselves have a substantial fact interstate commerce but they're captured in this larger regulatory this comprehensive regulatory regime and this is interesting because fannie mae and freddie mac's charters are not comprehensive regulatory regimes examples of comprehensive regulatory regimes or things like the endangered species act the clean air act the controlled substances act at issue in rake what we have here is corporate charters there forty pages long and p d f we do not have the paper on the bus comprehensive bill that regulates the in and outs of every type of activity with definitions or jurisdictional statements that we have in the clean air act and clean water act up but more to the point made clear mcgiver is a very interesting case in point i and i'd ask your consequential effect of the tax is an increase to the cost of doing business and that's a exactly what fannie mae and freddie macas are arguing here they're saying if we have to pay these taxes it's going to increase the cost for doing business but that would be the same about any local property regulation zoning laws criminal laws school funding laws there are simply no limits to fannie mae and freddie mac's argument and if the concurrence pointed out in sebelius the inability of the u s government in that case to articulate a non constitution based research not constitution based limit on its argument was a reason why their conception exceeded the outer limits of the commerce clause and indeed judge roberts tried this justice robert pointed out that the zoning and police and school laws were examples of laws within the states plenary authority but under fannie mae and freddie mac's argument congress could reach those activities merely because they impact the price paid for real estate because they're part of the national more housing market but as you make clear in our brief there is no really such thing as a national housing market it's all very localized depending on the local laws and again under the defendant's argument congress could reach those laws statue unconstitutional as is remained to develop the factual record in this case would also be appropriate and within this roams within the realm of this court's power if there are no further questions thank you for your time offer your argument the case to