when i was asked if i could argue this morning i was at first a bit reluctant because we are very obviously behind a ball here with all of the many district courts and a couple of circuit courts that have ruled against us but then i started digging around a little bit and i think where i disagree most your honour's with the other courts is on the constitutional question and i say that would you know a little some trepidation because one of the only things that's actually ingrained in my mind from law school is my federal courts professor tell me if you're urging a constitutional law argument particularly if you're leading off with one you might as well just pack up and go home but i do think here in this case the constitutional argument has merit having having had the benefit of reading a lot of briefing from plaintiff independents across the country to get up on this case to argue  frankly it looks like the planets have had a hard time clarifying what their constitutional argument is and they've been a bit all over the map on it so with the court's permission i'd like to focus most of my time on this morning trying to clarify and better articulate what our constitutional law argument is and perhaps even making a few concessions there are two ways i think by which an entity can enjoy immunity from state taxation first you can have implied constitutional immunity second you could have statutory immunity granted to congress and i've seen some suggestions in briefing somewhere perhaps in this case that maybe the two are co extensive and one in the same but i just want to be clear since i'm making the argument today i'm certainly not arguing that because i think implied constitutional immunity and statutory immunity  subject to distinct analyses and so on the implied constitutional of unity front i think the bottom line is this if they any and freddie are federal instrumentalities that are so closely connected with the federal government that you can't reasonably view them as different then they've got implied constitutional munity we lose and this court doesn't even have to go any further talking about and that is subject to analysis under the commerce clause and our argument here is that congress exceeded its power under the commerce clause with respect to that statutory exemption including the relevant test and the test there are the tests here that we should be looking at when we're looking at the statutory immunity question going to judge point is this question about whether congress had the power is is the payment by fannie and freddie of these wholly interest state local taxes does that payment of taxes have a substantial effect on interstate commerce well but th you're putting the focus on the payment of the tax is opposed to congressional power to legislate in favor of promoting a healthy vibrant mortgage economy housing regulate the secondary mortgage market but we've got to look not only did more than just regulate here they created these entities these two separate entities to go out and buy mortgages and they said in the process you go in and doing that well there is nothing wrong with creating any and freddie for the purposes for which they created them to increase housing sales and mortgages there's nothing wrong with that certainly the secondary mortgage market is commerce clause related i think i would be crazy to stand up here and make the argument that fannie and freddie and the secondary mortgage market are not part of interstate commerce what i'm saying instead is that we should look at this her vision we're just we're focusing on this one exemption provision from all state local taxes i think i thought about it this way just to try to get my minor have to have it certainly in the railroad context for example i mean those things are going to sensually interstate commerce serves case in your case after case of congress regulating and that area but certainly if congress were as part of an overall regulatory s within the railroad example to say well you know members of the railroad or employees of railroads should not for example have to pay any money to vending but then the machines any time they want to piece of candy i mean that for example isn't it part of it's part of regulating railroads but when you look at that specific provision within an overall statutory scheme a specific provision such as that which is you know don't pay you don't disagree that congress under the commerce clause have a right to create two mortgages and i do not disagree with that your honor quite you disagree with is that at the time of creation from having to pay interest a tax it's certainly the department of justice doesn't have to pay interstate taxes and certainly it would be a stretch to say that congress could exempt wal mart from having to pay interest paid taxes here you know we're not dealing with the department of justice we're not dealing with wal mart we're somewhere in the middle and all our money and freddie are pursuing a federal mission and that mission didn't change when they were made private entities correct correct and isn't it true that whatever money they would have to spend on paying interest a taxation as you call it is money not available to them to promote the mission they were created to promote which is to create and foster the secondary market and mortgages yes your honor i think i would have her grave with that what i would say in response is that it in this context it doesn't rise to the level of when we're dealing with these nondiscriminatory about the state the recording and the taxes and the transfer tax right we're going to we're complaining about the taxes that these entities have refused to pay because we believe that while these entities don't have implied constitutional immunity because they're not federal im instrumentalities they do have fact atory immunity but that statutory immunity we say was be on the scope of congress's power under the commerce c because the payment bass an ng and freddie of holy in for state taxes does not meet the substantial effects test and it it's not even a regulation of economic activity at all it's basically in this context with these providence cities we're not dealing with growth agent that isn't that legislation through brecht specifically at the secondary mortgage market isn't that a commercial activity yes your honor the overall the overall statute is no doubt regulation of the secondary mortgage market but that it doesn't follow from that i don't think that each just because congress has a power to do that that every single provision that just happens to be in that statute is valid under the commerce clause because the court congress could put in some sort of crazy for vision that everybody i'm not saying this is a crazy provision but if we could just imagine a crazy provision a maybe my vending machine hypothetical your honor is may please the court i'm michael johnson from arnold and porter i represent the federal housing finance agency and its capacity as conservator and i'll be speaking on behalf of all the police today i thank the court for being here and whether and i think opposing counsel who i understand  extraordinary efforts to be here with us today i think the briefing on the statutory issues is good and if unless the court has questions on all taxation or the real property carve out i'm happy to proceed to the constitutional issues that my friend addressed in his presentation the first thing i would observe is that it's not unusual for congress to exercise its commerce clause power to protect private entities from state taxation in the euro system if there is a preemption provision that's been held to preempt state taxes in circle of the environmentalists statute there is a provision that expressly pre amps particular state taxes and that the supreme court evaluated in a case called exxon against time in the bankruptcy code title eleven section eleven forty six specifically preempts transfer taxes and in a couple of cases including one called piccadilly cafeterias the supreme court evaluated that statute there are other provisions in title for that specifically preempt particular state taxes so this is not something unusual as the horse case because this case involves regulation of a quintessentially interstate economic activity so the issues in lopez and morrison where the court was saying hey wait a minute the commerce clause is all about commerce and the things congress attempted to regulate in those cases were not commerce so the regulations failed this isn't that scenario this is a scenario where congress is regulating the secondary mortgage market which as the seventh circuit clearly held and it's really common sense it's a nationwide market everything about it is inherently interstate commerce so of course it's in within congress's parag a tive to regulate that market in the way that it deems most effective in furthering that federal mission for which congress created these entities now what carries the substantial fact on interstate commerce from the provision that's the challenge here well first of all any unnecessary cost is going to impair that mission that's what congress considered and congress chose to enact a blanket prohibition on state taxation other than real estate taxes which these are not so as a private entities expected to pay its own bills it pays its creditors bills and these are private entities now now that doesn't mean they aren't federal instrumentalities we think they are the federally subsidized they don't get appropriations from congress if that's what the question goes to and i mean in a sense every privilege and protection that congress granted these entities that is not available to some other kind of corporation is arguably a federal subsidy so i don't want to get hung up on the semantics these are are clearly federally favored entities they've been given rights and privileges that are not available to other corporations because congress chartered them to pursue a federal mission now what played us argue is that there's something special about taxes or there's something special about these kinds of taxes we know that there's nothing magic about state taxes because in not the first commerce clause case ever but the second commerce clause case ever presented to the u s supreme court brown versus maryland chief justice marshall looked at the question he said the state power to tax is sacred that's what's his word sacred but he recognized that there are times when that sacred element of state sovereignty is going to collide with congress's power to regulate economic activity under the commerce clause and with great foresight that applies directly to the issue in this case because maryland in that case made the same argument that plaintiffs make here they said you know what state sovereignty is too sacred congress lacks the power to impinge upon you know the international was for exempting property tax but not transfer recording taxes we don't know for sure we don't know for sure there's nothing in the legislative history i could speculate and i think it all comes back to mcculloch versus maryland where the supreme court reserved the question of whether implied constitutional immunity applies to real estate direct taxes on real estate so in the intervening years when congress has an active and number of statutes that functionally are the same as this there often are slight differences in the language but what congress typically does is provided blanket exemption and then carve out an exception for real estate taxes and my speculation is that that's to not try to go beyond what was clearly authorized in mcauliffe versus mary and the term real estate taxes is briefs and all but the exemption from the to be on taxable in their municipality they're that's correct congress did not want that the exemption to go that far and so that's something that we would have a different different case if the if the exemption just said exempt from all taxation we could have that that question but that's not the question today the question today is whether there's something special about state taxes now my friend on the at the other table said look we should be looking at the relevant activity being the states parag have to tax and this court looked at a very similar issue in the n c a a case that addressed the past the statute the sports gambling statute where congress and acted a law that said essentially states you can't license sports wagering and new jersey came in and said hey you're regulating the states the activity that you need to be looking at is authorization of sports wagering and the court analyze the case by saying now the activity congress was getting to was sports betting not state regulation of sports betting and so of course sports betting is an interstate nationwide activity and it's congress's prerogative to regulate that now in the briefs the plaintiffs said hey but this is commandeering your your boss in the states around you're telling us what we can and can't tax and again the same issue was before the court in the n c a a case where the court held that where congress prohibits the states from doing something that's not common during for there to be commandeering congress has to require the states to act and in the n c a a a case the federal statute merely precluded the states from authorizing sports wagering just as here the statute precludes the states from taxing these enterprises so there's nothing magic about as i said chief justice marshall analyze that he said when that sacred state sovereign power to tax collides with congress power to regulate that which is not supreme must yield to that which is and that doctrine has been carried through in the intervening two hundred years nearly as judge posner explained in the recent summit circuit decision addressing the very same issues here and from which this court would have to split if it wanted to reverse and adopt plainest position so is there something special about this tax plaintiff's argument is well this is a this is an especially local tax and i have to say i find that somewhat confusing because every state tax is a state tax that's state tax jurisdiction it has to be connected to the state and it has to be local in that sense but it always energy industries and so it may not always be but every time the supreme court has looked at a statute that exempted a specific sector of private enterprise from taxation it has expressed no constitutional doubt about it now the the precise question has not been before the supreme court but the closest analogous cases are first agricultural national bank of berkshire county where congress enacted a statute that limited the ways states can tax national banks national banks very similar to fannie and freddie in many relevant ways federally chartered federally important mission subject to continuous federal supervision and the state of massachusetts came in and said hey we should be able to tax these banks they're not doing anything special and governmental anymore they're they've got private competitors and the supreme court said it was unnecessary to consider whether national banks were still federal instrumentalities because congress had spoken to the question in an express statute and the court would simply apply the terms of the statute the exxon vs one case that i spoke about earlier circular contained a provision preempting certain kinds of state taxes the only beneficiaries of that exemption were petroleum and chemical companies within the state of new within the states in that case the relevant state was new jersey congress simply the supreme court i'm sorry simply applied the it's just terms of the statute even though the beneficiaries were clearly private entities and fannie and freddie aren't like oil companies or chemical companies they were chartered by congress to pursue an important federal mission and are subject to continuing federal supervision to ensure that they fall under that standard of u s versus michigan which post dates the new mexico case on which point a switch to a lie that's enough to make them federal instruments halley's i see my time is up and i would be happy to answer any further questions the only thing i would observe is as i said to rule for  court patrick or to for the united states from the department of justice has to vision as mr johnson has explained that the entities exemption from all taxation constituted a proper exercise of the commerce power and as the district courts properly well i think that judge the question is would that be would congress have a rational basis for doing that in congress if the basis is that it wants to promote the secondary mortgage market and leave more maryland that where congress is commerce power properly used and we all agree that the nationwide mortgage market is a nationwide markets it would come within the commerce power when the commerce power  starr correctly pointed out these taxes at issue allow you know the exemption of these tacet issue allow fannie and freddie to preserve some assets as congress just missed it isn't perfect that there is no actual evidence we can discern from why congress might do this yet so i think that if you want to call it speculate but i think that we can look at the rational reasons for what congress was doing and what makes sense when congress was actually passing the statute w ch quite frankly preserve the entities assets so that they could facilitate their nationwide mission of office reign in the secondary mortgage market now turning briefly to the plain language statutes as this court has noted the statutes provide that the entity shall be exempt from all taxation imposed by state and local governments is that except for real estate taxes is judge fisher correctly pointed out these are most certainly not real estate taxes so you don't have to worry about the carve out so the real question is are these transfer taxes within the meaning of all taxation the supreme court dealing with similar excise taxes in bismarck lumber has said yes wells fargo deals with property exemptions and therefore deals with a very narrow exemption and so the the supreme we are not arguing that that real power is somehow not supreme of course the commerce clause trumps state taxation power even all the commerce clause trumps all state power even the most important one by taxation power but the exercise of that commerce clause power has to be constitutional and what that dovetails into is sort of two test and we talked about one i didn't hear a lot of talk about substantial effects but judge start i believe ask where is a substantial effect and i believe my friend on the other side that you know any cost that these entities pay for taxes are going to impair that mission and if that's true if anything these into these pay is enough to trigger substantial effects then where is the line in future cases and even setting aside the substantial effects test there's one other test that i didn't mention at opening but that's in our brief it's a separate test and this is what the court has said the supreme court has said in that a c f industry's case it has said that when you're in the area of traditional state powers  important state power such as the power to tax when the commerce clause intersects those powers congress must have had a clear and manifest purpose must have expressed a clear and manifest purpose attacks at issue that again is a c f industry case and i would submit that even if defendants are right on the statutory interpretation we've got to statutory interpretation arguments as the  taxation argument and the real estate property exemption argument arguably i think under wells fargo the phrase all taxation includes only direct taxes but not excise taxes alternatively the charters containing an exception as judge fischer has noted for taxes on real property that arguably includes transfer taxes and if that's does that how does it really include transfer taxes well i mean if you look at the plain language it says the property of the corporation i think judge fisher that the language says taxes on i just don't know how you get a transfer tax into that exception to the exception well your honor even if you're correct on that then there still would be i think under wells fargo and some sort of ambiguity is whether well we dealing with wells fargo we dealt or we dealing with bismarck and my point here this is going back to the i'm not really urging you know look we've lost the statutory interpretation arguments across the board i'm not under any real allusion that this court is going to be the first out of forty courts maybe the second to say these other courts have got it wrong but what i'm saying is is that if these into the constitutional question because there's these two tests and even if defendants are absolutely correct on the statutory interpretation argument if it's not clear then we should win if congress has not clearly and manifestly expressed that tarp us if there is any