F OR P UBLICATION



### UNIT E D ST AT E S CO URT O F APPE AL S FO R T H E NINT H CIRCUIT

C I T Y O F S P O K

A N E , on behalf of itself and all others similarly

situated, Plaintiff-Appellant
,

v.

F E D E R A L N A T I O N

A L M O R T G A G E A S S O C I A T I O N , AKA F annie Mae, a federally chartered corporation; F E D E R A L H O M E L O A

N M O R T G A G E C O R P O R A T I O N , AKA F reddie Mac, a federally chartered corporation; F E D E R A L H O U S I

N G F I N A N C E A G E N C Y , as conservator for F ederal National Mortg ag e Association and F ederal Home L oan Mortg ag e Corporation, Defendants-Appellees
,

U N I T E D S T A T E S O F A M E R I C A , Intervenor-Appellee

. No. 13-35655

D.C. No. 2:13-cv-00020- L RS

OPI NI O N

On Appeal from the United States District Court for the Eastern District of W a shing ton L onny R. Suko, District J udg e, Presiding

Arg ued and Submitted October 8, 2014—Seattle, W ashing tonC I T Y O F S P O K A N E V

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F iled December 30, 2014

B efore: Richard A. Paez , J a y S. B y bee, and Consuelo M. Callahan, Circuit J udg es.
Opinion by

J udg e B y bee

SUMMARY *

Statutory Exem ption

The panel affirmed the district court’s judg ment in favor of the F ederal National Mortg ag e Association (F annie Mae) and the F e deral Home L o an Mortg a g e Corpora tion (F reddie Mac)
, and held that Cong ress e x empted F annie Mae a nd Fr e d d ie Mac from state and local tax ation of real prope r t y transfers, and that it had constitutional authority to do so.

The panel hel d that F annie Mae and F reddie Mac were statutorily ex empt from pay ing real p roperty transfer tax e s in W a shing ton. The panel a lso held that because Cong r ess h ad power u n der the Commerce Clause to r eg ulate the secondary mortg ag e market, i t h a d power under the Necessary a nd Proper Clause not only to create F annie Mae and F reddie Mac but also to ensure their preservation by e x empting them from s t a t e a

nd local tax es. F inally
, the panel held that the

ex e mptions did not violate th e Tenth Amendment.

* T h is su m m ary co n stitu

tes n o part o f th e o p in io n o f th e co u rt. It h as b een p rep ared b y

co u rt staf

f f o r th e co n v en i en ce o f

th e read er.C I T Y O F S P O K A N E V

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COUNSEL

Kevin J

. Curtis, W i nston & Cashatt, L awy ers, Spokane, W a shing ton; Charles T. Conrad, J r. (arg ued), Dewsnup, King & Olsen, Salt L ake City , Utah, for Plaintiff-Appellant.

Howard N

. Cay

ne, Asim Varma, Michael A.F

. J oh n son (arg ued), Dirk C. Phillips, Arnold & Porter L L P, Washing ton, D.C., for Defendant-Appellee F ederal Housing F inance Ag ency

.
Michael J

. Ciatti, Merritt E. McAlister, King & Spalding L L P, Washing ton, D.C., for Defendant-Appellee F ederal Home L oan Mortg ag e Corporation.

Michael D

. L ef

fe l
, F o ley & L ardner L L P, Madison, W isconsin; J ill L

. N icholson, F oley & L ardner L L P, Chicag o, I llinois, for Defendant-Appellee F ederal National Mortg ag e Association.

K athry n Keneally
, Assistant Attorney General; Tamara W

. Ashford, Principal Deputy As s i s tant Attorney General; Gilbert S. Rothenberg
, J onathan S. Cohen, P a t rick J

. Urda (arg ued), A ttorney s, Tax D ivision, Departme n t o f J ustice, W a shing ton, D.C.; Michael C

. O rmsby
, United States Attorney
, Of Counsel, f

or A ppellee-I

ntervenor United States of America.C I T Y O F S P O K A N E V

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OP INION

B YB EE, Circuit J udg e:
Cong r ess cr e a t e d F annie Mae ( the F e deral National Mortg ag e Association) and F reddi e M a c (the F ederal Home L oan Mortg ag e Corporation) to foster the secondary market for home mortg ag es. F annie’s and F reddie’s statutory charters ex empt them from all state and local tax ation, e x cept for tax es on the entities’ r eal property

. I n this appea l
, we must decide whether the statutes ex empt F annie and F reddie from pay ing ex cise tax e s on the transfer of real property and, if so, whether the statutory ex emptions ex ceed Cong ress’s authority under the Commerce Clause.

This lawsuit, b ro u gh t b y the City of Spokane, W a shing ton, is part of a wave of sim ilar lawsuits broug ht throug hout the c ountry ag ainst F annie
, F reddie, a nd their conservator, the F ederal Housing F inance A g ency ( F H F A). Several of those cases have made their way to the courts o f appeals, a nd at least six of our sister circuits have now issued published decisions. Every circuit to address S p okane’s statutory and constitutional arg u ments has rejected them. See Town of Johnston v. Fed. Hous. Fin. Agency
, 765 F

. 3d 80 (1st Cir. 2014) ( rejec t ing same statutory and constitutional arg uments); Bd. of Comm’rs v. Fed. Hous. Fin. Agency
, 758 F .3d 706 ( 6th Cir. 2014) (same); Del. Cnty. v. Fed. Hous. Fin. Ag e ncy , 747 F .3d 215 (3d Cir. 2 014) ( same); Montgomery Cnty. v. Fed. N

a t ’l Mortg. Ass’n
, 740 F .3d 914 (4th Cir. 2014) (same); DeKalb Cnty. v. Fed. Hous. F in. Agency , 741 F .3d 795 (7th Cir. 2 0 1 3 ) (same); Bd. of Cnty. Comm’rs v

. Fed. Hous. Fin. Agency
, 7 54 F

. 3 d 1025 (D.C. Cir. 2 014) (rejecting same statutory arg u ments); H ennepin Cnty. v. Fed. Nat’l Mortg. A ss’n
, 742 F .3d 8 1 8 ( 8th Cir. 2014) (same);C I T Y O F S P O K A N E V

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Vadnais v. Fed. Nat’l Mortg.
, 754 F .3d 524 (8th Cir. 2 014) (rejecting same constitutional a rg uments). W e ag ree with our sister circuits and likewise reject Spokane’s arg uments.

I

Spokane first arg ues that F annie and F reddie a re not statutorily ex em pt from pay ing real property transfer tax e s because such tax es fall under e ach statute’s carv e-out for tax es on real property

. See 12 U.S.C. §§ 1452(e) (providing that F reddie “shall be ex empt from a ll [ state a nd local] tax ation,

. . . ex cept that any real property of [ F reddie] shall be subject to State [ and] local tax ation to the same ex tent

. . . as other real property is tax ed”), 1723a(c)( 2 ) ( same, with respect to F annie). 1 W e disag ree. Courts have long recog niz ed “the distinction between an ex cise tax , wh i c h is levied upon the use or transfer of p roper t y e ven thoug h it mig ht be measured by the p roperty ’s value, an d a t a x levied upon the property itself.” United States v. W ells Fargo Bank
, 485 U.S. 351, 355 (1988).

I ndeed, this d istinction is apparent from W ashing ton’s statutory scheme. W ashing ton law separately imposes tax e s directly on real property , located in the “Property Tax es” title of the state code
, see W ash. Rev. Code tit. 84, and tax es on the convey ance of r eal p r operty , located in the “Ex cise Tax es” title, see id. tit. 82. The transfer tax es at issue here a re of the latter ty

p e. See id. §§ 82.45.060 (imposing “ an ex cise tax upon e ac h sale of real property ”), 82.46.010(2)(a)

1 FHFA ’ s o rg an ic s tatu t e co n tain s a m aterially id en tical ex em p tio n

. S ee 1 2 U.S.C. § 4 6 1 7 (j )(2 ). B ecau s e FHFA is s u ed h ere o n ly in its cap acity

as co n serv ato r o f Fan n ie an d Fred d ie, w e f o cu s o u r an aly sis on Fan n i e an d Fred d i e.C I T Y O F S P O K A N E V

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(authoriz ing citi es and counties to impose a similar “ ex cise tax on each sale of real property ”).

W h en c onsidered in lig ht of this d istinction, it is clear that t he statutory carve-outs allowing for the tax ation of r e al property a s “other real p r o p erty is tax ed” encompass only property tax es, not ex cise tax es. See Montgomery Cnty.
, 740 F .3d at 920. Thus, F annie and F r eddie are statutorily e x empt from pay ing the transfer tax es in W ashing ton.

I I

Spokane nex t arg ues that the statutory ex emptions ex c eed Cong r ess ’s authority under the Commerce Clause. The Supreme Court has i d e n tified three broad categ o ries o f activity that Cong ress may r e g u late under the Commerce C l a u s e : ( 1 ) channels of interstat e c o m m e r c e ; ( 2 ) instrumentalities of interstate commerce, or p ersons o r thing s in interstate commerce; and (3) activities that substa ntially affect interstate commerce. U nited States v. Lopez
, 514 U.S. 549, 558–59 (1995). I n determining w hether c e rtain activities substantially affect interstate commerce, we may consider the ag g r eg ate effect of e c onomic activities, but not the ag g reg ate effect of noneconomic activ i t i e s

. Compare U nited States v

. Morrison
, 529 U.S. 598, 617 (2000) (rejecting “the arg ument that Cong ress may reg u late n oneconomic

. . . c onduct based solely on that conduct’s aggreg ate effect on interstate commerce”), with Gonzalez v

. Raich
, 545 U.S. 1, 2 6 ( 2 0 05) (disting uishing Morrison because the statute in R a ich “directly reg ulate[ d] economic, commercial activity ”).

M oreover, Cong ress is authoriz ed to enact la w s “necessary and proper for carry ing in t o Ex ecution” the powers “vested by th[ e ] Constitution in the Government o fC I T Y O F S P O K A N E V

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t h e United States.” U.S. Const. art. I
, § 8
, cl. 18. “ [ T ] h e Necessary and Proper Clause makes cl e a r that the Constitution’s g rants of specific federal leg islative authority

are accompanied by broad p o w er to enact laws that a re ‘convenient, or useful’ o r ‘ c onducive’ to the authority ’s ‘beneficial ex ercise.’ ” United States v. Comstock
, 5 60 U.S. 1 2 6
, 133–34 (2010) (quoting McCulloch v. Maryland
, 1 7 U

. S

. (4 W heat.) 3 16, 413, 418 ( 1 819)). The court must therefore “look to see w hether the statute cons t i t u tes a means that is rationally related to the implementation of a constitutionally enumerated power.” Id. at 134.

Spokane contends that the reg ulated activity here is state and local tax ation and that tax at i o n i s not c ommerce, but rather “ the State ex ercising its sovereig n duties.” Spokane also arg ues that the tax “ is assessed on l o c al, intrastate activity

— the buy ing and selling of parcels o f real p roperty in t he State o f W ashing ton.” Spokane does not dispute, however, that Cong ress h a s p ower under the Commerce Clause to reg ulate the n ational second a r y mortg ag e market. Nor does it dispute that chartering F annie and F r eddie w as a
means rationally related to Cong ress’s reg ulation o f the seconda r y mortg ag e market. Cong ress created F annie a nd F reddie to “establish secondary market facilities for residential mortg ag es,” to “provide stability in the secondary market for residential mortg a g es,” and to “promote access to mortg ag e credit throug hout the Nation.” 12 U. S

. C

. § 1716 (reg arding F annie); see also id. § 1 4 5 1 note (reg arding F reddie). Cf. McCulloch
, 17 U.S. at 424 (holding that Cong r ess had authority under the N ecessary and P r o p er Clause to charter the B ank of the United States in furtherance of Cong ress’s enumerated powers).C I T Y O F S P O K A N E V

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I f Congr e s s h ad the power to create F annie and F reddie, it follows that it h ad the power t o p r o t e ct their statutory mission by ex empting t h em from state and local tax es. A s Chief J ustice Marshall observed in McCulloch
, because “the p o w e r to tax involves the power to d estroy ,” “ a power t o create implies a power to preserve.” Id. at 426, 431. Thus, f o r e x a mple, in Pittman v. Home Owners’ Loan Corp. o f W ashington, D.C.
, 308 U.S. 21, 33 ( 1939), the Court concluded that a federal statute e x em p t i n g another federally chartered corporation from state and local tax es showed that “Cong ress ha[ d] undertaken to safeg uard the operations o f the H o m e Owners’ L oan Corporation by providing

. . . [ ta x ] immunity .” “This power to p r ese r v e ,” the Court reasoned, “necessarily c omes withi n t h e rang e of the ex press power conferred upon Cong res s to make all laws which shall be necessary a

nd proper for carry

ing into ex ecution a l l powers vested by the Constitution in the Governm e nt of the United States.” Id.

So too here. Cong ress could r ationally have believed that, “absent the statutory

ex emptions, states mig h t be tempted to targ e t F annie Mae and F reddie Mac with la r ge tax e s, g iven the she e r volume of their mortg ag e portfolios and their statutory oblig ations to continue p urchasing and g uaranteeing mortg ag es throug hout the country .” Montgomery Cnty.
, 740 F .3d at 924. Moreover, Cong ress mig ht rat i o n a l l y have believed that, without the ex emptions, F annie and F reddie would be ex posed to inconsiste n t tax ation, driving them to shift their purchasing activities to states with lower tax rates, thus u ndermining their statutory missi o n to increase mortg ag e liquidity throug hout the country

. See id.

I n sum, because Cong ress has power under the Commerce Clause to reg ulate the secon d a r y mortg ag e market, it hasC I T Y O F S P O K A N E V

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power under the N ecessary and Proper Clause not only to create F annie and F reddie but al s o to ensure their preservation b y ex empting them f r om state and local tax e s. W e according ly hold that the entities’ ex emption statutes do not ex ceed Cong ress’s constitutional authority

.

I I I

F inally
, Spokane contends that the ex emptions v iolate the Tenth Amendment. Spokane r aises two a rg uments in this reg ard. W e reject both.

F irst, Spokane arg ues that the e x e m p t i o n s “ a r e t antamount to cong ressional commandeering of state empl o y e e s ” because county clerks “would be r equired t o record deeds from the Enterprises free of charg e. ” B ut the ex emptions do not impose a ny new affirmative oblig ation on municipalities. See Reno v. Condon
, 5 2 8 U.S. 1 41, 151 (2 0 0 0) (holding that a federal statute did not commandeer state o f f icials where it neither r equired state leg islatures to e n a c t laws or reg ulations

nor required state officials to assis t i n t he enforcement o f federal statutes). Rather, they simply preclude state and local g overnments from e nforcing p r eempted tax laws ag ainst F annie and F reddie. See Del. Cnty.
, 747 F .3d at 228 (“A state official’s compliance with federa l law and non-enforcement of a preemp ted state law—as required by the Supremacy Clause—is not an unconstitutional commandeering .”).

Second, Spokane arg u es more broadly t h a t the

ex e mptions violate g eneral principles o f f ederalism enshrined in the Tenth Amendment. B ut nothing in the tex t or structure of the Constitution c a teg o r ically immuniz es state tax ation from federal preempti o n

. On the contrary , Cong ress’s dormant commerce authority p re c ludes state tax ation thatC I T Y O F S P O K A N E V

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i m p r o p e r l y b u r d e n s i n t e r s t a t e c o m m e r c e , a n d t h e Constitution’s Supremacy Clause p recludes state tax ation o f f ederal instrumentalities. More to the point, the Supr e m e Court has long made clear t h at when Cong ress properly

ex e r cises its enumerated powers, it may lawfully abridg e the states’ ability to tax

. See, e.g. , Brown v. Maryland
, 2 5 U .S. (12 W heat.) 419, 448–49 (1827) (reasoning that “ the t a x ing power of the States must ha v e s o m e limits” and that “[ i] t

canno t r e ac h and restrain the action of the n ational g overnment within its prop e r s p here” or “restrain the operation of an y l a w which Cong ress may constitutionally pass”).

The ex emptions ne i ther commandeer state and local officials nor transg r ess g e neral principles of federalism. W e therefore reject Spokane’s Tenth Amendment arg uments. 2

I V

W e h old that Cong ress e x empted F annie and F reddie from state and local tax ation o f real property transfers a nd that it had c onstitutional authority to do so. According ly
, the district court’s judg ment is AF F IRMED.

2 B ecau s e w e co n clu d e th at Co n g ress h ad co n stitu tio n al au th o rity to

ex em p t F an n ie an d Fred d ie f

ro m state an d lo cal tax atio n o f real p ro p erty tran sf ers, w e n eed n o t d eterm i n e w h eth er Fan n ie an d Fred d ie are f ed eral i n s tru m en t alities su ch th at th ey are n o n tax ab le u n d er th e Su prem acy Clau se. S ee First Ag ric. Na t’l Ba n k v. S ta te Ta x Co mm’n
, 3 9 2 U.S. 3 3 9
, 3 4 1 (1 96 8 ).