FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

CITY OF SPOKANE, on behalf of itself

and all others similarly situated,

Plaintiff-Appellant,

v.

FEDERAL NATIONAL MORTGAGE

ASSOCIATION, AKA Fannie Mae, a

federally chartered corporation;

FEDERAL HOME LOAN MORTGAGE

CORPORATION, AKA Freddie Mac, a

federally chartered corporation;

FEDERAL HOUSING FINANCE

AGENCY, as conservator for Federal

National Mortgage Association and

Federal Home Loan Mortgage

Corporation,

Defendants-Appellees,

UNITED STATES OF AMERICA,

Intervenor-Appellee.

No. 13-35655

D.C. No. 

2:13-cv-00020-

LRS

OPINION

On Appeal from the United States District Court

for the Eastern District of Washington

Lonny R. Suko, District Judge, Presiding

Argued and Submitted 

October 8, 2014—Seattle, Washington
2 CITY OF SPOKANE V. FED. NAT’L MORTGAGE ASS’N

Filed December 30, 2014

Before: Richard A. Paez, Jay S. Bybee, and Consuelo M.

Callahan, Circuit Judges.

Opinion by Judge Bybee

SUMMARY*

Statutory Exemption

The panel affirmed the district court’s judgment in favor

of the Federal National Mortgage Association (Fannie Mae)

and the Federal Home Loan Mortgage Corporation (Freddie

Mac), and held that Congress exempted Fannie Mae and

Freddie Mac from state and local taxation of real property

transfers, and that it had constitutional authority to do so.

The panel held that Fannie Mae and Freddie Mac were

statutorily exempt from paying real property transfer taxes in

Washington. The panel also held that because Congress had

power under the Commerce Clause to regulate the secondary

mortgage market, it had power under the Necessary and

Proper Clause not only to create Fannie Mae and Freddie Mac

but also to ensure their preservation by exempting them

from state and local taxes. Finally, the panel held that the

exemptions did not violate the Tenth Amendment.

* This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.
CITY OF SPOKANE V. FED. NAT’L MORTGAGE ASS’N 3

COUNSEL

Kevin J. Curtis, Winston & Cashatt, Lawyers, Spokane,

Washington; Charles T. Conrad, Jr. (argued), Dewsnup, King

& Olsen, Salt Lake City, Utah, for Plaintiff-Appellant.

Howard N. Cayne, Asim Varma, Michael A.F. Johnson

(argued), Dirk C. Phillips, Arnold &Porter LLP, Washington,

D.C., for Defendant-Appellee Federal Housing Finance

Agency.

Michael J. Ciatti, Merritt E. McAlister, King & Spalding

LLP, Washington, D.C., for Defendant-Appellee Federal

Home Loan Mortgage Corporation.

Michael D. Leffel, Foley & Lardner LLP, Madison,

Wisconsin; Jill L. Nicholson, Foley& Lardner LLP, Chicago,

Illinois, for Defendant-Appellee Federal National Mortgage

Association.

Kathryn Keneally, Assistant Attorney General; Tamara W.

Ashford, Principal Deputy Assistant Attorney General;

Gilbert S. Rothenberg, Jonathan S. Cohen, Patrick J. Urda

(argued), Attorneys, Tax Division, Department of Justice,

Washington, D.C.; Michael C. Ormsby, United States

Attorney, Of Counsel, for Appellee-Intervenor United States

of America.
4 CITY OF SPOKANE V. FED. NAT’L MORTGAGE ASS’N

OPINION

BYBEE, Circuit Judge:

Congress created Fannie Mae (the Federal National

Mortgage Association) and Freddie Mac (the Federal Home

Loan Mortgage Corporation) to foster the secondary market

for home mortgages. Fannie’s and Freddie’s statutory

charters exempt them from all state and local taxation, except

for taxes on the entities’ real property. In this appeal, we

must decide whether the statutes exempt Fannie and Freddie

from paying excise taxes on the transfer of real property and,

if so, whether the statutory exemptions exceed Congress’s

authority under the Commerce Clause.

This lawsuit, brought by the City of Spokane,

Washington, is part of a wave of similar lawsuits brought

throughout the country against Fannie, Freddie, and their

conservator, the Federal Housing Finance Agency (FHFA). 

Several of those cases have made their way to the courts of

appeals, and at least six of our sister circuits have now issued

published decisions. Every circuit to address Spokane’s

statutory and constitutional arguments has rejected them. See

Town of Johnston v. Fed. Hous. Fin. Agency, 765 F.3d 80 (1st

Cir. 2014) (rejecting same statutory and constitutional

arguments); Bd. of Comm’rs v. Fed. Hous. Fin. Agency, 758

F.3d 706 (6th Cir. 2014) (same); Del. Cnty. v. Fed. Hous. Fin.

Agency, 747 F.3d 215 (3d Cir. 2014) (same); Montgomery

Cnty. v. Fed. Nat’l Mortg. Ass’n, 740 F.3d 914 (4th Cir.

2014) (same); DeKalb Cnty. v. Fed. Hous. Fin. Agency, 741

F.3d 795 (7th Cir. 2013) (same); Bd. of Cnty. Comm’rs v.

Fed. Hous. Fin. Agency, 754 F.3d 1025 (D.C. Cir. 2014)

(rejecting same statutory arguments); Hennepin Cnty. v. Fed.

Nat’l Mortg. Ass’n, 742 F.3d 818 (8th Cir. 2014) (same);
CITY OF SPOKANE V. FED. NAT’L MORTGAGE ASS’N 5

Vadnais v. Fed. Nat’l Mortg., 754 F.3d 524 (8th Cir. 2014)

(rejecting same constitutional arguments). We agree with our

sister circuits and likewise reject Spokane’s arguments.

I

Spokane first argues that Fannie and Freddie are not

statutorily exempt from paying real property transfer taxes

because such taxes fall under each statute’s carve-out for

taxes on real property. See 12 U.S.C. §§ 1452(e) (providing

that Freddie “shall be exempt from all [state and local]

taxation, . . . except that any real property of [Freddie] shall

be subject to State [and] local taxation to the same extent . . .

as other real property is taxed”), 1723a(c)(2) (same, with

respect to Fannie).1 We disagree. Courts have long

recognized “the distinction between an excise tax, which is

levied upon the use or transfer of property even though it

might be measured by the property’s value, and a tax levied

upon the property itself.” United States v. Wells Fargo Bank,

485 U.S. 351, 355 (1988).

Indeed, this distinction is apparent from Washington’s

statutory scheme. Washington law separately imposes taxes

directly on real property, located in the “Property Taxes” title

of the state code, see Wash. Rev. Code tit. 84, and taxes on

the conveyance of real property, located in the “Excise

Taxes” title, see id. tit. 82. The transfer taxes at issue here are

of the latter type. See id. §§ 82.45.060 (imposing “an excise

tax upon each sale of real property”), 82.46.010(2)(a)

1 FHFA’s organic statute contains a materially identical exemption. See

12 U.S.C. § 4617(j)(2). Because FHFA is sued here only in its capacity

as conservator of Fannie and Freddie, we focus our analysis on Fannie and

Freddie.
6 CITY OF SPOKANE V. FED. NAT’L MORTGAGE ASS’N

(authorizing cities and counties to impose a similar “excise

tax on each sale of real property”).

When considered in light of this distinction, it is clear that

the statutory carve-outs allowing for the taxation of real

property as “other real property is taxed” encompass only

property taxes, not excise taxes. See Montgomery Cnty., 740

F.3d at 920. Thus, Fannie and Freddie are statutorily exempt

from paying the transfer taxes in Washington.

II

Spokane next argues that the statutory exemptions exceed

Congress’s authority under the Commerce Clause. The

Supreme Court has identified three broad categories of

activity that Congress may regulate under the Commerce

Clause: (1) channels of interstate commerce; (2)

instrumentalities of interstate commerce, or persons or things

in interstate commerce; and (3) activities that substantially

affect interstate commerce. United States v. Lopez, 514 U.S.

549, 558–59 (1995). In determiningwhether certain activities

substantially affect interstate commerce, we may consider the

aggregate effect of economic activities, but not the aggregate

effect of noneconomic activities. Compare United States v.

Morrison, 529 U.S. 598, 617 (2000) (rejecting “the argument

that Congress may regulate noneconomic . . . conduct based

solely on that conduct’s aggregate effect on interstate

commerce”), with Gonzalez v. Raich, 545 U.S. 1, 26 (2005)

(distinguishing Morrison because the statute in Raich

“directly regulate[d] economic, commercial activity”).

Moreover, Congress is authorized to enact laws

“necessary and proper for carrying into Execution” the

powers “vested by th[e] Constitution in the Government of
CITY OF SPOKANE V. FED. NAT’L MORTGAGE ASS’N 7

the United States.” U.S. Const. art. I, § 8, cl. 18. “[T]he

Necessary and Proper Clause makes clear that the

Constitution’s grants of specific federal legislative authority

are accompanied by broad power to enact laws that are

‘convenient, or useful’ or ‘conducive’ to the authority’s

‘beneficial exercise.’” United States v. Comstock, 560 U.S.

126, 133–34 (2010) (quoting McCulloch v. Maryland, 17U.S.

(4 Wheat.) 316, 413, 418 (1819)). The court must therefore

“look to see whether the statute constitutes a means that is

rationally related to the implementation of a constitutionally

enumerated power.” Id. at 134.

Spokane contends that the regulated activity here is state

and local taxation and that taxation is not commerce, but

rather “the State exercising its sovereign duties.” Spokane

also argues that the tax “is assessed on local, intrastate

activity—the buying and selling of parcels of real property in

the State of Washington.” Spokane does not dispute,

however, that Congress has power under the Commerce

Clause to regulate the national secondary mortgage market. 

Nor does it dispute that chartering Fannie and Freddie was a

means rationally related to Congress’s regulation of the

secondary mortgage market. Congress created Fannie and

Freddie to “establish secondary market facilities for

residential mortgages,” to “provide stability in the secondary

market for residential mortgages,” and to “promote access to

mortgage credit throughout the Nation.” 12 U.S.C. § 1716

(regarding Fannie); see also id. § 1451 note (regarding

Freddie). Cf. McCulloch, 17 U.S. at 424 (holding that

Congress had authority under the Necessary and Proper

Clause to charter the Bank of the United States in furtherance

of Congress’s enumerated powers).
8 CITY OF SPOKANE V. FED. NAT’L MORTGAGE ASS’N

If Congress had the power to create Fannie and Freddie,

it follows that it had the power to protect their statutory

mission by exempting them from state and local taxes. As

Chief Justice Marshall observed in McCulloch, because “the

power to tax involves the power to destroy,” “a power to

create implies a power to preserve.” Id. at 426, 431. Thus,

for example, in Pittman v. Home Owners’ Loan Corp. of

Washington, D.C., 308 U.S. 21, 33 (1939), the Court

concluded that a federal statute exempting another federally

chartered corporation from state and local taxes showed that

“Congress ha[d] undertaken to safeguard the operations of the

Home Owners’ Loan Corporation by providing . . . [tax]

immunity.” “This power to preserve,” the Court reasoned,

“necessarily comes within the range of the express power

conferred upon Congress to make all laws which shall be

necessary and proper for carrying into execution all powers

vested by the Constitution in the Government of the United

States.” Id.

So too here. Congress could rationally have believed that,

“absent the statutory exemptions, states might be tempted to

target Fannie Mae and Freddie Mac with large taxes, given

the sheer volume of their mortgage portfolios and their

statutory obligations to continue purchasing and guaranteeing

mortgages throughout the country.” Montgomery Cnty., 740

F.3d at 924. Moreover, Congress might rationally have

believed that, without the exemptions, Fannie and Freddie

would be exposed to inconsistent taxation, driving them to

shift their purchasing activities to states with lower tax rates,

thus undermining their statutorymission to increase mortgage

liquidity throughout the country. See id.

In sum, because Congress has power under the Commerce

Clause to regulate the secondary mortgage market, it has
CITY OF SPOKANE V. FED. NAT’L MORTGAGE ASS’N 9

power under the Necessary and Proper Clause not only to

create Fannie and Freddie but also to ensure their

preservation by exempting them from state and local taxes. 

We accordingly hold that the entities’ exemption statutes do

not exceed Congress’s constitutional authority.

III

Finally, Spokane contends that the exemptions violate the

Tenth Amendment. Spokane raises two arguments in this

regard. We reject both.

First, Spokane argues that the exemptions “are tantamount

to congressional commandeering of state employees” because

county clerks “would be required to record deeds from the

Enterprises free of charge.” But the exemptions do not

impose anynew affirmative obligation on municipalities. See

Reno v. Condon, 528 U.S. 141, 151 (2000) (holding that a

federal statute did not commandeer state officials where it

neither required state legislatures to enact laws or regulations

nor required state officials to assist in the enforcement of

federal statutes). Rather, they simply preclude state and local

governments from enforcing preempted tax laws against

Fannie and Freddie. See Del. Cnty., 747 F.3d at 228 (“A state

official’s compliance with federal law and non-enforcement

of a preempted state law—as required by the Supremacy

Clause—is not an unconstitutional commandeering.”).

Second, Spokane argues more broadly that the

exemptions violate general principles offederalism enshrined

in the Tenth Amendment. But nothing in the text or structure

of the Constitution categorically immunizes state taxation

from federal preemption. On the contrary, Congress’s

dormant commerce authority precludes state taxation that
10 CITY OF SPOKANE V. FED. NAT’L MORTGAGE ASS’N

improperly burdens interstate commerce, and the

Constitution’s Supremacy Clause precludes state taxation of

federal instrumentalities. More to the point, the Supreme

Court has long made clear that when Congress properly

exercises its enumerated powers, it may lawfully abridge the

states’ ability to tax. See, e.g., Brown v. Maryland, 25 U.S.

(12 Wheat.) 419, 448–49 (1827) (reasoning that “the taxing

power of the States must have some limits” and that “[i]t

cannot reach and restrain the action of the national

government within its proper sphere” or “restrain the

operation of any law which Congress may constitutionally

pass”).

The exemptions neither commandeer state and local

officials nor transgress general principles of federalism. We

therefore reject Spokane’s Tenth Amendment arguments.2

IV

We hold that Congress exempted Fannie and Freddie

from state and local taxation of real property transfers and

that it had constitutional authority to do so. Accordingly, the

district court’s judgment is AFFIRMED.

2 Because we conclude that Congress had constitutional authority to

exempt Fannie and Freddie from state and local taxation of real property

transfers, we need not determine whether Fannie and Freddie are federal

instrumentalities such that they are nontaxable under the Supremacy

Clause. See First Agric. Nat’l Bank v. State Tax Comm’n, 392 U.S. 339,

341 (1968).