Opinion ID: 2743626
Heading Depth: 3
Heading Rank: 1

Heading: Fannie Mae’s Charter

Text: The sue-and-be-sued clause in Fannie Mae’s charter authorizes Fannie Mae “to sue and be sued, and to complain and to defend, in any court of competent jurisdiction, State or Federal.” 12 U.S.C. §1723a(a). We hold that this language confers federal question jurisdiction over claims brought by or against Fannie Mae. In so holding, we do not write on a clean slate. In Red Cross, the Supreme Court gave us a clear rule for construing sue-and-be-sued clauses for federally LIGHTFOOT V. CENDANT MORTGAGE CORP. 5 chartered corporations. The Court 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.” 505 U.S. at 255. The question in Red Cross was whether the American National Red Cross’s federal charter conferred federal question jurisdiction over suits brought by or against the Red Cross. The sue-and-be-sued clause in the Red Cross’s charter authorized the Red Cross “to sue and be sued in courts of law and equity, State or Federal, within the jurisdiction of the United States.” Id. at 248. The Court held that the clause conferred federal question jurisdiction. Id. at 257. Justice Scalia dissented for himself and three others. He and his fellow dissenters would have held that the clause conferred only corporate capacity to sue and be sued, and that subject matter jurisdiction had to be conferred by some other provision of federal law. Id. at 265 (Scalia, J., dissenting). The Court based its holding on a line of cases, stretching back to Osborn v. Bank of the United States, 22 U.S. (9 Wheat.) 738 (1824), that made clear that a sue-and-be-sued clause for a federally chartered corporation confers federal question jurisdiction if it specifically mentions federal courts. Red Cross, 505 U.S. at 252–56. The Court in Osborn held, in an opinion by Chief Justice Marshall, that a clause authorizing the second Bank of the United States “to sue and be sued . . . in all state courts having competent jurisdiction and in any circuit court of the United States” conferred federal question jurisdiction. 22 U.S. (9 Wheat.) at 817–18. Chief Justice Marshall distinguished Osborn from Bank of the United States v. Deveaux, 9 U.S. (5 Cranch) 61 (1809), in which the Court had held that the charter of the first Bank of the United States did not confer federal subject matter 6 LIGHTFOOT V. CENDANT MORTGAGE CORP. jurisdiction because that bank’s charter authorized the bank to “sue and be sued . . . in Courts of record,” without specifying the federal courts. Osborn, 22 U.S. (9 Wheat.) at 817–18; Deveaux, 9 U.S. (5 Cranch) at 85. Chief Justice Marshall wrote that, in contrast to the first bank’s charter, the second bank’s charter could not have been “more direct and appropriate” in conferring federal question jurisdiction. Osborn, 22 U.S. (9 Wheat.) at 817. Almost a century later, the Court held in Bankers Trust Co. v. Texas & Pacific Railway, 241 U.S. 295 (1916), that a federal corporate charter did not confer federal question jurisdiction when it authorized a railroad “to sue and be sued . . . in all courts of law and equity within the United States.” Id. at 304–05. That language had “the same generality and natural import” as the language in Deveaux because it did not specifically mention the federal courts. Id. at 304; see Red Cross, 505 U.S. at 254. Then, in D’Oench, Duhme & Co. v. FDIC, 315 U.S. 447 (1942), the Court upheld federal question jurisdiction based on a federal charter authorizing the Federal Deposit Insurance Corporation to sue or be sued “in any court of law or equity, State or Federal.” Id. at 455. The Court wrote in Red Cross that these cases established a “rule” that would have been known to Congress at least as far back as 1942, when D’Oench was decided. Red Cross, 505 U.S. at 255–57, 259–60. When federal charters, like those of the Red Cross and of Fannie Mae, “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.” Id. at 257. As the Court of Appeals for the D.C. Circuit has already held, that rule resolves this case. LIGHTFOOT V. CENDANT MORTGAGE CORP. 7 See Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust ex rel. Fed. Nat’l Mortg. Ass’n v. Raines, 534 F.3d 779, 784 (D.C. Cir. 2008) (holding, based on Fannie Mae’s charter, that federal question jurisdiction exists over suits brought by or against Fannie Mae). Despite the specific reference to federal courts in Fannie Mae’s sue-and-be-sued clause, our dissenting colleague contends that the clause does not confer federal question jurisdiction. Like Justice Scalia and his fellow dissenters in Red Cross, the dissent argues that the clause confers only corporate capacity to sue and be sued, and that subject matter jurisdiction must come from some other provision of federal law. Dissent at 23. The dissent relies on the phrase “court of competent jurisdiction” in the clause. Before 1954, Fannie Mae, like the Red Cross, had the statutory authority to “sue and be sued; complain and defend, in any court of law or equity, State or Federal.” H.R. Rep. No. 83-1429, at 82 (1954) (emphasis added). In 1954, as one of many changes to Fannie Mae’s charter, Congress amended Fannie Mae’s sue-and-be-sued clause to authorize it “to sue and to be sued, and to complain and to defend, in any court of competent jurisdiction, State or Federal.” Housing Act of 1954, Pub. L. No. 83-560, § 201, 68 Stat. 590, 620 (codified as amended at 12 U.S.C. § 1723a(a)) (emphasis added). The dissent acknowledges that Fannie Mae’s pre-1954 charter conferred federal question jurisdiction, but argues that Congress eliminated that jurisdiction by replacing the phrase “court of law or equity” with “court of competent jurisdiction.” Dissent at 23–24. We disagree. Eliminating the charter’s grant of federal question jurisdiction would have imposed a severe new restraint on Fannie Mae’s ability to litigate in federal court. Under the general federal question 8 LIGHTFOOT V. CENDANT MORTGAGE CORP. jurisdiction statute, 28 U.S.C. § 1331, Fannie Mae would have been restricted by the well-pleaded complaint rule. See, e.g., Franchise Tax Bd. v. Constr. Laborers Vacation Trust for S. Cal., 463 U.S. 1, 9–10 (1983); Louisville & Nashville R.R. Co. v. Mottley, 211 U.S. 149, 152 (1908). Given that Fannie Mae is often sued under state-law causes of action, § 1331 would have conferred jurisdiction in a relatively small number of cases. Diversity jurisdiction under 28 U.S.C. § 1332, if it existed at all, would have been unavailable in many, perhaps most, cases because Fannie Mae suits typically involve mortgage transactions to which there are multiple parties, often resulting in a lack of complete diversity. See Caterpillar Inc. v. Lewis, 519 U.S. 61, 68 (1996). There is no indication that Congress intended to eliminate federal question jurisdiction in 1954 by replacing the phrase “court of law or equity” with the phrase “court of competent jurisdiction.” Neither the House nor the Senate report on Fannie Mae’s 1954 amendments so much as mentions the “court of competent jurisdiction” language. See H.R. Rep. No. 83-1429, at 19–24, 43–50; S. Rep. No. 83-1472, at 33, 74–75 (1954). Given the important practical effect of eliminating federal question jurisdiction under Fannie Mae’s sue-and-be-sued clause, we should expect the House or the Senate to have said something if they intended a change of that sort. Instead, there was silence. In our view, 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. At our founding and for many years thereafter, the federal court system and most state court systems had separate law and equity courts. By the middle of the 20th century, however, the federal courts and almost LIGHTFOOT V. CENDANT MORTGAGE CORP. 9 every state had abandoned the law/equity division. See Leonard J. Emmerglick, A Century of the New Equity, 23 Tex. L. Rev. 244, 244 n.1 (1945). The Federal Rules of Civil Procedure merged law and equity in the federal courts in 1938. Id. By 1945, only five states continued to have separate law and equity courts. Id. At the time of the 1954 amendment, Fannie Mae’s charter’s reference to “court[s] of law or equity” had become an antiquarian relic with little relevance to the American legal system. The change in Fannie Mae’s sue-and-be-sued clause is best explained as getting rid of this anachronism, as Congress had recently done in other statutes. In 1948, in response to the Federal Rules of Civil Procedure’s elimination of the law/equity distinction, Congress removed a number of references to “law or equity” in the statutes defining federal district court jurisdiction. See Act of June 25, 1948, Pub. L. No. 80-773, §§ 1332, 1343, 1345–46, 62 Stat. 869, 930–33; H.R. Rep. No. 80-3214, at A115, A121, A123 (1948). In 1954, as we discuss in more detail below, Congress exchanged “court of law or equity” for “court of competent jurisdiction” not just in Fannie Mae’s charter, but also in the charters of the Federal Savings and Loan Insurance Corporation (“FSLIC”) and the Home Loan Bank Board. If Congress wanted to eliminate the grant of federal question jurisdiction from Fannie Mae’s charter, it is highly unlikely that it would have done so in the way the dissent suggests. In 1954, Congress had no reason to think that replacing the phrase “court of law or equity” with the phrase “court of competent jurisdiction” would eliminate federal question jurisdiction under Fannie Mae’s sue-and-be-sued clause. Supreme Court cases from Deveaux to D’Oench had put Congress on notice that a specific reference to the federal 10 LIGHTFOOT V. CENDANT MORTGAGE CORP. courts was “necessary and sufficient to confer jurisdiction.” Red Cross, 505 U.S. at 252 (emphasis added). The 1954 amendments, while using the new phrase “court of competent jurisdiction” in Fannie Mae’s sue-and-be-sued clause, retained the specific reference to the federal courts. Congress would not have sought to eliminate federal question jurisdiction under Fannie Mae’s sue-and-be-sued clause by retaining the very words the Court had recently held sufficient to confer such jurisdiction in D’Oench. See Pirelli, 534 F.3d at 786 (“If Congress in 1954 did not want to continue to confer federal jurisdiction in Fannie Mae cases, it logically would have omitted the word ‘Federal’ from the statute, not attempted a bank shot by adding the words ‘of competent jurisdiction.’”). Congress’s contemporaneous treatment of the FSLIC shows that it knew a foolproof method to eliminate federal question jurisdiction from a sue-and-be-sued clause. That method was to follow Deveaux and simply to omit the reference to federal courts. In 1954, the same year Congress amended Fannie Mae’s charter, Congress eliminated federal question jurisdiction for the FSLIC by deleting language in its charter that had authorized suit “in any court of law or equity, State or Federal.” Congress replaced it with language authorizing suit “in any court of competent jurisdiction in the United States.” See H.R. Rep. No. 83-1429, at 90; S. Rep. No. 83-1472, at 121. Since eliminating the reference to federal courts in the FSLIC amendment eliminated federal question jurisdiction over FSLIC suits brought under its sueand-be-sued clause, Congress had no reason also to insert the phrase “court of competent jurisdiction” to accomplish the same thing. See Corley v. United States, 556 U.S. 303, 314 (2009) (“[A] statute should be construed so that effect is LIGHTFOOT V. CENDANT MORTGAGE CORP. 11 given to all its provisions, so that no part will be inoperative or superfluous . . . .” (internal quotation marks omitted)). The dissent argues that our holding renders superfluous the phrase “court of competent jurisdiction.” Dissent at 19, 28. We disagree. As we explained above, the phrase served the purpose of eliminating an anachronistic reference to courts of law and equity. But if we need an additional purpose for the phrase, it is not hard to find one. In Osborn, the purpose of the phrase “in all State Courts having competent jurisdiction” was to emphasize that the clause did not authorize or require the exercise of subject matter jurisdiction by a state court with narrow, specialized jurisdiction. See 22 U.S. (9 Wheat.) at 817. Fannie Mae’s sue-and-be-sued clause can easily be read to have the same purpose. There was a general concern in the 1950s about the extent of federal authority to require state courts to hear cases brought pursuant to federal statutes. In Testa v. Katt, 330 U.S. 386 (1947), the World War II-era federal Emergency Price Control Act required state courts to entertain civil suits for treble damages against merchants who charged a retail price exceeding the maximum set by federal law. The Act specified that federal and state courts had concurrent jurisdiction. Like Fannie Mae’s charter, the Act authorized suit “in any court of competent jurisdiction.” Id. at 387 n.1. Rhode Island district and superior courts refused to hear a suit brought under the Act, contending that they were not obliged to hear a suit under a federal statute authorizing treble damages. Id. at 388. After determining that the state district and superior courts were courts “of competent jurisdiction” with “jurisdiction adequate and appropriate under established local law” to grant treble damages, the Court held in Testa that such courts were required to hear suits under the Act. Id. at 394. 12 LIGHTFOOT V. CENDANT MORTGAGE CORP. It was in this historical setting that Congress added the phrase “court of competent jurisdiction” to Fannie Mae’s charter. Consistent with Testa, the phrase requires state courts of general or otherwise competent jurisdiction to hear claims brought by and against Fannie Mae. The phrase makes clear that state courts of specialized jurisdiction—such as family courts and small-claims courts—need not entertain suits that do not satisfy those courts’ jurisdictional requirements. Similarly, the phrase also makes clear that the sue-and-be-sued clause does not require federal courts of specialized jurisdiction—such as bankruptcy courts—to hear suits falling outside those courts’ jurisdiction. Accord Pirelli, 534 F.3d at 785. Finally, the dissent points to several circuit court cases decided after 1954 that interpret the phrase “court of competent jurisdiction” the same way the dissent does. Dissent at 24 (citing C.H. Sanders Co. v. BHAP Hous. Dev. Fund Co., 903 F.2d 114, 118 (2d Cir. 1990); Lomas & Nettleton Co. v. Pierce, 636 F.2d 971, 973 (5th Cir. 1981); Bor-Son Bldg. Corp. v. Heller, 572 F.2d 174, 181 (8th Cir. 1978); Lindy v. Lynn, 501 F.2d 1367, 1368 (3d Cir. 1974)). But all of these cases predate Red Cross. The only post-Red Cross cases cited by the dissent are district court decisions. Dissent at 25 & n.2.