Fannie Mae Loses High Court Bid for Federal Jurisdiction

WASHINGTON (CN) – Resolving a circuit split, the U.S. Supreme Court was unanimous Wednesday that Fannie Mae’s charter does not allow it to take any suit against it to federal court.

Since 1954, upon being rechartered for private ownership, Fannie Mae has been endowed with the power “to sue and to be sued, and to complain and to defend, in any court of competent jurisdiction, state or federal.”

That clause expressly mentions federal courts, but the court found Wednesday that it should not be read “to grant federal courts subject-matter jurisdiction over all cases involving Fannie Mae.”

Rather the clause “permits suit in any state or federal court already endowed with subject-matter jurisdiction over the suit,” Justice Sonia Sotomayor wrote for the court.

Sotomayor notes that Fannie Mae’s nickname was coined in the early days of its original charter in 1938, “avoiding a mouthful of an acronym” for the Federal National Mortgage Association.

Fannie Mae failed to sway the justices that it deserves the same federal court access as “its sibling rival, the Federal Home Loan Mortgage Corporation, known as Freddie Mac,” enjoys.

“The doors to federal court remain open to Fannie Mae through diversity and federal-question jurisdiction,” Sotomayor wrote. “Fannie Mae provides no reason to think that in other cases, involving only state-law claims, access to the federal courts gives Freddie Mac an unintended competitive advantage over Fannie Mae that Congress would have wanted to avoid. Indeed, the usual assumption is that state courts are up to the task of adjudicating their own laws.”

In reaching this conclusion Wednesday, the high court reversed a ruling by the Ninth Circuit, which had joined the First and D.C. Circuits in finding that Fannie Mae’s sue-and-be-sued clause grants jurisdiction to federal courts.

“Four circuits have disagreed,” Sotomayor added.

The underlying case stems from the suit filed in California by a mother and daughter after their home was foreclosed upon and sold at a trustee’s sale in 2001.

Fannie Mae had owned the women’s mortgage briefly, but sold it back to the refinancer, Cendant Mortgage Corp., because it did not meet Fannie Mae’s credit standards.

Beverly Ann Hollis-Arrington and Crystal Lightfoot nevertheless claimed in their lawsuit that Fannie Mae was liable for deficiencies in the refinancing, foreclosure, and sale of their home.

Fannie Mae removed the case from state to U.S. District Court, where a federal judge dismissed the case on preclusion grounds.

After the Ninth Circuit ordered briefing on the jurisdiction issue, it affirmed by divided panel. Cendant does business as PHH Mortgage.

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