SCOTUS to Hear Fannie Mae Jurisdiction Fight

(CN) — The U.S. Supreme Court on Tuesday agreed to consider whether wrongful foreclosure actions against the Federal National Mortgage Association — known as Fannie Mae — can only be filed in federal rather than state courts.

The case involves two California women who sued Fannie Mae and others following foreclosure proceedings. A federal judge dismissed the first lawsuit, and the Ninth Circuit affirmed on appeal.

After the women filed a lawsuit in state court, Fannie Mae removed the case to Federal Court on grounds that the sue-and-be-sued clause in its federal corporate charter gave jurisdiction to federal courts.

A federal judge then dismissed the case as having already been litigated and — after initially affirming — the Ninth Circuit ordered the parties to brief whether Fannie Mae's charter granted federal subject-matter jurisdiction, and again affirmed the dismissal in 2014.

In its majority opinion, the Ninth Circuit panel pointed to a Supreme Court rule established in American National Red Cross v. S.G., in which the high 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."

And while Fannie Mae's charter allows for suits in state or federal courts, the Ninth Circuit panel said that "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 courts.

"Given that Fannie Mae is often sued under state-law causes of action, federal law would have conferred jurisdiction in a relatively small number of cases," the panel said. "Diversity jurisdiction, 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."

Therefore, Fannie Mae's charter gives federal-question jurisdiction over suits to which Fannie Mae is a party, and the federal judge therefore had authority to dismiss the women's claims, the panel ruled.

Despite what the panel considered a hard-and-fast rule in Red Cross, the high court on Tuesday agreed to consider exclusive federal jurisdiction over Fannie Mae suits in the coming term.

Per its usual custom, the Supreme Court did not comment on its decision to review the case.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit