Sunday, October 12, 2014

FYI: 9th Cir Holds "Sue or Be Sued" Clause in Fannie Mae's Charter Provides Federal Question Jurisdiction Over Claim By or Against Fannie Mae

The U.S. Court of Appeals for the Ninth Circuit recently held that Federal National Mortgage Association’s (“Fannie Mae”) federal corporate charter confers federal question jurisdiction over claims brought by or against Fannie Mae.

The plaintiffs brought two lawsuits in federal district court raising state and federal law claims against Fannie Mae following the initiation of foreclosure proceedings.  The district court dismissed both cases. 

Thereafter, plaintiffs filed a lawsuit in California state court, alleging state law claims.  Fannie Mae removed to federal court, arguing that the sue-and-be-sued clause in its federal corporate charter conferred federal question subject matter jurisdiction.  The plaintiffs filed a motion to remand, which the district court denied.  The district court later dismissed all of plaintiffs’ claims as barred by res judicata and collateral estoppel.

On appeal, the plaintiffs argued that the district court lacked subject matter jurisdiction.  The Ninth Circuit disagreed, and held that under the rule announced in American National Red Cross v. S.G., 505 U.S. 247 (1992), Fannie Mae’s federal charter confers federal question jurisdiction over claims brought by or against Fannie Mae. 

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).

The Ninth Circuit, held that this language confers federal question jurisdiction over claims brought by or against Fannie Mae. 

In so ruling, the Ninth Circuit relied on Red Cross.  In Red Cross, the United States Supreme Court gave a clear rule for construing sue-and-be-sued clauses for federally 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.

As the Fannie Mae sue-and-be-sued clause contains a specific reference to federal court, it too confers federal question jurisdiction

Accordingly, the Ninth Circuit affirmed the District Court’s ruling in favor of Fannie Mae.

Eric Tsai
McGinnis Wutscher Beiramee LLP
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