Supreme Court limits Fannie Mae’s ability to take cases to federal court

GSE rebuked in unanimous opinion

In a unanimous opinion handed down Wednesday, the Supreme Court limited Fannie Mae’s ability to transfer cases to federal court, ruling that the government-sponsored enterprise’s charter does not grant it the right to move all state cases to the federal level.

The decision, written by Justice Sonia Sotomayor, overturns a lower court’s ruling, which held that the “sue-and-be-sued” clause in Fannie Mae’s charter allowed for the GSE to transfer any lawsuits against it filed at the state level to federal court.

In the opinion, Sotomayor writes that none of Fannie Mae’s arguments about the interpretation of the  “sue-and-be-sued” clause are “persuasive.”

Sotomayor writes that the Court previously ruled on several other arguments from other federally chartered organizations, but notes that Fannie Mae’s charter differs in that “sue-and-be-sued” clause states that cases can be transferred to “any court of competent jurisdiction.”

The clause in question authorizes Fannie Mae “to sue and to be sued, and to complain and to defend, in any court of competent jurisdiction, State or Federal.”

That distinction places Fannie Mae on the losing end of this argument, according to the court’s ruling.

Based on previous rulings, “Fannie Mae’s sue-and-be-sued clause is most naturally read not to grant federal courts subject matter jurisdiction over all cases involving Fannie Mae but to permit suit in any state or federal court already endowed with subject matter jurisdiction,” the ruling states.

Fannie Mae also argued that it should be granted similar rights to Freddie Mac, called Fannie Mae’s “sibling rival” in the ruling.

But, according to the ruling, the language in Freddie Mac’s charter is different than Fannie Mae’s, and gives the GSE the right to “to sue and be sued, complain and defend, in any State, Federal, or other court.”

That language gives Freddie Mac the right to move cases to federal district court before trial.

Fannie Mae argues that it should be treated the same, but the court disagrees.

From the court’s decision:

Fannie Mae argues there is no good reason to think that Congress gave Freddie Mac fuller access to the federal courts than it has. Leaving aside the clear textual indications suggesting Congress did just that, a plausible reason does exist. In 1970, when Freddie Mac’s sue-and-be-sued clause and related jurisdictional provisions were enacted, Freddie Mac was a Government-owned corporation. See Emergency Home Finance Act of 1970, §304(a), 84 Stat. 454. Fannie Mae, on the other hand, had already transitioned into a privately owned corporation. Fannie Mae’s argument on this front, moreover, contains a deeper flaw. The doors to federal court remain open to Fannie Mae through diversity and federal-question jurisdiction. 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.

Based on those reasons, and more, the court ruled that Fannie Mae does not have the right to transfer all cases to federal court.

When contacted by HousingWire, a spokesperson for Fannie Mae said that the GSE is in the "process of reviewing the decision." 

This article will be further updated should Fannie Mae provide an additional response.

To read the court’s full ruling, click here.

[Update: This article is updated to reflect Fannie Mae's statement that it is reviewing the Supreme Court's decision.]

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