Lightfoot v. Cendant Mortg. Corp.

137 S.Ct. 553

Crystal Monique LIGHTFOOT, et al., Petitioners

v.CENDANT MORTGAGE CORPORATION, dba PHH Mortgage et al.

No. 14–1055.

Supreme Court of the United States

Argued Nov. 8, 2016.

Decided Jan. 18, 2017.

E. Joshua Rosenkranz, New York, NY, for the Petitioners.

Ann O'Connell for the United States as amicus curiae, by special leave of the Court, supporting the Petitioners.

Brian P. Brooks, Washington, D.C., for the Respondents.

Andrew H. Friedman, Gregory D. Helmer, Helmer Friedman, LLP, Culver City, CA, E. Joshua Rosenkranz, Thomas M. Bondy, Kevin Arlyck, Matthew L. Bush, Cynthia B. Stein, Louisa Irving, Orrick, Herrington & Sutcliffe LLP, New York, NY, for Petitioners.

Brian P. Brooks, Julie E. Katzman, Mai Pham Robertson, Fannie Mae, Jonathan D. Hacker, O'Melveny & Myers LLP, Washington, D.C., Anton Metlitsky, O'Melveny & Myers LLP, New York, NY, for Respondent Fannie Mae.

Justice SOTOMAYOR delivered the opinion of the Court.

The corporate charter of the Federal National Mortgage Association, known as Fannie Mae, authorizes Fannie Mae “to sue and to be sued, and to complain and to defend, in any court of competent jurisdiction, State or Federal.” 12 U.S.C. § 1723a(a). This case presents the question whether this sue-and-be-sued clause grants federal district courts jurisdiction over cases involving Fannie Mae. We hold that it does not.

I

A

During the Great Depression, the Federal Government worked to stabilize and strengthen the residential mortgage market. Among other things, it took steps to increase liquidity (reasonably available funding) in the mortgage market. These efforts included the creation of the Federal Home Loan Banks, which provide credit to member institutions to finance affordable housing and economic development projects, and the Federal Housing Administration (FHA), which insures residential mortgages. See Dept. of Housing and Urban Development, Background and History of the Federal National Mortgage Association 1–7, A4 (1966).

Also as part of these efforts, Title III of the National Housing Act (1934 Act) authorized the Administrator of the newly created FHA to establish “national mortgage associations” that could “purchase and sell [certain] first mortgages and such other first liens” and “borrow money for such purposes.” § 301(a), 48 Stat. 1252–1253. The associations were endowed with certain powers, including the power to “sue and be sued, complain and defend, in any court of law or equity, State or Federal.” § 301(c), id., at 1253.

In 1938, the FHA Administrator exercised that authority and chartered the Federal National Mortgage Association. Avoiding a mouthful of an acronym (FNMA), it went by Fannie Mae. See, e.g.,Washington Post, July 14, 1940, p. P2 (“ ‘Fanny May’ ”); N.Y. Times, Mar. 23, 1950, p. 48 (“ ‘Fannie Mae’ ”). As originally chartered, Fannie Mae was wholly owned by the Federal Government and had three objectives: to “establish a market for [FHA-insured] first mortgages” covering new housing construction, to “facilitate the construction and financing of economically sound rental housing projects,” and to “make [the bonds it issued] available to ... investors.” Fed. Nat. Mortgage Assn. Information Regarding the Activities of the Assn. 1 (Circular No. 1, 1938).

Fannie Mae was rechartered in 1954. Housing Act of 1954 (1954 Act), § 201, 68 Stat. 613. No longer wholly Government owned, Fannie Mae had mixed ownership: Private shareholders held its common stock and the Department of the Treasury held its preferred stock. The 1954 Act required the Secretary of the Treasury to allow Fannie Mae to repurchase that stock. See id., at 613–615. It expected that Fannie Mae would repurchase all of its preferred stock and that legislation would then be enacted to turn Fannie Mae over to the private stockholders. From then on, Fannie Mae's duties would “be carried out by a privately owned and privately financed corporation.” Id., at 615. Along with these structural changes, the 1954 Act replaced Fannie Mae's initial set of powers with a more detailed list. In doing so, it revised the sue-and-be-sued clause to give Fannie Mae the power “to sue and to be sued, and to complain and to defend, in any court of competent jurisdiction, State or Federal.” Id., at 620.

In 1968, Fannie Mae became fully privately owned and relinquished part of its portfolio to its new spinoff, the Government National Mortgage Association (known as Ginnie Mae). See Housing and Urban Development Act of 1968 (1968 Act), 82 Stat. 536. Fannie Mae “continue[d] to operate the secondary market operations” but became “a Government-sponsored private corporation.” 12 U.S.C. § 1716b. Ginnie Mae “remain[ed] in the Government” and took over “the special assistance functions and management and liquidating functions.” Ibid. Ginnie Mae received the same set of powers as Fannie Mae. See § 1723(a); see also 1968 Act, § 802(z), 82 Stat. 540 (minor revisions to § 1723a(a) ).

This general structure remains in place. Fannie Mae continues to participate in the secondary mortgage market. It purchases mortgages that meet its eligibility criteria, packages them into mortgage-backed securities, and sells those securities to investors, and it invests in mortgage-backed securities itself. One of those mortgage purchases led to Fannie Mae's entanglement in this case.

B

Beverly Ann Hollis–Arrington refinanced her mortgage with Cendant Mortgage Corporation (Cendant) in the summer of 1999. Fannie Mae then bought the mortgage, while Cendant continued to service it. Unable to make her payments, Hollis–Arrington pursued a forbearance arrangement with Cendant. No agreement materialized, and the home entered foreclosure. Around this time, Cendant repurchased the mortgage from Fannie Mae because it did not meet Fannie Mae's credit standards.

To stave off the foreclosure, Hollis–Arrington and her daughter, Crystal Lightfoot, pursued bankruptcy and transferred the property between themselves. These efforts failed, and the home was sold at a trustee's sale in 2001. The two then took to the courts to try to undo the foreclosure and sale.

After two unsuccessful federal suits, the pair filed this suit in state court. They alleged that deficiencies in the refinancing, foreclosure, and sale of their home entitled them to relief against Fannie Mae. Their claims against other defendants are not relevant here.

Fannie Mae removed the case to federal court under 28 U.S.C. § 1441(a), which permits a defendant to remove from state to federal court “any civil action” over which the federal district courts “have original jurisdiction.” It relied on its sue-and-be-sued clause as the basis for jurisdiction. The District Court denied a motion to remand the case to state court.

The District Court then dismissed the claims against Fannie Mae on claim preclusion grounds. After a series of motions, rulings, and appeals not related to the issue here, the District Court entered final judgment. Hollis–Arrington and Lightfoot immediately moved to set aside the judgment under Federal Rule of Civil Procedure 60(b), alleging “fraud upon the court.” App. 95–110. The District Court denied the motion.

The Ninth Circuit affirmed the dismissal of the case and the denial of the Rule 60(b) motion. 465 Fed.Appx. 668 (2012). After Hollis–Arrington and Lightfoot sought rehearing, the Ninth Circuit withdrew its opinion and ordered briefing on the question whether the District Court had jurisdiction over the case under Fannie Mae's sue-and-be-sued clause. 769 F.3d 681, 682–683 (2014).

A divided panel affirmed the District Court's judgment. The majority relied on American Nat. Red Cross v. S. G., 505 U.S. 247, 112 S.Ct. 2465, 120 L.Ed.2d 201 (1992). It read that decision to have established a “rule [that] resolves this case”: When a sue-and-be-sued clause in a federal charter expressly authorizes suit in federal courts, it confers jurisdiction on the federal courts. 769 F.3d, at 684. The dissent instead read Red Cross as setting out only a “ ‘default rule’ ” that provides a “starting point for [the] analysis.” 769 F.3d, at 692 (opinion of Stein, J.). It read “any court of competent jurisdiction” in Fannie Mae's sue-and-be-sued clause to overcome that default rule by requiring an independent source for jurisdiction in cases involving Fannie Mae. Ibid.

Two Circuits have likewise concluded that the language in Fannie Mae's sue-and-be-sued clause grants jurisdiction to federal courts. See Federal Home Loan Bank of Boston v. Moody's Corp., 821 F.3d 102 (C.A.1 2016) (Federal Home Loan Bank of Boston's identical sue-and-be-sued clause); Pirelli Armstrong Tire Corp. Retiree Medical Benefits Trust ex rel. Fed. Nat. Mortgage Assn. v. Raines, 534 F.3d 779 (C.A.D.C.2008) (Fannie Mae's sue-and-be-sued clause). Four Circuits have disagreed, finding that similar language did not grant jurisdiction. See Western Securities Co. v. Derwinski, 937 F.2d 1276 (C.A.7 1991) (Under 38 U.S.C. § 1820(a)(1) (1988 ed.), Secretary of Veterans Affairs' authority to “sue and be sued ... in any court of competent jurisdiction, State or Federal”); C.H. Sanders Co. v. BHAP Housing Development Fund Co., 903 F.2d 114 (C.A.2 1990) (Under 12 U.S.C. § 1702 (1988 ed.), Secretary of Housing and Urban Development's authority “in his official capacity, to sue and be sued in any court of competent jurisdiction, State or Federal”); Industrial Indemnity, Inc. v. Landrieu, 615 F.2d 644 (C.A.5 1980) (per curiam ) (similar); Lindy v. Lynn, 501 F.2d 1367 (C.A.3 1974) (similar).

We granted certiorari, 579 U.S. ––––, 136 S.Ct. 2536, 195 L.Ed.2d 866 (2016), and now reverse.

II

Fannie Mae's sue-and-be-sued clause authorizes it “to sue and to be sued, and to complain and to defend, in any court of competent jurisdiction, State or Federal.” 12 U.S.C. § 1723a(a). As in other federal corporate charters, this language serves the uncontroversial function of clarifying Fannie Mae's capacity to bring suit and to be sued. See Bank of United States v. Deveaux, 5 Cranch 61,...