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Opinion analysis: Unanimous court rejects federal jurisdiction for Fannie Mae

Wednesday’s lone opinion, Lightfoot v. Cendant Mortgage Corp., firmly rejects the extension of federal jurisdiction over cases involving the Federal National Mortgage Association. Discussion at the oral argument suggested that several of the justices were concerned that a broad rule permitting all Fannie Mae cases to be removed to federal court would flood the district courts with routine disputes better suited for state court. Justice Sonia Sotomayor’s opinion for a unanimous court uses a close reading of Fannie Mae’s charter to avoid that result.

As the opinion explains, the Supreme Court has decided five earlier cases in which litigants claimed that a charter enacted by Congress granted “party-based” jurisdiction over all cases to which the entity was a party. Those charters typically contain a clause authorizing the entity to “sue and be sued,” confirming the status of the entity as a juridical person, but occasionally the sue-and-be-sued clause includes broader language that arguably includes a grant of federal jurisdiction as well. Two of those earlier cases held that the charters did not grant jurisdiction; three of the cases held that the charters did grant jurisdiction.

The opinion here starts from a summary of those cases in the most recent of the five opinions (a 1992 case involving the Red Cross), which explains that a charter “may be read to confer federal court jurisdiction if, but only if, it specifically mentions the federal courts.” In that case, the court discerned a grant of jurisdiction in a charter that 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.”

Today’s opinion underscores the difference between the language of the Red Cross charter and the language of the Fannie Mae charter, which authorizes Fannie Mae to “sue and be sued … in any court of competent jurisdiction, State or Federal.” Although the Fannie Mae charter, like the Red Cross charter, does mention federal courts, the reference to a “court of competent jurisdiction” makes it quite different. Explaining that a “court of competent jurisdiction is a court with the power to adjudicate the case before it,” the opinion reasons that the mention of federal courts in Fannie Mae’s charter is read most naturally “as a reference to a court with an existing source of subject-matter jurisdiction.” Thus, the opinion concludes, the charter does nothing more than “permi[t] suit in any state or federal court already endowed with subject-matter jurisdiction over the suit.”

The decision in this case should surprise no one. Near the end of the argument, Chief Justice John Roberts emphasized that the prospect of a decision in favor of Fannie Mae “scares me” because of the possibility it would bring “60,000 cases … to be added to the federal docket.” Roberts went on to advise counsel for Fannie Mae that he would “have to do more than win 51/49, given a presumption against federal jurisdiction.” The same sentiment seemed to motivate the court in last spring’s opinion in Merrill Lynch v. Manning, which preserved a role for state courts in securities litigation in the face of claims about the centrality of federal law to securities regulation much more palpable than any claim of federal interest Fannie Mae might muster. If the justices are going to look at these cases through such a critical lens, then Fannie Mae really had no hope of overcoming the implications of the telling reference to courts of “competent” jurisdiction. It just goes to show that it’s not often that a statute forces the justices to reach a result that they think is a bad idea.

Recommended Citation: Ronald Mann, Opinion analysis: Unanimous court rejects federal jurisdiction for Fannie Mae, SCOTUSblog (Jan. 18, 2017, 2:03 PM),