Montgomery County Commission et al v. Federal Housing Finance Agency et al
OPINION. Signed by Honorable Judge Myron H. Thompson on 5/6/13. (djy, )
IN THE DISTRICT COURT OF THE UNITED STATES FOR THE
MIDDLE DISTRICT OF ALABAMA, NORTHERN DIVISION
MONTGOMERY COUNTY COMMISSION)
and STEVEN L. REED, Judge
of Probate for Montgomery
County, Alabama, on behalf )
of themselves and all others)
FEDERAL HOUSING FINANCE
AGENCY, as conservator for )
Federal National Mortgage
Association and Federal
Home Loan Mortgage
Corporation, et al.,
CIVIL ACTION NO.
Plaintiffs Montgomery County Commission and Judge of
Probate for Montgomery County, who seek to represent all
other counties across Alabama, charge that defendants
Federal National Mortgage Association (commonly known as
* Steven L. Reed has replaced Reese McKinney, Jr. as
Judge of Probate for Montgomery County and has been
substituted as plaintiff pursuant to Rule 25(d) of the
Federal Rules of Civil Procedure.
“Fannie Mae”), Federal Home Loan Mortgage Corporation
(commonly known as “Freddie Mac”), and Federal Housing
Freddie Mac) are refusing to pay taxes that are due under
Alabama law. Subject-matter jurisdiction is proper under
12 U.S.C. § 1452(f)(2) (Freddie Mac) and 28 U.S.C. § 1367
(supplemental).1 The case is now before this court on the
defendants’ motion to dismiss.
For the reasons that
follow, the motion will be granted.
1. The plaintiffs also invoke the court’s diversity
jurisdiction under 28 U.S.C. § 1332, but, it seems
questionable whether such jurisdiction would be proper
here. That statute applies only to “citizens” of States.
The Supreme Court has held that whether a county
government is a “citizen” in the meaning of § 1332
depends on whether, under state law, the county functions
“simply [as] the arm or alter ego of the State” or more
like “a municipal corporation or an otherwise independent
political subdivision.” Moor v. Alameda Cnty., 411 U.S.
693, 717 (1973). Here, because the recordation tax the
plaintiffs seek to recover goes mostly to the State, not
the county, see 1975 Ala. Code § 40-22-1(g), that may be
reason to think that diversity jurisdiction would be
improper. In any event, because jurisdiction over this
case is proper under 12 U.S.C. § 1452(f)(2) and 28 U.S.C.
§ 1367, the court need not reach the issue.
I. MOTION-TO-DISMISS STANDARD
In considering a defendant’s motion to dismiss, the
court accepts the plaintiff’s allegations as true, Hishon
v. King & Spalding, 467 U.S. 69, 73 (1984), and construes
the complaint in the plaintiff’s favor, Duke v. Cleland,
5 F.3d 1399, 1402 (11th Cir. 1993).
“The issue is not
whether a plaintiff will ultimately prevail but whether
the claimant is entitled to offer evidence to support the
Scheuer v. Rhodes, 416 U.S. 232, 236 (1974).
To survive a motion to dismiss, a complaint need not
contain “detailed factual allegations,” Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 545 (2007), “only enough facts
to state a claim to relief that is plausible on its
Id. at 574.
Fannie Mae and Freddie Mac, both government-sponsored
enterprises, are charged with buying home loans from
approved mortgage sellers, packaging them into mortgage-
backed securities, and selling those in the secondary
The aim is to increase the amount of funds
available to financial institutions for home loans and,
in turn, to increase American home ownership.2
Congress merged several existing governmental agencies
into the Federal Housing Finance Agency, which now acts
as conservator for Fannie Mae and Freddie Mac.3
When a mortgage lender forecloses on a delinquent
mortgage, it will often transfer title of the foreclosed
foreclosure deed or similar document.
Fannie Mae or
2. See 12 U.S.C. § 1716 (Fannie Mae’s purpose is,
among other things, to “establish secondary market
facilities for residential mortgages,” to “provide
stability in the secondary market for residential
mortgages,” and to “promote access to mortgage credit
throughout the Nation ... by increasing the liquidity of
mortgage investments and improving the distribution of
investment capital available for residential mortgage
financing”); 12 U.S.C. § 1451 note (describing Freddie
Mac’s purpose as substantially the same).
3. See 12 U.S.C. § 4617(b)(2)(B) (as conservator,
the Federal Housing Finance Agency has the power to
“operate” Fannie Mae and Freddie Mac and “to conduct all
[of their] business”).
Freddie Mac, in turn, will record the foreclosure deed or
other document with the government of the county in which
the property sits, thereby perfecting the corporation’s
ownership of the property.
Under Alabama law, typically,
when a real-property transferee records the transfer with
“recordation tax” pursuant to 1975 Ala. Code § 40-22-1.
In this lawsuit, the Montgomery County Commission and
Probate Judge claim that Fannie Mae and Freddie Mac,
transfers in Montgomery and other counties, unlawfully
refuse to pay the recordation tax that is due.
defendants have moved to dismiss, claiming that, under
federal law, Fannie Mae and Freddie Mac are immune from
paying the Alabama tax.
Under 12 U.S.C. § 1723a(c)(2), Fannie Mae, “including
its franchise, capital, reserves, surplus, mortgages or
other security holdings, and income, shall be exempt from
all taxation now or hereafter imposed by any State, ...
county, municipality, or local taxing authority, except
taxation to the same extent as other real property is
Freddie Mac is afforded an almost identical
See 12 U.S.C. §
Housing Finance Agency.
So is the Federal
See 12 U.S.C. § 4617(j)(2).5
activities, capital, reserves, surplus, and income, shall
be exempt from all taxation now or hereafter imposed by
... any State, county, municipality, or local taxing
authority, except that any real property of the
Corporation shall be subject to State, territorial,
county, municipal, or local taxation to the same extent
according to its value as other real property is taxed.”
12 U.S.C. § 1452(e).
These statutory provisions consist of two parts.
First, there is the immunity: Fannie Mae and Freddie Mac
(“including” the categories of property and activities
[Fannie Mae or Freddie Mac] shall be subject to ...
taxation to the same extent as other real property is
As such, the court must first decide
whether Alabama’s recordation tax falls within the ambit
of the immunity.
If it does, the question becomes
capital, reserves, and surplus, and its income, shall be
exempt from all taxation imposed by any State, county,
municipality, or local taxing authority, except that any
real property of the Agency shall be subject to State,
territorial, county, municipal, or local taxation to the
same extent according to its value as other real property
is taxed ....” 12 U.S.C. § 4617(j)(2).
On first appearance, it seems obvious that Fannie Mae
and Freddie Mac are immune from paying the recordation
Under the unambiguous language of the statutes,
they are immune from “all taxation.”
It would seem
to go without saying that “all taxation” encompasses
Alabama’s recordation tax.
“All means all.”
Lynd, 306 F.2d 222, 230 (5th Cir. 1962); see also Fid.
Interior Constr., Inc. v. Se. Carpenters Reg’l Council of
United Bhd. of Carpenters & Joiners of Am., 675 F.3d
1250, 1264 (11th Cir. 2012) (it is a “fundamental canon
of statutory construction that, unless otherwise defined,
contemporary, common meaning”).6
Moreover, this result would seem to be required by
Fed. Land Bank of St. Paul v. Bismarck Lumber Co., 314
6. In Bonner v. City of Prichard, 661 F.2d 1206,
1209 (11th Cir. 1981) (en banc), the Eleventh Circuit
adopted as binding precedent all of the decisions of the
former Fifth Circuit handed down prior to the close of
business on September 30, 1981.
U.S. 95 (1941) (“Bismarck”).
In that case, the Court
addressed a provision of the Federal Farm Loan Act, 12
U.S.C. §§ 931-933 (repealed 1971), which provided, almost
identically to the statute before this court, “That every
association, including the capital and reserve or surplus
therein and the income derived therein, shall be exempt
from ... State, municipal, and local taxation ....”
id. at 96 n.1 (quoting statute).
The Court held that,
under that statute, the Federal Land Bank of St. Paul was
immune from a state sales tax.
“The unqualified term
‘taxation’ used in [the statute,]” the Court stated,
“clearly encompasses within its scope a sales tax such as
the instant one.”
Id. at 99.
The sales tax at issue in Bismarck was an “excise
tax,” a tax imposed on the “sale or use of goods”
instead of directly on the goods themselves.
Dictionary 605 (8th ed. 2004); see also United States v.
4,432 Mastercases of Cigarettes, More or Less, 448 F.3d
1168, 1185 (9th Cir. 2006) (“The quintessential excise
tax in our country is the sales tax.
An excise tax ...
is based on a particular transaction or activity.”).
Likewise, the recordation tax at issue in this case is
transfer of property, not a tax on the property itself.
Just as the “exempt[ion] from ... State, municipal, and
local taxation” at issue in Bismarck, 314 U.S. at 96 n.1,
blocked the sales tax there, the “exempt[ion] from all
municipality, or local taxing authority” at issue here,
12 U.S.C. §§ 1723a(c)(2) and 1452(e), blocks the Alabama
recordation tax involved in this case.
Explaining why this seemingly obvious result should
not follow, the plaintiffs turn to United States v. Wells
Fargo Bank, 485 U.S. 351 (1988).
As the plaintiffs see
it, that case transformed the words “all taxation” into
a term of art referring to direct taxes alone and not
excise taxes; therefore, the plaintiffs argue, since the
encompassed within the exemption from “all taxation.”
In actuality, Wells Fargo did no such thing.
case dealt with a statutory exemption of “Project Notes”
(a kind of property issued by state and local housing
authorities under the Housing Act of 1937) from “all
See id. at 353, 355.
In holding that the
Project Notes’ exemption from “all taxation” did not
encompass excise taxes, the Court explained, “Well before
the Housing Act was passed, an exemption of property from
all taxation had an understood meaning: the property was
exempt from direct taxation, but certain privileges of
ownership, such as the right to transfer the property,
distinction between an excise tax, which is levied upon
the use or transfer of property even though it might be
measured by the property's value, and a tax levied upon
the property itself.”
Id. at 355 (emphasis added).
In context, it is clear that the Court is explicating
exemption of property from taxation does not block taxes
not imposed on the property, and, since excise taxes are
not considered to be imposed on the property itself, they
are not exempt.
This all seems clear enough.
did not, as the plaintiffs contend, turn the phrase “all
taxation” into a term of art in all places where those
words may be found.
This case involves an exemption of
corporations, not property, from taxation.
Bismarck is on point and Wells Fargo is not.
When this case was initially filed, the question
presented was somewhat open.
been answered eight times.
Since then, however, it has
Across the country, similar
lawsuits seeking to have Fannie Mae and Freddie Mac pay
a tax comparable to Alabama’s recordation tax have been
brought and decided, and this court now has the benefit
of turning to them for persuasive authority.
eight cases to address the question, all but one have
held that Fannie Mae and Freddie Mac are immune from the
Delaware Cnty. v. Fed. Hous. Fin. Agency, 2013 WL
1234221 (E.D. Pa. Mar. 26, 2013) (Pratter, J.); Fannie
Mae v. Hamer, 2013 WL 591979 (N.D. Ill. Feb. 13, 2013)
(Kapala, J.); Hager v. Fed. Nat. Mortgage Ass’n, 882 F.
Supp. 2d 107 (D.D.C. 2012) (Bates, J.); Hennepin Cnty. v.
Fed. Nat. Mortgage Ass’n, ___ F. Supp. 2d ___, 2013 WL
1235589 (D. Minn. Mar. 27, 2013) (Doty, J.); Hertel v.
Bank of Am. N.A., ___ F. Supp. 2d ___, 2012 WL 4127869
(W.D. Mich. Sept. 18, 2012) (Bell, J.); Nicolai v. Fed.
Hous. Fin. Agency, ___ F. Supp. 2d ___, 2013 WL 899967
(M.D. Fla. Feb. 12, 2013) (Covington, J.); Vadnais v.
Fed. Nat. Mortgage, 2013 WL 1249224 (D. Minn. Mar. 27,
2013) (Doty, J.); but see Oakland Cnty. v. Fed. Hous.
Fin. Agency, 871 F. Supp. 2d 662 (E.D. Mich. 2012)
This court sides with the majority.
encompassed in the immunity from “all taxation,” the
court must now decide whether the tax also falls into the
immunity’s exception: “[A]ny real property of [Fannie Mae
or Freddie Mac] shall be subject to ... taxation to the
same extent as other real property is taxed.”
§§ 1723a(c)(2) and 1452(e).
Here, Wells Fargo provides
As that case explained, “an excise tax,
which is levied upon the use or transfer of property,” is
distinct from “a tax levied upon the property itself.”
485 U.S. at 355.
The statutes’ references to taxes on
the “real property of [Fannie Mae and Freddie Mac]” means
taxes imposed directly on the property itself, not excise
taxes imposed on the corporations for the privilege of
recordation tax, and the tax does not fall into the
7. Notably, in most of the other similar cases, the
parties and the court assumed that the immunity exception
would not apply. See, e.g., Fannie Mae, 2013 WL 591979,
at *4 (“The primary issue in this case is determining
what Congress meant when it wrote into [Fannie Mae’s and
Freddie Mac’s] charters that they were ‘exempt from all
taxation’ from state and county governments, absent
exceptions not relevant here.”) (emphasis added); Hager,
882 F. Supp. 2d at 111 (“Plaintiffs concede that the
In a single footnote in their brief, the plaintiffs
contend that if Fannie Mae and Freddie Mac are immune
from the recordation tax, which this court has decided
they are, such immunity would be unconstitutional.
Resp. (Doc. No. 58) at 14 n.7.
They cite United States
v. New Mexico, 455 U.S. 720 (1982), but that case is
That case addressed only “constitutional
immunity,” the rule that “a State may not, consistent
with the Supremacy Clause, U.S. Const., Art. VI, cl. 2,
lay a tax directly upon the United States.”
Id. at 733.
The case said nothing about Congress’s ability to afford,
through statute, tax immunity to private corporations the
federal government creates, like Fannie Mae and Freddie
Cf. United States v. Michigan, 851 F.2d 803, 806
(6th Cir. 1988) (noting that federal credit unions may be
exception for taxes on ‘real property’ is inapplicable
because the recordation tax is an excise tax on the
privilege of transferring title rather than a tax on real
immunity from state taxation”).
The plaintiffs have not
advanced any serious argument that affording Fannie Mae
and Freddie Mac statutory tax immunity is anything other
Congress’s legitimate powers, and the court declines the
In conclusion, Fannie Mae and Freddie Mac are immune
from Alabama’s recordation tax, and this court has been
Moreover, for the same reasons as
those already discussed, the Federal Housing Finance
Agency is also immune under 12 U.S.C. § 4617(j)(2).
plaintiffs may not recover the recordation tax from any
of the defendants in this case.
The motion to dismiss
will be granted.8
An appropriate judgment will be entered.
DONE, this the 6th day of May, 2013.
/s/ Myron H. Thompson
UNITED STATES DISTRICT JUDGE
8. Because the court decides that Fannie Mae’s and
Freddie Mac’s statutory immunity from the recordation tax
is fatal to the plaintiffs’ claims, the court need not
reach the defendants’ other arguments for dismissal.
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