Montgomery County Commission et al v. Federal Housing Finance Agency et al

Filing 64

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)
similarly situated,*
)
)
Plaintiffs,
)
)
v.
)
)
FEDERAL HOUSING FINANCE
)
AGENCY, as conservator for )
Federal National Mortgage
)
Association and Federal
)
Home Loan Mortgage
)
Corporation, et al.,
)
)
Defendants.
)

CIVIL ACTION NO.
2:12cv885-MHT
(WO)

OPINION
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
Finance

Agency

(the

conservator

for

Fannie

Mae

and

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.
2

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
claims.”

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
face.”

Id. at 574.

II. BACKGROUND
Fannie Mae and Freddie Mac, both government-sponsored
enterprises, are charged with buying home loans from
approved mortgage sellers, packaging them into mortgage-

3

backed securities, and selling those in the secondary
market.

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

In 2008,

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
property

to

Fannie

Mae

or

Freddie

foreclosure deed or similar document.

Mac

through

a

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”).
4

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
the

county,

the

transferee

must

pay

a

so-called

“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,
although

they

continue

to

regularly

record

property

transfers in Montgomery and other counties, unlawfully
refuse to pay the recordation tax that is due.

The

defendants have moved to dismiss, claiming that, under
federal law, Fannie Mae and Freddie Mac are immune from
paying the Alabama tax.

5

III. DISCUSSION
A.
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
that

any

subject

real
to

property

State,

...

of

the

corporation

shall

county,

municipal,

or

be

local

taxation to the same extent as other real property is
taxed.”
immunity.

Freddie Mac is afforded an almost identical
See 12 U.S.C. §

Housing Finance Agency.

1452(e).4

So is the Federal

See 12 U.S.C. § 4617(j)(2).5

4.
Freddie
Mac,
“including
its
franchise,
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).
5.

“The

Agency,

including
6

its

franchise, its
(continued...)

These statutory provisions consist of two parts.
First, there is the immunity: Fannie Mae and Freddie Mac
(“including” the categories of property and activities
listed)
§§

are

“exempt

1723a(c)(2)

exception

to

and

that

from

all

1452(e).
immunity:

taxation.”
Second,

“[A]ny

12

there

real

U.S.C.
is

property

the
of

[Fannie Mae or Freddie Mac] shall be subject to ...
taxation to the same extent as other real property is
taxed.”

Id.

As such, the court must first decide

whether Alabama’s recordation tax falls within the ambit
of the immunity.
whether

it

also

If it does, the question becomes
falls

within

the

exception

to

the

immunity.

5(...continued)
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).
7

B.
On first appearance, it seems obvious that Fannie Mae
and Freddie Mac are immune from paying the recordation
tax.

Under the unambiguous language of the statutes,

they are immune from “all taxation.”

Id.

It would seem

to go without saying that “all taxation” encompasses
Alabama’s recordation tax.

“All means all.”

Kennedy v.

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,
words

will

be

interpreted

as

taking

their

ordinary,

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.
8

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
Federal

land

bank

and

every

national

farm

loan

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).

See

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.

Black’s Law

Dictionary 605 (8th ed. 2004); see also United States v.
4,432 Mastercases of Cigarettes, More or Less, 448 F.3d

9

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
also

an

excise

tax,

a

tax

on

the

recording

of

the

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
taxation

...

imposed

by

any

State,

...

county,

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

10

recordation

tax

here

is

an

excise

tax,

it

is

not

encompassed within the exemption from “all taxation.”
In actuality, Wells Fargo did no such thing.

That

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.

taxation.”

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,
could

be

taxed.

Underlying

this

doctrine

is

the

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
the

meaning

of

exempting

property
11

from

taxation:

an

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.

The Court

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.

Therefore,

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.

Of the

eight cases to address the question, all but one have
held that Fannie Mae and Freddie Mac are immune from the
tax.

Delaware Cnty. v. Fed. Hous. Fin. Agency, 2013 WL

1234221 (E.D. Pa. Mar. 26, 2013) (Pratter, J.); Fannie
12

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)
(Roberts, J.).

This court sides with the majority.

C.
Having

decided

that

the

recordation

tax

is

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
13

same extent as other real property is taxed.”
§§ 1723a(c)(2) and 1452(e).
the answer.

12 U.S.C.

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
transferring
recordation
Freddie

Mac

property.
tax
and

is

As

previously

the

latter.

Fannie

Mae

stated,

the

Therefore,
are

in

sum,

immune

from

the

recordation tax, and the tax does not fall into the
immunity’s exception.7

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
(continued...)
14

D.
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.

Pls.’

They cite United States

v. New Mexico, 455 U.S. 720 (1982), but that case is
inapposite.

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
Mac.

Cf. United States v. Michigan, 851 F.2d 803, 806

(6th Cir. 1988) (noting that federal credit unions may be

7(...continued)
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
property itself.”).
15

“entitled

to

constitutional,

as

immunity from state taxation”).

well

as,

statutory,

The plaintiffs have not

advanced any serious argument that affording Fannie Mae
and Freddie Mac statutory tax immunity is anything other
than

a

necessary

and

proper

means

of

carrying

out

Congress’s legitimate powers, and the court declines the
invitation

to

imagine

such

an

argument

for

the

plaintiffs.

E.
In conclusion, Fannie Mae and Freddie Mac are immune
from Alabama’s recordation tax, and this court has been
given

no

reason

unconstitutional.

to

think

such

immunity

is

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).

The

plaintiffs may not recover the recordation tax from any

16

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.