Randolph County v. Federal National Mortgage Association et al
MEMORANDUM OPINION AND ORDER: that Defendants' Motion for Summary Judgment 27 is GRANTED. It is further ORDERED that Plaintiff's Motion for Partial Summary Judgment 43 is DENIED. A separate judgment in favor of Defendants shall issue. Signed by Chief Judge William Keith Watkins on 7/31/2013. (jg, )
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF ALABAMA
RANDOLPH COUNTY, ALABAMA,
FEDERAL NATIONAL MORTGAGE
ASSOCIATION, FEDERAL HOME
LOAN MORTGAGE CORPORATION,
and FEDERAL HOUSING FINANCE
CASE NO. 3:12-CV-886-WKW
MEMORANDUM OPINION AND ORDER
In this putative class action, Plaintiff Randolph County argues that the Federal
National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage
Corporation (“Freddie Mac”), and the Federal Housing Finance Agency (“the
Agency”), in its capacity as the conservator for Fannie and Freddie,1 are liable to it
and other Alabama counties for failure to pay the Alabama State tax on real estate
transfers. Defendants claim they are statutorily exempt from paying the tax and
moved for summary judgment in their favor. (Doc. # 27.) Plaintiff responded with
a cross-motion for partial summary judgment. (Doc. # 43.) The motions are fully
Congress combined several existing governmental agencies to form the Agency, which
now acts as conservator for Fannie Mae and Freddie Mac. See 12 U.S.C. § 4617(b)(2)(B)
(setting out the authority of the conservator).
briefed and ripe for adjudication.
(Docs. # 55, 56, 62–69.)
consideration of the parties’ arguments and the relevant law, Defendants’ motion is
due to be granted, and Plaintiff’s motion is due to be denied.
I. JURISDICTION AND VENUE
The court has subject matter jurisdiction pursuant to 28 U.S.C. § 1331. It also
has jurisdiction over claims against Freddie Mac pursuant to 12 U.S.C. § 1452(f)(2)
and over the state law claims pursuant to 28 U.S.C. § 1367. The parties do not
contest personal jurisdiction or venue.
II. STANDARD OF REVIEW
To succeed on summary judgment, the movant must demonstrate “that there is
no genuine dispute as to any material fact and the movant is entitled to judgment as
a matter of law.” Fed. R. Civ. P. 56(a). In evaluating a motion for summary
judgment, the court assesses whether trial is necessary. Matsushita Elec. Indus. Co.
v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Where facts are undisputed, the
court must only answer the legal question.
Fannie Mae and Freddie Mac, both private entities created by the federal
government, buy home loans from approved mortgage sellers, package them into
mortgage-backed securities, and then sell those securities. Montgomery Cnty.
Comm’n v. Fed. Housing Fin. Agency, 2:12cv886-MHT, 2013 WL 1896256, at *2
(M.D. Ala. May 6, 2013). The institutions exist to promote home ownership by
increasing funds available to financial institutions for residential mortgages. Id.
Meanwhile, Alabama imposes a tax on the transfer of real property. Ala. Code
§§ 41-22-1–2 (the “Transfer Tax”). Alabama counties collect the Transfer Tax when
a real-property transferee records the transfer with the county. The Transfer Tax is
a tax collected for the privilege of transferring realty in Alabama. Id. at § 41-22-1(a).
The parties agree that Defendants routinely record property transfers in Randolph and
other Alabama counties.2 Defendants, however, refuse to pay the Transfer Tax on the
basis that they are exempt under federal law.
Virtually identical federal statutory exemptions exist for each Defendant. The
statute applicable to Freddie Mac reads:
The Corporation, including its franchise, activities, capital, reserves,
surplus, and income, shall be exempt from all taxation now or hereafter
imposed by any territory, dependency, or possession of the United States
or 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.
“When a mortgage lender forecloses on a delinquent mortgage, it will often transfer
title of the foreclosed property to Fannie Mae or Freddie Mac through a foreclosure deed or
similar document. Fannie Mae or 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.” Montgomery Cnty. Comm’n, 2013 WL 1896256, at
12 U.S.C. § 1452(e); see also 12 U.S.C. §§ 1723a(c), 4617(j)(2) (stating nearly
identical exemptions and exceptions for Fannie Mae and the Agency, respectively).
In addition to the exemption of the entities from “all taxation,” each statute contains
an exception to the exemption for the taxation of real property, which local entities
may tax “to the same extent . . . as other real property.” 12 U.S.C. §§ 1452(e),
1723a(c), 4617(j)(2). Defendants argue that they are exempt as a matter of law by
virtue of these statutes.3 Plaintiff disagrees.
The federal statutory exemptions are two-part. First, they exempt Defendants
from “all taxation,” statutorily immunizing the entities from taxation to which they
would otherwise be subject. Second, they establish an exception to that exemption
for the taxation of real property, making Defendants liable for taxes on real property.
The court will address each part of the statutory provisions in turn, and conclude by
considering Plaintiff’s constitutional arguments.
The Transfer Tax falls within the ambit of the statutory exemptions.
The “first step in interpreting a statute is to determine whether the language at
issue has a plain and unambiguous meaning with regard to the particular dispute in
Because the statutes differ only in respects not material to this suit, the court will
analyze them together.
the case.” Robinson v. Shell Oil Co., 519 U.S. 337, 340 (1997). So long as “all”
means “[b]eing or representing the entire or total number, amount or quantity,”
American Heritage Dictionary 45 (5th ed. 2011), the statutes exempt Defendants from
the Transfer Tax. See also Webster’s Third International Dictionary 54 (Philip
Babcock Gove et al., eds., 1993) (defining “all” as “every member or individual
“All” means “all.”
Plaintiff argues that the Supreme Court altered the meaning of the term “all
taxation” such that it covers only direct taxes, not excise taxes like the one here. A
direct tax is “a tax levied upon the property itself,” while an excise tax is “levied upon
the use or transfer of property even though it might be measured by the property’s
value.” United States v. Wells Fargo Bank, 485 U.S. 351, 355 (1988). In Wells
Fargo, the Court interpreted the Housing Act of 1937, and concluded that “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.” Id. (emphasis added).
The conclusion that “all taxation” meant “all direct taxation” was logical in
Wells Fargo, where the statutory exemption applied to the property. That exemption
appeared in the Housing Act of 1937 and read, “[Project notes], including interest
thereon, . . . shall be exempt from all taxation now or hereafter imposed by the United
States.” Id. (alteration in original) (quoting § 5(e) of the Housing Act of 1937,
codified as amended at 42 U.S.C. § 1437i(b)). Congress exempted the project notes
– a form of property – from taxation, and only a direct tax is a tax on the property
itself. Accordingly, the project notes were exempt from direct taxation but their
owners remained subject to excise taxes on their transfer, including the estate tax at
The same conclusion would not be logical here, where the statutes exempt
entities – not just certain property – from taxation. See, e.g., 12 U.S.C. § 1452(e)
(“The Corporation . . . shall be exempt from all taxation now or hereafter imposed.”);
Cnty. of Oakland v. Fed. Housing Fin. Agency, 716 F.3d 935, 943 (6th Cir. 2013)
(distinguishing between exemptions of property like that in Wells Fargo and the
statutory exemptions for Defendants); Hertel v. Bank of Am., 897 F. Supp. 2d 579,
584 (W.D. Mich. 2012) (observing that the statute at issue in Wells Fargo “specified
an exemption only for the property and not its owner or its transfer,” unlike the
statutory exemptions covering Defendants). “All taxation” for entities includes more
than just direct taxation of the property they own. It also includes taxation on the
privileges of ownership, including the Transfer Tax. Montgomery Cnty. Comm’n,
2013 WL 1896256, at *3 (finding that Alabama’s Transfer Tax falls under the “all
taxation” umbrella of the same statutory exemptions).
The Supreme Court of the United States’s opinion in Federal Land Bank of St.
Paul v. Bismarck Lumber Co., 314 U.S. 95 (1941), further supports this
interpretation. There, the Court examined North Dakota’s sales tax on real property.
Id. at 99. That tax operated much like Alabama’s Transfer Tax; both are taxes
payable when one party sells real property to another. Section 26 of the Federal Farm
Loan Act exempted “every Federal land bank . . . from Federal, State, municipal, and
local taxation.” Pub. L. No. 64-158, § 26, 39 Stat. 360, 380 (1916). The Bismarck
Court distinguished this entity exemption from property exemptions. 314 U.S. at 100.
The Court concluded that “the broad exemption accorded to ‘every Federal land
bank’” applied to the North Dakota sales tax and precluded North Dakota from
collecting the sales tax from Federal land banks. Id. at 99 (quoting § 26). Likewise,
the exemptions accorded to Defendants by name – not to their property or to
mortgages they backed – covers all taxes for which they would otherwise be liable,
direct or excise, including the Transfer Tax.
Plaintiff’s attempt to distinguish the entities in Bismarck, federal
instrumentalities, from Defendants, federally created private institutions, is
unavailing. The Supreme Court grounded its ruling not on the federal character of
entities, but on statutory language. Id. (“The unqualified term ‘taxation’ used in
section 26 clearly encompasses within its scope a sales tax such as the instant one,
and this conclusion is confirmed by the structure of the section.”).
Finally, the inclusion of the exception for property taxes in each statutory
exemption further supports the conclusion that “all” means “all”. The provisions’
mandatory language “does not leave room for unmentioned exemptions.” Hertel, 897
F. Supp. 2d at 582; see also TRW Inc. v. Andrews, 534 U.S. 19, 28 (2001) (“Where
Congress explicitly enumerates certain exceptions to a general prohibition, additional
exceptions are not to be implied, in the absence of evidence of a contrary legislative
intent.” (quotations omitted)).
The Agency’s exemption from penalties for unpaid taxes does
not render the language of the “all taxation” exemption
By law, the Agency “shall not be liable for any amounts in the nature of
penalties or fines, including those arising from the failure of any person to pay any
real property, personal property, probate, or recording tax or any recording or filing
fees when due.” 12 U.S.C. § 4617(j)(4). Plaintiff cites this provision to support its
position that the “all taxation” language does not exempt Defendants from taxes like
the Transfer Tax, arguing that no penalty would arise if the Agency were not subject
to such taxes in the first place.
If this provision meant that the Agency shall not be liable for its own failure
to pay real property taxes, it would indeed be illogical. That is not what this
provision means. This provision protects the Agency in the event a non-exempt
previous owner fails to pay taxes. In such a case, the provision frees the Agency from
liens and liabilities it might otherwise incur by holding the property. See In re Cnty.
of Orange, 262 F. 3d 1014, 1021 (9th Cir. 2001) (holding that a materially similar
provision protected the Federal Deposit Insurance Corporation as receiver from
penalties arising when earlier owners of its property defaulted on taxes on real
property). The court will give effect to the statute’s distinction between “the Agency”
and “any person.”
The exception to the exemption for taxation of real property does
not apply to the Transfer Tax.
The Transfer Tax, which both parties agree is an excise tax (Docs. # 29 at 7,
43-1 at 4–5), does not fall under the real property exception to the exemption
language. It is a tax levied not on the property itself, but on a transferee after the
transfer of property for the privilege of recording instruments transferring that
property. Ala. Code § 40-22-1; Montgomery Cnty. Comm’n, 2013 WL 1896256, at
*1. Cf. CSX Transp., Inc. v. Ala. Dep’t of Revenue, ___ U.S. ____, 131 S. Ct. 1101,
1107 (2011) (describing “Alabama’s sales and use tax” as an “excise tax”). It is not
a direct tax on the property, even if it is determined in part by the property’s value.
See Wells Fargo, 485 U.S. at 355 (remarking that excise taxes may be determined by
a property’s value).
Plaintiff urges the court to interpret the exception clause “broadly to include
all taxes relating to real property,” including, apparently, excise taxes. (Doc. # 43-2
at 44.) The court rejects the invitation. The plain language of the statute makes
Defendants’ real property subject to taxation to the same extent as other property, but
it does not make Defendants liable for taxes “relating to” real property. The Transfer
Tax “cannot be said to be a tax directly on the property sold because it is only
incurred when the property is transferred to another.” Hertel, 897 F. Supp. 2d at 586;
see also Montgomery Cnty. Comm’n, 2013 WL 1896256, at *4 (finding that the
Transfer Tax did not fall under the real property exception to the statutory exemption
from all taxation).
C. Plaintiff’s constitutional arguments fail.
Contrary to Plaintiff’s insistence otherwise, Congress has the power to exempt
Defendants statutorily, without resort to the constitutional tax immunity afforded to
federal instrumentalities.4 Montgomery Cnty. Comm’n, 2013 WL 1896256, at *4
Because the court finds Congress had the authority to exempt Defendants from taxation
statutorily, it will not decide whether Defendants are federal instrumentalities who are
constitutionally immune from taxation.
(finding that Congress may “afford, through statute, tax immunity to private
corporations the federal government creates, like Fannie Mae and Freddie Mac”). In
fact, the Supreme Court has indicated that Congress may exempt private, non-federal
entities from state and local taxation, even where Congress did not – as it did here –
create those entities.
The Supreme Court has, for example, approved of statutory exemptions from
state and local taxation for national banks. First Agr. Nat’l Bank of Berkshire Cnty.
v. State Tax Comm’n, 392 U.S. 339, 341 (1968) (“Because of pertinent congressional
legislation in the banking field, we find it unnecessary to reach the constitutional
question of whether today national banks should be considered nontaxable as federal
instrumentalities.”). Additionally, the Supreme Court has left room for Congress to
exempt private governmental contractors from state and local taxation. See United
States v. New Mexico, 455 U.S. 720, 737 (1982) (“If the immunity of federal
contractors is to be expanded beyond its narrow constitutional limits, it is Congress
that must take responsibility for the decision . . . .”). And when the Court denied
constitutional immunity from nondiscriminatory state taxation to a lessee of the
government, it emphasized that its holding did not extend to statutory exemptions for
such lessees. United States v. City of Detroit, 355 U.S. 466, 475 (1958) (“Of course
this is not to say that Congress, acting within the proper scope of its power, cannot
confer immunity by statute where it does not exist constitutionally.”).
Defendants exist to ease access to and stabilize the market for secondary
residential mortgages. 12 U.S.C. §§ 1716, 4501. The Commerce Clause permits
Congress to regulate activities that have a substantial relation to interstate commerce,
and the availability of capital in the national mortgage market bears such a substantial
relationship. U.S. Const. art. I, § 8, cl. 3; United States v. Lopez, 514 U.S. 549,
The exemptions allow Defendants to allocate that capital
unencumbered by state taxes, thereby furthering the governmental objectives the
entities exist to advance. See Carson v. Roane-Anderson Co., 342 U.S. 232, 234
(1952) (holding that Congress’s power “to create tax immunities does not turn on the
nature of the agency doing the work of the government,” but “stems from the power
to preserve and protect functions validly authorized”). The statutory exemptions rest
on solid constitutional bases.
Other courts have reached the same result when confronted with
Although the Eleventh Circuit has not addressed Defendants’ federal statutory
exemption, in the past two years, more than a dozen local government plaintiffs have
brought iterations of this suit in their respective federal jurisdictions. Virtually every
other court to encounter these cases has reached the same conclusion – that
Defendants are exempt from state and local excise taxes on the transfer and recording
of real property.5 The United States Court of Appeals for the Sixth Circuit recently
reversed the decision of the one district court that reached the conclusion Plaintiff
advocates. See Cnty. of Oakland, 716 F.3d at 935, rev’g Oakland Cnty. v. Fed.
Housing Fin. Agency, 871 F. Supp. 2d 662 (E.D. Mich. 2012). In granting summary
judgment in favor of Defendants, this court is in good company.
Accordingly, it is ORDERED that Defendants’ Motion for Summary Judgment
(Doc. # 27) is GRANTED. It is further ORDERED that Plaintiff’s Motion for Partial
Summary Judgment (Doc. # 43) is DENIED.
A separate judgment in favor of Defendants shall issue.
E.g., Milwaukee Cnty. v. Fed. Nat’l Mortg. Ass’n, No. 12-C-0732, 2013 WL 3490899
(E.D. Wis. July 10, 2013); City of Spokane v. Fed. Nat’l Mortg. Ass’n, No. CV-13-0020, 2013
WL 3288413 (E.D. Wash. June 28, 2013); McNulty v. Fed. Housing Fin. Agency, __ F. Supp. 2d
____, 2013 WL 3147641 (M.D. Pa. June 19, 2013); Doggett v. Fed. Housing Fin. Agency, No.
2:12-cv-553, 2013 WL 2920388 (M.D. Fla. June 13, 2013); Athens-Clarke Cnty. Unified Gov’t v.
Fed. Housing Fin. Agency, __ F. Supp. 2d ____, 2013 WL 2102922 (M.D. Ga. May 14, 2013);
Montgomery Cnty. v. Fed. Nat’l Mortg. Ass’n, No. DKC 13-66, 2013 WL 1832370 (D. Md. Apr.
30, 2013); Montgomery Cnty. Comm’n, 2013 WL 1896256; Hennepin Cnty. v. Fed. Nat’l Mortg.
Ass’n, __ F. Supp. 2d ____, 2013 WL 1235589 (D. Minn. Mar. 27, 2013); Vadnais v. Fed. Nat’l
Mortg. Ass’n, No. 12-1598, 2013 WL 1249224 (D. Minn. Mar. 27, 2013); Delaware Cnty. v.
Fed. Housing Fin. Agency, No. 12-4554, 2013 WL 1234221 (E.D. Pa. Mar. 26, 2013); Fannie
Mae v. Hamer, No. 12-C-50230, 2013 WL 591979 (N.D. Ill. Feb. 13, 2013); Nicolai v. Fed.
Housing Fin. Agency, __ F. Supp. 2d ____, 2013 WL 899967 (M.D. Fla. Feb. 12, 2013); Hertel,
897 F. Supp. 2d at 579; Hager v. Fed. Nat’l Mortg. Ass’n, 882 F. Supp. 2d 107 (D.D.C. 2012).
DONE this 31st day of July, 2013.
/s/ W. Keith Watkins
CHIEF UNITED STATES DISTRICT JUDGE
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