Floyd County, Georgia v. Federal Housing Finance Agency et al

Filing 65

OPINION AND ORDER granting 41 Motion to Dismiss. Signed by Judge Thomas W. Thrash, Jr on 8/30/13. (dr)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
FLOYD COUNTY, GEORGIA
a Political Subdivision of The State of
Georgia,
Plaintiff,
v.

CIVIL ACTION FILE
NO. 1:13-CV-56-TWT

FEDERAL HOUSING FINANCE
AGENCY, a Conservator for Federal
National Mortgage Association and
Federal Home Loan Mortgage
Corporation, et al.,
Defendants.

OPINION AND ORDER

Floyd County, Georgia, brings this action for itself and as a class action on
behalf of 158 other Georgia counties to collect unpaid real estate transfer taxes from
Defendants Fannie Mae, Freddie Mac, and the Federal Housing Finance Agency. The
Defendants claim that their federal charters exempt them from paying any state taxes
except direct taxes on real property. The Court sides with the great weight of
authority and concludes that the Defendants are exempt from paying the transfer taxes
at issue here.

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I. Background
Plaintiff Floyd County argues that it is entitled to collect taxes from the
Defendants pursuant to O.C.G.A. § 48-6-1. That statute imposes a tax “on each deed,
instrument, or other writing by which any lands, tenements, or other realty sold is
granted, assigned, transferred or otherwise conveyed to or vested in the purchaser or
purchasers… when the consideration or value of the interest or property conveyed…
exceeds $100.00.” O.C.G.A. § 48-6-1 (the “Transfer Tax”). The amount due under
the Transfer Tax is in part derived from the value of the interest or property conveyed.
The Plaintiffs allege that Defendants Federal National Mortgage Association (“Fannie
Mae”) and Federal Home Loan Mortgage (“Freddie Mac”) have foreclosed upon
numerous properties in Georgia, and then sold those properties. (Sec. Am. Compl. ¶¶
23-24). Despite these transfers, the Plaintiffs contend that Fannie Mae and Freddie
Mac did not pay the Transfer Tax and erroneously claimed entitlement to a
government exemption. (Id. at ¶¶ 25-32). Fannie Mae and Freddie Mac have been
in conservatorship since September 2008, and Defendant Federal Housing Finance
Agency (“FHFA”) is the regulatory body that oversees Fannie Mae and Freddie Mac.
(See id. at ¶ 14). The Plaintiffs seek a declaratory judgment that Fannie Mae and
Freddie Mac are required to pay the Transfer Tax. The Plaintiffs also seek to recover
for payments due under the Transfer Tax. (Sec. Am. Compl. ¶¶ 43-53).

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The Defendants filed a motion to dismiss on December 20, 2012. The
Defendants argue that their federal charters exempt them from the obligation to pay
any state taxes except real property taxes. The Defendants contend that a host of
federal cases have ruled that they are not required to pay excise taxes such as the
Transfer Tax here. The Plaintiffs oppose the motion arguing that Supreme Court
precedent supports their argument that the Defendants are required to pay the Transfer
Tax.
II. Motion to Dismiss Standards
A complaint should be dismissed under Rule 12(b)(6) only where it appears that
the facts alleged fail to state a “plausible” claim for relief. Ashcroft v. Iqbal, 129 S.Ct.
1937, 1949 (2009); Fed. R. Civ. P. 12(b)(6). A complaint may survive a motion to
dismiss for failure to state a claim, however, even if it is “improbable” that a plaintiff
would be able to prove those facts; even if the possibility of recovery is extremely
“remote and unlikely.” Bell Atlantic v. Twombly, 550 U.S. 544, 556 (2007). In
ruling on a motion to dismiss, the court must accept the facts pleaded in the complaint
as true and construe them in the light most favorable to the plaintiff. See Quality
Foods de Centro America, S.A. v. Latin American Agribusiness Dev. Corp., S.A., 711
F.2d 989, 994-95 (11th Cir. 1983); see also Sanjuan v. American Bd. of Psychiatry
and Neurology, Inc., 40 F.3d 247, 251 (7th Cir. 1994) (noting that at the pleading

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stage, the plaintiff “receives the benefit of imagination”). Generally, notice pleading
is all that is required for a valid complaint. See Lombard's, Inc. v. Prince Mfg., Inc.,
753 F.2d 974, 975 (11th Cir. 1985), cert. denied, 474 U.S. 1082 (1986). Under notice
pleading, the plaintiff need only give the defendant fair notice of the plaintiff's claim
and the grounds upon which it rests. See Erickson v. Pardus, 551 U.S. 89, 93 (2007)
(citing Twombly, 127 S.Ct. at 1964).
III. Discussion
The Defendants’ motion to dismiss is predicated on their argument that they are
statutorily exempted from all state and local taxation including the Transfer Tax.
Defendant Fannie Mae is a government-sponsored entity chartered by the United
States Congress to “provide stability in the secondary market for residential
mortgages” and “promote access to mortgage credit throughout the Nation.” 12
U.S.C. § 1716. Likewise, Defendant Freddie Mac is a government-sponsored entity,
chartered by Congress, and has a mission to “provide ongoing assistance to the
secondary market for residential mortgages” and “promote access to mortgage credit
throughout the Nation.” 12 U.S.C. § 1451.1
Defendant Federal Housing Finance Agency (“FHFA”) holds regulatory and
oversight authority over Defendants Fannie Mae and Freddie Mac. In September
2008, FHFA placed Fannie Mae and Freddie Mac into conservatorship. As
conservator, FHFA has the power to “conduct all of [Fannie Mae and Freddie Mac’s]
business,” including the power to “preserve and conserve [Fannie Mae and Freddie
Mac’s] assets.” See 12 U.S.C. §4617(b)(2)(B). The FHFA is similarly “exempt from
1

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The statute that serves as the charter for Fannie Mae provides that Fannie Mae,
along with,
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, territory, possession, Commonwealth, or
dependency of the United States, or by the District of Columbia, or by
any 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 as other real property is
taxed.
12 U.S.C. § 1723(a)(c)(2). Likewise, Freddie Mac’s charter states that Freddie Mac,
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.
12 U.S.C. § 1452(e).
The Plaintiffs, relying on United States v. Wells Fargo Bank, 485 U.S. 351
(1988), argue that the statutory exemptions only apply to direct taxes, not excise taxes
such as the Transfer Tax. The Plaintiffs also argue that the Defendants are not federal
instrumentalities capable of claiming exemption from state taxes and that the

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).
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exemptions violate notions of state sovereignty. The Plaintiffs further contend that
because the Transfer Tax is triggered by the Defendants’ ownership of real property,
it falls into the exceptions to the Defendants’ exemptions. The Plaintiffs’ arguments
are unpersuasive in the face of the long line of cases holding that the specific
Defendants here are not required to pay taxes such as the Transfer Tax.
Indeed, in Athens-Clarke County Unified Gov’t v. Federal Hous. Fin. Agency,
No. 5:12-cv-355, 2013 U.S. Dist. LEXIS 68225 (M.D. Ga. May 14, 2013), Judge
Treadwell ruled that the precise tax at issue here, O.C.G.A. § 48-6-1, does not apply
to the Defendants. The court in Athens-Clarke addressed the same arguments that the
Plaintiffs proffer here. First, the court concluded that the meaning of the statutory
exception to “all taxation” is clear: “Fannie Mae and Freddie Mac are exempt from
any and all taxes a state might otherwise apply to them, excluding, according to the
exemption’s exception, taxes on real property they own.” Id. at *10. The court
rejected the plaintiffs’ argument that, according to the Supreme Court’s holding in
Wells Fargo, the phrase “all taxation” only refers to direct taxes, not excise taxes like
the Transfer Tax. See id. at *14 (quoting Wells Fargo, 485 U.S. 355). The court
disagreed with the plaintiffs’ argument because the act “construed in Wells Fargo
exempted a certain type of property [] from taxation and had nothing to do with
exempting an entity from taxation,” and the statutes exempting the Defendants exempt

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them as entities. The court instead relied on Federal Land Bank of St. Paul v.
Bismarck Lumber Co., 314 U.S. 95 (1941), which held that a federal statute
exempting an entity from taxation applies to both excise and direct taxes. Id. at *1819. Next, Judge Treadwell concluded that Fannie Mae and Freddie Mac were federal
instrumentalities as defined by the Supreme Court in Bismarck, rejecting another of
the plaintiffs’ arguments. Id. at *20-21 (citing Bismarck, 314 U.S. at 102). According
to Bismarck, “any constitutional exercise of [Congress’] delegated powers is
governmental [and,] when Congress constitutionally creates a corporation through
which the federal government lawfully acts, the activities of such a corporation are
governmental,” and therefore the corporations, like Fannie Mae and Freddie Mac, are
federal instrumentalities. Id. at *20 (quoting Bismarck, 314 U.S. at 102).2 Finally,
the court rejected the plaintiffs’ contention that the Transfer Tax is a real property tax
for which Fannie Mae and Freddie Mac’s exemptions do not apply. The court noted
that “The Real Estate Transfer Tax is not a property tax; it is an excise tax on
transactions involving the sale of property.” Id. at *25-26 (quoting Bankers Trust Co.
v. Jackson, 236 Ga. App. 490, 491 (1999)).
2

The court also rejected the plaintiffs’ argument that Fannie Mae and Freddie
Mac are no longer federal instrumentalities because their characters have changed so
much since their inception, noting that “private entities may be shielded from paying
state taxes by ‘constitutional immunity or congressional exemption.’” Athens-Clarke,
2013 U.S. Dist. LEXIS 68225, at *28 (quoting Arizona Dept. of Revenue v. Blaze
Const. Co., Inc., 526 U.S. 32, 36-37 (1999)).
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The plaintiffs’ arguments in Athens-Clarke mirror the Plaintiffs’ arguments
here, and the Court similarly concludes that the Plaintiffs cannot establish that the
Defendants are required to pay the Transfer Tax. The Plaintiffs here have not shown
that the reference to “all taxation” in the Defendants’ charters is limited to only direct
taxes. Rather, the statutes’ plain language exempts all taxation except for taxes on real
property. The Plaintiffs here also have not established that Wells Fargo applies
because, as noted in Athens-Clarke, that case addressed the exemption of a specific
property, not a specific entity. The charters here exempt the Defendants as entities.
In this context, a distinction between direct taxes and excise taxes makes no sense.
Further, the Plaintiffs here cannot establish that Fannie Mae and Freddie Mac are not
federal instrumentalities because Fannie Mae and Freddie Mac are entities created by
Congress through which Congress exercises its powers. Finally, the Plaintiffs are
unable to show that the Transfer Tax is a real property tax because, as noted in
Athens-Clarke, the tax is an excise tax on transactions involving the transfer of
property, not on the property itself.
The Plaintiffs rely on Oakland County v. Federal Housing Fin. Agency, 871 F.
Supp. 2d 662 (E.D. Mich. 2012), which held that Fannie Mae and Freddie Mac were
only exempt from direct taxes. However, that decision has since been reversed by the
Sixth Circuit Court of Appeals. See County of Oakland v. Federal Hous. Fin. Agency,

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716 F.3d 935 (6th Cir. 2013). The Sixth Circuit held that Fannie Mae and Freddie
Mac were exempt from excise taxes like the Transfer Tax. See id. at 940 (“[T]he
common sense, non-technical interpretation of ‘all taxation’ has to include the State
and County real estate transfer taxes here, which impose a tax on the ‘seller or
grantor’ when a deed or other instrument of conveyance is recorded during the transfer
of real property.”). The Court notes that every other federal court to review this issue
has concluded that Fannie Mae and Freddie Mac are exempt from all state taxes
except real property taxes, which do not include transfer taxes. See, e.g., Dogget v.
Federal Hous. Fin. Agency, No. 2:12-cv-553, 2013 WL 2920388 (M.D. Fla. June 13,
2013); McNulty v. Federal Hous. Fin. Agency, No. 3:12-cv-1822, 2013 WL 3147641
(M.D. Pa. June 19, 2013); Milwaukee Cnty. v. Fannie Mae, No. 12-cv-0732, 2013 WL
3490899 (E.D. Wis. July 10, 2013); Nicolai v. Federal Hous. Fin. Agency, No. 8:12cv-1335, 2013 WL 899967 (M.D. Fla. Feb. 12, 2013); District of Columbia ex. Rel.
Hager v. Fannie Mae, 882 F. Supp. 2d 107 (D.D.C. 2012); Hertel v. Bank of Am., 897
F. Supp. 2d 579 (W.D. Mich. 2012). Accordingly, the Defendants’ motion to dismiss
should be granted.
IV. Conclusion
For the reasons set forth above, the Defendants’ Motion to Dismiss the
Plaintiffs’ Second Amended Class Action Complaint [Doc. 41] is GRANTED.

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SO ORDERED, this 30 day of August, 2013.

/s/Thomas W. Thrash
THOMAS W. THRASH, JR.
United States District Judge

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