Vadnais v. Federal National Mortgage et al
ORDER denying 68 Motion to Alter/Amend/Correct Judgment; denying 71 Motion to file a second amended complaint.(Written Opinion). Signed by Senior Judge David S. Doty on 7/29/2013. (PJM)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Civil No. 12-1598(DSD/TNL)
Ronald A. Vadnais, as Treasurer
of Swift County, Minnesota,
Individually and on behalf of
all others similarly situated and
Federal National Mortgage, also
known as Fannie Mae, and Federal Home
Loan Mortgage Corporation, also
known as Freddie Mac,
Federal Housing Finance Agency, in
its Capacity as Conservator of
Fannie Mae and Freddie Mac,
John C. Davis, Esq. and Law Office of John C. Davis, 623
Beard Street, Tallahassee, FL 32303, counsel for
Michael A.F. Johnson, Esq. and Arnold & Porter, LLP, 555
Twelfth Street N.W., Washington, D.C. 20004, counsel for
This matter is before the court upon the motions to alter or
amend the judgment and to file a second amended complaint by
plaintiffs Ronald A. Vadnais, as Treasurer of Swift County, and
Swift County (collectively, Vadnais).
Based on a review of the
file, record and proceedings herein, and for the following reasons,
the court denies the motions.
The background of this action is fully set out in the court’s
March 27, 2013, order, and the court recites only those facts
necessary for disposition of the instant motions.
On October 5,
2012, Vadnais filed a first amended class-action complaint, seeking
a declaration that defendant Federal National Mortgage Association
(Fannie Mae), defendant Federal Home Loan Mortgage Corporation
(Freddie Mac) and intervenor1 Federal Housing Finance Agency (FHFA)
(collectively, the Enterprises) violated Minnesota Statutes by
failing to pay deed transfer taxes when conveying property in the
state of Minnesota.
Vadnais also alleged a claim for unjust
On November 30, 2012, the court held oral argument on the
Enterprises’ motion to dismiss.
Subsequent to oral argument, with
the motion to dismiss under advisement, Vadnais filed (1) a motion
for class certification, (2) a motion for partial summary judgment2
and (3) a request to stay consideration of the motion to dismiss
pending briefing of the motion for partial summary judgment.
ECF Nos. 54, 58, 63.
The FHFA’s unopposed motion to intervene was granted on
August 22, 2012. See ECF No. 18.
notes that the memorandum in support of partial
reads like a surreply. Only five pages of the
memorandum address Vadnais’s constitutional
remainder of the memorandum is more accurately
a response to the Enterprises’ reply memorandum.
On March 27, 2013, the court granted the Enterprises’ motion
to dismiss and declined to address Vandais’s post-hearing motions.
In response, on April 4, 2013, Vadnais filed a motion to alter or
amend the judgment under Rule 59(e) and a motion to file a second
“A district court has broad discretion in determining whether
to grant or deny a motion to alter or amend judgment pursuant to
Rule 59(e) ....”
United States v. Metro. St. Louis Sewer Dist.,
440 F.3d 930, 933 (8th Cir. 2006) (citation omitted).
motions serve the limited function of correcting manifest errors of
(citation and internal quotation marks omitted).
In other words,
“[s]uch motions cannot be used to introduce new evidence, tender
new legal theories, or raise arguments which could have been
offered or raised prior to entry of judgment.”
Id. (citation and
internal quotation marks omitted).
Vadnais argues that the court committed manifest error by
Even if this constitutional argument was
Fannie Mae’s charter exemption explains that it “shall be
exempt from all taxation now or hereafter imposed by any State,
properly raised prior to entry of judgment,4 the claim fails on the
Vadnais bases the constitutional claim on the Enterprises’
private corporate status.
Specifically, Vadnais argues that (1)
the Enterprises are not federal instrumentalities and thus are not
entitled to inherent constitutional immunity and (2) the charter
exemptions were not validly enacted pursuant to any of Congress’s
In response, the Enterprises
territory, possession, Commonwealth, or dependency of the United
States, or by the District of Columbia, or by any county,
municipality, or local taxing authority.” 12 U.S.C. § 1723a(c)(2).
The charters establishing Freddie Mac and the FHFA contain
See id. § 1452(e) (“[Freddie
Mac] ... shall be exempt from all taxation now or hereafter imposed
by any ... State, county, municipality, or local taxing authority
....”); id. § 4617(j)(2) (“[FHFA] ... shall be exempt from all
taxation imposed by any State, county, municipality, or local
taxing authority ....”).
Vadnais’s memorandum in opposition to the motion to dismiss
makes passing reference to principles of federalism and argues that
Hager v. Federal National Mortgage Ass’n, 882 F. Supp. 2d 107
(D.D.C. 2012), and Hertel v. Bank of America N.A., 897 F. Supp. 2d
579 (W.D. Mich. 2012), were improperly decided because they ignore
the “Supreme Court’s modern and evolving understanding of competing
constitutional sovereignties.” Pls.’ Resp. Opp’n M. Dismiss 25;
see id. 6-8, 24-25.
An obtuse reference in the memorandum in
opposition to the motion to dismiss, coupled with no meaningful
discussion at oral argument, see Tr. 23:17-31:8, does not put the
court on notice of a litigant’s intent to challenge the
constitutionality of a federal statute. Not until filing a motion
for partial summary judgment – while the motion to dismiss was
still under advisement – did Vadnais raise the constitutional
See Pls.’ Mem. Supp. Summ. J. 27-30. And although it is
unclear whether a litigant may properly file a motion for summary
judgment while a motion to dismiss is under advisement, the court
need not resolve this question, as Vadnais’s constitutional
arguments fail on the merits.
argue that the charter exemptions were validly enacted under
The court agrees.
The Commerce Clause provides that Congress may “regulate
Commerce with foreign Nations, and among the several States, and
with the Indian Tribes.”
U.S. Const. art. I, § 8, cl. 3.
words, Congress may broadly regulate three categories of interstate
commerce: “(1) the use of the channels of interstate commerce;
(2) the instrumentalities of interstate commerce, or persons or
things in interstate commerce ...; and (3) those activities having
a substantial relation to interstate commerce.”
United States v.
Howell, 552 F.3d 709, 714 (8th Cir. 2009) (citation and internal
quotation marks omitted). “Under this power, Congress may regulate
a class of purely intrastate activity if, in the aggregate, the
activity has a substantial effect on interstate commerce.”
States v. Dinwiddie, 76 F.3d 913, 920 (8th Cir. 1996) (citations
This is a modest inquiry, and “the question is whether
Congress had any rational basis to conclude that the economic
The Enterprises also argue that they are federal
instrumentalities for purposes of tax-immunity analysis. The court
need not address this argument, as it concludes that the
Enterprises’ charter exemptions were validly enacted.
Montgomery Cnty., Md. v. Fed. Nat’l Mortg. Ass’n, No. DKC 13-0066,
2013 WL 1832370, at *11 n.12 (D. Md. Apr. 30, 2013) (“Pursuant to
Supreme Court precedent, it is unnecessary to determine whether a
congressionally created entity is a federal instrumentality that
qualifies for implied constitutional immunity from taxation under
the Supremacy Clause where that entity is exempt pursuant to a
validly enacted statute.” (citations omitted)).
activity it chose to regulate ... substantially affects interstate
Monson v. Drug Enforcement Admin., 589 F.3d 952, 964
(8th Cir. 2009) (citation omitted); see Gonzales v. Raich, 545 U.S.
activities, taken in the aggregate, substantially affect interstate
commerce in fact, but only whether a ‘rational basis’ exists for so
concluding.” (citations omitted)).
Here, there is a rational basis for Congress to conclude that
the regulated activity - the payment of deed transfer taxes by the
Enterprises - has a substantial economic affect on interstate
For example, Congress chartered Fannie Mae to
establish secondary market facilities for
residential mortgages ... [and to] promote
access to mortgage credit throughout the
Nation ... by increasing the liquidity of
distribution of investment capital available
for residential mortgage financing.
12 U.S.C. § 1716; accord Pirelli Armstrong Tire Corp. Retiree Med.
Benefits Trust ex rel. Fed. Nat’l Mortg. Ass’n v. Raines, 534 F.3d
779, 783 (D.C. Cir. 2008) (“Fannie Mae’s mission is to increase
purchases mortgages originated by other lenders and helps lenders
convert their home loans into mortgage-backed securities. The goal
is to provide stability and liquidity to the mortgage market. This
allows mortgage lenders to provide more loans, thereby increasing
the rate of homeownership in America.”). Freddie Mac was similarly
chartered with the stated goal of strengthening the secondarymortgage market.
See 12 U.S.C. § 1451 Note.
Likewise, the FHFA
has the stated goal of “reorganizing, rehabilitating, or winding up
the affairs” of Fannie Mae and Freddie Mac, and it succeeds to all
§ 4617(a)(2), (b)(2)(A)(i).
In sum, Congress created the Enterprises to increase the
availability of affordable home mortgages, and subjecting the
Enterprises to the deed transfer tax “could reduce the funds
available for the [Enterprises] to purchase mortgages from primary
mortgage market institutions — which, in turn, could limit the
amount of mortgage credit made available by those institutions to
potential home buyers.” Montgomery Cnty., Md. v. Fed. Nat’l Mortg.
Ass’n, No. DKC 13-0066, 2013 WL 1832370, at *14 (D. Md. Apr. 30,
apparently believed that any taxation of the [Enterprises] by
states and localities could interfere with their stated missions,”
and exempting the Enterprises “from any obligation to pay the [deed
transfer taxes] via the Charter Exemptions represents a rational
means of addressing this possibility.” Id.; see City of Providence
3816429, at *3-4 (D.R.I. July 24, 2013) (dismissing a similar
Spokane, Wash. v. Fed. Nat’l Mortg. Assoc., No. CV-13-0020, 2013 WL
3288413, at *4-5 (E.D. Wash. June 28, 2013) (same).
As a result,
Congress had a rational basis to exempt the Enterprises from the
deed transfer taxes.
Vadnais responds, however, that the deed transfer tax applies
only to the transfer of immovable intrastate real property and that
such a tax does not affect interstate commerce.
As an initial
matter, the court notes that Congress may “regulate purely local
activities that are part of an economic ‘class of activities’ that
have a substantial effect on interstate commerce.” Raich, 545 U.S.
at 17 (citations omitted); see Heart of Atlanta Motel, Inc. v.
United States, 379 U.S. 241, 258 (1964) (noting that Congress may
regulate intrastate activity if “it is interstate commerce that
feels the pinch ... [no] matter how local the operation which
Moreover, the court concludes that “[t]he effects of
home sales on the interstate mortgage market [have] a sufficient
connection with interstate commerce.”
Freeman v. San Diego Ass’n
omitted); cf. McLain v. Real Estate Bd. of New Orleans, Inc., 444
U.S. 232, 246 (1980) (“[W]hatever stimulates or retards the volume
of residential sales, or has an impact on the purchase price, [will
also] affect the demand for financing and title insurance ... two
occurred in interstate commerce.”).
As a result, “there can be no
serious doubt that participation in the secondary mortgage market
to increase the availability of credit throughout the Nation
constitutes interstate commerce.”
Montgomery Cnty., Md., 2013 WL
1832370, at *14 (internal quotation marks omitted); see AthensClarke Cnty. Unified Gov’t v. Fed. Housing Fin. Agency, No. 5:12CV-355, 2013 WL 2102922, at *8 n.18 (M.D. Ga. May 14, 2013)
(declining to “redraw the outer boundaries of Congress’s commerce
power” in similar challenge to the Enterprises’ charter exemption).
Therefore, Vadnais’s constitutional challenge fails, and denial of
the Rule 59(e) motion is warranted.
Leave to Amend
The court shall provide leave to amend “when justice so
Fed. R. Civ. P. 15(a)(2).
Leave to amend, however, is
not an absolute right and “undue delay, bad faith, or dilatory
previously allowed, undue prejudice to the non-moving party, or
futility of the amendment may be grounds to deny a motion to
amend.” Doe v. Cassel, 403 F.3d 986, 991 (8th Cir. 2005) (citation
and internal quotation marks omitted).
And “[a]lthough a pretrial motion for leave to amend one’s
complaint is to be liberally granted, different considerations
apply to motions filed after dismissal.”
Dorn v. State Bank of
Stella, 767 F.2d 442, 443 (8th Cir. 1985) (per curiam) (citations
“After a complaint is dismissed, the right to amend
“Although a party may still file a motion for leave to amend and
inappropriate if the court has clearly indicated either that no
amendment is possible or that dismissal of the complaint also
constitutes dismissal of the action.”
Hawks v. J.P. Morgan Chase
Bank, 591 F.3d 1043, 1050 (8th Cir. 2010) (citation and internal
quotation marks omitted). In other words, “[a] district court does
not abuse its discretion in denying a plaintiff leave to amend the
pleadings to change the theory of their case after the complaint
has been dismissed under Rule 12(b)(6).”
Id. (citations and
internal quotation marks omitted).
Here, Vadnais did not seek leave to file a second amended
complaint until after entry of judgment. As already discussed, the
court is uncertain as to whether Vadnais raised the constitutional
claims prior to dismissal and if this motion is merely a postdismissal attempt to change the theory of the case. The court need
not resolve this question, however, as even under the deferential
standard of Rule 15(a), amendment is not warranted.
already explained, Vadnais’s constitutional claims are without
merit, and amendment would be futile.
Therefore, the motion for
leave to file a second amended complaint is denied.
Accordingly, based on the above, IT IS HEREBY ORDERED that:
Plaintiffs’ motion to alter or amend the judgment [ECF
No. 68] is denied; and
Plaintiffs’ motion to file a second amended complaint
[ECF No. 71] is denied.
July 29, 2013
s/David S. Doty
David S. Doty, Judge
United States District Court
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