Hennepin County v. Federal National Mortgage Association et al
ORDER denying 7 Motion to Consolidate Cases; granting 23 Motion to Dismiss(Written Opinion). Signed by Senior Judge David S. Doty on 3/27/2013. (PJM)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Civil No. 12-2075(DSD/TNL)
Hennepin County, on behalf
of itself and all others
Federal National Mortgage
Association, a federally
chartered corporation, Federal
Home Loan Corporation, a
federally chartered corporation,
and Federal Housing Finance
Agency, as Conservator for
Federal National Mortgage
Association and Federal Home
Loan Mortgage Corporation,
Michael O. Freeman, Hennepin County Attorney, 300 South
Sixth Street, Suite C-2000, Minneapolis, MN 55487,
counsel for plaintiff.
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 motion to dismiss by
defendants Federal National Mortgage Association (Fannie Mae),
Federal Home Loan Mortgage Corporation (Freddie Mac) and the
proceedings herein, and for the following reasons, the court grants
This tax dispute arises from the Enterprises’ nonpayment of
deed transfer taxes in the state of Minnesota.
Fannie Mae and Freddie Mac are federally-chartered, publiclytraded companies tasked with creating financial stability in the
secondary, residential mortgage market.
See 12 U.S.C. § 1716(1)
(Fannie Mae); id. § 1451 Note (Freddie Mac).
The FHFA is an
mortgage crisis, became conservator for Fannie Mae and Freddie Mac.
“promot[ing] access to mortgage credit.”
12 U.S.C. § 1716(4)
(Fannie Mae); accord id. § 1451 Note (Freddie Mac).
To this end,
lenders, combine them into investment securities and sell the
Compl. ¶ 11.
entities from certain taxes.
The Fannie Mae charter (Exemption
The corporation, including its franchise,
capital, reserves, surplus, mortgages or other
security holdings, and income, shall be exempt
from all taxation now or hereafter imposed by
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. § 1723a(c)(2). The charters establishing Freddie Mac and
§ 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
municipality, or local taxing authority ....”).1
Deed Transfer Tax
Minnesota law requires that a tax be “imposed on each deed or
instrument by which any real property ... is granted, assigned,
transferred, or otherwise conveyed.” Minn. Stat. § 287.21, subdiv.
Individual counties are tasked with collecting the deed
transfer tax and remitting 97% to the state of Minnesota.
§§ 287.25, 287.08, 287.29.
The party conveying the property is
responsible for paying the deed transfer tax.
Id. § 287.24,
Properties sold in Hennepin and Ramsey counties are
also subject to a 0.0001% “environmental response fund” surcharge.
Id. §§ 383A.80, 383B.80.
An exception to the deed transfer tax
Given the substantial similarity among these provisions, the
court, unless otherwise noted, cites only the relevant statutes for
exists when “the United States or any agency or instrumentality
thereof is the grantor, assignor, transferor, conveyor, grantee or
assignee” of the property.
Id. § 287.22(6).
conveying properties in the state of Minnesota.
Compl. ¶ 21.
Enterprises argue that they need not remit payment because (1) the
Exemption Statute establishes an exemption from all state taxation
and (2) they are instrumentalities of the United States, and thus
are exempt under Minnesota Statutes § 287.22(6).
On August 24, 2012, plaintiff Hennepin County, on behalf of
itself and all similarly-situated Minnesota counties, filed a
putative class action complaint, seeking a declaratory judgment
that the Enterprises violated (1) Minnesota Statutes § 287.21 by
failing to pay deed transfer taxes when conveying property in the
state of Minnesota and (2) Minnesota Statutes §§ 383A.80 and
conveying property in Hennepin and Ramsey counties.
County also alleges a claim for unjust enrichment.
Thereafter, Hennepin County filed a motion to consolidate with
Vadnais v. Federal National Mortgage, No. 12-cv-1598 (DSD/TNL), a
similar putative class action that also is before the court.
ECF No. 7.2
On October 19, 2012, the Enterprises filed a motion to
At oral argument the court did not rule on the motion to
Because the court received additional motions and
To limit costs and avoid redundant arguments, given that
the same defendants were named in both cases, the court held a
combined oral argument for both matters on November 30, 2012.
After oral argument the court took the motion to dismiss under
advisement, and now considers the motion.
Standard of Review
To survive a motion to dismiss for failure to state a claim,
“‘a complaint must contain sufficient factual matter, accepted as
true, to state a claim to relief that is plausible on its face.’”
Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594 (8th Cir. 2009)
(quoting Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009)).
claim has facial plausibility when the plaintiff [has pleaded]
factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.”
Iqbal, 129 S. Ct. at 1949 (citing Bell Atl. Corp. v. Twombly, 550
U.S. 544, 556 (2007)).
Although a complaint need not contain
detailed factual allegations, it must raise a right to relief above
the speculative level.
See Twombly, 550 U.S. at 555.
memoranda subsequent to oral argument in the Vadnais matter,
consolidation is unwarranted, and the motion is denied. See Fed.
R. Civ. P. 42(a) (explaining that the court has discretion and “may
... consolidate the actions”).
and conclusions or a formulaic recitation of the elements of a
cause of action are not sufficient to state a claim.”
S. Ct. at 1949 (citation and internal quotation marks omitted).
Minnesota Statutes § 287.21
The Enterprises argue that the “all taxation” clause in the
Exemption Statute indicates that they are exempt from paying the
deed transfer tax.
In response, Hennepin County argues that the
taxation. The court disagrees and finds that analysis of the text,
caselaw and policy supports the interpretation advanced by the
“[A]s with any question of statutory interpretation, the court
begins its analysis with the plain language of the statute ....”
Owner–Operator Indep. Drivers Ass’n, Inc. v. Supervalu, Inc., 651
F.3d 857, 862 (8th Cir. 2011) (citation omitted).
part, the Exemption Statute states that the Enterprises “shall be
exempt from all taxation.”
12 U.S.C. § 1723a(c)(2).
“A fundamental canon of statutory construction is that, unless
otherwise defined, words will be interpreted as having their
Friedrich, 402 F.3d 842, 845 (8th Cir. 2005) (citation omitted).
In reaching such a conclusion, the court need not address
the Enterprises’ argument that Minnesota Statutes § 287.22(6)
exempts them from paying the deed transfer tax.
Use of the word “shall” expresses Congress’s intent that the
exemption is mandatory.
See LeMay v. U.S. Postal Serv., 450 F.3d
797, 799 (8th Cir. 2006). Moreover, the Exemption Statute uses the
inclusive adjective “all,” evidencing an intent to permit no
unenunciated exceptions. See Sander v. Alexander Richardson Invs.,
334 F.3d 712, 716 (8th Cir. 2003) (“In short, ‘all’ means all.”
(citation and internal quotation marks omitted)); Trs. of Iron
Workers Local 473 Pension Trust v. Allied Prods., 872 F.2d 208, 213
unqualified all [when drafting the statute].” (internal quotation
In sum, the plain language of the Exemption
Statute unambiguously supports the Enterprises’ interpretation.
Moreover, the canon expressio unius, or the principle that the
supports the Enterprises.
Indeed, the Exemption Statute contains
an exception, explaining 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.”
U.S.C. § 1723a(c)(2).
In other words, Congress contemplated
exceptions to the “all taxation” language, but declined to include
a carve-out for the deed transfer tax.4
See United States v.
Hennepin County also cites expressio unius in support of
its proposed interpretation. Pl.’s Mem. Opp’n 14 n.3. It argues
Johnson, 529 U.S. 53, 58 (2000) (“When Congress provides exceptions
in a statute, it does not follow that courts have authority to
As such, a textual analysis of the Exemption
Statute supports the Enterprises’ interpretation.
See Nicolai v.
Fed. Housing Fin. Agency, No. 8:12-cv-1335, 2013 WL 899967, at *3
(M.D. Fla. Feb. 13, 2013) (“The language of the Exemption Statutes
is unambiguous.”); Hertel v. Bank of Am., No. 1:11-CV-757, 2012 WL
4127869, at *4 (W.D. Mich. Sept. 18, 2012) (“Under the plain
interpretation of these statutes, the Enterprise[s] ... are exempt
from the [deed transfer tax].”); Hager v. Fed. Nat’l Mortg. Ass’n,
882 F. Supp. 2d 107, 111 (D.D.C. 2012) (same).
Despite the clear and unambiguous text of the Exemption
Statute, Hennepin County argues that United States v. Wells Fargo
Bank, 485 U.S. 351 (1988), requires that the court read “all
taxation” to mean “all direct taxation.” In Wells Fargo, the Court
analyzed whether tax-free obligations, termed “Project Notes,”
issued by state and local housing authorities during the 1930s
that Congress specifically excluded “[t]he corporation, including
its franchise, capital, reserves, surplus, mortgages or other
security holdings, and income,” but made no reference to deed
transfer taxes. 12 U.S.C. § 1723a(c)(2) (emphasis added). Use of
the word including, however, is “illustrative and not limitative.”
Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 578 (1994)
(citation and internal quotation marks omitted). As a result, the
court is unpersuaded that these examples are an exclusive list,
especially given that the same sentence includes a specific carveout for taxes on “real property.” See 12 U.S.C. § 1723a(c)(2).
housing shortage, were exempt from federal estate tax. Id. at 353.
including interest thereon, ... shall be exempt from all taxation.”
Id. at 355 (alterations in original) (quoting 42 U.S.C. § 1437i(b))
(internal quotation marks omitted).
In analyzing the statute, the
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
historically been permitted even where the
statutorily forbidden. The estate tax is a
form of excise tax.
Id. (first emphasis added) (citations omitted).
The Court held
that the Project Notes were subject to the estate tax, concluding
that the “all taxation” language applied only to direct and not
Id. at 359.
Hennepin County relies on this
rationale, and argues that Congress, aware of the distinction
between a direct and excise tax,5 would have included an explicit
exception in the Exemption Statute for excise taxes if it had so
A majority of courts faced with the same argument, however,
decline to accord the weight that Hennepin County places on Wells
Instead, these courts explain that Wells Fargo enunciates
a rule that applies only for tax-exempt properties.
Nicolai, 2013 WL 899967, at *4 (finding that the “operative word in
[Wells Fargo] is ‘property’”); Fannie Mae v. Hamer, No. 12 C 50230,
2013 WL 591979, at *6 (N.D. Ill. Feb. 13, 2013) (“Wells Fargo deals
only with how to interpret a tax exemption on property using cases
that had only considered the taxable status of exempt property.”);
Hertel, 2012 WL 4127869, at *5 (same); Hager, 882 F. Supp. 2d at
But see Oakland Cnty. v. Fed. Housing Fin. Agency, 871
F. Supp. 2d 662, 669 (E.D. Mich. 2012) (“Wells Fargo is dispositive
taxation.’”), interlocutory app. granted, No. 12-2135 (6th Cir.
Sept. 5, 2012).
decision in Federal Land Bank of St. Paul v. Bismarck Lumber Co.,
314 U.S. 95 (1941). In Bismarck Lumber, the Court examined whether
The parties do not dispute that the deed transfer tax is an
excise tax. See United States v. 4,432 Mastercases of Cigarettes,
448 F.3d 1168, 1185 (9th Cir. 2006) (“The quintessential excise tax
in our country is the sales tax.”).
North Dakota could impose a state sales tax on the Federal Land
Bank of St. Paul.
Id. at 98.
In relevant part, section 26 of the
Federal Farm Loan Act stated that “every Federal land bank ...
including the capital and reserve or surplus therein and the income
derived therefrom, shall be exempt from Federal, State, municipal,
and local taxation ....”
Id. at 97 n.1 (citation omitted).
determining that the bank was exempt from the state sales tax, the
Court stated that “[t]he unqualified term ‘taxation’ used in
section 26 clearly encompasses within its scope a sales tax such as
the instant one.”
Id. at 99.
Just as the sales tax in question in
Bismarck Lumber was a tax on the transfer of goods, so too is the
deed transfer tax, which imposes a tax on the transfer of property
in the state of Minnesota.
In an attempt to distinguish Bismarck Lumber, Hennepin County
argues that its holding applies only when the entity in question,
instrumentality. Bismarck Lumber, however, was not premised on the
bank’s status as an instrumentality, but rather on the text of
section 26 of the Federal Farm Loan Act.6
Moreover, Wells Fargo,
Admittedly, Bismarck Lumber noted that the Federal Land Bank
of St. Paul was a federal instrumentality. See 314 U.S. at 102
(“[Federal land banks] are instrumentalities of the federal
government ....” (citation and internal quotation marks omitted)).
This discussion, however, was only germane to the Court’s inquiry
as to whether “Congress [could] constitutionally immunize from
state taxation activities in furtherance of the lending functions
of federal land banks.”
Id. at 99.
As such, the bank’s
decided nearly fifty years after Bismarck Lumber, never cites to or
purports to distinguish Bismarck Lumber.
Had the Court intended
such a result, it surely would have noted its intention.
result, the court concludes that Wells Fargo did not modify the
holding from Bismarck Lumber.
Rather, it addressed a different
issue, namely whether a property, as opposed to an entity, was
exempt from taxation. As such, the relevant inquiry is whether the
Exemption Statute exempts the Enterprises, as in Bismarck Lumber,
or the property, as in Wells Fargo.
Here, the Exemption Statute, much like section 26 of the
Federal Farm Loan Act, exempts entities - not property - from
See 12 U.S.C. § 1723a(c)(2) (“The corporation ... shall
be exempt from all taxation ....”).
As a result, the court
concludes that Bismarck Lumber controls and determines that the
Enterprises are exempt from the deed transfer tax.
Such a conclusion is supported by Congress’s stated intent for
creating the Enterprises.
As already discussed, the Enterprises
were formed with the goal of stabilizing the secondary mortgage
market, “and one of the ways Congress attempted to accomplish that
was to make operating in those markets somewhat less expensive.”
instrumentality status was not relevant to determining whether
section 26 of the Federal Farm Loan Act immunized federal land
banks from North Dakota’s state sales tax.
Hamer, 2013 WL 591979, at *6 (collecting cases).
meaningless, as only three forms of direct taxes exist: taxes upon
real property; taxes upon personal property; and capitations, which
are “taxes paid by every person, without regard to property,
profession, or any other circumstance.” Nat’l Fed’n of Indep. Bus.
v. Sebelius, 132 S. Ct. 2566, 2598-99 (2012) (citation and internal
quotation marks omitted).
The Exemption Statute already excludes
taxes on “real property,” which would leave personal property and
capitations as the only direct taxes exempted by the “all taxation”
As the Hager court noted, such a construction
would lead to near absurdity. It would leave
the statutory provisions, so sweeping in their
language, virtually meaningless .... The
entities’ day-to-day operations would be
subject to the full panoply of taxation.
that were all Congress meant to accomplish,
surely it would have done so with a narrowly
phrased provision rather than the sweeping
“all taxation” formulation it chose here.
882 F. Supp. 2d at 113.
In sum, the court concludes that the Exemption Statute exempts
the Enterprises from paying the deed transfer tax.
court declines to enter a declaratory judgment in favor of Hennepin
§ 287.21 is warranted.7
As a result, Hennepin County’s claims
Statutes §§ 383A.80 and 383B.80 also fail.
A claim for unjust enrichment requires the plaintiff to show
that “another party knowingly received something of value to which
he was not entitled, and that the circumstances are such that it
would be unjust for that person to retain the benefit.” Schumacher
v. Schumacher, 627 N.W.2d 725, 729 (Minn. Ct. App. 2001) (citation
As already discussed, the Enterprises were entitled to
an exemption from the deed transfer tax.
County’s claim for unjust enrichment fails, and dismissal is
Accordingly, based on the above, IT IS HEREBY ORDERED that:
Plaintiff’s motion to consolidate [ECF No. 7] is denied;
Defendants’ motion to dismiss [ECF No. 23] is granted.
LET JUDGMENT BE ENTERED ACCORDINGLY.
March 27, 2013
s/David S. Doty
David S. Doty, Judge
United States District Court
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