City of Spokane v. Fed. Nat'l Mortg. Ass'n

• Decision Date: 28 June 2013
• Docket Number: NO. CV-13-0020-LRS,CV-13-0020-LRS
• Court: U.S. District Court — District of Washington
• Parties: CITY OF SPOKANE, WASHINGTON, on behalf of itself and all others similarly situated, Plaintiff(s), v. FEDERAL NATIONAL MORTGAGE ASSOCIATION a/k/a FANNIE MAE, a federally chartered corporation; FEDERAL HOME LOAN MORTGAGE CORPORATION, a/k/a FREDDIE MAC, a federally chartered corporation; and FEDERAL HOUSING FINANCE AGENCY AS CONSERVATOR FOR FANNIE MAE AND FREDDIE MAC, Defendants.

CITY OF SPOKANE, WASHINGTON, on behalf of itselfand all others similarly situated, Plaintiff(s),

v. FEDERAL NATIONAL MORTGAGE ASSOCIATION a/k/a FANNIE MAE,a federally chartered corporation;FEDERAL HOME LOAN MORTGAGE CORPORATION,a/k/a FREDDIE MAC, a federally chartered corporation;and FEDERAL HOUSING FINANCE AGENCY AS CONSERVATORFOR FANNIE MAE AND FREDDIE MAC, Defendants.

NO. CV-13-0020-LRS

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF WASHINGTON

DATED: June 28, 2013

ORDER GRANTING DEFENDANTS' MOTION

TO DISMISS PLAINTIFF'S AMENDED

COMPLAINT

BEFORE THE COURT is Defendants' Motion to Dismiss Plaintiff's Amended Complaint, ECF No. 33, filed on March 15, 2013 and argued on May 29, 2013 in Yakima, Washington. Pursuant to Federal Rule of Civil Procedure 12(b), the Federal National Mortgage Association ("Fannie Mae"), the Federal Home Loan Mortgage Corporation ("Freddie Mac," and together with Fannie Mae, the "Enterprises"), and the Federal Housing Finance Agency as Conservator for Fannie Mae and Freddie Mac ("FHFA," and with the Enterprises, "Defendants") move for an order dismissingPlaintiff's Amended Class Action Complaint (ECF No. 30) with prejudice.

I. INTRODUCTION

Plaintiff sued the defendants in an effort to collect state and local real estate transfer taxes that plaintiff claims are owed for real property transfers made by defendants. Federal statutes mandate that Defendants "shall be exempt from all taxation . . . imposed by any . . . State, county, municipality, or local taxing authority" with a single, narrow carve-out that "subject[s]" the Enterprises' "real property" to state and local "taxation . . . to the same extent . . . as other real property is taxed." 12 U.S.C. §§ 1452(e), 1723a(c)(2), 4617(j)(2) (the "Exemption Statutes"). In an effort to get around the plain language of Exemption Statutes, plaintiff argues that when Congress exempted the defendants from "all taxation," it did not intend to exempt them from State and County real estate transfer taxes.

Defendants assert that Washington state tax and related "Local Option" taxes on real estate sales transactions (together, the "Transfer Tax") are not taxes on real property; they are excise taxes on the transfer of real property. See Wash. Rev. Code §§ 82.45.010, 82.45.060, 85.46.010. The Transfer Tax therefore does not fall within the carve-out in the Exemption Statutes for taxes on real property. Instead, the Transfer Tax falls within the broad sweep of the plain language of the Defendants' exemptions from "all [state and local] taxation." Despite the straightforward statutory language, Plaintiff claimsDefendants must pay the Transfer Tax.

The issue before us is whether defendants' exemptions from "all [state and local] taxation" include Washington State and County real estate transfer taxes. Defendants point out that to date, 13 federal district court decisions recently found that the Exemption Statutes preclude imposition of functionally identical transfer taxes on real estate transactions involving the Enterprises. See Dist. of Columbia ex rel. Hager v. Fed. Nat'l Mortg. Ass'n, 882 F. Supp. 2d 107, at 111 (D.D.C.2012); Hertel v. Bank of Am., No. 11-cv-757, 2012 WL 4127869, at *3 (W.D. Mich.2012); Nicolai v. FHFA, No. 8:12-cv-1335, 2013 WL 899967, at *5 (M.D. Fla.2013); Fed. Nat'l Mortg. Ass'n v. Hamer, No. 3:12-cv-50230, 2013 WL 591979 (N.D. Ill.2013); DeKalb Cnty. v. FHFA, No. 3:12-cv-50227 (N.D. Ill. 2013); Montgomery Cnty., Maryland v. Fannie Mae, No. 8:13-cv-66 (D. Md. 2012); Cape May Cnty., New Jersey v. Fannie Mae, No. 12-cv-4712 (D.N.J.2013); Montgomery Cnty Comm'n v. FHFA, No. 2:12-CV-885, 2013 WL 1896256 (M.D. Ala.2013); County of Oakland v. FHFA, Nos. 12-2135, 12-2136, 2013 WL 2149964 (6th Cir. 2013); Delaware Cnty., Pa. v. FHFA, No. 2:12-cv-4554, 2013 WL 1234221 (E.D.Pa.2013); Hennepin Cnty. v. Fannie Mae, No. 12-cv-2075, 2013 WL 1235589 (D. Minn.2013); Vadnais v. Fannie Mae, No. 12-cv-1598, 2013 WL 1249224 (D. Minn.2013); Athens-Clarke Cnty. Unified Gov't v. Fed. Hous. Fin. Agency, No. 5:12-cv-355(MTT), 2013 WL 2102922 (M.D. Ga. May 14, 2013).

II. LEGAL STANDARD FOR MOTION TO DISMISS

To survive a motion to dismiss under Rule 12(b)(6), a complaint "must contain sufficient factual matter, accepted as true, to 'state aclaim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation omitted). In considering such a motion, a court must accept all factual allegations in a complaint as true, but need not accept as true any legal conclusions. Akhtar v. Mesa, 698 F.3d 1202, 1212 (9th Cir. 2012).

III. EXEMPTION STATUTES UNAMBIGUOUS

Defendants argue and this Court agrees, the statutes at issue here plainly state that defendants are exempt from "all taxation" imposed by the state or local taxing authority. See 12 U.S.C. § 1723a(c)(2)(Fannie Mae's charter); § 1452(e) (Freddie Mac's charter); § 4617(j)(2) (Agency exemption). The statutes do not define "all" or "taxation." Where terms are undefined, "[t]he everyday understanding should count for a lot," and we look to "regular usage to see what Congress probably meant." Lopez v. Gonzales, 549 U.S. 47, 53 (2006). "Taxation" is the "imposition or levying of taxes;" "the action of taxing or the fact of being taxed." Oxford English Dictionary 679, vol. XVII (2d ed. 1989).

"Shall" unambiguously expresses Congress's intent that the exemption be mandatory. See Miller v. French, 530 U.S. 327, 337 (2000). And "all" unambiguously "means all." Knott v. McDonald's Corp., 147 F.3d 1065 (9th Cir. 1998). The ordinary meaning of "all" is "[t]he whole of," "every, all kinds, all sorts," and "any whatever." Random House Webster's Unabridged Dictionary 54 (2d ed. 2001). "'All' is an inclusive adjective that does not leave room for unmentioned exceptions." Hertel at *3, see Nicolai at *3.

Plaintiff argues when Congress enacts a statute exempting eachdefendant from all state and local taxation, there is a hidden exception for certain kinds of tax, including excise taxes. Plaintiff assumes a distinction exists between direct taxes and excise taxes which matters in the context of entity exemptions at issue in this case. Plaintiff's reading of the statute, however, is not convincing as it would mean that when Congress exempts an entity from "all taxation" it is only exempting that entity from direct taxes. The Supreme Court has recently reaffirmed there are only three types of direct taxes: capitations (taxes paid by every person "without regard to property, profession, or any other circumstance"), taxes on personal property, and taxes on real property. See Nat'l Fed'n of Indep. Bus. v. Sebelius, 132 S. Ct. 2566, 2598-99 (2012). The transfer taxes here are clearly not capitations, and the statutes here separately provide an exclusion for taxes directly on real property. Accordingly, the only direct tax remaining would be a tax on personal property. Congress would unlikely have said that defendants were exempt from "all taxation" if it only meant they were exempt from personal property taxes. Plaintiff's argument that excise taxes and direct taxes are treated differently does not lead to a logical end and is not supported by the plain language of the statute.

The Court finds that a straight-forward 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. In other words, the unambiguous statutes lead to the conclusion that when Congress said "all taxation," it meant alltaxation. Because the statutes are clear, this Court will not second-guess Congress and create a new exception in the statutes for state and local real estate transfer taxes. The conclusion that the plain language of the statute should control here is reinforced by Supreme Court precedent. See Fed. Land Bank of St. Paul v. Bismarck Lumber Co., 314 U.S. 95 (1941).

Finally, plaintiff simply has not submitted any evidence specific to the statutes here, e.g., legislative history, that would suffice to overcome the plain language of the statute and establish that Congress used "all taxation" in some more specialized way.

IV. CARVE-OUT CLAUSES DO NOT APPLY

Defendants argue that Congress crafted but one exception in each Exemption Statute allowing Defendants' "real property" to be "subject to" taxation. 12 U.S.C. §§ 1452(e), 1723a(c)(2), 4617(j)(1), (2). This narrow carve-out defeats any attempt to infer a broader exception: "When Congress provides exceptions in a statute, it does not follow that courts have authority to create others. The proper inference ... is that Congress considered the issue of exceptions and, in the end, limited the statute to the ones set forth." United States v. Johnson, 529 U.S. 53, 58 (2000); see also Hertel at *3 (explicit exception in Exemption Statutes supports finding that there are no "unmentioned exceptions"); Nicolai at *3 (similar). No court has ever construed the language of the carve-out to include excise taxes like the Transfer Tax-rather courts have construed materially identical statutes as expressly providing that no tax other than that for real property may be imposed. See Oakland Cnty. v. Fed. Hous. Fin. Agency,871 F. Supp. 2d 662, 667 (E.D. Mich. 2012) (transfer taxes are excise taxes, not taxes on real property); Hager, 882 F. Supp. 2d at 112 (determining that similar D.C. taxes are excise taxes on transfers, not taxes on the real property itself); Hertel at *6 (making same determination regarding Michigan transfer taxes); Nicolai at *2-3 (same); Cnty. of Fairfax v. U.S. F.D.I.C., No. 92-0858(RCL), 1993 WL 62247, at *2, *5 (D.D.C. Feb, 25, 1993).

Plaintiff disagrees arguing that United States v. Wells Fargo Bank, 485 U.S. 351 (1988) confirms the understood meaning of "all taxation" as not encompassing indirect taxes such as the Transfer Tax. Plaintiff explains that in Wells Fargo, the Supreme Court...