Cnty. of Erie v. Fed. Hous. Fin. Agency
| Decision Date | 27 February 2014 |
| Docket Number | 13-CV-284S |
| Parties | COUNTY OF ERIE, NEW YORK, Plaintiff, v. FEDERAL HOUSING FINANCE AGENCY, as Conservator for Federal National Mortgage Association and Federal Home Loan Mortgage Association; FEDERAL NATIONAL MORTGAGE ASSOCIATION, a/k/a "Fannie Mae", a Federally Chartered Corporation; FEDERAL HOME LOAN MORTGAGE ASSOCIATION, a/k/a "Freddie Mac", a Federally Chartered Corporation, Defendants. |
| Court | U.S. District Court — Western District of New York |
The County of Erie contends that Defendants - the government-sponsored enterprises commonly known as Fannie Mae and Freddie Mac, and their conservator, the Federal Housing Finance Agency ("FHFA") - failed to pay transfer taxes to the County. It also seeks a declaratory judgment, which, if granted, would order Defendants to pay these taxes in the future.
Defendants move to dismiss the complaint, arguing that they are exempt from the tax. For the following reasons, that motion is granted.
Erie County is a municipal corporation, organized and existing under the laws of the State of New York.
Fannie Mae is a government-sponsored enterprise chartered by Congress to "establish secondary market facilities for residential mortgages," to "provide stability in the secondary market for residential mortgages," and to "promote access to mortgage credit throughout the Nation." 12 U.S.C. § 1716. Freddie Mac is also a corporation chartered by Congress for substantially the same mission. Id. § 1451. Essentially, Fannie and Freddie buy home loans from approved mortgage sellers, package them into mortgage-backed securities, and sell them in a secondary market. "The aim is to increase the amount of funds available to financial institutions for home loans and, in turn, to increase American home ownership." Montgomery Cnty. Comm'n v. FHFA, No. 2:12CV885-MHT, 2013 WL 1896256, at *1 (M.D. Ala. May 6, 2013).
FHFA is an independent federal agency, created by the Housing and Economic Recovery Act of 2008, Pub. L. No. 110-289, 122 Stat. 2654, codified at 12 U.S.C. § 4617 et seq., with regulatory and oversight authority over Fannie Mae and Freddie Mac.
Having suffered great losses in the wake of the 2008 financial crisis, Frannie and Freddie were placed into FHFA's conservatorship. The Conservator has the statutory power to "operate" the two enterprises and "to conduct all [of their] business," with thestatutory mission of, among other things, "preserv[ing] and conserv[ing] the[ir] assets and property." Id. § 4617(b)(2)(B).
The State of New York imposes a tax on the conveyance of real property - a "transfer tax" - at a rate of $2 for each $500. N.Y. Tax Law § 1402(a). New York further authorizes Erie County to collect its own transfer tax at a rate of $2.50 for each $500. N.Y. Tax Law § 1425; Erie Cnty. Local Law 4-1990 § 3 (). Accordingly, the tax on the conveyance of real property in Erie County is $4 per $1,000 for New York State and $5 per $1,000 for the County of Erie, for a total of $9 per $1,000 of value. The County of Erie alleges that Defendants have "wrongfully not paid the above stated taxes on the transfer of real property as is required by New York State and Erie County Law." (Pl.'s Br. at 1.) Although it is not specifically spelled out in the complaint, presumably Fannie Mae and Freddie Mac acquired real property in Erie County through foreclosures on mortgages that they owned or guaranteed. Then, when selling these properties to third parties, they did not pay the transfer taxes.
Plaintiffs commenced this action by filing a complaint in this Court on March 20, 2013. Defendants filed the motion to dismiss on June 26, 2013. Briefing on that motion concluded on January 31, 2014, when Defendants filed, with this Court's permission, a second notice of supplemental authority.
Rule 12(b)(6) allows dismissal of a complaint for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). Federal pleading standards are generally not stringent: Rule 8 requires only a short and plain statement of a claim. Fed. R. Civ. P. 8(a)(2). But the plain statement must "possess enough heft to show that the pleader is entitled to relief." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 1966, 167 L. Ed. 2d 929 (2007).
When determining whether a complaint states a claim, the court must construe it liberally, accept all factual allegations as true, and draw all reasonable inferences in the plaintiff's favor. ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) Legal conclusions, however, are not afforded the same presumption of truthfulness. See Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009) ().
"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Id. at 678 (quoting Twombly, 550 U.S. at 570). Labels, conclusions, or a "formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555. Facial plausibility exists when the facts alleged allow for a reasonable inference that the defendant is liable for the misconduct charged. Iqbal, 556 U.S. at 678. The plausibility standard is not, however, a probability requirement: the pleading must show, not merely allege, that the pleader isentitled to relief. Id. at 678; Fed. R. Civ. P. 8(a)(2). Well-pleaded allegations must nudge the claim "across the line from conceivable to plausible." Twombly, 550 U.S. at 570.
There is no dispute that Defendants did not pay the tax that Erie County seeks to collect. Rather, Defendants argue that they are not obligated to pay it. Indeed, Sections 1452(e), 1723a(c)(2) and 4617(j)(2) of Title 12 of the United States Code, which apply respectively to each of the defendants, contain nearly identical language; those sections provide that Defendants:
shall be exempt from all taxation now or hereafter imposed by . . . any State, county, municipality, or local taxing authority, except that any real property of the Corporation [or 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. §§ 1452(e) (Freddie Mac), 1723a(c)(2), (Fannie Mae) 4617(j)(2) (FHFA) (emphasis added).
There is no dispute that these Sections are applicable. Accordingly, Defendants are exempt from "all taxation" save property taxes. Because the tax at issue here is a tax on the transfer of property, and not on the property itself, Defendants maintain that the property-tax exception does not apply. They rely principally on Bismarck Lumber, a 1941 Supreme Court case where the Court held that a statute - providing that "every Federal land bank . . . shall be exempt from Federal, State, municipal, and local taxation, except taxes upon real estate held, purchased, or taken" - exempted land banks from sales taxes on property that they bought. 314 U.S. 95, 96 n.1, 99-100, 62 S. Ct. 1, 86 L. Ed. 65 (1941).
In response, Erie County first claims that the tax falls within the property-taxexception. It next argues, relying on United States v. Wells Fargo Bank, 485 U.S. 351, 355, 108 S. Ct. 1179, 99 L. Ed. 2d 368 (1988), that "all taxation," does not truly mean all taxes, but only direct taxes (and thus, not transfer taxes). And last, it contends that the Defendants' tax exemption violates the Commerce Clause . To this end, it concedes that a corporation can be immune from state taxation for two reasons: (1) if Congress, acting within the confines of the Constitution, expressly authorizes it, or (2) if a corporation has immunity as a "federal instrumentality." It argues, however, that (1) Congress lacked the power to authorize immunity in this case because "taxation of real estate involves a local activity that does not affect interstate commerce" and (2) Defendants are not "federal instrumentalities." (Pl.'s Br. at 12.)
But, over the course of the last three years,2 arguments virtually identical to those raised here have been unanimously rejected by dozens of federal courts, including four appellate courts.3 The weight of authority in Defendants' favor is overwhelming in both itsvolume and its persuasiveness. See Hennepin Cnty. v. Fed. Nat. Mortgage Ass'n, --- F.3d ----, No. 13-1821, 2014 WL 443983 (8th Cir. Feb. 5, 2014); Montgomery Cnty., Md. v. Fed. Nat. Mortgage Ass'n, 740 F.3d 914, 917 (4th Cir. 2014); Cnty. of Oakland v. FHFA, 716 F.3d 935, 936 (6th Cir.) cert. denied, 134 S. Ct. 253 (2013); Bd. of Comm'rs of Montgomery Cnty., Ohio v. FHFA, 3:12-CV-245, 2013 WL 5755420 (S.D. Ohio Oct. 23, 2013) Hall Cnty., Ga. v. FHFA, 1:12-CV-4402-TWT, 2013 WL 4670612 (N.D. Ga. Aug. 30, 2013); Floyd Cnty., Ga. v. FHFA, 1:13-CV-56-TWT, 2013 WL 4670668 (N.D. Ga. Aug. 30, 2013); DeKalb Cnty., Ga. v. FHFA, No. 1:12-CV-2470-TWT, 2013 WL 4670534 (N.D. Ga. Aug. 30, 2013); Comm'rs of Bristol Cnty. v. Fed. Nat. Mortgage Ass'n, No. CIV. 12-11525-NMG, 2013 WL 4095021 (D. Mass. Aug. 9, 2013); Randolph Cnty., Ala. v. Fed. Nat. Mortgage Ass'n, 3:12-CV-886-WKW, 2013 WL 3947614 (M.D. Ala. July 31, 2013); Vadnais v. Fed. Nat. Mortgage, No. CIV. 12-1598 DSD/TNL, 2013 WL 3900037 (D. Minn. July 29, 2013); Bd. of Cnty. Comm'rs of Kay Cnty., Okla. v. FHFA, 956 F. Supp. 2d 184 (D.D.C. 2013); City of Providence v. Fannie Mae, 955 F. Supp. 2d 83 (D.R.I. 2013); City of Spokane v. Fannie Mae, No. cv-13-0020, 2013 WL 3288413 (E.D. Wash. June 29, 2013); McNulty v. FHFA, 954 F. Supp. 2d 294 (M.D. Pa. 2013); Doggett v. FHFA, No. 2-12-cv-553, 2013 WL 2920388 (M.D. Fla. June 13, 2013); Butts v. Fannie Mae, No. 9:12-cv- 1912 ; Athens-Clarke Cnty....
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