Del. Cnty. v. Fed. Hous. Fin. Agency Nat'l Mortg. Ass'n & Fed. Home Loan Mortg. Corp.

• Decision Date: 18 March 2014
• Docket Number: 13–3175.,Nos. 13–2163,13–2501,s. 13–2163
• Citation: 747 F.3d 215
• Court: U.S. Court of Appeals — Third Circuit
• Parties: DELAWARE COUNTY, PENNSYLVANIA; Chester County, Pennsylvania, Appellants No. 13–2163 v. FEDERAL HOUSING FINANCE AGENCY as Conservator for Federal National Mortgage Association and Federal Home Loan Mortgage Corporation; Federal Mortgage Association, a/k/a Fannie Mae; Federal Home Loan Mortgage Corporation, a/k/a Freddie Mac United States of America, Intervenor in USCA Cape May County, New Jersey, a Municipal Corporation; Rita Marie Fulginiti, County Clerk and Registrar of Deeds and Mortgages in and for Cape May County, New Jersey on behalf of themselves and all others similarly situated, Appellants No. 13–2501 v. Federal National Mortgage Association; Federal Home Loan Mortgage Corporation; Federal Housing Finance Agency United States of America, Intervenor in USCA Evie Rafalko McNulty Recorder of Deeds of Lackawanna County, Pennsylvania, Appellant in No. 13–3175 v. Federal Housing Finance Agency, as conservator for Federal National Mortgage Association and Federal Home Loan Mortgage Corporation; Federal National Mortgage Association, a federally chartered corporation; Federal Home Loan Mortgage Corporation, a federal chartered corporation United States of America, Intervenor in USCA.

747 F.3d 215

DELAWARE COUNTY, PENNSYLVANIA; Chester County, Pennsylvania, Appellants No. 13–2163

v.FEDERAL HOUSING FINANCE AGENCY as Conservator for Federal National Mortgage Association and Federal Home Loan Mortgage Corporation; Federal Mortgage Association, a/k/a Fannie Mae; Federal Home Loan Mortgage Corporation, a/k/a Freddie Mac United States of America, Intervenor in USCA

Cape May County, New Jersey, a Municipal Corporation; Rita Marie Fulginiti, County Clerk and Registrar of Deeds and Mortgages in and for Cape May County, New Jersey on behalf of themselves and all others similarly situated, Appellants No. 13–2501

v.Federal National Mortgage Association; Federal Home Loan Mortgage Corporation; Federal Housing Finance Agency United States of America, Intervenor in USCA

Evie Rafalko McNulty Recorder of Deeds of Lackawanna County, Pennsylvania, Appellant in No. 13–3175

v.Federal Housing Finance Agency, as conservator for Federal National Mortgage Association and Federal Home Loan Mortgage Corporation; Federal National Mortgage Association, a federally chartered corporation; Federal Home Loan Mortgage Corporation, a federal chartered corporation United States of America, Intervenor in USCA.

Nos. 13–2163, 13–2501, 13–3175.

United States Court of Appeals, Third Circuit.

Argued Jan. 22, 2014.

Filed: March 18, 2014.

Jeremy J. Brandon, Esq., argued, Susmvban Godfrey, Dallas, TX, Attorney for Appellants, Delaware County, Chester County of Pennsylvania, Cape May County, Rita Marie Fulginiti and Lackawanna County Recorder of Deeds.

Nicholas E. Chimicles, Esq., Alison G. Gushue, Esq., Benjamin F. Johns, Esq., Joseph G. Sauder, Esq., Chimicles & Tikellis, Haverford, PA, Attorneys for Appellants, Delaware County and Chester County of Pennsylvania.

Lewis B. April, Esq., Jeffrey Ryan Lindsay, Esq., Cooper, Levenson, April, Niedelman & Wagenheim, Atlantic City, NJ, Bryan L. Clobes, Esq., Cafferty Faucher, Philadelphia, PA, Attorneys for Appellants, Cape May County and Rita Marie Fulginiti.

Jennifer E. Agnew, Esq., Ira N. Richards, Esq., Trujillo, Rodriguez & Richards, Howard J. Sedran, Esq., Levin, Fishbein, Sedran & Berman, Philadelphia, PA, Warren T. Burns, Esq., Katherine L.I. Hacker, Esq., Terrell W. Oxford, Esq., Susman Godfrey, Dallas, TX, Carol H. Lahman, Esq., Larry D. Lahman, Esq., Todd J. O'Malley, Esq., O'Malley & Langan, Scranton, PA, Elaine A. Ryan, Esq., Patricia N. Syverson, Esq., Bonnett, Fairbourn, Friedman & Balint, Phoenix, AZ, Joseph Siprut, Esq., Stewart M. Weltman, Esq., Chicago, IL, Attorneys for Lackawanna County Recorder of Deeds.

Scott J. Etish, Esq., Gibbons, Philadelphia, PA, Michael A. Johnson, Esq., argued, Dirk Phillips, Esq., Arnold & Porter, Washington, DC, Attorneys for Appellees, Federal Housing Finance Agency, Federal National Mortgage Association, RP, aka Fannie Mae and Federal Home Loan Mortgage Corp, aka Freddie Mac.

Howard N. Cayne, Esq., Michael A. Johnson, Esq., Dirk Phillips, Esq., Asim Varma, Esq., Arnold & Porter, Washington, DC, Jared P. Duvoisin, Esq., Tompkins, McGuire, Wachenfeld & Barry, Newark, NJ, Attorneys for Appellee, Federal Housing Finance Agency.

Michael D. Leffel, Esq., Foley & Lardner, Madison, WI, Attorney for Appellee, Federal National Mortgage Association, RP, aka Fannie Mae.

Michael J. Ciatti, Esq., King & Spalding, Washington, DC, Nicholas Deenis, Esq., Joseph T. Kelleher, Esq., Stradley, Ronon, Stevens & Young, Malvern, PA, Jill L. Nicholson, Esq., Foley & Lardner, Chicago, IL, Ann Marie Uetz, Esq., Foley & Lardner, Detroit, MI, William T. Mandia, Esq., Stradley, Ronon, Stevens & Young, Philadelphia, PA, Attorneys for Appellee, Federal National Mortgage Association, RP, aka Fannie Mae and Federal Home Loan Mortgage Corp, aka Freddie Mac.

Patrick J. Urda, Esq., Argued, United States Department of Justice, Washington, DC, Attorneys for Intervenor-appellee.

Before: FUENTES and FISHER, Circuit Judges, and STARK,^* District Judge.

OPINION OF THE COURT

FISHER, Circuit Judge.

In this consolidated appeal, we are asked to interpret the scope of a statutory tax exemption and to determine if, in enacting that exemption, Congress acted unconstitutionally.For the reasons to be discussed, we will affirm.

I.

A.

Consolidated for our review in this appeal are three District Court actions, brought in the Eastern and Middle Districts of Pennsylvania and the District of New Jersey. Appellants in No. 13–2501 are Cape May County, New Jersey, and County Clerk Rita Marie Fulginiti. Appellants in No. 13–2163 are Delaware and Chester Counties, Pennsylvania. Appellant in No. 13–3175 is Evie Rafalko McNulty, Recorder of Deeds for Lackawanna County, Pennsylvania. We will refer to these parties, collectively, as “Appellants.” Appellees are the Federal National Mortgage Association (“Fannie Mae” or “Fannie”), the Federal Home Loan Mortgage Corporation (“Freddie Mac” or “Freddie”), and the Federal Housing Finance Agency (the “FHFA”). For reasons that we will discuss, Appellees are identically situated for purposes of this appeal. We will therefore refer to them, collectively, as the “Enterprises.” The United States was not involved in these cases at the district court level, but we granted its request for leave to intervene on appeal in the District of New Jersey and the Eastern District of Pennsylvania cases, to defend the constitutionality of the tax exemptions at issue here. The United States appears as amicus curiae with respect to the Middle District of Pennsylvania case.

Fannie Mae and Freddie Mac are federally-chartered but privately owned corporations that issue publicly traded securities. Congress created Fannie and Freddie to establish and stabilize secondary markets for residential mortgages in order to “promote access to mortgage credit throughout the Nation.” 12 U.S.C. § 1716 (Fannie Mae); see also12 U.S.C. § 1451 note (Freddie Mac). Fannie and Freddie pursue their mission by purchasing mortgages from third-party lenders, pooling them together and selling securities backed by those mortgages. In the wake of the housing market collapse of 2008, Fannie and Freddie found themselves owning a great many defaulted and overvalued subprime mortgages. They went bankrupt, and on July 30, 2008, Congress created the FHFA to act as conservator for Fannie and Freddie. “A conservatorship is like a receivership, except that a conservator, like a trustee in a reorganization under Chapter 11 of the Bankruptcy Code, tries to return the bankrupt party to solvency, rather than liquidating it.” DeKalb Cnty. v. Fed. Hous. Fin. Agency, 741 F.3d 795, 798 (7th Cir.2013) (discussing the FHFA conservatorship in the context of a lawsuit identical to the instant appeal). The FHFA is thus a party to this litigation in its role as conservator, but for purposes of our analysis, all three entities are identically situated.

Congress exempted the Enterprises from all state and local taxation. Fannie Mae's exemption statute states:

[Fannie Mae], including 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, ... or by any county, ... 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). Both Freddie Mac and the FHFA's exemption statutes are materially identical to Fannie's. 12 U.S.C. § 1452(e) (Freddie Mac); 12 U.S.C. § 4617(j)(2) (FHFA). The Enterprises are thus exempt from “all taxation” by any state or local government, with the exception that they are still subject to taxes on real property.

Pennsylvania and New Jersey, like other states, tax the transfer of real estate. In Pennsylvania, each “person who makes, executes, delivers, accepts or presents for recording any document” must pay a tax in the amount of one percent of the value of the real estate transferred. 72 Pa. Stat. § 8102–C. “Document” means “[a]ny deed, instrument or writing which conveys, transfers, devises, confirms or evidences any transfer or devise of title to real estate in this Commonwealth.” Id. § 8101–C. Pennsylvania also allows local authorities to impose real estate transfer taxes. Id. § 8101–D.

Similarly, New Jersey law requires the grantor of a deed to pay a fee to the county recording officer “at the time the deed is offered for recording.” N.J. Stat. Ann. § 46:15–7a. The fee consists of “(a) a State portion at the rate of $1.25 for each $500.00 of consideration or fractional part thereof recited in the deed, and (b) a county portion at the rate of $0.50 for each $500.00 of consideration or fractional part thereof so recited.” Id. § 46:15–7a(1). Grantors must also pay a “supplemental fee” for each property conveyance or transfer. Id. § 46:15–7.1.

B.

Delaware and Chester Counties filed an amended complaint in the Eastern District of Pennsylvania on behalf of themselves and a putative class of all similarly situated counties in Pennsylvania, seeking a declaratory judgment that the Enterprises were not exempt from paying state and local real estate transfer taxes and a judgment awarding the proposed-class damages in the amount of the unpaid taxes. The Enterprises filed a motion to dismiss, which the District Court granted.

The District of New Jersey action proceeded similarly. Cape May County and its County Clerk filed an amended complaint on behalf of all New Jersey counties seeking declaratory relief and damages. After hearing argument on a motion to dismiss, the District Court dismissed the case.

Lackawanna County's Recorder of Deeds filed suit in the Middle District of Pennsylvania, on behalf of herself and a putative class consisting of all similarly situated Pennsylvania counties, municipalities, and state entities, seeking a declaration that the Enterprises were subject to state and local transfer taxes, money damages, and other relief The District Court granted...