Radatz v. Fed. Nat'l Mortg. Ass'n

• Decision Date: 23 March 2016
• Docket Number: No. 2014–1126.,2014–1126.
• Citation: 50 N.E.3d 527,145 Ohio St.3d 475
• Parties: RADATZ, Appellee, v. FEDERAL NATIONAL MORTGAGE ASSOCIATION, Appellant.
• Court: Ohio Supreme Court

145 Ohio St.3d 475

50 N.E.3d 527

RADATZ, Appellee

v.FEDERAL NATIONAL MORTGAGE ASSOCIATION, Appellant.

No. 2014–1126.

Supreme Court of Ohio.

Submitted Sept. 15, 2015.

Decided March 23, 2016.

Dworken & Bernstein Co., L.P.A., Patrick J. Perotti, Painesville, and James S. Timmerberg ; and Brian Ruschel, Cleveland, for appellee.

Squire Patton Boggs, L.L.P., and Richard S. Gurbst ; Porter Wright Morris & Arthur, L.L.P., J. Philip Calabrese, Cleveland, and Kathleen M. Trafford, Columbus; and O'Melveny & Myers, L.L.P., and Jeffrey Kilduff, for appellant.

Bricker & Eckler, L.L.P., Anne Marie Sferra, and Sommer Sheely, Columbus; and Stephen E. Hart, Deputy General Counsel, Federal Housing Finance Agency, urging reversal for amicus curiae Federal Housing Finance Agency.

Jeffrey M. McGaffick, urging affirmance for amicus curiae First Priority Title Agency.

FRENCH

, J.

{¶ 1} In this appeal, we address whether a cease-and-desist order issued by the Federal Housing Finance Agency (“FHFA”) to defendant-appellant, Federal National Mortgage Association (“Fannie Mae”), divested the trial court of subject-matter jurisdiction over the class action of plaintiff-appellee, Rebekah R. Radatz, for statutory damages against Fannie Mae under R.C. 5301.36(C)

. We agree with the holding of the Eighth District Court of Appeals that the cease-and-desist order did not preclude the trial court from exercising jurisdiction under 12 U.S.C. 4635(b), the federal statute governing judicial review of FHFA orders. However, we conclude that a different federal statute, 12 U.S.C. 4617(j)(4), bars the trial court from ordering Fannie Mae to pay damages under R.C. 5301.36(C) while Fannie Mae is under FHFA's conservatorship. The awarding of such damages runs afoul of 12 U.S.C. 4617(j)(4), which prohibits Fannie Mae from incurring liabilities “in the nature of penalties or fines” while under FHFA conservatorship. We therefore affirm the Eighth District's judgment reversing the decision of the trial court, albeit for different reasons than those stated by the court of appeals, and remand the matter to the trial court.

BACKGROUND ON FANNIE MAE AND THE FEDERAL HOUSING AND ECONOMIC RECOVERY ACT OF 2008

{¶ 2} Fannie Mae is a federally chartered private corporation created by the United States Congress to “provide stability in the secondary market for residential mortgages” and to “promote access to mortgage credit” by “increasing the liquidity of mortgage investments and improving the distribution of investment capital available for residential mortgage financing.” 12 U.S.C. 1716(1)

, (4). Congress created the Federal Home Loan Mortgage Corporation (“Freddie Mac”) for substantially similar purposes. See Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Pub.L. No. 101–73, Section 731(a), 103 Stat. 429. The two entities purchase residential mortgages from banks, repackage them for sale as mortgage-backed securities, and guarantee these securities by promising to make investors whole if borrowers default. Congressional Budget Office, Fannie Mae, Freddie Mac, and the Federal Role in the Secondary Mortgage Market viii (2010), https://www.cbo.gov/publication/21992# section0 (accessed Dec. 15, 2015).

{¶ 3} In response to the nationwide decline in housing prices, increase in foreclosures, and heightened concern as to whether Fannie Mae and Freddie Mac had enough capital to cover losses to their portfolios, id., Congress enacted the Housing and Economic Recovery Act of 2008 (“HERA”), Pub.L. No. 110–289

, Section 1101, 122 Stat. 2654 (codified at 12 U.S.C. 4511 ). HERA created FHFA and empowered the agency to act as both regulator and conservator of Fannie Mae and Freddie Mac.

{¶ 4} As regulator, FHFA must ensure that each entity “operates in a safe and sound manner,” “foster[s] liquid, efficient, competitive, and resilient national housing finance markets,” operates “consistent[ly] with the public interest,” and complies with all applicable law. 12 U.S.C. 4513(a)(1)(B)

. FHFA's regulatory powers include the authority to issue cease-and-desist orders if a regulated entity is engaging in “unsafe or unsound practices.” 12 U.S.C. 4631(a). If FHFA has reasonable cause to believe that a regulated entity is about to engage in unsafe or unsound practices or is violating, has violated or is about to violate a law, rule, regulation or order, the agency issues a notice of charges. 12 U.S.C. 4631(a)(1), (c)(1). After a hearing or upon consent of the regulated entity, 12 U.S.C. 4631(c)(2), FHFA issues a cease-and-desist order, which becomes final and effective 30 days after service or upon consent, 12 U.S.C. 4631(f).

{¶ 5} Congress also authorized FHFA to place the two entities under its conservatorship “for the purpose of reorganizing, rehabilitating, or winding up the affairs of a regulated entity.” 12 U.S.C. 4617(a)(2)

. Upon appointment as conservator, FHFA succeeds to “all rights, titles, powers, and privileges of the regulated entity,” 12 U.S.C. 4617(b)(2)(A)(i), and may take action “necessary to put the regulated entity in a sound and solvent condition” and “appropriate to * * * preserve and conserve the assets and property of the regulated entity,” 12 U.S.C. 4617(b)(2)(D).

FACTS AND PROCEDURAL HISTORY

Summary of R.C. 5301.36

class-action allegations

{¶ 6} On August 7, 2003—before Congress enacted HERA—Radatz filed a class-action complaint in Cuyahoga County. Radatz alleges on behalf of similarly situated class members that Fannie Mae failed to timely record in the appropriate county recorder's office the satisfaction of her residential mortgage within 90 days after payoff, as state law (R.C. 5301.36(B)

) requires. Radatz and the class members each seek to recover $250 under R.C. 5301.36(C). Division (C) of R.C. 5301.36 states that if a mortgagee fails to record the satisfaction of a mortgage in compliance with R.C. 5301.36(B), “the mortgagor of the unrecorded satisfaction and the current owner of the real property to which the mortgage pertains may recover, in a civil action, damages of two hundred fifty dollars.” R.C. 5301.36(C). This remedy “does not preclude or affect any other legal remedies or damages that may be available to the mortgagor.” Id.

{¶ 7} In December 2006, the trial court certified the following class: “[a]ll persons who, since May 9, 1997 and thereafter, paid off an Ohio residential mortgage (as defined by R.C. 5301.36

), where [Fannie Mae] was the mortgagee at the time of the payoff, and a satisfaction was not recorded with any Ohio county recorder within 90 days from the date of payoff.” The Eighth District Court of Appeals affirmed certification of the class. Radatz v. Fed. Natl. Mtge. Assn., 176 Ohio App.3d 319, 2008-Ohio-1937, 891 N.E.2d 1236 (8th Dist.). This court declined to hear Fannie Mae's appeal of the class-certification order. 119 Ohio St.3d 1486, 2008-Ohio-5273, 894 N.E.2d 1244.

{¶ 8} On September 6, 2008, during class-certification proceedings, FHFA placed Fannie Mae and Freddie Mac under its conservatorship. Fannie Mae thereafter sought to remove the class action to federal court, invoking the conservatorship as a basis for its petition. The district court denied Fannie Mae's removal petition and remanded the matter to the Cuyahoga County Common Pleas Court in March 2010.

FHFA's consent order and Fannie Mae's motion to dismiss

{¶ 9} Upon remand and during proceedings before the trial court as to the scope of class membership, FHFA issued the following consent order dated March 9, 2013:

Pursuant to 12 U.S.C. § 4631

, [Fannie Mae] and [Freddie Mac] (together “the Enterprises”) are hereby

1. ORDERED to CEASE and DESIST from violating 12 U.S.C. § 4617(j)(4) by paying, for any reason, directly or indirectly, any fines or penalties imposed by any state mortgage satisfaction law on the Enterprises for noncompliance.

Furthermore, Fannie Mae is

2. ORDERED to CEASE AND DESIST from violating 12 U.S.C. § 4617(j)(4) by paying, for any reason, directly or indirectly, any amount pursuant to Ohio Code 5301.36 or pursuant to any judgment in connection with the pending lawsuit styled Radatz v. Fed. Nat'l Mortgage Ass'n, Case No. CV–03–507616 (Ohio Com.Pleas).

{¶ 10} On March 13, 2013, Fannie Mae moved to dismiss for lack of subject-matter jurisdiction. Fannie Mae argued that maintaining the class action would “affect” FHFA's enforcement of the consent order in contravention of 12 U.S.C. 4635(b)

, which states that “no court shall have jurisdiction to affect, by injunction or otherwise, the issuance or enforcement of any notice or order under section 4631 [cease-and-desist orders] * * * or to review, modify, suspend, terminate, or set aside any such notice or order.” Fannie Mae also argued that the consent order expressly prohibits Fannie Mae from paying any judgment in this matter under R.C. 5301.36(C)

because 12 U.S.C. 4617(j)(4) shields Fannie Mae from any liability “in the nature of penalties or fines” while under FHFA's conservatorship. The trial court agreed with Fannie Mae and dismissed the complaint for lack of subject-matter jurisdiction.

{¶ 11} The Eighth District Court of Appeals reversed and held that the FHFA consent order did not divest the trial court of jurisdiction. Relying in part on Rosette v. Countrywide Home Loans, Inc., 105 Ohio St.3d 296, 2005-Ohio-1736, 825 N.E.2d 599

, the Eighth District held that R.C. 5301.36(C) awards compensatory and not punitive damages. 2014-Ohio-2179, 11 N.E.3d 1230, ¶ 14. The court therefore concluded that R.C. 5301.36(C) does not implicate 12 U.S.C. 4617(j)(4), which immunizes Fannie Mae from incurring liabilities in the nature of a penalty or fine. Id. at ¶ 19. And based on its determination that R.C. 5301.36(C) does not award damages in the nature of a penalty or fine, the appeals court concluded that a judgment awarding statutory damages under R.C. 5301.36(C) would not “affect” the FHFA consent order in contravention of 12 U.S.C. 4635(b). Id. at ¶ 20.

{¶ 12} We accepted Fannie Mae's appeal on the following...