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

• Decision Date: 22 May 2014
• Docket Number: No. 100205.,100205.
• Citation: 11 N.E.3d 1230
• Parties: Rebekah R. RADATZ, Plaintiff–Appellant v. FEDERAL NATIONAL MORTGAGE ASSOCIATION, Defendant–Appellee.
• Court: Ohio Court of Appeals

11 N.E.3d 1230

Rebekah R. RADATZ, Plaintiff–Appellant

v.FEDERAL NATIONAL MORTGAGE ASSOCIATION, Defendant–Appellee.

No. 100205.

Court of Appeals of Ohio, Eighth District, Cuyahoga County.

May 22, 2014.

Brian Ruschel, Cleveland, OH, Patrick J. Perotti, Dworken & Bernstein Co., L.P.A., Painesville, OH, for appellant.

J. Philip Calabrese, Richard Gurbst, Squire Sanders (US) L.L.P., Cleveland, OH, Jeffrey Kilduff, O'Melveny & Myers, L.L.P., Washington, D.C., for appellee.

Before: S. GALLAGHER, P.J., ROCCO, J., and McCORMACK, J.

SEAN C. GALLAGHER, P.J.

{¶ 1} Plaintiff-appellant Rebekah Radatz, individually and on behalf of the certified class members (collectively “Plaintiffs”), appeals from the trial court's decision to dismiss all claims against the defendant-appellee Federal National Mortgage Association (“Fannie Mae”), based on the claim that the trial court lacked subject matter jurisdiction. For the following reasons, we reverse the decision of the trial court and remand for further proceedings.

{¶ 2} In 2003, Radatz filed a complaint alleging individual and class action claims against Fannie Mae. Radatz alleged that Fannie Mae failed to comply with R.C. 5301.36(B) and file a satisfaction of a residential mortgage within 90 days from the date that she and other similarly situated mortgagors satisfied the loan debt. Radatz and the class, certified in December 2006, each sought to recover statutory damages in the amount of $250 pursuant to R.C. 5301.36(C). During discovery, it was determined that the class consisted of well over 100,000 individuals.

{¶ 3} “Fannie Mae was established in 1938 as a federal agency and was converted into a private corporation in 1968. * * * ‘[Fannie Mae is] structured as [a] private [corporation], but [is] federally chartered and play [s] an important role in the national housing market by making it easier for home buyers to obtain loans.’ ” Fed. Hous. Fin. Agency v. Royal Bank of Scotland Group P.L.C., D.Conn. No. 3:11–cv–01383, 2012 WL 3580522, 1 (Aug. 17, 2012), quoting Judicial Watch, Inc. v. Fed. Hous. Fin. Agency, 646 F.3d 924, 926, (D.C.Cir.2011). In response to the housing and mortgage market crisis in July 2008, Congress passed the Housing and Economic Recovery Act of 2008 (“HERA”), creating the Federal Housing Finance Agency (“FHFA”). Id. Congress granted the director of the FHFA conditional authority to place regulated entities, such as Fannie Mae, into conservatorship or receivership “ ‘for the purpose of reorganizing, rehabilitating, or winding up [their] affairs.’ ” Id., quoting 12 U.S.C. 4617(a). “On September 6, 2008, the Director of the FHFA placed Fannie Mae under the FHFA's temporary conservatorship with the objective of stabilizing the institutions so they could return to their normal business operations.” Id.

{¶ 4} Meanwhile in September 2010, and after Fannie Mae's unsuccessful attempt to remove the action to federal court in light of HERA, Plaintiffs began compiling the list of class members. Plaintiffs completed the list—numbering over 100,000—in February 2013 and promptly notified Fannie Mae. Seemingly in response, on March 13, 2013, Fannie Mae filed a motion to dismiss all claims, arguing that the trial court lacked jurisdiction because of a consent order issued by the FHFA director just four days earlier. It is undisputed that through the sole directive in the consent order, the FHFA director decreed that Fannie Mae was to cease and desist violating 12 U.S.C. 4617(j)(4), the so-called Penalty Bar provision that grants immunity to the FHFA from paying “any amount in the nature of penalties and fines.” Fannie Mae argued that through 12 U.S.C. 4635(b), the grant of immunity pursuant to 12 U.S.C. 4617(j)(4) became a jurisdictional concept, and therefore, the trial court lacked jurisdiction to affect any order issued by the FHFA director. In order to follow Fannie Mae's logic, it must be determined whether any damages awarded to the Plaintiffs would necessarily affect the consent order. Fannie Mae considers the statutory damages pursuant to R.C. 5301.36(C) to be in the nature of a fine or penalty. In light of Fannie Mae's argument, the trial court granted the Civ.R. 12(B)(1) motion and dismissed Plaintiffs' claims with prejudice on the basis that the trial court was divested of jurisdiction to enter a judgment in their favor against Fannie Mae.

{¶ 5} Plaintiffs timely appealed the trial court's decision, advancing two assignments of error. In the second assignment of error, the Plaintiffs claim the trial court erred in declining jurisdiction because the FHFA order violated the Plaintiffs' due process rights and was otherwise unenforceable. We need not address the second assignment of error. In their first assignment of error, Plaintiffs contend that neither 12 U.S.C. 4635(b) nor 4617(j)(4) divested the trial court of jurisdiction to resolve the claims, and therefore, the trial court erred by dismissing all claims against Fannie Mae. We find merit to Plaintiffs' first assignment of error. The trial court was not divested of jurisdiction. Accordingly, any claims advanced in the second assignment of error are moot.

{¶ 6} A trial court's decision on a Civ.R. 12(B)(1) motion to dismiss for lack of subject matter jurisdiction is reviewed under a de novo standard of review. Rheinhold v. Reichek, 8th Dist. Cuyahoga No. 99973, 2014-Ohio-31, 2014 WL 72507, citing Bank of Am. v. Macho, 8th Dist. Cuyahoga No. 96124, 2011-Ohio-5495, 2011 WL 5118329, ¶ 7. The sole question for our consideration, therefore, is whether the trial court erred in holding that the FHFA consent order divested the trial court of jurisdiction over the Plaintiffs' claim for statutory damages. After reviewing the record and arguments, we must answer that question in the affirmative.

{¶ 7} Plaintiffs' claims against Fannie Mae are predicated on the allegation that, pursuant to R.C. 5301.36(B), Fannie Mae failed to record the satisfaction of a residential mortgage within 90 days of the mortgagor satisfying the loan. As a result, Plaintiffs seek statutory damages in the amount of $250 per individual, injured mortgagor. R.C. 5301.36(C). Fannie Mae argues that pursuant to a federal statute, it is immune from liability for any penalties or fines provided for in the Ohio Satisfaction of Residential Mortgage Statute and because the director of the FHFA incorporated the immunity language of 12 U.S.C. 4617(j)(4) into a consent order, the trial court lacked jurisdiction to render a judgment upon the merits of Plaintiffs' statutory claim for damages. Inherent in that argument is the concept that any damages awarded pursuant to R.C. 5301.36(C) are in the nature of a penalty or fine.

{¶ 8} Congress granted the FHFA immunity from liability for any “amounts in the nature of penalties or fines, including those arising from the failure of any person to pay any real property, personal property, probate, or recording tax, or any recording or filing fees when due.” 12 U.S.C. 4617(j)(4). Courts have construed this grant of immunity to apply to the imposition of fees or penalties against Fannie Mae while under the direction and control of the FHFA through conservatorship or receivership.¹Fed. Hous. Fin. Agency v. Chicago, 962 F.Supp.2d 1044 (N.D.Ill.2013); Nevada v. Countrywide Home Loans Servicing, L.P., 812 F.Supp.2d 1211 (D.Nev.2011); Higgins v. BAC Home Loans Servicing, L.P., E.D.Ky. No. 12–cv–183–KKC, 2014 WL 1332825 (Mar. 31, 2014). Congress, in establishing the FHFA's authority pursuant to HERA, further prescribed that no court “shall have jurisdiction to affect, by injunction or otherwise, the issuance or enforcement of any notice or order” issued pursuantto 12 U.S.C. 4631 (cease and desist orders), or to “review, modify, suspend, terminate, or set aside any such notice or order.” 12 U.S.C. 4635(b).

{¶ 9} Before addressing the application of the federal statutes to the current facts, it is important to understand the extent of the FHFA consent order. On March 9, 2013, the acting director of the FHFA issued a consent order stating as follows:

Pursuant to 12 U.S.C. § 4631 [ (cease and desist proceedings) ], [Fannie Mae] and Federal Home Loan Mortgage Corporation (“Freddie Mac”) (together “the Enterprises”) are hereby 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 ordered to cease and desist from violation 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).

(Emphasis added.) There are two important facets of the FHFA's consent order. First, as emphasized in the quoted language, the order states that Fannie Mae is prohibited from paying “any amount” pursuant to R.C. 5301.36(C) based on 12 U.S.C. 4617(j)(4). “It is well settled that ‘the starting point for interpreting a statute is the language of the statute itself.’ ” Oakland v. Fed. Hous. Fin. Agency, 716 F.3d 935, 939–940 (6th Cir.2013), quoting Gwaltney of Smithfield, Ltd. v. Chesapeake Bay Found., Inc., 484 U.S. 49, 56, 108 S.Ct. 376, 98 L.Ed.2d 306 (1987). “ ‘[W]hen the statutory language is plain, [the court] must enforce it according to its terms.’ ” Id., quoting Jimenez v. Quarterman, 555 U.S. 113, 118, 129 S.Ct. 681, 172 L.Ed.2d 475 (2009). “Analysis of any challenged action is necessary to determine whether the action falls within the broad, but not infinite, conservator authority.” Sonoma v. Fed. Hous. Fin. Agency, 710 F.3d 987, 994 (9th Cir.2013). “[I]f the FHFA were to act beyond statutory or constitutional bounds in a manner that adversely impacted the rights of others,” nothing in 12 U.S.C. 4617 prevents courts from...