Randolph Cnty. v. Fed. Nat'l Mortg. Ass'n
| Decision Date | 31 July 2013 |
| Docket Number | CASE NO. 3:12-CV-886-WKW [WO] |
| Parties | RANDOLPH COUNTY, ALABAMA, Plaintiff, v. FEDERAL NATIONAL MORTGAGE ASSOCIATION, FEDERAL HOME LOAN MORTGAGE CORPORATION, and FEDERAL HOUSING FINANCE AGENCY, Defendants. |
| Court | U.S. District Court — Middle District of Alabama |
In this putative class action, Plaintiff Randolph County argues that the Federal National Mortgage Association ("Fannie Mae"), the Federal Home Loan Mortgage Corporation ("Freddie Mac"), and the Federal Housing Finance Agency ("the Agency"), in its capacity as the conservator for Fannie and Freddie,1 are liable to it and other Alabama counties for failure to pay the Alabama State tax on real estate transfers. Defendants claim they are statutorily exempt from paying the tax and moved for summary judgment in their favor. (Doc. # 27.) Plaintiff responded with a cross-motion for partial summary judgment. (Doc. # 43.) The motions are fullybriefed and ripe for adjudication. (Docs. # 55, 56, 62-69.) After careful consideration of the parties' arguments and the relevant law, Defendants' motion is due to be granted, and Plaintiff's motion is due to be denied.
The court has subject matter jurisdiction pursuant to 28 U.S.C. § 1331. It also has jurisdiction over claims against Freddie Mac pursuant to 12 U.S.C. § 1452(f)(2) and over the state law claims pursuant to 28 U.S.C. § 1367. The parties do not contest personal jurisdiction or venue.
To succeed on summary judgment, the movant must demonstrate "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). In evaluating a motion for summary judgment, the court assesses whether trial is necessary. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Where facts are undisputed, the court must only answer the legal question.
Fannie Mae and Freddie Mac, both private entities created by the federal government, buy home loans from approved mortgage sellers, package them into mortgage-backed securities, and then sell those securities. Montgomery Cnty.Comm'n v. Fed. Housing Fin. Agency, 2:12cv886-MHT, 2013 WL 1896256, at *2 (M.D. Ala. May 6, 2013). The institutions exist to promote home ownership by increasing funds available to financial institutions for residential mortgages. Id.
Meanwhile, Alabama imposes a tax on the transfer of real property. Ala. Code §§ 41-22-1-2 (the "Transfer Tax"). Alabama counties collect the Transfer Tax when a real-property transferee records the transfer with the county. The Transfer Tax is a tax collected for the privilege of transferring realty in Alabama. Id. at § 41-22-1(a). The parties agree that Defendants routinely record property transfers in Randolph and other Alabama counties.2 Defendants, however, refuse to pay the Transfer Tax on the basis that they are exempt under federal law.
Virtually identical federal statutory exemptions exist for each Defendant. The statute applicable to Freddie Mac reads:
The Corporation, including its franchise, activities, capital, reserves, surplus, and income, shall be exempt from all taxation now or hereafter imposed by any territory, dependency, or possession of the United States or by any State, county, municipality, or local taxing authority, except that any real property of the Corporation 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); see also 12 U.S.C. §§ 1723a(c), 4617(j)(2) (). In addition to the exemption of the entities from "all taxation," each statute contains an exception to the exemption for the taxation of real property, which local entities may tax "to the same extent . . . as other real property." 12 U.S.C. §§ 1452(e), 1723a(c), 4617(j)(2). Defendants argue that they are exempt as a matter of law by virtue of these statutes.3 Plaintiff disagrees.
The federal statutory exemptions are two-part. First, they exempt Defendants from "all taxation," statutorily immunizing the entities from taxation to which they would otherwise be subject. Second, they establish an exception to that exemption for the taxation of real property, making Defendants liable for taxes on real property. The court will address each part of the statutory provisions in turn, and conclude by considering Plaintiff's constitutional arguments.
The "first step in interpreting a statute is to determine whether the language at issue has a plain and unambiguous meaning with regard to the particular dispute inthe case." Robinson v. Shell Oil Co., 519 U.S. 337, 340 (1997). So long as "all" means "[b]eing or representing the entire or total number, amount or quantity," American Heritage Dictionary 45 (5th ed. 2011), the statutes exempt Defendants from the Transfer Tax. See also Webster's Third International Dictionary 54 (Philip Babcock Gove et al., eds., 1993) (defining "all" as "every member or individual component of").
Plaintiff argues that the Supreme Court altered the meaning of the term "all taxation" such that it covers only direct taxes, not excise taxes like the one here. A direct tax is "a tax levied upon the property itself," while an excise tax is "levied upon the use or transfer of property even though it might be measured by the property's value." United States v. Wells Fargo Bank, 485 U.S. 351, 355 (1988). In Wells Fargo, the Court interpreted the Housing Act of 1937, and concluded that "an exemption of property from all taxation had an understood meaning: the property was exempt from direct taxation, but certain privileges of ownership, such as the right to transfer the property, could be taxed." Id. (emphasis added).
The conclusion that "all taxation" meant "all direct taxation" was logical in Wells Fargo, where the statutory exemption applied to the property. That exemption appeared in the Housing Act of 1937 and read, "[Project notes], including interestthereon, . . . shall be exempt from all taxation now or hereafter imposed by the United States." Id. (alteration in original) (quoting § 5(e) of the Housing Act of 1937, codified as amended at 42 U.S.C. § 1437i(b)). Congress exempted the project notes - a form of property - from taxation, and only a direct tax is a tax on the property itself. Accordingly, the project notes were exempt from direct taxation but their owners remained subject to excise taxes on their transfer, including the estate tax at issue. Id.
The same conclusion would not be logical here, where the statutes exempt entities - not just certain property - from taxation. See, e.g., 12 U.S.C. § 1452(e) (); Cnty. of Oakland v. Fed. Housing Fin. Agency, 716 F.3d 935, 943 (6th Cir. 2013) (); Hertel v. Bank of Am., 897 F. Supp. 2d 579, 584 (W.D. Mich. 2012) (). "All taxation" for entities includes more than just direct taxation of the property they own. It also includes taxation on the privileges of ownership, including the Transfer Tax. Montgomery Cnty. Comm'n,2013 WL 1896256, at *3 ().
The Supreme Court of the United States's opinion in Federal Land Bank of St. Paul v. Bismarck Lumber Co., 314 U.S. 95 (1941), further supports this interpretation. There, the Court examined North Dakota's sales tax on real property. Id. at 99. That tax operated much like Alabama's Transfer Tax; both are taxes payable when one party sells real property to another. Section 26 of the Federal Farm Loan Act exempted "every Federal land bank . . . from Federal, State, municipal, and local taxation." Pub. L. No. 64-158, § 26, 39 Stat. 360, 380 (1916). The Bismarck Court distinguished this entity exemption from property exemptions. 314 U.S. at 100. The Court concluded that "the broad exemption accorded to 'every Federal land bank'" applied to the North Dakota sales tax and precluded North Dakota from collecting the sales tax from Federal land banks. Id. at 99 (quoting § 26). Likewise, the exemptions accorded to Defendants by name - not to their property or to mortgages they backed - covers all taxes for which they would otherwise be liable, direct or excise, including the Transfer Tax.
Plaintiff's attempt to distinguish the entities in Bismarck, federal instrumentalities, from Defendants, federally created private institutions, is unavailing. The Supreme Court grounded its ruling not on the federal character ofentities, but on statutory language. Id. ().
Finally, the inclusion of the exception for property taxes in each statutory exemption further supports the conclusion that "all" means "all". The provisions' mandatory language "does not leave room for unmentioned exemptions." Hertel, 897 F. Supp. 2d at 582; see also TRW Inc. v. Andrews, 534 U.S. 19, 28 (2001) .
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