The U.S. Supreme Court ruled on Wednesday that Fannie Mae cannot automatically bring state lawsuits to federal court, reversing an earlier decision by the Ninth Circuit Court.
The Supreme Court’s decision in the case of Lightfoot v. Cendant Mortgage Corp. ends a 15-year court battle between a mother-daughter duo and a mortgage lender, in which the plaintiffs claimed deficiencies in the process of refinancing their loan and the subsequent foreclosure and sale of their home.
Fannie Mae had claimed that its charter, issued in 1954, gave the GSE the authority to automatically remand state suits to federal court. By statute, Fannie Mae has the power to “sue and be sued, and to complain and to defend, in any court of competent jurisdiction, State or Federal.”
In 2002, Beverly Hollis-Arrington and her daughter, Crystal Lightfoot, filed a suit against Cendant Mortgage Corp., Fannie Mae, and Attorneys Equity National Corporation in California state court alleging the defendants had engaged in a conspiracy in which Cendant was knowingly approving mortgage loans for unqualified buyers knowing that it could buy the properties once they were foreclosed on. Fannie Mae successfully remanded the case to federal court on the basis of the sue-and-be-sued clause, and the action was dismissed.
The Ninth Circuit Court denied a petition from Hollis-Arrington and Lightfoot for a rehearing, using American Nat. Red Cross v. S. G., 505 U. S. 247 as a basis for its decision. The Ninth Circuit Court interpreted the decision in that case as precedent for giving the District Court jurisdiction under Fannie Mae’s sue-or-be-sued clause.
Following the Ninth Circuit Court’s denial, Hollis-Arrington and Lightfoot filed a petition for writ of certiorari in February 2015. In June 2016, the Supreme Court granted certiorari.
Justice Sonya Sotomayor wrote the opinion for the Supreme Court—which was unanimous—saying “Fannie Mae, preferring to be in federal court, raises several arguments against reading its sue-and-be-sued clause as merely capacity conferring. None are persuasive.”
Fannie Mae did not immediately respond to a request for comment about the high court’s ruling.
“In sum, none of the cases on which Fannie Mae relies suggest that Congress in 1954 would have surveyed the jurisprudential landscape and necessarily concluded that the courts had already settled the question whether a sue-and-be-sued clause containing the phrase ‘court of competent jurisdiction’ confers jurisdiction on the federal courts,” Sotomayor wrote.
Click here to view the Supreme Court’s full ruling.