Northern California Record

Thursday, February 20, 2020

Law school dean: U.S. Supreme Court decision to take up Fannie Mae case not surprising

By Karen Kidd | Aug 3, 2016

Gil C /

WASHINGTON – The U.S. Supreme Court's decision to hear a case about Fannie Mae's charter awards jurisdiction to federal courts is not too surprising, the dean of the University of California Irvine School of Law said during a recent interview.

"I think it is quite significant that the solicitor general’s office asked for certiorari to be granted to clarify this confusion," Erwin Chemerinsky, founding dean, law professor and Raymond Pryke Professor of First Amendment Law at University of California Irvine School of Law, said during a Northern California Record email interview. "The solicitor general is the attorney for the United States who represents the government in the Supreme Court. Requests from the solicitor general for Supreme Court review are usually granted."

The U.S. Supreme Court granted the writ of certiorari in Lightfoot v. Cendant Mortgage Corp. on June 28. The case concerns a clause in the government-sponsored mortgage loan company Fannie Mae's corporate charter, which awards to federal courts jurisdiction in any litigation filed by or on behalf of Fannie Mae.

At issue in the case is whether phrase "to sue and be sued, and to complain and to defend, in any court of competent jurisdiction, state or federal" in Fannie Mae's charter grants to federal courts original jurisdiction. Also in question is whether the high court's decision in the 1992 case American National Red Cross v. S.G. should be overturned.

In the Red Cross case, the high court ruled that a congressional charter's "sue and be sued" provision does confer federal court jurisdiction but only if the federal courts are mentioned. Since the Red Cross charter provision does specify the federal courts, then federal court jurisdiction is affirmed, the high court ruled in that case.

That ruling long has left federal court jurisdiction well within the U.S. Constitution's Article III's "arising under" provisions.

Though the solicitor general's request for hearing before the high court carried much weight, there are important reasons why the U.S. Supreme Court would agree to hear this case, Chemerinsky said.

"This is a case about federal jurisdiction and how to construe 'sue and be sued' clauses," he said. "I think that the court granted review because there is confusion in the lower courts about American Red Cross v. S.G."

The case initially was filed by two California women, Beverly Ann Hollis-Arrington and Crystal Monique Lightfoot, when the Federal National Mortgage Association, Fannie Mae, began foreclosure proceedings on Hollis-Arrington's home. The two sued in federal district court, alleging a number of numerous state and federal law violation. The district court dismissed the case, ruling the plaintiffs filed to prove any material fact in their claim.

The U.S. Court of Appeals for the 9th Circuit later affirmed the district court's dismissal.

The plaintiffs then sued Fannie Mae in California state court, alleging state laws were violated, claims that mirrored allegations in the earlier federal lawsuit. Fannie Mae removed the case to federal court, arguing its federal corporate charter granted jurisdiction only in federal courts. The plaintiffs moved that the case be remanded back to state court. A district court denied that motion and dismissed all the plaintiffs' claims, ruling those claims already had been litigated.

Again on appeal, the appeals court ruled that language in Fannie Mae’s federal charter does confer jurisdiction to federal courts and affirmed the district court's dismissal. In that ruling, the appeals court cited American Red Cross v. S.G.

That, the plaintiffs argued, was a misinterpretation.

 "The cert grant suggests skepticism of the 9th Circuit's standard," Josh Rosenkranz, a partner at Orrick with represents the plaintiffs, was quoted in a news release. “The 9th Circuit reasoning was that if you hold the statute sideways, put it under certain lighting and squint your eyes a little, then maybe it looks like it confers jurisdiction. But this sue-and-be-sued clause is straightforward. Far from conferring jurisdiction, it refers to courts 'of competent jurisdiction;' which means that there must be some outside basis of jurisdictional authority to begin with.”

Chemerinsky was skeptical about plaintiffs' claims about the appeals court misinterpreting American Red Cross v. S.G., particularly whether the high court's justices would be swayed by that argument.

"That involves whether to overrule it, which is always less likely to occur," he said.

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