Lightfoot v. Cendant Mortgage Corp
Headline: Court limits federal-court access for Fannie Mae, ruling its charter’s 'sue-and-be-sued' phrase does not let federal courts hear all suits and leaves many disputes to courts already having authority.
Holding: The Court held that Fannie Mae’s sue-and-be-sued clause does not grant federal courts subject-matter jurisdiction over all cases involving Fannie Mae, allowing suits only in courts that already possess jurisdiction.
- Does not let Fannie Mae force federal-court hearings for every lawsuit involving it.
- Leaves many state-law claims involving Fannie Mae to state courts unless federal jurisdiction exists.
- Limits automatic removal to federal court based solely on Fannie Mae’s charter.
Summary
Background
A homeowner, Beverly Ann Hollis-Arrington, and her daughter Crystal Lightfoot sued over problems with refinancing, foreclosure, and the sale of their home. Their case named Fannie Mae among the defendants. Fannie Mae removed the case from state court to federal court, citing its charter language that it may “sue and be sued . . . in any court of competent jurisdiction, State or Federal.” The lower courts allowed removal and entered judgment against the homeowners, and the Ninth Circuit relied on earlier cases to find federal courts had jurisdiction.
Reasoning
The Court asked whether Fannie Mae’s charter phrase gives federal courts the automatic power to hear any suit involving Fannie Mae. The Justices reviewed past decisions and focused on the meaning of “court of competent jurisdiction.” They explained that this phrase points to a court that already has subject-matter jurisdiction — in other words, a court that already has the legal power to hear that kind of case. The Court concluded the clause clarifies Fannie Mae’s capacity to be sued but does not itself create federal subject-matter jurisdiction over all suits involving Fannie Mae. Earlier decisions cited by the Ninth Circuit did not require a different result.
Real world impact
As a result, suits involving Fannie Mae do not automatically belong in federal court merely because of its charter language. Federal courts can hear these cases only when there is some independent basis for federal jurisdiction (for example, a federal-law claim or diversity of citizenship). Many state-law disputes involving Fannie Mae will therefore remain in state court unless another federal ground applies.
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