Lightfoot v. Cendant Mortgage Corp
The Supreme Court ruled unanimously that Fannie Mae's charter language does not automatically give federal courts jurisdiction over every case involving the mortgage giant. The phrase "court of competent jurisdiction" means a court that already has some independent basis to hear the case, not a blank check for federal jurisdiction.
The decision reverses a Ninth Circuit ruling that had let Fannie Mae remove a California homeowners' lawsuit to federal court based solely on its charter's sue-and-be-sued clause, and it resolves a split among federal appeals courts over how to read similar language in other federal charters.
“A court of competent jurisdiction is a court with the power to adjudicate the case before it.”
The Court's core definition of the disputed jurisdictional phrase in Fannie Mae's charter.
How it got here: Fannie Mae removed the state-court suit to federal court citing its charter; the district court kept the case and ruled against the homeowners, and the Ninth Circuit affirmed on jurisdiction.
The Case in Depth
What happened
Beverly Ann Hollis-Arrington refinanced her home with Cendant Mortgage in 1999; Fannie Mae bought the loan, and Cendant later repurchased it. After a failed forbearance attempt, the home was foreclosed on and sold in 2001. Hollis-Arrington and her daughter, Crystal Lightfoot, sued in state court alleging problems with the refinancing, foreclosure, and sale, naming Fannie Mae among the defendants.
The question before the Court
Does the clause letting Fannie Mae "sue and be sued" in any "court of competent jurisdiction" give federal courts the power to hear every lawsuit involving Fannie Mae?
The Court's answer
No — the Court ruled that Fannie Mae's charter clause does not by itself give federal courts jurisdiction over cases involving Fannie Mae. The clause lets Fannie Mae sue and be sued "in any court of competent jurisdiction," and that phrase refers to a court that already has some other, independent basis for hearing the type of case at issue — not a blanket grant of federal court power.
Because the clause only confirms Fannie Mae's legal capacity to be a party in lawsuits, and does not itself supply subject-matter jurisdiction, federal courts cannot rely on it alone to keep or take a case. The Ninth Circuit had read an earlier decision, American National Red Cross v. S. G., too broadly in concluding otherwise, and the Supreme Court corrected that reading.
Curious how the Court got there? See the step-by-step legal reasoning →
Why it matters
Fannie Mae and other federally chartered entities with similar "sue and be sued... in any court of competent jurisdiction" language can no longer rely on that clause alone to move lawsuits into federal court. Homeowners and other parties suing Fannie Mae over state-law claims, like this foreclosure dispute, must now stay in state court unless some other basis for federal jurisdiction, like diversity of citizenship, exists.
What changes now
The case returns to the lower courts, where the homeowners' suit against Fannie Mae will need an independent basis for federal jurisdiction, such as a federal question or complete diversity of citizenship, or it will proceed in state court. The ruling also settles how similar sue-and-be-sued language should be read for other federally chartered entities going forward, resolving a split among the circuits.
What this does not decide
The Court did not decide whether Fannie Mae could still reach federal court through ordinary routes like diversity or federal-question jurisdiction, and it left open how the ruling applies to entities with sue-and-be-sued language that differs from Fannie Mae's.
How the Court got there
The legal reasoning, step by step
- The Court reviewed its past rulings on similar 'sue-and-be-sued' clauses in other federal charters, noting that clauses expressly mentioning federal courts without qualification have been read to grant federal jurisdiction, while bare 'sue and be sued' clauses with no court specified have not.
- Fannie Mae's clause does mention federal courts, but it adds a qualifying phrase — 'any court of competent jurisdiction' — that the clauses found to grant jurisdiction in earlier cases did not contain, so the earlier rulings could not simply be copied over.
- The Court defined a 'court of competent jurisdiction' as a court that already has the legal power (subject-matter jurisdiction) to hear a given type of case, drawing on dictionary definitions and its own prior decisions using that same phrase.
- Reading the clause this way, Fannie Mae's charter does not itself hand federal courts new power to hear cases; it simply lets Fannie Mae sue or be sued in whichever court — state or federal — already has authority over the dispute.
- The Court rejected the Ninth Circuit's reading of its earlier Red Cross decision, explaining that Red Cross never adopted a rule that any mention of federal courts automatically creates federal jurisdiction; it merely applied the older rule that a bare right to sue does not create such jurisdiction.
- Because none of Fannie Mae's alternative arguments — about the meaning of 'competent jurisdiction,' prior lower-court rulings, or Congress's likely intent — undermined this plain reading, the sue-and-be-sued clause functions only to confirm Fannie Mae's capacity to sue and be sued, not to open federal courthouse doors on its own.
Doctrinal impact
Cases affected by this decision
Limits American Nat. Red Cross v. S. G. (505 U. S. 247)
Clarifies that this earlier ruling did not create a broad rule that any mention of federal courts alone confers jurisdiction.