Lightfoot v. Cendant Mortg. Corp.
The Court ruled that Fannie Mae's corporate charter does not, by itself, give federal courts jurisdiction over every case involving Fannie Mae. The charter's 'sue and be sued' clause only lets Fannie Mae go to any court that already has the legal power to hear the case, not automatically to federal court.
The decision resolves a split among the federal appeals courts and means Fannie Mae must rely on ordinary jurisdictional rules, like diversity of citizenship or a genuine federal-law question, to remove cases to federal court rather than pointing to its charter alone.
“In authorizing Fannie Mae to sue and be sued "in any court of competent jurisdiction, State or Federal," it permits suit in any state or federal court already endowed with subject-matter jurisdiction over the suit.”
The Court's core holding on what Fannie Mae's charter language actually authorizes.
How it got here: Fannie Mae removed a state-court foreclosure suit to federal court; after years of litigation the Ninth Circuit upheld jurisdiction, and the Supreme Court agreed to review that jurisdictional question.
The Case in Depth
What happened
A homeowner refinanced her mortgage, which Fannie Mae later bought and then sold back after it fell short of Fannie Mae's credit standards. After the home was foreclosed on and sold, the homeowner and her daughter sued in state court, alleging problems with the refinancing, foreclosure, and sale. Fannie Mae removed the case to federal court, relying on its charter's sue-and-be-sued clause as the basis for jurisdiction.
The question before the Court
Does Fannie Mae's federal charter, which lets it "sue and be sued... in any court of competent jurisdiction, State or Federal," itself give federal courts power to hear any lawsuit involving Fannie Mae?
The Court's answer
No — the Court ruled that Fannie Mae's charter clause letting it "sue and be sued... in any court of competent jurisdiction, State or Federal" does not itself create federal jurisdiction. The phrase "court of competent jurisdiction" refers to a court that already has an independent legal basis to hear the case, not one the clause creates on its own.
Because Fannie Mae's clause is qualified this way, it differs from the small set of federal charters the Court had previously found to grant jurisdiction, which mentioned federal courts without any such qualification. So Fannie Mae can be sued in federal court only when some other rule — like the parties being from different states or the case actually raising a federal legal issue — gives that court power to hear it.
Curious how the Court got there? See the step-by-step legal reasoning →
Why it matters
Fannie Mae is a party to enormous numbers of foreclosure and mortgage-related lawsuits nationwide. This ruling means many of those suits, especially ones raising only state-law claims, must stay in state court unless another basis for federal jurisdiction exists, changing where homeowners' disputes with Fannie Mae get litigated.
What changes now
The case returns to the lower courts, where the removal to federal court will need to be reassessed under ordinary jurisdictional rules rather than Fannie Mae's charter alone; if no independent basis for federal jurisdiction exists, the case should proceed in state court. This is a final decision on the jurisdictional question, though the merits of the underlying foreclosure dispute remain to be resolved wherever the case belongs.
What this does not decide
The decision does not address the merits of the homeowners' claims against Fannie Mae over the refinancing and foreclosure, and it does not disturb the separate jurisdictional provisions covering other federally chartered entities, such as Freddie Mac, whose charter language differs from Fannie Mae's.
How the Court got there
The legal reasoning, step by step
- The Court reviewed a line of precedent on federally chartered corporations' 'sue and be sued' clauses, which let a corporation bring and face lawsuits; the key question in each case was whether such a clause also independently grants federal courts the power to hear the case (subject-matter jurisdiction).
- Those precedents established that a sue-and-be-sued clause confers federal jurisdiction only if it specifically and unconditionally mentions suits in federal court, without qualifying language limiting suit to courts that already have proper authority.
- Fannie Mae's clause does mention federal courts, but only as part of the phrase 'any court of competent jurisdiction, State or Federal' -- a phrase the Court read, based on its ordinary legal meaning and past cases, as referring to a court that already has an independent source of power to hear the case, not one created by the clause itself.
- The Court rejected the argument that its earlier decision in a case involving the Red Cross's charter set a broad rule that any express mention of federal courts in a sue-and-be-sued clause automatically creates jurisdiction, clarifying that the rule required an unqualified reference to the federal courts.
- The Court also rejected Fannie Mae's alternative readings of 'competent jurisdiction,' its argument that earlier courts had already settled the phrase's meaning before Congress used it in 1954, and its comparison to Freddie Mac's differently worded charter.
- Concluding that the clause does not supply an independent grant of jurisdiction, the Court held Fannie Mae must rely on ordinary jurisdictional bases, such as diversity of citizenship or a genuine federal-law question, to be in federal court.
Doctrinal impact
Cases affected by this decision
Distinguishes American Nat. Red Cross v. S.G. (505 U.S. 247)
Clarifies that Red Cross's unqualified charter language differs from Fannie Mae's qualified 'court of competent jurisdiction' clause.
Reaffirms D'Oench, Duhme & Co. v. FDIC (315 U.S. 447)
Cites this case as correctly finding jurisdiction because that charter's language was unqualified, unlike Fannie Mae's.