The Supreme Court agreed Tuesday to hear a case regarding a clause in Fannie Mae's corporate charter that awards jurisdiction over every case involving the government-sponsored enterprise to federal courts.
The case, Lightfoot v. Cendant Mortgage Corp., addresses a specific clause in Fannie Mae's charter, which says that the GSE can "sue and be sued, and to complain and defend, in any court of competent jurisdiction, state or federal." The case was initially brought forth by two California women, Beverly Ann Hollis-Arrington and Crystal Monique Lightfoot, after Fannie Mae initiated foreclosure proceedings against Hollis-Arrington's home.
The plaintiffs in the case had originally filed their complaint in California state court, but the case was then shifted to federal court by Fannie Mae. The district court then dismissed all claims.
A divided Ninth U.S. Circuit Court of Appeals decision from October 2014 came down in Fannie Mae's favor, saying that Fannie Mae's charter did grant jurisdiction to federal district courts by citing the decision made in the 1992 case of American Red Cross v. S.G.
The plaintiff's lawyers argue that the appeals court judges have misinterpreted the ruling in the Red Cross case.
"The cert grant suggests skepticism of the Ninth Circuit's standard," said Josh Rosenkranz, a partner at Orrick, the law firm representing Lightfoot and Hollis-Arrington in the case, in a news release. Rosenkranz is leading the firm's appellate team along with Orrick partner Robert Loeb.
"The Ninth 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," Rosenkranz said.
"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."
Fannie Mae did not immediately return a request for comment. The Supreme Court will be briefed on the case through the fall, with arguments likely to come either later this year or in early 2017.