United States Court of Appeals
For the Eighth Circuit
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No. 13-1821
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Hennepin County, on behalf of itself and all others similarly situated
lllllllllllllllllllll Plaintiff - Appellant
v.
Federal National Mortgage Association, a federally chartered corporation; Federal
Home Loan Mortgage Corporation, a federally chartered corporation; Federal
Housing Finance Agency, as Conservator for Federal National Mortgage
Association and Federal Home Loan Mortgage Corporation
lllllllllllllllllllll Defendants - Appellees
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United States of America
lllllllllllllllllllllAmicus on Behalf of Appellee(s)
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Appeal from United States District Court
for the District of Minnesota - Minneapolis
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Submitted: December 19, 2013
Filed: February 5, 2014
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Before MURPHY, BYE, and SMITH, Circuit Judges.
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MURPHY, Circuit Judge.
Hennepin County brought this putative class action on behalf of similarly
situated Minnesota counties seeking a declaratory judgment that the Federal National
Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Company
(Freddie Mac), and the Federal Housing Finance Agency (FHFA) (the federal
agencies) violated state law by failing to pay a tax on transfers of deeds to real
property. The County seeks recovery for unjust enrichment as well as injunctive
relief. The district court1 granted the federal agencies' motion to dismiss for failure
to state a claim. Hennepin County appeals, and we affirm.
Fannie Mae and Freddie Mac are privately owned and publicly traded for profit
entities created by Congress to generate financial stability in the secondary market for
residential mortgages. Given responsibility by Congress for "promot[ing] access to
mortgage credit . . . by increasing the liquidity of mortgage investments," 12 U.S.C.
§ 1716(1), Fannie Mae and Freddie Mac buy mortgages originated by third party
lenders, gather them into bundles, and sell them as securities. Following the 2008
financial crisis, which was caused in part by a collapse in the value of these securities,
Congress made the FHFA the conservator for Fannie Mae and Freddie Mac.
Fannie Mae and Freddie Mac have acquired and sold mortgages on thousands
of real properties in Minnesota, including in Hennepin County. Minnesota imposes
a tax on "each deed or instrument by which any real property in this state is granted,
assigned, transferred, or otherwise conveyed," Minn. Stat. § 287.21, subd. 1(a). The
federal agencies have not paid state taxes on the deed transfers related to their real
property transactions. Hennepin County alleges that the agencies owe the state an
1
The Honorable David S. Doty, United States District Judge for the District
of Minnesota.
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estimated $5,000,000 to $5,600,000 in back taxes on these transfers. Fannie Mae,
Freddie Mac, and the FHFA assert that their federal charters exempt them from such
taxes.
Hennepin County filed this putative class action on behalf of itself and 86 other
Minnesota counties seeking a declaratory judgment under Minn. Stat. § 287.21 that
the federal agencies are subject to Minnesota's deed transfer tax. It seeks payment of
back taxes, recovery for unjust enrichment, and injunctive relief. The federal district
court concluded that the Minnesota deed transfer tax fell within the broad tax
exemption established by the charters establishing the federal agencies. It declined
to grant the requested declaratory judgment in favor of Hennepin County, dismissed
its case for failure to state claims under either § 287.21 or unjust enrichment, and
denied injunctive relief. Hennepin County appeals.
Our review is de novo on a challenge to a dismissal for failure to state a claim,
and we take the facts alleged in the complaint as true. Bradley Timberland Resources
v. Bradley Lumber Co., 712 F.3d 401, 406 (8th Cir. 2013). When interpreting a
statute, we look to its plain language, Owner-Operator Indep. Drivers Ass'n, Inc. v.
Supervalu, Inc., 651 F.3d 857, 862 (8th Cir. 2011), and give words their "ordinary,
contemporary, common meaning" unless they are otherwise defined in the statute
itself. United States v. Friedrich, 402 F.3d 842, 845 (8th Cir. 2005). Unambiguous
statutory language is generally enforced as written and may be departed from only on
"the most extraordinary showing of contrary intentions in the legislative history."
United States v. Sabri, 326 F.3d 937, 943 (8th Cir. 2003) (internal quotation marks
omitted). The existence of statutory exceptions indicates that Congress considered
whether there was need for any exception and "limited the statute to the ones set
forth." United States v. Johnson, 529 U.S. 53, 58 (2000).
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The federal agency charters state that they "shall be exempt from all taxation
. . . imposed by any State," and identify their real property as the sole exception to the
general rule. 12 U.S.C. §§ 1723a(c)(2); 1452(e); 4617(j)(2). We have determined that
the use of "shall" in a statute makes what follows mandatory, LeMay v. U.S. Postal
Serv., 450 F.3d 797, 799 (8th Cir. 2006), and that "'all' means all." Sander v.
Alexander Richardson Invs., 334 F.3d 712, 716 (8th Cir. 2003). Application of these
interpretive rules indicates that the federal agencies are exempt from all state taxation
other than taxes on their own real estate holdings.
The Sixth Circuit has previously addressed an attempted imposition on the
FHFA of a Michigan real estate transfer tax similar to the Minnesota deed transfer tax.
In County of Oakland v. Federal Housing Finance Agency, that court reasoned that
"a straightforward reading of the [agency's] statute leads to the unremarkable
conclusion that when Congress said 'all taxation,' it meant all taxation." 716 F.3d 935,
940 (6th Cir. 2013) (emphasis in original). We agree with this reading of the
exemption language in the FHFA charter which is identical to that found in the
charters of Fannie Mae and Freddie Mac. Minnesota's deed transfer tax is a tax
imposed by the state on the transfer of real property, not on the real property itself.
It therefore does not fall within the real property exception to the agencies' broad tax
exemptions. We conclude that Fannie Mae, Freddie Mac, and the FHFA are exempt
from Minnesota's deed transfer tax.
We disagree with Hennepin County's argument that the Supreme Court decision
in United States v. Wells Fargo Bank, 485 U.S. 351 (1988), limited the meaning of
"all taxation" in an exemption statute to mean only "all direct taxation." In Wells
Fargo, the Court was considering the scope of a tax exemption created by the Housing
Act of 1937 for local financing instruments called "project notes," which had been
created to address the national housing shortage. Id. at 353. After reviewing its
precedent involving statutory tax exemptions for certain types of property, the Court
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concluded that "[w]ell before the Housing Act was passed, an exemption of property
from all taxation had an understood meaning: the property was exempt from direct
taxation, but certain privileges of ownership, such as the right to transfer the property,
could be taxed." Id. at 355 (emphasis in original). The Housing Act had designated
the project notes themselves to be exempt from taxation, saying nothing about their
transfer. Id. Because the estate tax in the Wells Fargo case was an excise tax levied
not on the notes themselves, but rather on their "use or transfer," the Court concluded
that the owners of the notes were subject to the tax. Id. at 355–56.
In reaching this conclusion in Wells Fargo, the Court did nothing to disturb its
prior holding in Federal Land Bank of St. Paul v. Bismarck Lumber Co., 314 U.S. 95
(1941). In Bismarck Lumber, the Court had considered whether the Federal Farm
Loan Act exempted federal land banks from having to pay North Dakota sales tax.
The Farm Loan Act stated that "'every Federal land bank . . . shall be exempt . . . from
. . . State . . . taxation, except taxes upon real estate." Id. at 96 n.1. The Court held in
Bismarck Lumber that "[t]he unqualified term 'taxation' . . . clearly encompasses
within its scope a sales tax such as the instant one." Id. at 99. The federal land banks
were therefore not subject to the state sales tax. The Court further ruled that the
statute's single exception for real estate indicated that the exemption applied to all
other taxes. See id. at 100.
Like the North Dakota sales tax in Bismarck Lumber, Minnesota's deed transfer
tax is an excise tax. See Rosenow v. State of Ill., Dep't of Rev., 715 F.2d 277, 279 n.4
(7th Cir. 1983). In contrast to the housing project note exemption in Wells Fargo and
like the statutory exemptions Congress created for the federal agencies, the language
of the Farm Loan Act in Bismarck Lumber exempted the banks themselves from
taxation. Bismarck Lumber, 314 U.S. at 99. Lower courts must follow Supreme
Court precedent which directly applies to a case before them, even if such precedent
might appear "to rest on reasons rejected in some other line of decisions." Rodriguez
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de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477, 484–85 (1989). The Supreme
Court has never explicitly or implicitly overruled Bismarck Lumber. Like the Sixth
and Seventh Circuits, we conclude that Bismarck Lumber controls the issue in this
case. Cty. of Oakland, 716 F.3d at 943; DeKalb Cty. v Fed. Housing Fin. Agency,
et al., --- F.3d ----, 2013 WL 6727323, *5 (7th Cir. Dec. 23, 2013). The plain
language of the federal statutes creating Fannie Mae, Freddie Mac, and the FHFA
exempts them from the Minnesota deed transfer tax. See also, Montgomery Cty.,
Maryland v. Fed. Nat'l Morg. Ass'n, et al., --- F.3d ----, 2014 WL 279852, *4 (4th Cir.
Jan. 27, 2014).
Hennepin County nevertheless argues that the Court's holding in Bismarck
Lumber applies only to federal instrumentalities and that the federal agencies do not
meet the test set in Lebron v. National Railroad Passenger Corporation. 513 U.S. 374
(1995). The County's reliance on Lebron is misplaced, however, since in that case the
Court only considered whether a private entity is a federal instrumentality "for the
purposes of the constitutional obligations of Government." 513 U.S. at 399. The
question here, in contrast, is whether the entities are governmental instrumentalities
which "Congress has the power to protect" through tax exemptions. Bismarck
Lumber, 314 U.S. at 102. As the Court stated in Bismarck Lumber, "any
constitutional exercise of [the federal government's] delegated powers" is
governmental, and "when Congress constitutionally creates a corporation through
which the federal government lawfully acts, the activities of such corporation are
governmental." Id. Because Congress had constitutionally created the federal land
banks to extend loans "on liberal terms to farm borrowers [by] foreclos[ing]
mortgages and purchasing the real estate at the resulting sale," the banks are
"'instrumentalities of the federal government'" which "Congress has the power to
protect" by exempting them from all taxation. Id. at 102.
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The facts in this case are nearly identical to those in Bismarck Lumber. Here,
Congress constitutionally created Fannie Mae and Freddie Mac to provide liberal
access to mortgage credit by buying mortgages, bundling them, and selling these
bundles as securities in the secondary market. Hennepin County does not dispute that
these federal entities have continued to serve this same mission through the very
activities it now wants to tax. The County claims that Fannie Mae and Freddie Mac
ceased to be federal instrumentalities upon becoming privatized, but we disagree. As
the Seventh Circuit has stated, "Congress's purpose in creating Fannie in the first
place—to expand homemortgage lending in the United States—remains federal
policy, and therefore remains the policy that private Fannie is obligated, as its sole
mission, to promote." DeKalb Cty, 2013 WL 6727323 at *7. We agree that the
federal agencies were privatized "in the hope . . . of making [them] more efficient in
pursuit of the federal policy that [their] charter[s] require[ them] to pursue." Id. The
congressional objective in creating them was "governmental, and unchanged; only the
means of achieving it has changed." Id. This objective is written into the agency
statutes which only Congress has the power to revise. Id. For all these reasons, no
question remains that Fannie Mae, Freddie Mac and the FHFA are governmental
instrumentalities which Congress has the authority to protect by exempting them from
taxation imposed by the states. See Bismarck Lumber, 314 U.S. at 102.
Finally, we conclude that the district court did not err by denying Hennepin
County's claims for unjust enrichment and injunctive relief. Unjust enrichment under
Minnesota law occurs when a party "has knowingly received or obtained something
of value for which [that party] in equity and good conscience should pay." Schaaf v.
Residential Funding Corp., 517 F.3d 544, 553–54 (8th Cir. 2008) (internal quotation
marks omitted). To state a claim, Hennepin County must allege "that a party was
unjustly enriched in the sense that the term 'unjustly' could mean illegally or
unlawfully." Id. at 554 (internal quotation marks omitted). Hennepin County alleges
that the entities were unjustly enriched by their failure to pay the Minnesota deed
transfer tax. Since the federal entities were under no legal obligation to pay these
taxes, there is no basis for an unjust enrichment claim nor for an injunction compelling
payment.
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Since Congress exempted Fannie Mae, Freddie Mac, and the FHFA from all
state taxation except on real property, and Minnesota's deed transfer tax falls within
this broad exemption, we affirm the district court's dismissal of Hennepin County's
claims and the denial of its request for declaratory judgment.
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