Radatz v. Fed. Natl. Mtge. Assn.

[Cite as Radatz v. Fed. Natl. Mtge. Assn., 2014-Ohio-2179.]

Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA

JOURNAL ENTRY AND OPINION
No. 100205

REBEKAH R. RADATZ
PLAINTIFF-APPELLANT

vs.

FEDERAL NATIONAL MORTGAGE ASSOCIATION
DEFENDANT-APPELLEE

JUDGMENT:
REVERSED AND REMANDED

Civil Appeal from the
Cuyahoga County Court of Common Pleas
Case No. CV-03-507616

BEFORE: S. Gallagher, P.J., Rocco, J., and McCormack, J.

RELEASED AND JOURNALIZED: May 22, 2014
ATTORNEYS FOR APPELLANT

Brian Ruschel
925 Euclid Avenue
Suite 660
Cleveland, Ohio 44115

Patrick J. Perotti
Dworken & Bernstein Co., L.P.A.
60 South Park Place
Painesville, Ohio 44077

ATTORNEYS FOR APPELLEE

J. Philip Calabrese
Richard Gurbst
Squire Sanders (US) L.L.P.
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114-1304

Jeffrey Kilduff
O’Melveny & Myers, L.L.P.
1625 Eye Street, N.W.
Washington, D.C. 20006
SEAN C. GALLAGHER, P.J.:

{¶1} Plaintiff-appellant Rebekah Radatz, individually and on behalf of the certified

class members (collectively “Plaintiffs”), appeals from the trial court’s decision to

dismiss all claims against the defendant-appellee Federal National Mortgage Association

(“Fannie Mae”), based on the claim that the trial court lacked subject matter jurisdiction.

For the following reasons, we reverse the decision of the trial court and remand for

further proceedings.

{¶2} In 2003, Radatz filed a complaint alleging individual and class action claims

against Fannie Mae. Radatz alleged that Fannie Mae failed to comply with R.C.

5301.36(B) and file a satisfaction of a residential mortgage within 90 days from the date

that she and other similarly situated mortgagors satisfied the loan debt. Radatz and the

class, certified in December 2006, each sought to recover statutory damages in the

amount of $250 pursuant to R.C. 5301.36(C). During discovery, it was determined that

the class consisted of well over 100,000 individuals.

{¶3} “Fannie Mae was established in 1938 as a federal agency and was converted

into a private corporation in 1968. * * * ‘[Fannie Mae is] structured as [a] private

[corporation], but [is] federally chartered and play[s] an important role in the national

housing market by making it easier for home buyers to obtain loans.’” Fed. Hous. Fin.

Agency v. Royal Bank of Scotland Group P.L.C., D.Conn. No. 3:11-cv-01383, 2012 U.S.

Dist. LEXIS 116292, 3-4 (Aug. 17, 2012), quoting Judicial Watch, Inc. v. Fed. Hous. Fin.

Agency, 646 F.3d 924, 926, (D.C.Cir.2011). In response to the housing and mortgage
market crisis in July 2008, Congress passed the Housing and Economic Recovery Act of

2008 (“HERA”), creating the Federal Housing Finance Agency (“FHFA”). Id.

Congress granted the director of the FHFA conditional authority to place regulated

entities, such as Fannie Mae, into conservatorship or receivership “‘for the purpose of

reorganizing, rehabilitating, or winding up [their] affairs.’” Id., quoting 12 U.S.C.

4617(a). “On September 6, 2008, the Director of the FHFA placed Fannie Mae under

the FHFA’s temporary conservatorship with the objective of stabilizing the institutions so

they could return to their normal business operations.” Id.

{¶4} Meanwhile in September 2010, and after Fannie Mae’s unsuccessful attempt

to remove the action to federal court in light of HERA, Plaintiffs began compiling the list

of class members. Plaintiffs completed the list — numbering over 100,000 — in

February 2013 and promptly notified Fannie Mae. Seemingly in response, on March 13,

2013, Fannie Mae filed a motion to dismiss all claims, arguing that the trial court lacked

jurisdiction because of a consent order issued by the FHFA director just four days earlier.

It is undisputed that through the sole directive in the consent order, the FHFA director

decreed that Fannie Mae was to cease and desist violating 12 U.S.C. 4617(j)(4), the

so-called Penalty Bar provision that grants immunity to the FHFA from paying “any

amount in the nature of penalties and fines.” Fannie Mae argued that through 12 U.S.C.

4635(b), the grant of immunity pursuant to 12 U.S.C. 4617(j)(4) became a jurisdictional

concept, and therefore, the trial court lacked jurisdiction to affect any order issued by the

FHFA director. In order to follow Fannie Mae’s logic, it must be determined whether
any damages awarded to the Plaintiffs would necessarily affect the consent order. Fannie

Mae considers the statutory damages pursuant to R.C. 5301.36(C) to be in the nature of a

fine or penalty. In light of Fannie Mae’s argument, the trial court granted the Civ.R.

12(B)(1) motion and dismissed Plaintiffs’ claims with prejudice on the basis that the trial

court was divested of jurisdiction to enter a judgment in their favor against Fannie Mae.

{¶5} Plaintiffs timely appealed the trial court’s decision, advancing two

assignments of error. In the second assignment of error, the Plaintiffs claim the trial

court erred in declining jurisdiction because the FHFA order violated the Plaintiffs’ due

process rights and was otherwise unenforceable. We need not address the second

assignment of error. In their first assignment of error, Plaintiffs contend that neither 12

U.S.C. 4635(b) nor 4617(j)(4) divested the trial court of jurisdiction to resolve the claims,

and therefore, the trial court erred by dismissing all claims against Fannie Mae. We find

merit to Plaintiffs’ first assignment of error. The trial court was not divested of

jurisdiction. Accordingly, any claims advanced in the second assignment of error are

moot.

{¶6} A trial court’s decision on a Civ.R. 12(B)(1) motion to dismiss for lack of

subject matter jurisdiction is reviewed under a de novo standard of review. Rheinhold v.

Reichek, 8th Dist. Cuyahoga No. 99973, 2014-Ohio-31, citing Bank of Am. v. Macho, 8th

Dist. Cuyahoga No. 96124, 2011-Ohio-5495, ¶ 7. The sole question for our

consideration, therefore, is whether the trial court erred in holding that the FHFA consent

order divested the trial court of jurisdiction over the Plaintiffs’ claim for statutory
damages. After reviewing the record and arguments, we must answer that question in the

affirmative.

{¶7} Plaintiffs’ claims against Fannie Mae are predicated on the allegation that,

pursuant to R.C. 5301.36(B), Fannie Mae failed to record the satisfaction of a residential

mortgage within 90 days of the mortgagor satisfying the loan. As a result, Plaintiffs seek

statutory damages in the amount of $250 per individual, injured mortgagor. R.C.

5301.36(C). Fannie Mae argues that pursuant to a federal statute, it is immune from

liability for any penalties or fines provided for in the Ohio Satisfaction of Residential

Mortgage Statute and because the director of the FHFA incorporated the immunity

language of 12 U.S.C. 4617(j)(4) into a consent order, the trial court lacked jurisdiction to

render a judgment upon the merits of Plaintiffs’ statutory claim for damages. Inherent in

that argument is the concept that any damages awarded pursuant to R.C. 5301.36(C) are

in the nature of a penalty or fine.

{¶8} Congress granted the FHFA immunity from liability for any “amounts in the

nature of penalties or fines, including those arising from the failure of any person to pay

any real property, personal property, probate, or recording tax, or any recording or filing

fees when due.” 12 U.S.C. 4617(j)(4). Courts have construed this grant of immunity to

apply to the imposition of fees or penalties against Fannie Mae while under the direction

and control of the FHFA through conservatorship or receivership. 1 Fed. Hous. Fin.

1
We need not address this issue for the purposes of the current case although it was raised by
Plaintiffs in the briefing, and therefore, summarily rely on the interpretation of the statute as provided
by other courts from around the country. The determination of whether Fannie Mae is included in
Agency v. Chicago, 962 F.Supp.2d 1044 (N.D.Ill.2013); Nevada v. Countrywide Home

Loans Servicing, L.P., 812 F.Supp.2d 1211 (D.Nev.2011); Higgins v. BAC Home Loans

Servicing, L.P., E.D.Ky. No. 12-cv-183-KKC, 2014 U.S. Dist. LEXIS 43278 (Mar. 31,

2014). Congress, in establishing the FHFA’s authority pursuant to HERA, further

prescribed that no court “shall have jurisdiction to affect, by injunction or otherwise, the

issuance or enforcement of any notice or order” issued pursuant to 12 U.S.C. 4631 (cease

and desist orders), or to “review, modify, suspend, terminate, or set aside any such notice

or order.” 12 U.S.C. 4635(b).

{¶9} Before addressing the application of the federal statutes to the current facts, it

is important to understand the extent of the FHFA consent order. On March 9, 2013, the

acting director of the FHFA issued a consent order stating as follows:

Pursuant to 12 U.S.C. § 4631 [(cease and desist proceedings)], [Fannie
Mae] and Federal Home Loan Mortgage Corporation (“Freddie Mac”)
(together “the Enterprises”) are hereby ordered to cease and desist from
violating 12 U.S.C. § 4617(j)(4) by paying, for any reason, directly or
indirectly, any fines or penalties imposed by any state mortgage satisfaction
law on the Enterprises for noncompliance. Furthermore, Fannie Mae is
ordered to cease and desist from violation 12 U.S.C. § 4617(j)(4) by paying,
for any reason, directly or indirectly, any amount pursuant to Ohio Code
5301.36 or pursuant to any judgment in connection with the pending
lawsuit styled Radatz v. Fed. Nat’l Mortgage Ass’n, Case No.
CV-03-507616 (Ohio Com. Pleas).

(Emphasis added.) There are two important facets of the FHFA’s consent order. First,

as emphasized in the quoted language, the order states that Fannie Mae is prohibited from

the statutory grant of immunity conferred on the FHFA does not alter the disposition of the current
case. Our resolution of that issue, therefore, is unnecessary for the purposes of this appeal.
paying “any amount” pursuant to R.C. 5301.36(C) based on 12 U.S.C. 4617(j)(4). “It is

well settled that ‘the starting point for interpreting a statute is the language of the statute

itself.’” Oakland v. Fed. Hous. Fin. Agency, 716 F.3d 935, 939-940 (6th Cir.2013),

quoting Gwaltney of Smithfield, Ltd. v. Chesapeake Bay Found., Inc., 484 U.S. 49, 56,

108 S.Ct. 376, 98 L.Ed.2d 306 (1987). “‘[W]hen the statutory language is plain, [the

court] must enforce it according to its terms.’” Id., quoting Jimenez v. Quarterman, 555

U.S. 113, 118, 129 S.Ct. 681, 172 L.Ed.2d 475 (2009). “Analysis of any challenged

action is necessary to determine whether the action falls within the broad, but not infinite,

conservator authority.” Sonoma v. Fed. Hous. Fin. Agency, 710 F.3d 987, 994 (9th

Cir.2013). “[I]f the FHFA were to act beyond statutory or constitutional bounds in a

manner that adversely impacted the rights of others,” nothing in 12 U.S.C. 4617 prevents

courts from delving into the FHFA’s authority to act. In re Fed. Home Loan Mtge. Corp.

Derivative Litigation, 643 F.Supp.2d 790, 799 (E.D.Va.2009).

{¶10} Thus, the language in the consent order cannot be read in isolation from the

statutory language empowering FHFA’s and Fannie Mae’s immunity. The language of

the consent order must be informed by a plain reading of 12 U.S.C. 4617(j)(4), which

grants the FHFA immunity, but in doing so, modifies “any amount” with the descriptive,

“in the nature of penalties or fines.” Accordingly, inasmuch as the consent order states

that Fannie Mae is prohibited from paying “any amounts in connection” with the

underlying case, the extent of the cease and desist order is limited to Congress’s grant of

immunity to the FHFA and Fannie Mae, immunizing Fannie Mae from paying “any
amounts” in the nature of penalties or fines in connection with the underlying case.

Fannie Mae has cited no authority establishing the basis of the FHFA’s authority to

infinitely immunize Fannie Mae from paying any amounts stemming from any actions.

{¶11} Second, and more important, the consent order directly acknowledges the

trial court’s ability to grant a judgment in favor of Plaintiffs and against Fannie Mae

based on a violation of Ohio’s mortgage satisfaction law. In the consent order, the acting

director of the FHFA expressly provided that Fannie Mae must cease and desist from

paying any amount, subject to the modifier, in the nature of fines or penalties, pursuant to

any judgment issued in the “pending” underlying case or any imposition of fines or

penalties pursuant to a state’s mortgage satisfaction laws. In simple terms, the consent

order did not facially prohibit the trial court from entering a judgment against Fannie Mae

in this case or generally imposing damages against Fannie Mae based on R.C.

5301.36(C). Instead, the order acknowledged the possibility of a judgment or imposition

of damages in the pending action and expressed Congress’s intent to limit Fannie Mae’s

liability for paying any amount in the nature of a penalty or fine pursuant to 12 U.S.C.

4617(j)(4). With this understanding, the scope of the party’s arguments, as framed, is

limited to whether any judgment in the trial court in the current case would affect the

consent order, pursuant to 12 U.S.C. 4635(b), or whether a judgment entered would be in

the nature of a penalty or fine levied against Fannie Mae, pursuant to 12 U.S.C.

4617(j)(4), the two jurisdictional bars advanced by Fannie Mae.
 {¶12} In this case, the former inquiry is subsumed by the latter. The consent order

merely orders Fannie Mae to cease and desist violating 12 U.S.C. 4617(j)(4). The only

order that would affect the consent order would be an order forcing Fannie Mae to pay

any amount in the nature of a penalty or fine stemming from this particular case. The

prohibition against assessing penalties or fines against the FHFA or Fannie Mae,

however, is not grounds to divest the court of jurisdiction. See Higgins, E.D.Ky. No.

12-cv-183-KKC, 2014 U.S. Dist. LEXIS 43278 (noting that 12 U.S.C. 4617(j)(4)

prohibits the imposition of fines or penalties against Fannie Mae or the FHFA); Chicago,

962 F.Supp.2d 1044 (12 U.S.C. 4617(j)(4), exempts the FHFA from the imposition of

fines and penalties). Neither courts in Higgins or Chicago addressed 12 U.S.C.

4617(j)(4) from a jurisdictional standpoint, and tellingly, Fannie Mae cited no authority

for the proposition that the immunity from liability to pay penalties or fines is

jurisdictional.

{¶13} We acknowledge the fact that Higgins is distinguishable from the current

facts in that the FHFA never issued a consent order to protect Fannie Mae as it did in the

underlying case. We cannot escape the conclusion that the consent order appears to

merely parrot the statutory immunity in an overt attempt to create a jurisdictional issue

through 12 U.S.C. 4635(b), which is not expressly provided for in the statutory scheme

granting the FHFA and, in this instance, Fannie Mae, immunity from paying any amounts

in the nature of penalties or fines pursuant to 12 U.S.C. 4617(j)(4). Nevertheless, this

issue is not currently before this court, and we assume for the sake of this appeal that the
conservator had authority to enter the consent order mimicking the immunity language of

12 U.S.C. 4617(j)(4).

{¶14} In order for a judgment in the underlying case to affect the consent order,

Fannie Mae must assume that the damages awarded pursuant to R.C. 5301.36(C) are in

the nature of a penalty or fine. In interpreting the Ohio General Assembly’s intent, the

Ohio Supreme Court held, however, that

the statutory language is clear: R.C. 5301.36(C) expressly provides that a
mortgagor “in a civil action” may sue for “damages.” To conclude that
R.C. 5301.36(C) creates a penalty, this court would have to delete the term
“damages,” a word used by the legislature, and insert the term “penalty” or
“forfeiture,” words not chosen by the legislature. Doing so would flout our
responsibility to give effect to the words selected by the legislature in
enacting a statute.

Rosette v. Countrywide Home Loans, Inc., 105 Ohio St.3d 296, 2005-Ohio-1736, 825

N.E.2d 599, ¶ 13. In that case, the Ohio Supreme Court faced the issue of whether to

apply the one-year statute of limitations for an action upon a statute for a penalty or

forfeiture, or the six-year limitations period for a statutory liability action. Id. at ¶ 11.

Subsequently, the Ohio Supreme Court clarified that the compensatory damages imposed

by R.C. 5301.36(C) are “more akin to stipulated or liquidated damages” rather than

punitive damages that are meant to punish the wrongdoers. Cleveland Mobile Radio

Sales, Inc. v. Verizon Wireless, 113 Ohio St.3d 394, 2007-Ohio-2203, 865 N.E.2d 1275, ¶

13. In the latter case, the court noted the difference between damages awarded in the

nature of compensatory damages and treble “damages,” which serve a punitive

objective. Id. at ¶ 14.
 {¶15} Inasmuch as federal law controls this issue of whether damages are in the

nature of a penalty or fine, in order to determine whether a “particular statutory provision

is penal in nature,” federal courts use a three-tiered analysis: (1) whether the purpose of

the damages is to redress individual or public wrongs, (2) whether the recovery runs to

the individual or the public, and (3) whether the recovery is disproportionate to the harm

suffered. Asklar v. Honeywell, Inc., 95 F.R.D. 419, 423 (D.Conn.1982); Higgins,

E.D.Ky. No. 12-cv-183-KKC, 2014 U.S. Dist. LEXIS 43278, at *13 (also noting that

damages are commensurate with the injury received while a penalty has no reference to

the actual loss sustained by the individual suing for recovery).

{¶16} On this point, the federal district court’s decision in Higgins is instructive.

In that case, Fannie Mae and the FHFA advanced the same arguments: that Fannie Mae is

immune from any judgment because of the immunity from the imposition of fines or

penalties afforded by 12 U.S.C. 4617(j)(4), albeit based on Kentucky’s recording statute

that establishes up to treble damages for any mortgagee’s failure to record assignments of

the mortgage. Higgins at *15. The Higgins court noted that the remedy provided by

Kentucky’s recording statute inured to the affected individual as a form of liquidated

damages for the mortgagee’s violation. Id. In light of that finding, the court denied

Fannie Mae and the FHFA’s motion to dismiss. The federal district court could not only

award damages, but those damages could be imposed against Fannie Mae and the FHFA

because the damages were outside the scope of their statutory immunity. Id.
 {¶17} In an attempt to deem Ohio’s interpretation of its own statutory award of

damages in conflict with the federal court’s separate analysis used to determine whether

an award is penal or compensatory, Fannie Mae cites Bowles v. Farmers Natl. Bank of

Lebanon, Kentucky, 147 F.2d 425, 428 (6th Cir.1945), and Schaefer v. H.B. Green

Transp. Line, Inc., 232 F.2d 415, 418 (7th Cir.1956). Neither case supports Fannie

Mae’s position. Bowles is consistent with Higgins. The statute at issue in Bowles

provided that the damages for any violations were to be recovered by the government,

which converts damages into those in the nature of a penalty. Bowles at 428. On the

other hand, Schaefer is simply inapplicable. In that case, the plaintiff shareholder

impermissibly attempted to enforce an Illinois statutory provision against an Iowa

corporation because no Iowa statute penalized the conduct that an Illinois statute

penalized. Schaefer at 416. The facts and issues in Schaefer simply have no relevance

to the facts or issues advanced in the current case. Fannie Mae offered no other analysis

or evidence to demonstrate that any damages awarded pursuant to R.C. 5301.36(C) are in

the nature of a penalty or a fine.

{¶18} The factual underpinnings of the current case are sufficiently similar to

those addressed in Higgins, E.D.Ky. No. 12-cv-183-KKC, 2014 U.S. Dist. LEXIS 43278.

Not only has the Ohio Supreme Court referred to the damages awarded pursuant to R.C.

5301.36(C) as liquidated, and thus compensatory damages, but the damages inure to the

benefit of the individuals aggrieved by Fannie Mae’s failure to timely file the satisfaction

of judgment as mandated by Ohio law. See also Asklar, 95 F.R.D. at 423. More
important, unlike the statute at issue in Higgins, which awarded treble damages and yet

was deemed compensatory in nature, R.C. 5301.36(C) does not award treble or other

presumptively punitive damages.

{¶19} As a result, the result is the same either under Ohio’s interpretation of its

own statute or the federal analysis. R.C. 5301.36(C) awards compensatory damages.

Those damages are not in the nature of a penalty or fine. Therefore, any judgment

awarded by the lower court would not violate any immunity conferred by 12 U.S.C.

4617(j)(4). Any judgment or imposition of damages pursuant to R.C. 5301.36(C) is not

in the nature of a penalty or fine. Therefore, the trial court erred by relying on the

statutory immunity as grounds to dismiss Plaintiffs’ complaint.

{¶20} Finally, in light of the determination that any judgment awarded in the lower

court would not affect the immunity conferred by 12 U.S.C. 4617(j)(4), the court did not

lack jurisdiction to dispose of the merits of the class action complaint. Pursuant to 12

U.S.C. 4635(b), the trial court was divested of jurisdiction to issue any order that affected

the FHFA consent order. Because any damages awarded through a judgment in the

lower court action are not in the nature of a penalty or fine, the court had jurisdiction to

dispose of the merits of all claims and to award damages to Plaintiffs based on Fannie

Mae’s alleged violation of R.C. 5301.36(C). Further, the FHFA consent order itself

contemplated a judgment. It must logically follow that the trial court was not divested of

jurisdiction. Any judgment in the underlying case could not possibly affect a consent

order that specifically contemplated such a judgment being imposed in the first place.
 {¶21} Plaintiffs in this case do not otherwise seek relief expressly banned by the

FHFA consent order, or an injunction to prevent its enforcement, or declaratory relief to

have the consent order declared invalid. See Rex v. Chase Home Fin. L.L.C., 905

F.Supp.2d 1111 (C.D.Cal.2012) (deciding that based on a similar federal statutory

scheme, the trial court possessed jurisdiction because the defendants did not provide the

legal authority or evidence to show that the relief in the complaint actually affected a

consent order). Plaintiffs merely seek the resolution of the merits of the class action

claims that have been pending for more than a decade. Resolution of those claims will

not affect or otherwise impede application of the consent order, and therefore, the trial

court was not divested of jurisdiction in the underlying case.

{¶22} For the foregoing reasons, we reverse the decision of the trial court

dismissing all claims based on the lack of subject matter jurisdiction and we remand the

case for further proceedings consistent herein.

It is ordered that appellant recover from appellee costs herein taxed.

The court finds there were reasonable grounds for this appeal.

It is ordered that a special mandate issue out of this court directing the common

pleas court to carry this judgment into execution.

A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of

the Rules of Appellate Procedure.

SEAN C. GALLAGHER, PRESIDING JUDGE
KENNETH A. ROCCO, J., and
TIM McCORMACK, J., CONCUR