928 F.3d 141
1st Cir.2019Background
- In 2007 Faiella took a mortgage loan that was assigned to Fannie Mae and serviced by Ditech (formerly Green Tree).
- After intermittent defaults, Faiella tendered payments in Sept. 2015 but Ditech returned or rejected them and foreclosure proceeded; Fannie Mae purchased the property at the sale.
- Faiella sued in state court alleging wrongful foreclosure and later amended in federal court to assert damages claims (deceit and negligent misrepresentation) based on representations by Ditech employees, contending Fannie Mae was vicariously liable.
- Fannie Mae moved for summary judgment arguing the Merrill doctrine protects federal instrumentalities from vicarious liability for unauthorized acts, and alternatively raised the economic-loss doctrine; the district court granted summary judgment to Fannie Mae under Merrill.
- The district court record included Fannie Mae’s stipulation that Ditech acted as its agent for purposes of the motion; the court found no evidence of actual authority or Fannie Mae affirmative misconduct. Faiella appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Merrill doctrine applies to Fannie Mae | Faiella argued Fannie Mae should not get Merrill protection (citing its corporate form and prior holdings denying instrumentality status in other contexts) | Fannie Mae argued it is a federal instrumentality created by Congress to serve public mortgage-market goals and thus protected by Merrill | Merrill applies; Fannie Mae is a federal instrumentality for Merrill purposes |
| Whether "sue and be sued" statute waives Merrill protection | Faiella argued §1723a(a) (sue-and-be-sued) defeats Merrill protection | Fannie Mae argued that sue-and-be-sued does not permit liability for unauthorized agent acts; Merrill FCIC statute contains same language | Rejected; sue-and-be-sued does not override Merrill |
| Whether Merrill is limited to contract claims and not torts | Faiella argued Merrill covers contracts only, not tort-based claims | Fannie Mae argued Merrill applies to tort claims that seek to hold instrumentality vicariously liable for unauthorized agent acts | Rejected; Merrill bars tort claims tied to contractual duties with instrumentality |
| Whether Fannie Mae can be held liable because of apparent authority or affirmative misconduct | Faiella argued apparent authority or affirmative misconduct by Fannie Mae/Ditech (or need for more discovery) would defeat Merrill | Fannie Mae argued only actual authority or affirmative governmental misconduct can defeat Merrill; no record evidence supports either | Rejected; apparent authority insufficient, no evidence of actual authority or affirmative misconduct; summary judgment affirmed |
Key Cases Cited
- Fed. Crop Ins. Corp. v. Merrill, 332 U.S. 380 (1947) (establishes that federal government/instrumentalities are not vicariously liable for unauthorized acts of agents)
- Mendrala v. Crown Mortg. Co., 955 F.2d 1132 (7th Cir. 1992) (applied Merrill to Freddie Mac; preventing vicarious liability serves statutory mission)
- United States v. Flemmi, 225 F.3d 78 (1st Cir. 2000) (distinguishes actual authority from apparent authority; apparent authority cannot bind the federal sovereign)
- McCauley v. Thygerson, 732 F.2d 978 (D.C. Cir. 1984) (look to congressional intent in governing statute to determine instrumentality status)
- Phelps v. Federal Emergency Mgmt. Agency, 785 F.2d 13 (1st Cir. 1986) (Merrill doctrine grounded also in separation-of-powers and sovereign-immunity concerns)