2013 U.S. Dist. LEXIS 86085
M.D. Pa.2013Background
- Plaintiff (a county recorder/collection agent) filed a proposed class action seeking unpaid realty transfer taxes on property transfers by Fannie Mae and Freddie Mac, and sought injunctive and restitutionary relief.
- Defendants are congressionally chartered entities (Fannie Mae, Freddie Mac) and FHFA as conservator; their charters contain broad exemptions from "all" state and local taxation except taxes on real property.
- Plaintiff alleges defendants routinely take title after foreclosures and then convey properties without paying Pennsylvania realty transfer taxes, depriving local taxing authorities of revenue.
- Defendants moved to dismiss under Rule 12(b)(6), arguing the charter language exempts them from the transfer taxes.
- The court considered precedent interpreting "all taxation" in entity-exemption statutes and focused on whether the transfer tax falls within the statutory real-property carve-out.
- The court granted the motion to dismiss and denied class certification as moot because the named plaintiff failed to state a claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether defendants are statutorily exempt from state/local realty transfer taxes | "All taxation" in charters does not exempt excise/transfer taxes; Wells Fargo controls so "all" means only direct taxes | Charter text plainly exempts "all" taxation of the entities; Bismarck and related authority allow Congress to exempt federally created entities | Court held defendants are statutorily exempt; Bismarck reasoning applies and "all" means all taxation of the entity |
| Whether the real-property exception ("any real property ... shall be subject to taxation") requires payment of transfer taxes | Transfer tax is effectively a tax on transfers and should fall within the real-property carve-out | The carve-out applies only to taxes on the property itself, not excise/transfer taxes on conveyance | Court held the carve-out inapplicable; transfer tax is an excise on transfer, not a tax on the property |
| Constitutional challenge under United States v. New Mexico | Even if statutory exemption exists, it would be unconstitutional because defendants are not true federal instrumentalities | New Mexico addresses constitutional (Supremacy Clause) immunity; Congress may statutorily exempt privately chartered entities | Court: New Mexico concerns constitutional immunity; it does not prevent Congress from statutorily exempting created entities, so no constitutional bar shown |
| Class certification after dismissal on the merits | Plaintiff sought class certification under Rule 23 | Defendants argued dismissal on merits should be decided first; dismissal would moot certification | Court dismissed the complaint on the merits and found class certification moot because no adequate class representative remained |
Key Cases Cited
- Fed. Land Bank of St. Paul v. Bismarck Lumber Co., 314 U.S. 95 (Congress may exempt federally created entities from state taxation)
- United States v. Wells Fargo Bank, 485 U.S. 351 (distinguishes direct property taxation from excise/transfer taxes)
- United States v. New Mexico, 455 U.S. 720 (constitutional limits on state taxation of the United States and instrumentalities)
- First Agricultural Nat’l Bank v. State Tax Comm’n, 392 U.S. 339 (statutory exemption of federally created bank from state tax upheld)
- Ariz. Dep’t of Revenue v. Blaze Constr. Co., 526 U.S. 32 (recognition that Congress may expressly exempt private companies from state taxes)
- United States v. City of Detroit, 355 U.S. 466 (Congressional exemptions from local taxation can be effective)