DeKALB COUNTY, et al., Plaintiffs-Appellants, v. FEDERAL HOUSING FINANCE AGENCY, et al., Defendants-Appellees, and United States of America, Intervening-Appellee.
Nos. 13-1558, 13-1559, 13-1611, 13-2739
United States Court of Appeals, Seventh Circuit.
Decided Dec. 23, 2013.
Rehearing and Rehearing En Banc Denied March 5, 2014.
741 F.3d 795
The Flukers also challenge the district court‘s denial of their attempt to file a second amended complaint, which we also review for an abuse of discretion. See Gandhi v. Sitara Capital Mgmt., LLC, 721 F.3d 865, 868 (7th Cir.2013). Their brief, however, does not contain a legal argument as to how the judge abused his discretion. They simply argue that they “should not have been put in the position of seeking to voluntarily dismiss” and “were cornered into doing so.” Any argument on this ground is thus waived. See United States v. Hassebrock, 663 F.3d 906, 914 (7th Cir.2011) (explaining that “perfunctory and undeveloped arguments, and arguments that are unsupported by pertinent authority, are waived” (quoting United States v. Berkowitz, 927 F.2d 1376, 1384 (7th Cir.1991))).
CONCLUSION
The district court did not err by addressing the merits of the Flukers’ suit after making an initial determination on the
Craig Steven Mielke, Foote, Mielke, Chavez & O‘Neil LLC, Geneva, IL, for Plaintiff-Appellant.
Michael A. Johnson, Arnold & Porter, Washington, DC, Michael D. Leffel, Madison, WI, Robert J. Emanuel, Much Shelist, P.C., Leonard S. Shifflett, Quarles & Brady LLP, Chicago, IL, for Defendants-Appellees.
Patrick J. Urda, Attorney, Department of Justice, Washington, DC, for Intervening-Appellee.
Bernard Eric Restuccia, Office of the Attorney General, Lansing, MI, for Amicus Curiae.
Before BAUER, CUDAHY, and POSNER, Circuit Judges.
These consolidated appeals, by Illinois counties, the state of Illinois, and a Wisconsin county, present a common question, to which the answer given by the district courts was “no.” It is whether a state and its local subdivisions (counties, in this case) can levy a tax on sales of real property by Fannie Mae (official name: Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation), a similar entity that, to simplify our opinion, we‘ll largely ignore. (So except where otherwise indicated, whenever we say Fannie this should be understood to mean Fannie plus Freddie.) The grounds are both statutory and constitutional, and it is because there is a constitutional challenge to a federal statute (actually two statutes—Fannie‘s and Freddie‘s) that the United States has intervened as an additional appellee. See
Fannie Mae was created by Congress in 1938 to bolster the housing market by providing federal money to finance home mortgages. It was tasked by Congress with buying mortgages from banks that had made mortgage loans, thus pumping money into the banking industry that could be used to make more such loans. At the outset Fannie Mae was a federal agency, federally financed. Its charter, which defined its function (just described), provided that it was exempt from state or local taxation, except real property taxation. See
Freddie Mac was created two years later, as a private corporation with the same tax exemption as Fannie. See
Fannie traditionally followed conservative mortgage financing practices, and foreclosures by it were very few. But beginning in 1995 and accelerating throughout the early 2000s, it bought risky mortgages and got caught up in the housing bubble; and when the bubble burst found itself owning an immense inventory of defaulted and overvalued subprime mortgages. In fact it went broke, and since 2008 has been in conservatorship. The conservator is its regulatory agency, the Federal Housing Finance Agency—hence the agency‘s presence in these appeals as a party. See Office of the Inspector General, Federal Housing Finance Agency, “Conservatorship FAQs,” http://fhfaoig.gov/LearnMore/FAQ (visited Dec. 19, 2013). A conservatorship is like a receivership, except that a conservator, like a trustee in a reorganization under Chapter 11 of the Bankruptcy Code, tries to return the bankrupt party to solvency, rather than liquidating it. (Fannie and Freddie probably are not subject to the Bankruptcy Code and thus not eligible for Chapter 11 reorganization. For a thoughtful discussion, see Richard Scott Carnell, “Handling the Failure of a Government-Sponsored Enterprise,” 80 Wash. L. Rev. 565, 609-12 (2005).)
The hit that Fannie took beginning in 2008 coincided with the decline in states’ fiscal fortunes caused by the effect on their tax base of the financial crisis and ensuing economic depression. So at the same time that Fannie found itself for the first time making frequent sales of property that it had foreclosed on (since the owner of the mortgage usually obtains title to the mortgaged property in the event of a default), the states (including their subdivisions, such as counties) found themselves in dire need of additional tax revenues but reluctant to impose or increase taxes that would drive businesses and people to lower-tax states.
Illinois and Wisconsin, like all the other states, have a tax, called a real estate transfer tax, applicable when real property changes hands. Illinois‘s tax is 50 cents for every $500 of the property‘s total value.
Illinois and its subdivisions and many other states and their subdivisions (such as Milwaukee County) decided to impose the real estate transfer tax on Fannie‘s sales of foreclosed property to home buyers notwithstanding Fannie‘s statutory exemption from state taxation. There was no danger that taxing Fannie would drive people or businesses out of a state, and the number of foreclosures made it possible that the imposition of such a tax on Fannie would produce significant revenue for a state and its counties.
The appellants argue that the statutory term “all taxation” does not include excise taxes. The appellees reply that “all” means “all” (unless explicitly qualified, as by “all except,” which is what the Fannie Mae statute does with real property taxation). That isn‘t always true, however; often there are implicit exceptions. If a sign reads “All vehicles must be out of the park grounds by 8 p.m.,” this doesn‘t necessarily include police cars and other public safety vehicles. See H.L.A. Hart, “Positivism and the Separation of Law and Morals,” 71 Harv. L. Rev. 593, 606-07 (1958). But the taxation provision in the Fannie Mae statute is not comparable. It says “all taxation . . . except” taxes on real property, and having carved an express exception for one type of tax Congress could be expected to make an express exception for any other type of tax that it wanted state and local governments to be permitted to levy on Fannie.
Moreover, had states wanted to be permitted to tax property sales by Fannie, why wouldn‘t Congress have included an express exception from the exemption for such taxation in the 1968 statute? After all, members of Congress are well attuned to the financial interests of the states and localities they represent. See, e.g., The Federalist No. 36 (Hamilton) (pp. 173-74 of Federalist, supra). They may have felt that their constituents would be disserved by allowing state taxation of Fannie, because by increasing Fannie‘s costs it would reduce its ability to purchase mortgages, to the detriment of the state‘s home buyers.
The appellants latch on to the fact that the exception the Court recognized for transfer taxes was not express; the statute said “all taxation” and not “all taxation except transfer taxes.” But they misread the statute. It said that the project notes themselves were nontaxable—not that their transfer was nontaxable. The Court was saying that an exemption from property taxes, such as a tax on project notes, is not an exemption from transfer taxes as well, because a transfer tax is not a property tax even when the transfer is of property.
Had the Supreme Court meant to hold that the term “all taxation” means just property taxation—a very strange reading, equivalent to interpreting “all soup” to mean “all lobster bisque“—it would have had to overrule Federal Land Bank of St. Paul v. Bismarck Lumber Co., 314 U.S. 95 (1941). In that case the Court had held that a statute which stated that “every Federal land bank . . . shall be exempt from Federal, State, municipal, and local taxation, except taxes upon real estate held, purchased, or taken,” id. at 96 n. 1, exempted land banks from sales taxes on property that they bought. Id. at 99-100. Wells Fargo does not even cite Bismarck.
Fannie‘s tax exemption, like that of the federal land banks in Bismarck, exempts an entity—Fannie—and not just its property, which was the issue in Wells Fargo. For an excise tax, such as the real estate transfer tax, is a tax imposed on the entity, rather than just on the entity‘s property. Of course the entity pays the tax in both cases (though in the case of the excise tax the entity may as we noted shift the burden of the tax to its customers), but the cases distinguish between exempting the entity from all taxes not specifically excepted from the exemption, and a tax limited to a specific activity or specific assets of the entity.
The structure of the real-property exception to Fannie‘s tax exemption is different from the (implicit) exception in Wells Fargo, because the statute lists what is exempt: “the corporation, including its franchise, capital, reserves, surplus, mortgages or other security holdings, and income.” Because the list consists largely of different forms of property, and “capital” might be thought to include Fannie‘s real estate, prudence required making the exception for real property express. There
But why the exception for real property? The parties do not tell us (maybe they don‘t know). We conjecture that it‘s because state and local government provides a variety of services to buildings (police and fire protection, for example), financed to a considerable extent by taxes on real property. It would seem odd, and even rather petty, for the federal government to say we want those services for our buildings but we don‘t want to pay for them. It would be especially odd for Fannie to enjoy an exemption from real estate taxes on houses that it had obtained in foreclosure sales.
But this is a detail. The important point is that, as is plain from reading Wells Fargo, and plainer still when it is read in conjunction with Bismarck, the Fannie Mae statute exempts Fannie from real estate transfer taxes levied by state or local government, as has been held by the only other federal court of appeals to have addressed the issue: County of Oakland v. Federal Housing Finance Agency, 716 F.3d 935 (6th Cir.2013). (Illinois and Wisconsin are not the only states that in recent years have tried to impose their real estate transfer taxes on Fannie and Freddie.)
Milwaukee County argues in the alternative that its real estate transfer tax is a property tax and is therefore excluded from Fannie Mae‘s tax exemption. The Wisconsin statute imposes “on the grantor of real estate a real estate transfer fee . . . [that] shall be collected by the [county] register [of deeds] at the time the instrument of conveyance [ordinarily a deed] is submitted for recording.”
The appellants’ fallback position is that if (as we have just held) the Fannie Mae statute does exempt Fannie from transfer taxes, the statute is unconstitutional. We confine our discussion to the appellants’ non-frivolous constitutional arguments.
The constitutional basis for the statute is the commerce clause, and it is obvious that the home mortgage market is nationwide, and indeed worldwide, with home mortgages being traded in vast quantities across state lines. But the appellants argue that statutes authorized by the commerce clause must be subordinated to state and local tax statutes because taxation is fundamental to state sovereignty. Wrong. No provision of the Constitution insulates state taxes from federal powers granted by the Constitution, which include of course the power of Congress “to regulate Commerce with foreign Nations, and among the several States. . . .”
It‘s true that out of respect for state quasi-sovereignty (quasi because of course the states are not independent nations) the Supreme Court has ruled that a federal statute preempts state taxation “only if that result is ‘the clear and manifest purpose of Congress.‘” Department of Revenue of Oregon v. ACF Industries, Inc., 510 U.S. 332, 345 (1994) (quoting Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947)). The word “manifest” in the formula adds emphasis, not meaning. The scope of the exemption in the Fannie Mae statute could not be clearer.
The appellants acknowledge as they must that a state or local government can‘t tax a federal agency. E.g., McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 431 (1819) (Marshall, C.J.) (because “the power to tax involves the power to destroy“); United States v. New Mexico, 455 U.S. 720, 730 (1982). So it couldn‘t tax Fannie when it was a federally owned corporation; but it can now, the appellants argue, because it‘s privately owned. We doubt that Fannie lacks the protection of the implied constitutional immunity from state taxation, created by McCulloch. (We‘ll come back to this point momentarily.) But if it does, that would make no difference; for Fannie is not invoking the implied constitutional immunity created by McCulloch but rather an express statutory immunity. See First Agricultural Nat‘l Bank of Berkshire County v. State Tax Comm‘n, 392 U.S. 339, 341 (1968). The appellants argue that the constitutional and statutory exemptions must be identical. That is nonsense; it would curtail Congress‘s power under the commerce clause, with no basis in the Constitution. See Arizona Dep‘t of Revenue v. Blaze Construction Co., 526 U.S. 32, 35-36 (1999); Carson v. Roane-Anderson Co., 342 U.S. 232, 233-34 (1952).
The reason we doubt that the conversion stripped Fannie of its implied constitutional tax exemption is that if Fannie was a “federal instrumentality” before its privatization—as clearly it was and was therefore, as the appellants concede, immune then from taxation by virtue of the McCulloch line of cases, it is a federal instrumentality now. Congress‘s purpose in creating Fannie in the first place—to expand home-mortgage lending in the United States—remains federal policy, and therefore remains the policy that private Fannie is obligated, as its sole mission, to promote. Its charter was unchanged when Fannie was privatized, and can‘t be altered by Fannie—only by Congress, for the charter is statutory. See
Freddie was private from the beginning, but its charter like that of Fannie makes clear that its sole purpose, like Fannie‘s, is to promote federal home financing policy.
There is one loose end to tie up: a question of jurisdiction over Brian Hamer, the Director of the Illinois Department of Revenue. What for the sake of simplicity we‘ve been treating as two suits, an Illinois suit and a Wisconsin suit, is actually three suits: a suit by Illinois counties, a suit by Milwaukee County, and a suit by Fannie, Freddie, and their conservator, the Federal Housing Finance Agency. Although Fannie, Freddie, and the agency were the defendants in the Illinois county suit and so were free to make their claims as counterclaims, they wanted relief against all the county recorders who had sent Fannie and Freddie demand letters. They also wanted relief against Hamer because, as we know, the State of Illinois and not just its counties wants to impose the real estate transfer tax on Fannie and Freddie. The appellees want to scotch that prospect by obtaining declaratory relief against the Illinois taxing authority. (They are suing Hamer in his official capacity, which means they‘re suing the state‘s Department of Revenue—the state‘s tax collector.) Of course even without such a judgment, a suit by the Department against Fannie and Freddie would be blocked by stare decisis. But they and their conservator want the even greater protection that a judgment against the Department would provide by virtue of the doctrine of res judicata.
Hamer makes wild claims for immunity on grounds of sovereign immunity, comity, and federalism, which we‘ll ignore. His principal claim is that he (by which he means the state) is immune from the suit against him by virtue of the Tax Injunction Act,
Fannie does not contest the applicability to it of the Tax Injunction Act; Freddie does contest it, on the basis of a statutory provision, having no counterpart in the Fannie Mae statute, that provides that “notwithstanding . . . any other provision of law, . . . the district courts of the United States shall have original jurisdiction of all [civil] actions” to which Freddie is a party.
The appellants ask us to pierce the veil, as it were, in recognition of the fact that if the tax is paid, it will be paid from assets or income of Fannie or Freddie. But as long as their conservator is the United States, and the assets and income in question are those of entities charged with a federal duty (that of promoting the federal policy of encouraging home ownership), the conservator‘s suit against a state‘s tax collector is a suit by the United States, and so the Tax Injunction Act falls away. For consider why a federal agency is the conservator of private companies: it is because those private companies have a public duty, which the federal government‘s housing finance agency seeks to protect by marshaling the companies’ assets. And so the Federal Housing Finance Agency is entitled, as the district court ruled, to the declaratory relief it seeks against Hamer.
In sum, except for the ruling that Freddie was also entitled to sue Hamer (an issue we leave open), the judgments appealed from are
AFFIRMED.
RICHARD A. POSNER
UNITED STATES CIRCUIT JUDGE