Case Information
*1 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA ROBERT EDWARD HAGER, et al.,
Plaintiffs,
v. Civil Action No. 11-2090 (JDB) FEDERAL NATIONAL MORTGAGE
ASSOCIATION, et al.,
Defendants. MEMORANDUM OPINION
Robert E. Hager and Andrew Ludel (“plaintiffs”) brought this qui tam action on behalf of the District of Columbia under the D.C. False Claims Act (“D.C. FCA”). Federal National Mortgage Association (“Fannie Mae”), Federal Loan Mortgage Corporation (“Freddie Mac,” and, together with Fannie Mae, the “Enterprises”), and Intervenor-Defendant Federal Housing Finance Agency (“FHFA”) in its capacity as Conservator (collectively, “defendants”), have filed a motion to dismiss [Docket Entry 17]. Defendant Wells Fargo Home Mortgage, Inc. has joined the motion [Docket Entry 19]. For the reasons set forth below, defendants’ motion to dismiss will be granted.
I. Background
D.C imposes a tax (“recordation tax”) when “[a] deed that conveys title to real property” or “a security interest instrument is submitted for recordation.” D.C. Code § 42-1103(a)(1)(A), (3). The recordation tax is an excise tax: it is “levied upon the use or transfer of property,” unlike *2 a direct tax “levied upon the property itself.” See United States v. Wells Fargo Bank, 485 U.S. 351, 355 (1988); see also Second Am. Compl. [Docket Entry 1-2] ¶ 10 (“these obligations are considered excise taxes, levied upon the transfer and perfection of real property interests . . . [t]hey are not a tax directly upon the property itself”).
Plaintiffs allege that when filing documents with the D.C. Recorder’s Office, defendants falsely claimed to be exempt from the recordation tax, knowingly invoking exemptions to which they were not entitled. Second Am. Compl. ¶ 26; see also id. at 1-2. In their opposition to defendants’ motion, plaintiffs further allege that the Enterprises paid recordation and transfer taxes in other states. Pls.’ Opp’n to Mot. to Dismiss (Feb. 21, 2012) [Docket Entry 23] at 14 (“Pls.’ Opp’n”).
Plaintiffs filed this qui tam complaint in D.C. Superior Court, alleging that defendants’ actions violate the D.C. FCA, D.C. Code §§ 2-381.01 et seq. [1] On March 8, 2011, plaintiffs filed a second amended complaint. Defendants removed this action to federal court on November 23, 2011, and filed this motion to dismiss on January 13, 2012. This Court subsequently granted FHFA’s motion to intervene. The District of Columbia has not notified the Court of its intent to intervene in this action.
Plaintiffs had filed a similar action in the U.S. District Court for the District of Nevada
under Nevada’s False Claims Act. That court dismissed plaintiffs’ action. See Nevada ex rel.
Hager v. Countrywide Home Loans Servicing, LP,
II. Standard of Review
“[I]n passing on a motion to dismiss, whether on the ground of lack of jurisdiction over
*3
the subject matter or for failure to state a cause of action, the allegations of the complaint should
be construed favorably to the pleader.” Scheuer v. Rhodes,
Under Rule 12(b)(1), the party seeking to invoke the jurisdiction of a federal court—
plaintiffs here—bears the burden of establishing that the court has jurisdiction. See US Ecology,
Inc. v. U.S. Dep’t of the Interior,
To survive a Rule 12(b)(6) motion to dismiss, a complaint must contain “‘a short and
plain statement of the claim showing that the pleader is entitled to relief,’ in order to ‘give the
defendant fair notice of what the . . . claim is and the grounds upon which it rests.’” Bell Atl.
Corp. v. Twombly,
III. Discussion
1. Subject Matter Jurisdiction
Defendants first seek dismissal under Rule 12(b)(1) for lack of subject matter
jurisdiction. They contend that whether a qui tam relator is barred from proceeding under the
public disclosure bar is a jurisdictional question. While that question is, indeed, jurisdictional
under the federal False Claims Act, see Rockwell Int’l Corp. v. United States,
The public disclosure bar of the D.C. FCA, if applicable, would warrant Rule 12(b)(6) dismissal rather than dismissal under Rule 12(b)(1). Hence, this Court has jurisdiction to proceed.
2. Failure to State a Claim
Defendants argue for dismissal on an array of grounds. The Court need reach only one: whether the Enterprises are in fact exempt from the recordation tax. Because the Court concludes that they are exempt, plaintiffs’ action must fail.
Plaintiffs’ core claim is a “reverse false claim” action under D.C. Code § 2-381.02(a)(7).
In a reverse false claim action, “the defendant’s action does not result in improper payment by
the government to the defendant, but instead results in no payment to the government when a
payment is obligated.” Hoyte v. Am. Nat’l Red Cross,
Defendants maintain that federal statutes exempt them from all taxation. Fannie Mae’s charter provides:
The corporation, including its franchise, capital, reserves, surplus, mortgages or other security holdings, and income, shall be exempt from all taxation now or hereafter imposed by any State, territory, possession, Commonwealth, or dependency of the United States, or by the District of Columbia, or by any county, municipality, or local taxing authority, except that any real property of the corporation shall be subject to State, territorial, county, municipal, or local taxation to the same extent as other real property is taxed.
12 U.S.C. § 1723a(c)(2). Freddie Mac’s charter contains a substantially similar exemption, providing that “[t]he Corporation, including its franchise, activities, capital, reserves, surplus, and income, shall be exempt from all taxation now or hereafter imposed . . . by any State,” excepting taxation of “real property.” 12 U.S.C. § 1452(e). As used in that provision, “State” “includes the District of Columbia.” 12 U.S.C. § 1451(k). Plaintiffs concede that the exception *7 for taxes on “real property” is inapplicable because the recordation tax is an excise tax on the privilege of transferring title rather than a tax on real property itself. See Second Am. Compl. ¶ 10; Pls.’ Opp’n at 1-2. Plaintiffs contend, however, that the recordation tax nonetheless falls outside the statutory exemption.
“It is well settled that the starting point for interpreting a statute is the language of the
statute itself.” Gwaltney of Smithfield, Ltd. v. Chesapeake Bay Found., Inc.,
Undaunted by the statute’s apparent clarity, plaintiffs contend that the Supreme Court’s decision in Wells Fargo requires this Court to read “all taxation” to mean only “all direct taxation.” Buttressing plaintiffs’ arguments, a District Court in the Eastern District of Michigan, while agreeing that “[t]he statutes are broadly worded, and their language is clear and unambiguous,” recently held that Wells Fargo compels the conclusion that Fannie Mae and Freddie Mac are subject to excise taxes. See Oakland Cnty. v. FHFA, No. 11-12666, 2012 WL 1658789, at *3 (E.D. Mich. May 11, 2012).
Wells Fargo, however, cannot bear the weight plaintiffs would ascribe to it. There, the
Supreme Court considered a provision exempting a certain kind of obligation called Project
*8
Notes from taxation. The Court examined a statute providing that “Project Notes, including
interest thereon, shall be exempt from all taxation now or hereafter imposed by the United
States.” Wells Fargo,
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. Underlying this doctrine is the distinction between an excise tax, which is levied upon the use or transfer of property even though it might be measured by the property’s value, and a tax levied upon the property itself.
Id. (emphasis added). Because the Wells Fargo provision exempted property from taxation, and because an excise tax like the estate tax is imposed on something other than the property itself, the statutory provision did not reach the estate tax. In other words, the exemption at issue did not match up with the tax imposed.
The statutory provisions at issue in this case, on the other hand, exempt an entity from all taxation. A recordation tax for a deed one of the Enterprises records is indisputably a tax on that entity. It thus falls within the statutory exemption. An example illustrates the difference: if the statute had provided that “Fannie Mae’s real property shall be exempt from all taxation,” Fannie Mae would still be liable for the recordation tax because it is a tax on the real property’s transfer rather than on the real property. But because the statute instead exempts Fannie Mae itself, neither its property nor its activities can be taxed.
Wells Fargo did not mandate an atextual reading of “all taxation”; it simply considered the inherent limitations of exempting property, rather than its owner, from taxation. Indeed, to *9 hold otherwise would contravene Supreme Court case law interpreting language virtually identical to that at issue here. In Bismarck Lumber, the Court considered the following provision:
That every Federal land bank . . . including the capital and reserve or surplus therein and the income derived therefrom, shall be exempt from Federal, State, municipal, and local taxation, except taxes upon real estate held, purchased, or taken by said bank [under certain statutory provisions].
Fed. Land Bank of St. Paul v. Bismarck Lumber Co.,
Finally, accepting plaintiffs’ argument would lead to near absurdity. It would leave the
statutory provisions, so sweeping in their language, virtually meaningless: Fannie Mae and
Freddie Mac would be free only from capitations and taxes upon personal property, see Murphy
v. IRS,
Because the Enterprises are indeed statutorily exempt from the recordation taxes, plaintiffs’ action rests on a flawed premise. Plaintiffs have identified no false statements, nor any “obligation to pay” the District that defendants failed to fulfill. See D.C. Code § 2-381.02(a)(7). Therefore, defendants’ motion to dismiss all counts of the complaint will be granted.
3. Leave to Amend
Plaintiffs urge the court to grant leave to file another amended complaint. “The court
should freely give leave [to amend] when justice so requires.” Fed. R. Civ. P. 15(a)(2).
Nonetheless, because no new allegations could cure the complaint’s core deficiency, amendment
would be futile. See Foman v. Davis,
IV. Conclusion For these reasons, defendants’ motion to dismiss for failure to state a claim will be granted. A separate order has been issued on this date.
/s/ JOHN D. BATES United States District Judge Dated: August 9, 2012
Notes
[1] The D.C. FCA was recently renumbered without substantive amendments. This opinion reflects the current section numbers rather than those the parties cite.
[2] Plaintiffs also cite D.C. Code § 2-381.02(a)(1), (3) & (8). See Second Am. Compl. ¶¶ 36-41. All those provisions, however, relate to false claims that result in improper payment by the government to the defendant. Plaintiffs have alleged no facts indicating that such payments occurred. In any case, an action under these provisions would also require defendants’ tax exemption claims to be false.