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City of Providence v. Federal National Mortgage Association

United States District Court, D. Rhode Island

July 25, 2013

CITY OF PROVIDENCE, a Municipal Corporation; ANGEL TAVERAS, in his capacity as the Mayor of the city of Providence; JAMES J. LOMBARDI III, in his capacity as Treasurer of the city of Providence; JOHN A. MURPHY, in his capacity as Tax Collector for the city of Providence; CITY OF CRANSTON, a Municipal Corporation; ALLAN FUNG, in his capacity as the Mayor of the city of Cranston; DAVID CAPUANO, in his capacity of the Treasurer and Tax Collector for the city of Cranston, on behalf of themselves and all others similarly situated, Plaintiffs,
v.
FEDERAL NATIONAL MORTGAGE ASSOCIATION, a federally chartered private corporation; FEDERAL HOME LOAN MORTGAGE CORPORATION, a federally chartered private corporation; and FEDERAL HOUSING FINANCE AGENCY, as conservator for Federal National Mortgage Association and Federal Home Loan Mortgage Corporation, Defendants. TOWN OF JOHNSTON, RHODE ISLAND, on behalf of itself and all others similarly situated, Plaintiff,
v.
FEDERAL HOUSING FINANCE AGENCY, as conservator for FEDERAL NATIONAL MORTGAGE ASSOCIATION and FEDERAL HOME LOAN MORTGAGE CORPORATION; FEDERAL NATIONAL MORTGAGE ASSOCIATION, a Federally chartered corporation; FEDERAL HOME LOAN MORTGAGE CORPORATION, a federally chartered corporation, Defendants

Decided July 24, 2013

Page 84

For City of Providence, a Municipal Corporation, Angel Taveras, in his capacity as the Mayor of the City of Providence, John A. Murphy, in his capacity as Tax Collector for the City of Providence, James J. Lombardi, III, in his capacity as Treasurer of the City of Providence (1:12-cv-00481), Plaintiffs: Mark S. Mandell, LEAD ATTORNEY, Mandell, Schwartz & Boisclair, Ltd., Providence, RI; Zachary M. Mandell, LEAD ATTORNEY, Mandell, Schwartz & Boisclair, Providence, RI; Jillian Hoxsie Barker, City of Providence, City Solicitor's Office, Providence, RI; Matthew T. Jerzyk, Providence City Solicitor's Office, Providence, RI.

For City of Cranston, a Municipal Corporation, Allan Fung, in his capacity as the Mayor of the City of Cranston, David Capuano, in his capacity as the Treasurer and Tax Collector for the City of Cranston, on hehalf of themselves and all others similarly situated (1:12-cv-00481), Plaintiffs: Mark S. Mandell, LEAD ATTORNEY, Mandell, Schwartz & Boisclair, Ltd., Providence, RI; Zachary M. Mandell, LEAD ATTORNEY, Mandell, Schwartz & Boisclair, Providence, RI.

For Federal National Mortgage Association, a federally chartered private corporation (1:12-cv-00481), Defendant: Jill L. Nicholson, PRO HAC VICE, Foley & Lardner LLP, Chicago, IL; Joseph V. Cavanagh, Jr., Blish & Cavanagh, LLP, Providence, RI; Stephen J. Reid, Jr., Blish & Cavanagh, LLP, Providence, RI.

For Federal Home Loan Mortgage Corporation, a federally chartered private corporation (1:12-cv-00481), Defendant: Joseph V. Cavanagh, Jr., Stephen J. Reid, Jr., Blish & Cavanagh, LLP, Providence, RI; Michael J Ciatti, PRO HAC VICE, King & Spalding LLP, Washington, DC.

For Federal Housing Finance Agency, as conservator for Federal National Mortgage Association and Federal Home Loan Mortgage Corporation (1:12-cv-00481), Defendant: Michael A. Johnson, LEAD ATTORNEY, Arnold & Porter LLP, Washington, DC.

For Town of Johnston, on behalf of itself and all others similarly situated (1:12-cv-00668), Plaintiff: K. Joseph Shekarchi, LEAD ATTORNEY, Warwick, RI; Howard Sedran, PRO HAC VICE, Levin, Fishbein Sedran & Berman, Philadelphia, PA; Katherine L.I. Hacker, PRO HAC VICE, Terrell W Oxford, PRO HAC VICE, Warren T Burns, PRO HAC VICE, Susman Godfrey LLP, Dallas, TX; Larry Lahman, PRO HAC VICE, Mitchell & Declerck, PLLC, Enid, OK; Stewart M Weltman, PRO HAC VICE, Stewart M. Weltman, LLC, Chicago, IL.

For Federal National Mortgage Association, a Federally chartered corporation (1:12-cv-00668), Defendant: Jill L. Nicholson, PRO HAC VICE, Foley & Lardner LLP, Chicago, IL; Joseph V. Cavanagh, Jr., Stephen J. Reid, Jr., Blish & Cavanagh, LLP, Providence, RI.

For Federal Home Loan Mortgage Corporation, a Federally chartered corporation (1:12-cv-00668), Defendant: Joseph V. Cavanagh, Jr., Stephen J. Reid, Jr., Blish & Cavanagh, LLP, Providence, RI; Michael J Ciatti, PRO HAC VICE, King & Spalding LLP, Washington, DC.

OPINION

Page 85

DECISION AND ORDER

Ronald R. Lagueux, Senior United States District Judge.

This matter is before the Court on the Motions of Defendants to dismiss both lawsuits against them, pursuant to Fed.R.Civ.P. 12(b)(6). Because the legal issues presented in both cases are identical, these motions have been consolidated for the purpose of this decision. Plaintiffs in the first-filed case are the Cities of Providence and Cranston, as well as the Cities' mayors, treasurers and tax collectors in their official capacities. The second lawsuit was filed by the Town of Johnston. Defendants,

Page 86

the same in both cases, include the Federal National Mortgage Association (" Fannie Mae" ), the Federal Home Loan Mortgage Corporation (" Freddie Mac" ), and the conservator of both entities, the Federal Housing Finance Agency.

Plaintiffs have brought these lawsuits to compel Defendants to pay past and future real estate transfer taxes, customarily due from the seller of real property at the time that a deed is recorded by the municipalities. Defendants have refused to pay those taxes, and now move for the dismissal of the lawsuits, based on tax exemptions they allege were enacted by the United States Congress. For reasons explained below, the Court holds that Defendants are indeed exempt from these taxes, and grants the motions to dismiss both lawsuits in their entirety.

Background

Fannie Mae and Freddie Mac were established by acts of Congress to facilitate home ownership by providing a stable secondary mortgage market. Both Fannie Mae and Freddie Mac purchase residential mortgages from private lending institutions, thereby making more capital available to those institutions for more home loans. Both Fannie Mae and Freddie Mac are publicly-traded private corporations. In 2008, when the mortgage market crashed, Fannie Mae and Freddie Mac were placed into conservatorship by Congress in order that their affairs could be wound up or reorganized. The conservator, Defendant Federal Housing Finance Agency (" the Conservator" ), is an independent federal agency. When Fannie Mae and Freddie Mac were placed in conservatorship, they were holders of hundreds of thousands of mortgages whose homeowners were in default. In many cases, Fannie Mae and Freddie Mac have since foreclosed on these homes, and resold the properties.

Rhode Island General Laws ยง 44-25-1 provides that the grantor of real property must pay a Real Estate Conveyance Tax, " which tax is payable at the time of making, execution, delivery, acceptance or presenting for recording of the instrument." This tax (" the Transfer Tax" ) is collected by the municipality where the deeds are recorded. The recent fiscal difficulties experienced by Plaintiffs, coupled with the high volume of property sales recorded by Defendants, have ...


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