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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF WISCONSIN

MILWAUKEE COUNTY,
on behalf of Itself and All Others Similarly Situated,

Plaintiff,

v.

Case No. 12-C-0732

FEDERAL NATIONAL MORTGAGE
ASSOCIATION, a federally chartered corporation,
FEDERAL HOME LOAN MORTGAGE
CORPORATION, a federally chartered corporation,


Defendants,

and

FEDERAL HOUSING FINANCE AGENCY,

Intervenor Defendant.

ORDER GRANTING THE FEDERAL HOUSING FINANCE AGENCY’S RENEWED
MOTION TO INTERVENE (DOC. 28), GRANTING DEFENDANTS’ MOTION TO
DISMISS THE PLAINTIFF’S COMPLAINT (DOC. 10), AND DISMISSING CASE

Plaintiff, Milwaukee County, has filed a class action complaint on its behalf and on

behalf of all "Wisconsin counties that have recorded a deed or other conveyance from

defendants ... where those defendants have claimed they are exempt from the Transfer

Tax required by Wis. Stat. § 77.22." (Compl. ¶ 10.) Plaintiff alleges that Wis. Stat. § 77.22

required the defendants, Federal National Mortgage Association (“Fannie Mae”) and the

Federal Home Loan Mortgage Corporation (“Freddie Mac”), as grantors, to pay a transfer

tax on every conveyance. Moreover, the Federal Housing Finance Agency (“FHFA”), as

Conservator of Fannie Mae and Freddie Mac, seeks to intervene as a matter of right under

Rule 24(a). In addition, all defendants ask this court to dismiss the complaint on the

ground that they are exempt under their charters from all taxation imposed by any “State,

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county, municipality, or local taxing authority.” 12 U.S.C. §§ 1452(e), 1723a(c)(2),

4617(j)(2).

With respect to the motion to intervene, the FHFA has filed its motion in compliance

with Rule 24(c) along with a motion to dismiss, a conditional answer, and an alternative

motion for judgment on the pleadings. The court must permit anyone to intervene who:

(1) is given an unconditional right to intervene by a federal statute; or (2) claims an interest

relating to the property or transaction that is the subject of the action, and is so situated

that disposing of the action may as a practical matter impair or impede the movant's ability

to protect its interest, unless existing parties adequately represent that interest. Fed. R.

Civ. P. 24(a)(1) and (2).



The FHFA asserts that it has a statutory right to intervene in its capacity as

Conservator inasmuch as it has succeeded to “all rights, titles, powers and privileges” of

Fannie Mae and Freddie Mac and their respective stockholders. See 12 U.S.C.

§ 4617(b)(2)(A)(i). Indeed, as Conservator, the FHFA is empowered to “take such action

as may be (i) necessary to put [Fannie Mae and Freddie Mac] in a sound and solvent

condition, and (ii) appropriate to . . . preserve and conserve” their assets and property.

12 U.S.C. § 4617(b)(2)(D)(i) and (ii). Further, the FHFA has the authority to “take over the

assets of and operate” Fannie Mae and Freddie Mac and to conduct all of their business.

12 U.S.C. § 4617(b)(2)(B)(i).

Based upon the FHFA’s expansive authority as a Conservator, the court finds that

it has a right to intervene pursuant to Fed. R. Civ. P. 24(a). In addition, the FHFA may

intervene under Rule 24(b), which allows intervention by anyone who “has a claim or

defense that shares with the main action a common question of law or fact.” In its timely

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motion, the FHFA has asserted that 12 U.S.C. § 4617(j)(2) exempts Fannie Mae and

Freddie Mac in Conservatorship from the imposition of recordation fees and taxes, and that

§ 4617(j)(4) precludes any award of penalties. As Conservator, FHFA has a clear interest

in preserving Fannie Mae and Freddie Mac's assets and allowing the FHFA to intervene

will not result in any delay or prejudice to the original parties. See Fed. R. Civ. P. 24(b)(3).

Hence, FHFA’s appearance in this action is appropriate.

A motion to dismiss under Rule 12(b)(6) challenges a complaint for failure to state

a claim upon which relief may be granted. Fed. R. Civ. P. 12(b)(6). In reviewing a Rule

12(b)(6) motion, the court takes as true all facts asserted in the complaint and draws all

reasonable inferences in favor of the plaintiff. Dixon v. Page, 291 F.3d 485, 486–87 (7th

Cir. 2002). To survive a Rule 12(b)(6) motion, the complaint must not only provide the

defendant with fair notice of the claim's bases but also must establish that the requested

relief is plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); see Bell Atl.

Corp. v. Twombly, 550 U.S. 544, 555 (2007).

Defendants maintain they are statutorily exempt from payment of the transfer tax.

They assert that when Congress created defendants, it exempted them from “all” state and

local taxes except for taxes on real property. 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, . . . county, municipality, or local taxing
authority, except that any real property of the corporation shall be subject to
State, . . . county, municipal, 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 was other real property is
taxed.

12 U.S.C. §1723a(c)(2). Similarly, Freddie Mac’s charter provides:

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The Corporation, including its franchise, activities, capital, reserve, surplus,
and income, shall be exempt from all taxation now or hereafter imposed by
any . . . State, county, municipality, or local taxing authority, except that any
real property of the Corporation shall be subject to the State, . . . county,
municipal, or local taxation to the same extent according to its value as other
real property is taxed.

12 U.S.C. § 1452(e). And when Congress enacted the Housing and Economy Recovery

Act, it granted the FHFA a virtually identical exemption:

The Agency, including its franchise, its capital, reserves, and surplus, and its
income, shall be exempt from all taxation imposed by any State, county,
municipality, or local taxing authority, except that any property of the Agency
shall be subject to State, territorial, county, municipal, or local taxation to the
same extent according to its value as other real property is taxed ....

12 U.S.C. § 4617(j)(2).

At issue in this case is the Wisconsin Transfer Tax, which imposes a tax “on the

grantor of real estate a real estate transfer fee at the rate of 30 cents for each $100 of

value or fraction thereof on every conveyance not exempted or excluded under this

subchapter.” Wis. Stat. § 77.22. The tax is collected by county registers at the time the

conveyance is recorded, and eighty percent is transmitted to the Wisconsin Department

of Revenue. The remainder is retained by the county treasurer. Wis. Stats. §§ 77.23-24.

The parties agree that the transfer tax is not a direct tax, but rather an excise tax based on

the value of the conveyance.

The exemption claimed by defendants is plainly stated in the defendants’ charters,

which exempts Fannie Mae, Freddie Mac, and the FHFA from “all [state and local]

taxation.” The single carve-out exception applies to “real property” subject to tax and not

the excise tax that the parties agree is at issue here. However, plaintiff argues that the

language “all taxation” does not mean “all,” and that the United States Supreme Court has

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rejected this “simplistic” argument. (Doc. 18 at 4.) Citing United States v. Wells Fargo,

plaintiff relies on the following language to distinguish direct taxes from excise taxes:

“[w]ell before the Housing Act was passed, an exemption 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 ownership, could be taxed.” 485 U.S. 351, 355

(1988).

Plaintiff’s reliance on Wells Fargo is misplaced. The Supreme Court in Wells Fargo

was reviewing statutory language under § 5(d) of the Housing Act of 1937, which provided

that public housing agency obligations [notes] were exempt from all taxation imposed by

the United States. Id., 485 U.S. at 352. Historically, exemptions of property from taxation

did not extend to excise taxes in the context of estate tax law. Id., 485 U.S. at 355 (citing

Greiner v. Lewellyn, 258 U.S. 384 (1922), Murdock v. Ward, 178 U.S. 139 (1900), and

Plummer v. Coler, 178 U.S. 115 (1900)). Moreover, the relevant language in the statute

had an understood meaning that the property (the Notes) was exempt from direct taxation

but not from federal estate tax. Id., 485 U.S. at 1181.

In contrast, this court is asked to interpret a statute that exempts a specific entity

from taxation – not property. Hence, the court turns to Fed. Land Bank of St. Paul v.

Bismarck Lumber Co., 314 U.S. 95 (1941), where a bank created pursuant to the Federal

Farm Loan Act of 1916, acquired property and refused to pay sales tax on the materials

used for repairs because the Loan Act exempted every Federal land bank from “federal,

State, Municipal, and local taxation, except taxes upon real estate held . . ..” Id., 314 U.S.

at 97 n. 1. In ruling that the statute exempted the bank from paying the sales tax, the

Supreme Court stated “Congress has the power to protect the instrumentalities which it has

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constitutionally created.” Id. at 102-03. This conclusion flowed from the “express grant of

power to Congress ‘to make all laws which shall be necessary and proper for carrying into

execution all powers vested by the Constitution in the Government of the United States.

Const. Art. 1, sec. 8 cl. 18, U.S.C.A.’” Id., 314 U.S. at 103 (quoting Pittman v. Home

Owners’ Loan Corp., 308 U.S. 21, 33 (1939)). The Supreme Court’s omission of Bismarck

in the Wells Fargo decision implies that it had no intention of altering its analysis regarding

the statutory exemption of entities as opposed to property.

More recently, the Sixth Circuit Court of Appeals held that the federal statutory

exemptions from “all taxation” for Fannie Mae and Freddie Mac applied to state transfer

taxes on real estate transactions. Cnty. of Oakland v. Fed. Hous. Fin. Agency, 2013 WL

2149964 (6th Cir. May 20, 2013). Further, it appears that the overwhelming weight of

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authority on this precise issue has held that the plain meaning of the statutes exempts

defendants from paying transfer taxes identical in nature to those sought here. See e.g.,

McNulty v. Fed. Hous. Fin. Agency, 2013 WL 3147641 (M.D. Pa. June 19, 2013); Doggett

v. Fed. Hous. Fin. Agency, 2013 WL 2920388 (M.D. Fla. June 13, 2013); Athens–Clarke

County Unified Gov't v. Fed. Hous. Fin. Agency, 2013 WL 2102922 (M.D. Ga. May 14,

2013); Montgomery County Comm'n v. Fed. Hous. Fin. Agency, 2013 WL 1896256 (M.D.

Ala. May 6, 2013); Vandais v. Fed. Nat’l. Mortg., 2013 WL 1249224 (D. Minn. Mar. 27,

2013); Hennepin Cnty. v. Fed. Nat. Mortg. Ass'n, 2013 WL 1235589 (D. Minn. Mar. 27,

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Plaintiff relies on the district court’s decision in Oakland County, which granted the plaintiff’s motion
for sum mary judgment where the county sought to recover unpaid transfer taxes from Fannie Mae and
Freddie Mac due on real estate transactions that the defendants recorded with the county register of deeds.
Cnty. of Oakland v. Fed. Hous. Fin. Agency, 2012 W L 1658789 (E.D. Mich. 2012), vacated, 2013 W L
2149964 at *7. W hile defendants’ motion to dismiss was pending before this court, the Sixth Circuit Court of
Appeals vacated and remanded the district court’s decision in Oakland County with instructions to enter
summary judgment for the defendants.

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2013); Delaware County, PA. v. Fed. Hous. Fin. Agency, 2013 WL 1234221 (E.D. Pa. Mar.

26, 2013); Fannie Mae v. Hamer, 2013 WL 591979 (N.D. Ill. Feb.13, 2013). Nicolai v. Fed.

Hous. Fin. Agency, 2013 WL 899967 (M.D. Fla. Feb.12, 2013); Hertel v. Bank of Am., 2012

WL 4127869 (W.D. Mich. Sept.18, 2012); Hager v. Fed. Nat'l Mortg. Ass’n., 882 F. Supp.

2d 107 (D.D.C. Aug. 9, 2012).

Based on the plain language of the statutes, the reasoning of Bismarck,

Congressional authority to exempt federal instrumentalities and private entities from state

and local taxation, and finding no persuasive authority to the contrary, the court finds that

the “all taxation” language used in 12 U.S.C. §§ 1452e, 1723a(c)(2), and § 4617(j)(2)

exempts defendants from paying excise taxes on transfers of real estate under Wis. Stat.

§ 77.22 et seq. Now, therefore,

IT IS ORDERED that the Federal Housing Finance Agency’s renewed motion to

intervene is granted. (Doc. 28.)

IT IS FURTHER ORDERED that defendants’ motion to dismiss the plaintiff’s

complaint is granted. (Doc. 10.)

IT IS FURTHER ORDERED that this case is dismissed.

Dated at Milwaukee, Wisconsin, this 10th day of July, 2013.

BY THE COURT

/s/ C.N. Clevert, Jr.
C.N. CLEVERT, JR.
U.S. DISTRICT JUDGE

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