UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
In re: Chapter 7
David C. Kapla, Case No. 11-68878
Debtor. Hon. Phillip J. Shefferly
[This opinion? modified here? by the insertion of these?three sentences for attribution with some bolding and SEO. Flint Bankruptcy Lawyer Terry Bankert posted? this opinion on Good Morning Flint 12/17/12. If you have questions contact Flint Bankruptcy Attorney Terry Bankert 810-235-1970 or http://www.attorneybankert.com?]
David C. Kapla, Adversary Proceeding
No. 12-04000-PJS
Plaintiff,
v.
Federal National Mortgage Association, Inc.,
Defendant,
and
Federal Housing Finance Agency,
Intervenor-Defendant.
/
OPINION GRANTING DEFENDANTS? MOTION TO DISMISS
Introduction
The plaintiff in this adversary proceeding is the debtor in this Chapter 7 case. The plaintiff
filed this adversary proceeding to set aside a foreclosure sale of his home and to obtain other relief.
The defendants filed a motion to dismiss the adversary proceeding. For the reasons explained in this
opinion, the Court grants the motion.
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Jurisdiction
The Court has jurisdiction over this matter under 28 U.S.C. ?? 1334(a) and 157(a). The
complaint alleges that this is a core proceeding under 28 U.S.C. ? 157(b)(2). The Court finds that
it is not a core proceeding, but instead is related to a case under title 11. The parties have not
objected to the Court hearing and determining this matter, and to enter appropriate orders and
judgments.
Background
On November 7, 2011, David C. Kapla (?Debtor?) filed a Chapter 13 petition. The Debtor?s
schedule A filed with his petition states that he has a ?fee simple? interest in a home located at
36419 Avondale Street, Westland, Michigan (?Property?). On November 14, 2011, Fannie Mae
filed a motion for relief from the automatic stay to enforce its rights in the Property. The motion
alleged that the Debtor did not have any interest in the Property because of a foreclosure sale of the
Property that was held on September 15, 2010. The motion further alleged that the time to redeem
from the foreclosure sale under applicable Michigan law expired on September 15, 2011. Finally,
the motion alleged that because the Debtor did not redeem from the foreclosure sale, the Debtor?s
bankruptcy estate did not have an interest in the Property. The Debtor objected to the motion. On
December 13, 2011, the Court held a hearing. At the conclusion of the hearing, the Court granted
the motion. The order granting the motion was entered on December 15, 2011. The Debtor then
converted his bankruptcy case from Chapter 13 to Chapter 7. The Debtor also moved for
reconsideration of the order granting Fannie Mae?s motion for relief from the automatic stay. The
Court denied the Debtor?s motion.
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After converting his case to Chapter 7, the Debtor filed this adversary proceeding against
Fannie Mae on January 1, 2012. The complaint seeks to set aside the foreclosure sale of the
Property, and requests various other forms of injunctive and declaratory relief against Fannie Mae.
Although the Debtor?s claims against Fannie Mae all relate to events that occurred prior to the
Debtor?s bankruptcy case, the Debtor?s schedule B filed in his bankruptcy case does not list any
claims against Fannie Mae.
After the complaint was served on Fannie Mae, the Debtor and Fannie Mae stipulated to
extend the time for Fannie Mae to answer the complaint. On April 24, 2012, the Debtor and Fannie
Mae stipulated to permit the Federal Housing Finance Agency (?FHFA?) to intervene as a defendant
in this adversary proceeding. The stipulation explains that on September 6, 2008, FHFA was
appointed as the conservator of Fannie Mae in accordance with the Housing and Economic
Recovery Act of 2008, Pub. L. 110-289, 122 Stat. 2654 (codified at 12 U.S.C. ? 4617), and the
Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. ?? 4501 -
4642) The stipulation further explains that FHFA, as conservator of Fannie Mae, succeeded to all
of the rights, titles, powers and privileges of Fannie Mae, including the right to sue and be sued in
federal court. On April 27, 2012, the Court entered an order approving the stipulation and
permitting FHFA to intervene.
On April 30, 2012, FHFA and Fannie Mae (?Defendants?) filed a motion to dismiss this
adversary proceeding pursuant to Fed. R. Bankr. P. 7012(b) and Fed. R. Civ. P. 12(b)(6). By
agreement of the parties, the Debtor obtained several extensions of time to answer the motion.
Eventually, the Debtor filed an answer to the motion. The Defendants subsequently filed a reply to
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the Debtor?s answer. On October 29, 2012, the Court held a hearing on the motion, and took the
matter under advisement.
The complaint
The complaint alleges the following facts.
On June 24, 1994, the Debtor obtained financing from D&N Bank for the purchase of the
Property (? 8). D&N Bank assigned the mortgage to Bank of America pursuant to an assignment
recorded July 27, 2000 (? 9). Bank of America serviced the loan for Fannie Mae (? 10). When the
Debtor began to experience financial problems and became late on his mortgage payments, he tried
to work with Bank of America, but Bank of America insisted that his account be placed into default,
accelerated, and then foreclosed (? 18). At that time, the Debtor would have qualified for a reverse
mortgage, but neither Bank of America nor Fannie Mae would engage in good faith discussions with
the Debtor to resolve his delinquency (? 19). Fannie Mae treated the Debtor differently than other
similarly situated homeowners in distress by not allowing him to refinance a reverse mortgage to
pay off Fannie Mae (? 26). Fannie Mae also acted in bad faith by refusing to offer the Debtor all
of the available options that it provided to other distressed homeowners, and by failing to accept a
payment that was just beyond 30 days late (? 33). When the Debtor was laid off from his job, he
defaulted on the mortgage (? 11). Pursuant to the statutory provisions in Michigan regarding nonjudicial
mortgage foreclosures, Bank of America, the ?seller servicer,? purchased the Property at a
sheriff sale held on September 15, 2010 (? 12). After the sheriff sale, Bank of America executed and
delivered a quit claim deed of the Property to Fannie Mae on May 2, 2011 (? 14). Fannie Mae is
a corporation operated by the United States that was ?placed under the conservatorship of a federal
agency in September, 2008? (? 7) in order to ?prevent it from going out of business? (? 12). After
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the one year redemption period from the foreclosure sale expired on September 15, 2011, Fannie
Mae brought a summary proceeding in the 18th Judicial District Court for the State of Michigan
(?State Court Lawsuit?) on October 14, 2011 (? 15). On October 24, 2011, a judgment of possession
(?State Court Judgment?) was entered in the State Court Lawsuit in favor of Fannie Mae and against
the Debtor (? 15).
The complaint contains four counts. Count I seeks injunctive relief staying any eviction of
the Debtor from the Property. Count II seeks declaratory relief adjudicating that Fannie Mae is a
government actor, and that its actions with respect to the Property have deprived the Debtor of equal
protection and due process. Count III seeks a money judgment against Fannie Mae for violations
of 42 U.S.C. ? 1983. Count IV seeks a money judgment against Fannie Mae because it has deprived
the Debtor of equal protection. The Defendants? motion seeks dismissal of all four counts.
Applicable legal standard
Fed. R. Civ. P. 8(a)(2), incorporated by Fed. R. Bankr. P. 7008(a), requires that a pleading
contain ?a short and plain statement of the claim showing that the pleader is entitled to relief[.]? The
purpose of this pleading standard is ?to give the defendant fair notice of what the . . . claim is and
the grounds upon which it rests.? Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)
(internal quotation marks and citation omitted). A motion to dismiss for failure to state a claim
pursuant to Fed. R. Civ. P. 12(b)(6), incorporated by Fed. R. Bankr. P. 7012, challenges whether a
complaint meets this standard.
?To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted
as true, to ?state a claim to relief that is plausible on its face.?? Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Twombly, 550 U.S. at 570). In deciding a motion to dismiss for failure to state a
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claim upon which relief may be granted, ?[t]he court must construe the complaint in the light most
favorable to the plaintiff [and] accept all the factual allegations as true . . . . A court may not grant
a Rule 12(b)(6) motion based on disbelief of a complaint's factual allegations.? Bovee v. Coopers &
Lybrand C.P.A., 272 F.3d 356, 360 (6th Cir. 2001) (citations omitted).
?A claim has facial plausibility when the plaintiff pleads factual content that allows the court
to draw the reasonable inference that the defendant is liable for the misconduct alleged.? Ashcroft v.
Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556). ?Factual allegations must be enough to
raise a right to relief above the speculative level, on the assumption that all the allegations in the
complaint are true (even if doubtful in fact).? Twombly, 550 U.S. at 555 (citations omitted).
?While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed
factual allegations, a plaintiff's obligation to provide the ?grounds? of his ?entitle[ment] to relief?
requires more than labels and conclusions . . . .? Id. ?[A] formulaic recitation of the elements of a
cause of action will not do.? Id. (citation omitted). ?Nor does a complaint suffice if it tenders
?naked assertion[s]? devoid of ?further factual enhancement.?? Ashcroft v. Iqbal, 556 U.S. at 678
(quoting Twombly, 550 U.S. at 557). Likewise, ?[t]hreadbare recitals of the elements of a cause of
action, supported by mere conclusory statements, do not suffice.? Id. (citing Twombly, 550 U.S.
at 555). This is because ?the tenet that a court must accept as true all of the allegations contained
in a complaint is inapplicable to legal conclusions.? Id. ?Where a complaint pleads facts that are
?merely consistent with? a defendant?s liability, it ?stops short of the line between possibility and
plausibility of ?entitlement to relief.??? Id. (quoting Twombly, 550 U.S. at 557).
Ordinarily, in considering a motion to discuss under Rule 12(b)(6), a court?s review is
limited to the allegations in the complaint and ?any exhibits attached thereto, public records, items
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appearing in the record of the case and exhibits attached to [a] defendant?s motion to dismiss so long
as they are referred to in the [c]omplaint and are central to the claims? in the complaint. Bassett v.
National Collegiate Athletic Association, 528 F.3d 426, 430 (6th Cir. 2008) (citing Amini v. Oberlin
College, 259 F.3d 493, 502 (6th Cir. 2001)). However, Fed. R. Civ. P. 12(d), incorporated by
Fed. R. Bankr P. 7012, states that ?[i]f, on a motion under Rule 12(b)(6) . . . , matters outside the
pleadings are presented to and not excluded by the court, the motion must be treated as one for
summary judgment under Rule 56.? The rule goes on to provide that in such event, ?[a]ll parties
must be given a reasonable opportunity to present all of the material that is pertinent to the motion.?
The Debtor?s complaint in this case has a number of documents attached as exhibits. Most
of these documents relate to the Property and include the assignment of mortgage from D&N Bank
to Bank of America (Exhibit B), the sheriff?s deed (Exhibit C), the quit claim deed from Bank of
America to Fannie Mae (Exhibit D), and the State Court Judgment (Exhibit E). However, two of
the documents do not specifically relate to the Property and instead relate more generally to Fannie
Mae. Exhibit A is a Congressional Research Report for Congress dated September 15, 2008 titled
?Fannie Mae and Freddie Mac in Conservatorship.? This five page document provides a summary
of the actions taken by FHFA on September 7, 2008 to place Fannie Mae and Freddie Mac into
conservatorships. The complaint refers to Exhibit A in paragraph 7, which alleges that Fannie Mae
?was placed under the conservatorship of a federal agency in September, 2008.? Exhibit F consists
of two separate deeds, neither of which relate in any way to the Debtor or the Property, and both of
which are signed by Fannie Mae. The complaint refers to Exhibit F in paragraph 20, which alleges
that Fannie Mae obtains exemptions on the transfer tax of its properties by claiming that it is a
United States government entity.
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Although the Defendants? motion seeks dismissal under Fed. R. Civ. P. 12(b)(6), which only
requires the court to measure the sufficiency of the complaint, many lengthy documents are attached
to the motion as exhibits: statements of Edward J. DeMarco, the acting director of FHFA
(Exhibits A and B), a fiscal year 2012 Analytical Perspectives report on the Budget of the
U.S. Government from the Office of Management and Budget (Exhibit C), statements by James B.
Lockhart issued in 2008 and 2009 (Exhibits D and E), FHFA Reports to Congress for 2009 and 2010
(Exhibits F and G), a Form10-K Annual Report for Fannie Mae to the United States Securities and
Exchange Commission for fiscal year 2011 (Exhibit H), and a copy of a published opinion from a
United States District Court (Exhibit I). None of these exhibits are referred to in the Debtor?s
complaint.
At the hearing on the motion, the Court inquired of the parties whether it should consider the
exhibits attached to the Defendants? motion pursuant to Rule 12(d) and treat the motion as a motion
for summary judgment. The Defendants answered yes. The Debtor?s answer was a bit more
complicated. Initially, the Debtor stated that the Court should review and consider all of the
documents attached by the parties as exhibits to their papers. However, the Debtor later stated that
the Debtor had not been given a reasonable opportunity to present all matters that might be pertinent
to the Defendants? motion and that the Debtor would like to have the opportunity to take discovery
and learn all of the facts that may be pertinent to the motion.
In light of the Debtor?s response to the Court?s questions at the hearing, it would be improper
for the Court to consider the Defendants? exhibits to their motion without providing the Debtor a
reasonable opportunity to present all of the material that he may wish to present pertinent to the
motion. Consistent with Fed. R. Civ. P. 12(d), for purposes of adjudicating the Defendants? motion
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to dismiss, the Court will therefore exclude from consideration all of the exhibits attached to the
motion other than Exhibit I, which the Court may permissibly consider since it is a legal authority
that is cited in the memorandum of law in support of the motion. The Court will not treat the motion
as a motion for summary judgment under Fed. R. Civ. P. 56, and will instead analyze the motion
solely as a motion to dismiss for failure to state a claim upon which relief can be granted under
Fed. R. Civ. P. 12(b)(6).
Discussion
The Defendants? motion makes four basic arguments. First, the Defendants argue that the
Debtor can prevail on any of the four counts in his complaint only if the actions alleged to have
taken place were performed by a ?government actor.? The Defendants assert that Fannie Mae is not
a government actor for constitutional purposes under long standing precedent of the United States
Supreme Court, and that FHFA?s appointment as conservator of Fannie Mae does not somehow
transform Fannie Mae into a government actor. Second, the Defendants argue that even if Fannie
Mae is a government actor, the Debtor?s complaint must still be dismissed because the statutorily
prescribed non-judicial foreclosure process used with respect to the foreclosure sale of the Property
under Michigan law satisfies all of the due process requirements imposed upon a government actor.
Third, the Defendants argue that the Debtor?s complaint is an impermissible attempt to relitigate
issues already decided in the State Court Lawsuit and is, therefore, barred under both the Rooker-
Feldman doctrine and under principles of res judicata. Finally, the Defendants argue that the Debtor
lacks standing to challenge the foreclosure sale of the Property.
Although the Defendants and the Debtor both request that the Court first tackle the issue of
whether Fannie Mae is a government actor, it makes much more sense for the Court to first consider
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1
Although the Defendants? motion to dismiss is brought under Fed. R. Civ. P. 12(b)(6),
incorporated by Fed. R. Bankr. P. 7012, the Defendants? Rooker-Feldman argument is more
properly considered under Fed. R. Civ. P. 12(b)(1), incorporated by Fed. R. Bankr. P. 7012,
since this argument challenges this Court?s subject matter jurisdiction.
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the Defendants? Rooker-Feldman argument because the Court may not have jurisdiction to
adjudicate any other issues if the Rooker-Feldman doctrine is applicable to this case.
1
Rooker-Feldman
requires dismissal of some of the Debtor?s claims
Under the U.S. Supreme ?Court?s Rooker-Feldman abstention doctrine, . . . a party losing
in state court is barred from seeking what in substance would be appellate review of the state
judgment in a United States district court, based on the losing party?s claim that the state judgment
itself violates the loser?s federal rights.? Johnson v. De Grandy, 512 U.S. 997, 1005-06 (1994)
(citing District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 482 (1983); Rooker v.
Fidelity Trust Co., 263 U.S. 413, 416 (1923)).
[A]ppellate jurisdiction to reverse or modify a state-court judgment is
lodged . . . exclusively in [the Supreme] Court. Federal district courts . . . are
empowered to exercise original, not appellate, jurisdiction. Plaintiffs in Rooker and
Feldman had litigated and lost in state court. Their federal complaints . . . essentially
invited federal courts of first instance to review and reverse unfavorable state-court
judgments. We declared such suits out of bounds,
i.e., properly dismissed for want
of subject-matter jurisdiction.
Exxon Mobil Corp. v. Saudi Basic Industries Corp., 544 U.S. 280, 283-84 (2005). The doctrine ?is
confined to cases . . . brought by state-court losers complaining of injuries caused by state-court
judgments rendered before the district court proceedings commenced and inviting district court
review and rejection of those judgments.? Id. at 284. For Rooker-Feldman to apply, the party
asserting claims in federal court must have first lost in state court. The Sixth Circuit Court of
Appeals has succinctly stated the rule as follows: ?The
Rooker-Feldman doctrine applies, if it
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applies at all, only when the state court loser files a new lawsuit in federal court
after the state court
adversely rules.? Rugiero v. DiNardo (In re Rugiero), No. 11-2639, 2012 WL 4800059, at *2
(6th Cir. Oct. 10, 2012).
The Debtor argues that the Rooker-Feldman doctrine does not apply in this case because this
adversary proceeding ?is running parallel with on-going state court litigation pertaining to the
invalidity of the state court possession judgment and Sheriff?s Sale by Fannie Mae . . . . ? (Debtor?s
Br. at 27, docket entry no. 38). In other words, the Debtor has not yet lost and the State Court
Lawsuit is ongoing. The Debtor?s point of law is correct: the Rooker-Feldman doctrine is not
triggered solely because there is a pending state court action concerning the same matter before the
federal court. Exxon Mobil Corp., 544 U.S. at 292. However, the Debtor?s factual assertion that
the Debtor did not lose in state court is simply wrong.
The State Court Judgment was entered in the State Court Lawsuit on October 24, 2011. The
State Court Judgment unambiguously awarded possession of the Property to Fannie Mae. The State
Court Judgment obviously makes the Debtor the loser in the State Court Lawsuit. The Debtor has
not identified any ?on-going state court litigation.? The State Court Lawsuit is over. The Debtor
did not file the complaint in this adversary proceeding until January 1, 2012, more than two months
after the State Court Judgment. The only remaining question regarding the application of Rooker-
Feldman to this adversary proceeding is whether the claims in the Debtor?s complaint allege an
injury caused by the State Court Judgment, or whether they allege some other injury. Although the
parties do not address this question in their briefs, the Sixth Circuit has addressed the legal principles
that govern this question.
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In Kovacic v. Cuyahoga County Department of Children & Family Services, 606 F.3d 301
(6th Cir. 2010), the Sixth Circuit explained how the Supreme Court in Exxon Mobil Corp.
?tightened the scope of
Rooker-Feldman.? Id. at 309.
In post-
Exxon analysis, we have distinguished between plaintiffs who bring an
impermissible attack on a state court judgment?situations in which
Rooker-Feldman
applies?and plaintiffs who assert independent claims before the district
court?situations in which
Rooker-Feldman does not apply.
In
McCormick, we explained that the pertinent inquiry after Exxon is whether
the ?source of the injury? upon which plaintiff bases his federal claim is the state
court judgment, not simply whether the injury complained of is ?inextricably
intertwined? with the state-court judgment[.]
Id. (citing McCormick v. Braverman, 451 F.3d 382, 393 (6th Cir. 2006) (other citations omitted).
The Sixth Circuit in McCormick emphasized that ?[t]he key point is that the source of the injury
must be from the state court judgment itself; a claim alleging another source of injury is an
independent claim.? 451 F.3d at 394; see also Hood v. Keller, 341 F.3d 593, 597 (6th Cir. 2003)
(instructing that in Rooker-Feldman determinations, ?federal courts cannot simply compare the
issues
involved in the state-court proceeding to those raised in the federal-court plaintiff?s complaint,
but instead must pay close attention to the
relief sought by the federal-court plaintiff?) (internal
quotation marks and citation omitted).
The allegations of fact in the Debtor?s complaint in this adversary proceeding virtually all
relate to the foreclosure sale of the Property. Counts I and II of the complaint specifically request
the Court to set aside the foreclosure sale and allow the Debtor to retain possession of the Property.
These counts directly challenge the State Court Judgment, which awarded possession of the Property
to Fannie Mae based upon the deed that it received from the successful purchaser at the foreclosure
sale. It is hard to see how any of the Debtor?s claims attacking the foreclosure sale could be heard
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by this Court without this Court having to review the State Court Lawsuit and then make a finding
that the State Court Judgment wrongly decided the issues before the state court. Therefore, the
Court lacks jurisdiction over counts I and II of the Debtor?s complaint.
However, the complaint also contains some allegations of fact that do not attack the
foreclosure sale of the Property, or the injury caused by the State Court Judgment, but instead relate
to other conduct of Fannie Mae. For example, paragraph 17 of the complaint alleges that the Debtor
qualified for a reverse mortgage on the Property; paragraph 19 alleges that the Debtor would have
qualified for a reverse mortgage, but Fannie Mae would not engage him in any good faith
discussions; paragraph 26 alleges that Fannie Mae treated the Debtor differently than other similarly
situated homeowners in distress by not allowing him to finance a reverse mortgage to pay off Fannie
Mae; paragraph 33 alleges that Fannie Mae acted in bad faith by refusing to accept a payment from
the Debtor that was just beyond 30 days late and by refusing to offer the Debtor all available options
that it made applicable to other distressed homeowners; paragraph 34 alleges that Fannie Mae
treated the Debtor differently than similarly situated homeowners to whom it had granted late
payment forbearances, short sales, reverse mortgages and loan modifications; and paragraph 40
alleges that Fannie Mae selectively denied or refused to properly and fairly consider and/or approve
the Debtor for a short sale, reverse mortgage and/or loan modification. Counts III and IV of the
Debtor?s complaint each request a judgment awarding the Debtor damages in excess of $75,000
along with punitive and exemplary damages, costs, interests and attorney?s fees.
Apart from whether these additional allegations of fact are sufficient to state a claim for relief
under either count III or IV, the point here is that for Rooker-Feldman purposes, these allegations
must first be scrutinized to determine whether they complain about the injury caused by the State
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Court Judgment, or whether they complain about a different injury for which an independent claim
may exist against Fannie Mae. Keeping in mind that this matter is before the Court upon the
Defendants? motion to dismiss, and accepting, as the Court must, that all of the factual allegations
in the Debtor?s complaint are true, the Court concludes that the allegations contained in
paragraphs 17, 19, 26, 33, 34 and 40, and the relief sought in counts III and IV, do not complain of
an injury caused by the State Court Judgment. Instead, these allegations complain of a different
injury, consisting of Fannie Mae?s failure to approve the Debtor for a reverse mortgage and failure
to afford the Debtor those alternatives that it made available to other distressed homeowners. That
alleged injury could conceivably give rise to an independent claim against Fannie Mae that does
not require this Court either to set aside the foreclosure sale or the State Court Judgment. As such,
Rooker-Feldman does not apply to those claims. Therefore, this Court does not lack jurisdiction
over those claims, which form the basis for counts III and IV of the Debtor?s complaint. Those
claims may proceed in this adversary proceeding, subject, of course, to the Defendants? other
arguments as to why such claims should still be dismissed under Rule 12(b)(6).
In sum, the Court holds that the Rooker-Feldman doctrine prevents this Court from having
jurisdiction to consider the Debtor?s attack on the foreclosure sale and the State Court Judgment.
The Debtor is the loser in the State Court Lawsuit, which adjudicated the validity of the foreclosure
sale. The State Court Judgment was entered prior to the time that this adversary proceeding was
filed. On the other hand, the Debtor is not precluded by Rooker-Feldman from asserting other
independent claims against Fannie Mae that relate to injuries not caused by the foreclosure sale and
the State Court Judgment, but are alleged to be caused by other conduct of Fannie Mae. Because
the application of Rooker-Feldman does not bar
all of the claims set forth in the Debtor?s complaint,
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the Court will grant the Defendants? motion based upon Rooker-Feldman only in part. The Court
will therefore consider the Defendants? other arguments for dismissal of the Debtor?s remaining
claims.
Fannie Mae is not a government actor for purposes of constitutional claims,
requiring dismissal of the Debtor?s remaining claims
The Defendants assert that even if some of the Debtor?s claims in his complaint survive a
Rooker-Feldman analysis, and are therefore within this Court?s jurisdiction, the Defendants? motion
to dismiss must still be granted because all of the Debtor?s remaining claims are based on alleged
constitutional violations by Fannie Mae. Although the Debtor?s complaint is not entirely precise
or consistent in its use of the terms due process and equal protection, it is sufficiently clear to the
Court that all of the Debtor?s remaining claims against the Defendants are claims for constitutional
violations. The Debtor does not contend otherwise. As such, the determination of whether these
claims must be dismissed turns on the question of whether Fannie Mae is a ?government actor,?
because an entity is only liable for claims based on constitutional violations if the entity is held to
be a government actor. Dusenbery v. United States, 534 U.S. 161, 167 (2002) (?The Due Process
Clause of the Fifth Amendment prohibits the United States, as the Due Process Clause of the
Fourteenth Amendment prohibits the States, from depriving any person of property without ?due
process of law.??); Center for Bio-Ethical Reform, Inc. v. Napolitano, 648 F.3d 365, 379 (6th Cir.
2011) (holding that ?[t]he Fifth Amendment . . . does not itself contain a guarantee of equal
protection, but instead, incorporates, as against the federal government, the Equal Protection Clause
of the Fourteenth Amendment? and evaluating ?equal protection claims against the federal
government under the Fifth Amendment just as [it] would evaluate equal protection claims against
the state and local governments under the Fourteenth Amendment?). The parties agree that the
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question of whether Fannie Mae is a government actor for purposes of a constitutional claim is an
important one. However, they do not seem to agree on what case law governs the issue.
The Defendants? motion argues that the United States Supreme Court has set forth a
controlling three-part test in Lebron v. National Railroad Passenger Corporation, 513 U.S. 374
(1995) to determine whether a private corporation can be considered to be a government actor for
purposes of federal constitutional claims. Lebron involved an action brought by the plaintiff against
the National Railroad Passenger Corporation, commonly known as Amtrak. The plaintiff claimed
that Amtrak violated his First Amendment rights by refusing to place his advertisement on an
Amtrak billboard because of the advertisement?s political content. Id. at 377. The issue before the
court was whether Amtrak ?was . . . itself a federal entity? for the purpose of determining claims
based upon individual rights guaranteed by the Constitution. Id. at 378-79. The court conducted
an extensive review of the history of government created and government sponsored entities. The
court then turned to the specific facts and circumstances of Amtrak. First, the court noted that
Congress established Amtrak by special legislation in 1970. Id. at 383-84. Second, the court noted
that the purpose for creating Amtrak was to further federal government objectives of requiring the
continuance and improvement of railroad passenger service in the interest of the public convenience
and necessity. Id. at 384. Third, the court noted that the legislation creating Amtrak ?provides for
a board of nine members, six of whom are appointed directly by the President of the United States,?
with the other three appointments made by the President upon ?the advice and consent of the
Senate.? Id. at 385. The court further noted other devices for government control of Amtrak
provided for in the legislation creating Amtrak. The court then held as follows:
We hold that where, as here, the Government creates a corporation by special law,
for the furtherance of governmental objectives, and retains for itself permanent
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authority to appoint a majority of the directors of that corporation, the corporation
is part of the Government for purposes of the First Amendment.
Id. at 400.
The Defendants assert that prior to the appointment of FHFA as a conservator for Fannie
Mae, it was indisputable that Fannie Mae was not a government actor under the Lebron test. The
Defendants do not contest that Fannie Mae was created by special legislation, nor do they contest
that Fannie Mae was created to further certain governmental objectives. Instead, the Defendants
focus on the third element of Lebron, which requires permanent governmental control over the
entity. Citing H.R. Rep. No. 90-1585, at 65-66 (1968) and 12 U.S.C. ? 1717(a)(2), the Defendants
note that ?[i]n 1968, Congress established Fannie Mae as a ?private corporation? that, while
chartered by the federal government, would be ?entirely privately owned.?? (Defs.? Br. at 6-7, docket
no. 20.) Therefore, because Fannie Mae is a private entity, over which the government has not
retained permanent authority to appoint a majority of directors, the third requirement under Lebron
is not met and Fannie Mae is not a government actor under Lebron for purposes of constitutional
claims.
In further support of their assertion that Fannie Mae is not a government actor, the
Defendants cite two other cases. The first case, American Bankers Mortgage Corp. v. Federal Home
Loan Mortgage Corp., 75 F.3d 1401 (9th Cir. 1996), held that ?upon an application of
Lebron
principles,? Freddie Mac (a government sponsored enterprise substantially identical in all material
respects to Fannie Mae) ?is not a government agency subject to the Fifth Amendment?s Due Process
Clause.? Id. at 1409. The second case is Herron v. Fannie Mae, 857 F. Supp. 2d 87 (D.D.C. 2012).
Herron involved constitutional claims brought against Fannie Mae after the FHFA appointment as
conservator. Before turning to the effect of the conservatorship upon Fannie Mae, the Herron court
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first stated that ?[i]t is well-settled that pre-conservatorship, Fannie Mae was a private actor.? Id.
at 92.
The Debtor?s response to the Defendants? motion only briefly discusses Lebron. The Debtor
does not seem to quarrel with the Defendants? contention that pre-conservatorship, Fannie Mae was
not considered to be a government actor under Lebron. However, the Debtor does argue that the
appointment of FHFA as conservator, and the actions taken by FHFA as conservator, now provide
the requisite level of permanent control over Fannie Mae to make it a government actor under
Lebron. Putting Lebron aside, the Debtor then discusses extensively what he describes as the
?seminal? case of Northrip v. Federal National Mortgage Association, 527 F.2d 23 (6th Cir. 1975).
Northrip dealt with an action by a property owner against Fannie Mae alleging due process
and other constitutional violations based upon Fannie Mae?s foreclosure of a mortgage on the
plaintiff?s property under Michigan?s non-judicial foreclosure statute. The Sixth Circuit reviewed
the legislation that created Fannie Mae and the legislative history explaining the congressional
intent. The court noted that ?[t]here is some, and perhaps even significant, government involvement
in, and regulation of, the workings of [Fannie Mae].? Id. at 31. However, the court ultimately held
that there was not sufficient government involvement implicated in Fannie Mae?s mortgage
foreclosure to permit the plaintiff to bring an action for constitutional violations against Fannie Mae.
Id. at 32. The Northrip analysis focused heavily on the specific conduct involved in implementing
the remedy of a non-judicial foreclosure in Michigan and whether that conduct sufficiently
implicated government action.
Although the Debtor acknowledges that Northrip?s holding does not help him, the Debtor
tries to avoid its holding by arguing that if Northrip were decided today, the Sixth Circuit would
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come to a different result. In support of this argument, the Debtor?s response to the motion to
dismiss points to many facts about Fannie Mae that the Debtor says have changed since Northrip
was decided. For example, the Debtor?s response generally discusses changes in the secondary
mortgage market, adverse trends in the mortgage industry, deterioration of property values and the
heightened prevalence of Fannie Mae in the secondary mortgage market. The Debtor also discusses
various federal government initiatives to encourage loan modifications and statements made by
congressional leaders about Fannie Mae. Although none of these facts are alleged in the Debtor?s
complaint, the Debtor argues that the Sixth Circuit would decide Northrip differently today based
upon these changed facts and would hold Fannie Mae to be a government actor for purposes of
constitutional claims. The Debtor concludes by citing numerous cases that were either decided prior
to Lebron or that address instances where Fannie Mae has been or may be considered to be a part
of the federal government for purposes other than liability for constitutional claims.
In considerinSource: http://goodmorningflint.blogspot.com/2012/12/flint-bankruptcy-lawyer-235-1970-posted.html
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