By Will Warmke

Mortgage companies in the United States are statutorily granted the power “to sue and to be sued, and to complain and to defend, in any court of competent jurisdiction, State or Federal.”[1] The Federal National Mortgage Association, also known as “Fannie Mae,” is one of the companies afforded this power because it participates in the secondary mortgage market.[2] However, does this sue-and-be-sued clause grant federal district courts jurisdiction over all cases involving Fannie Mae?

This is the question addressed in Lightfoot v. Cendant Mortgage Corp.[3] by the Supreme Court of the United States. This case began when Beverly Ann Hollis–Arrington and her daughter, Crystal Lightfoot, sued Fannie Mae in California state court alleging “deficiencies in the refinancing, foreclosure, and sale of their home.”[4] Lightfoot and her mother chose to sue in state court, which was an option under 12 U.S.C. § 1723a(a).[5] Fannie Mae, however, removed the case to federal court, relying on the power afforded by the sue-and-be-sued clause as the basis for the federal court’s jurisdiction.[6] Lightfoot and her mother responded by asking the District Court to remand the case back to the state court, but the court declined and later entered judgment against the petitioners.[7] Lightfoot and her mother appealed the District Court’s ruling, but the Ninth Circuit affirmed the lower court’s decision relying on American National Red Cross v. Solicitor General.[8] The Ninth Circuit interpreted Red Cross as establishing a rule that the sue-and-be-sued clause expressly authorized suit in federal court, which would grant federal courts jurisdiction over these cases.[9] However, the Supreme Court disagreed, asserting that Red Cross contained no such rule.[10]

If Red Cross was interpreted to contain this rule, it would have allowed Fannie Mae and other mortgage companies to choose which court favored them best.[11] Even though Fannie Mae raised these arguments, the Supreme Court did not find them persuasive enough to justify the ability to forum shop by mortgage companies under the sue-and-be-sued clause.[12] Fannie Mae also argued that a sue-and-be-sued clause containing the phrase “’court of competent jurisdiction’ conferred jurisdiction on federal courts.”[13] After a thorough review of jurisprudence, including Red Cross, the Court again disagreed with Fannie Mae’s arguments.[14] Although other cases involved companies that had been successfully removed to federal courts from state courts, those cases had explicit reasons for doing so.[15] In the present case, the Court concluded, the only reason for the removal was based on preference, which is not afforded by the sue-and-be-sued clause.[16] Accordingly, the Supreme Court reversed the Ninth Circuit and held that sue-and-be-sued clauses alone do not grant federal district courts jurisdiction over mortgage companies.[17]

The Supreme Court’s decision is important because it protects the rights of consumers. If the Court had upheld the Ninth Circuit, it would have allowed mortgage companies, like Fannie Mae, to strategically select which court would hear their case regarding any matter. This would give the mortgage companies an unfair advantage over consumers, and would have allowed them to evade any liability for their potential wrongdoings. Fortunately, the Court saw this threat and explicitly made clear that sue-and-be-sued clauses are not enough to allow mortgage companies to pick the forum they think best suits their interests.


[1] 12 U.S.C. § 1723a(a).

[2] Lightfoot v. Cendant Mortg. Corp., No. 14-1055, 2017 WL 182911, at *1 (U.S. Jan. 18, 2017).

[3] Lightfoot v. Cendant Mortg. Corp., No. 14-1055, 2017 WL 182911, at *1 (U.S. Jan. 18, 2017).

[4] Id. at 1.

[5] 12 U.S.C. § 1723a(a).

[6] 12 U.S.C. § 1723a(a); Lightfoot, No. 14-1055, 2017 WL 182911, at 1.

[7] Lightfoot, No. 14-1055, 2017 WL 182911, at 1.

[8] Id at 1 (citing American Nat. Red Cross v. S. G., 505 U.S. 247).

[9] Id.

[10] Id at 8.

[11] Id.

[12] Id at 9.

[13] Id at 11.

[14] Id.

[15] Id.

[16] Id.

[17] Id.

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