On January 18, 2017, the Supreme Court decided Lightfoot v. Cendant Mortgage Corporation, No. 14-1055, holding that Fannie Mae’s corporate charter, which gives Fannie Mae the power “to sue and be sued, and to complain and defend, in any court of competent jurisdiction, State or Federal,” does not grant federal jurisdiction over all cases involving Fannie Mae.

The corporate charter of the Federal National Mortgage Association (commonly called Fannie Mae) authorizes it “to sue and be sued, and to complain and defend, in any court of competent jurisdiction, State or Federal.” 12 U.S.C. § 1723(a). In this case, which arose out of a home foreclosure, Fannie Mae argued that its charter language created federal jurisdiction over all cases brought by or against it. The district court and a divided Ninth Circuit panel both agreed with that argument.

But the Supreme Court reversed and held that the sue-and-be-sued clause in Fannie Mae’s corporate charter does not contain a grant of federal jurisdiction. Instead, it refers to “any court of competent jurisdiction,” which is most naturally read to mean “a court with an existing source of subject-matter jurisdiction.” The Court rejected the argument, based on one of its previous decisions, that a federal charter creates federal jurisdiction any time it expressly references federal courts. No such absolute rule exists. Ultimately, the Court concluded that “Fannie Mae’s sue-and-be-sued clause is most naturally read not to grant federal courts subject-matter jurisdiction over all cases involving Fannie Mae” but to permit “suits in any state or federal court already endowed with subject-matter jurisdiction over the suit.”

Justice Sotomayor delivered the opinion of the unanimous Court.

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