The Federal National Mortgage Association (Fannie Mae) operates under a corporate charter, which authorizes Fannie Mae “to sue and to be sued, and to complain and to defend, in any court of competent jurisdiction, State or Federal.” 12 U.S.C. § 1723a(a). On January 18, the U.S. Supreme Court held that this “sue-and-be-sued” clause does not independently grant federal courts subject-matter jurisdiction over all cases involving Fannie Mae. Instead, the Court (in Lightfoot v. Cendant Mortgage Corporation) held that the clause merely permits Fannie Mae to participate in a suit in any state or federal court that is already endowed with subject-matter jurisdiction over the suit.

The case arose when a mortgage borrower sued Fannie Mae in state court alleging deficiencies in the refinancing, foreclosure, and sale of her home. Fannie Mae removed the case to federal court, citing the sue-and-be-sued clause as the basis for federal jurisdiction. The district court denied a motion to remand the case back to state court, and the U.S. Court of Appeals for the Ninth Circuit affirmed that decision. The Supreme Court agreed to hear the case to resolve a split between the circuits.

On appeal, Justice Sotomayor, writing for a unanimous Supreme Court, explained that the Court had previously addressed the jurisdictional reach of sue-and-be-sued clauses in five other federal charters. In those cases, the Court had stated that a clause gives rise to federal court jurisdiction if, but only if, it specifically mentions the federal courts. Fannie Mae’s sue-and-be-sued clause specifically mentions federal courts, but also includes the phrase “any court of competent jurisdiction.” The Court found that this qualification limited the jurisdictional reach of the clause to any court with an existing source of subject-matter jurisdiction. Accordingly, the Court held that Fannie Mae’s sue-and-be-sued clause does not grant federal jurisdiction over any case involving Fannie Mae, but instead permits suit in any state or federal court that already has subject-matter jurisdiction.

Accordingly, under Lightfoot, Fannie Mae will no longer be able to remove a case to federal court citing only its charter’s sue-and-be-sued clause. Instead, in order for a case involving Fannie Mae to be brought in federal court or removed to federal court, there must be an independent source of diversity or federal-question jurisdiction.