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Knight v. Fed. Nat'l Mort. Ass'n.

United States District Court, N.D. New York

September 30, 2014

MICHAEL KNIGHT, as Qui Tam Plaintiff, for the State of New York, Plaintiff,
v.
FED. NAT'L MORT. ASS'N. (

KIM C. DSOUZA, ESQ., LAW OFFICE OF KIM DSOUZA, LaGrangeville, NY, BARRY G. FELDER, ESQ., JILL L. NICHOLSON, ESQ., FOLEY & LARDNER LLP, Counsel for Defendant Fannie Mae, New York, NY, Counsel for Plaintiff.

DANIEL S. MEYERS, ESQ., BRACEWELL & GIULIANI, New York, NY, Counsel for Defendant Flagstar.

DECISION & ORDER

GLENN T. SUDDABY, District Judge.

Currently before the Court, in this qui tam action filed by Michael Knight ("Plaintiff" or the "Relator") against Flagstar Bank FSB ("Flagstar"), the Federal National Mortgage Association ("Fannie Mae") and 300 John Doe banking institutions, are the following four motions: (1) a motion by the Federal Housing Finance Association ("FHFA") to intervene in this action; (2) Plaintiff's cross-motion to substitute FHFA as the Conservator for Fannie Mae, and to join Edward DeMarco as the Acting Director of Fannie Mae; (3) Defendant Fannie Mae's motion to dismiss Plaintiff's claims against it for failure to state a claim; and (4) Defendant Flagstar's motion to dismiss Plaintiff's claims against it for failure to state a claim. (Dkt. No. 1, Attach. 2; Dkt. No. 20; Dkt. No. 21; Dkt. No. 22.) For the reasons set forth below, FHFA's motion is granted; Plaintiff's motion is denied; Defendant Fannie Mae's motion is granted; and Defendant Flagstar's motion is granted.

I. RELEVANT BACKGROUND

A. Plaintiff's Amended Complaint

Generally, in his Amended Complaint, Plaintiff alleges that Defendants made, or caused to be made, false statements in records in order to wrongfully avoid paying the New York Mortgage Recording Tax ("MRT") that was due and owed when certain mortgages (in which Defendants had an interest) were recorded. ( See generally Dkt. No. 1, Attach. 1.) Based on the factual allegations, Plaintiff asserts against Defendants a "reverse false claim" under the New York False Claims Act, State Finance Law § 189, et seq. (the "NYFCA"). ( Id. )[1]

B. Parties' Briefing on FHFA's Motion to Intervene

1. FHFA's Memorandum of Law

Generally, in its memorandum of law, FHFA asserts three arguments. (Dkt. No. 1, Attach. 2 [FHFA's Memo. of Law].)

First, argues FHFA, it is entitled to intervene in this action as a matter of right under Fed.R.Civ.P. 24(a)(1), because it is given an unconditional right to intervene by a federal statute-specifically, 12 U.S.C. § 4617(b)(2)(A)(i)-as recognized by several federal courts. ( Id. at 7-8 [attaching pages "4" and "5" of FHFA's Memo. of Law].)

Second, argues FHFA, in the alternative, it is entitled to intervene in this action as a matter of right under Fed.R.Civ.P. 24(a)(2), because it possesses an interest in the action, and is so situated that disposing of the action may as a practical matter impair or impede its ability to protect that interest (given that Fannie Mae does not adequately represent that interest). ( Id. at 9-10 [attaching pages "6" and "7" of FHFA's Memo. of Law].)

Third, argues FHFA, in the alternative, it is entitled to permissive intervention under Fed.R.Civ.P. 24(b)(1)(B), because it has a claim or defense that shares with the main action a common question of law or fact (including one or more defenses under 12 U.S.C. § 4617). ( Id. at 10-11 [attaching pages "7" and "8" of FHFA's Memo. of Law].)

2. Plaintiff's Opposition Memorandum of Law

Generally, in his opposition memorandum of law (and a separate request), Plaintiff asserts three arguments. (Dkt. No. 20 [Plf.'s Memo. of Law]; Dkt. No. 30 [Plf.'s Request].)

First, argues Plaintiff, the formation of a conservatorship renders moot FHFA's pending motion to intervene, because that formation automatically substitutes FHFA for Fannie Mae by operation of law. (Dkt. No. 20, at 12-17 [Plf.'s Memo. of Law].)

Second, argues Plaintiff, FHFA lacks standing to assert defenses under 12 U.S.C. § 4617, for the following reasons: (a) even if the FHFA has discretion to act as a conservator or regulator with respect to a given issue, it may not decide arbitrarily to act in different capacities for two decisions that are substantially similar; (b) here, it has failed to meet its burden to establish that it was acting as a conservator (and not a regulator) with respect to the mortgages at issue in this action; (c) the Housing and Economic Recovery Act of 2008 ("HERA"), does not extend the 12 U.S.C. § 4617 defenses to the conservator (when, as here, it is exercising a rulemaking function); and (d) indeed, in its motion to intervene, FHFA indicates that it intends not to limit its function as that of a conservator during its intervention. ( Id. at 17-26.)

Third, argues Plaintiff, in deciding FHFA's motion, the Court should take judicial notice of certain documents (i.e., the documents attached as Exhibits A through F to his request) under Fed.R.Evid. 2012(b)(2). (Dkt. No. 30 [Plf.'s Request].)

3. FHFA's Reply Memorandum of Law

Generally, in its reply memorandum of law, FHFA asserts three arguments. (Dkt. No. 25 [FHFA's Reply Memo. of Law].)[2]

First, argues FHFA, Plaintiff's mootness argument fails because, although FHFA (as Conservator) possesses the right to intervene in cases in which Fannie Mae is a party, that fact does not mean that the Conservator is automatically substituted in every case involving Fannie Mae (as evidenced by the fact that Fannie Mae continues to litigate in state and federal courts around the country without the Conservator being joined or substituted as a party). ( Id. at 2-4.)

Second, argues FHFA, Plaintiff does not address, let alone distinguish, the case law uniformly holding that FHFA has an unconditional right to intervene in cases in which Fannie Mae is a party. ( Id. at 4-5.)

Third, argues FHFA, Plaintiff's premature attempt to argue the merits of FHFA's 12 U.S.C. § 4617 defenses is not a basis for denying its motion to intervene for the following reasons: (a) the validity of these defenses is irrelevant to FHFA's right to intervene under Fed.R.Civ.P. 24(a)(1), which is conferred by a federal statute and not dependent on the defenses at issue in a particular case; and (b) a court is not required to rule on the viability of a proposed intervenor's defenses as a prerequisite to intervention under Fed.R.Civ.P. 24(a)(2) or 24(b). ( Id. at 5-6.)

C. Parties' Briefing on Plaintiff's Cross-Motion to Substitute and Join

1. Plaintiff's Memorandum of Law

Generally, in his memorandum of law, Plaintiff asserts two arguments. (Dkt. No. 20 [Plf.'s Memo. of Law].)

First, argues Plaintiff, the Court should substitute FHFA as Conservator for Fannie Mae, for the same reasons that it should deny FHFA's motion to intervene. ( Id. at 12-26.)

Second, argues Plaintiff, the Court should join Edward DeMarco as the Acting Director of Fannie Mae (and should strike the grounds for removal asserted in the Notice of Removal), because (a) removal necessarily confers on the Court jurisdiction to hear a state-law claim against the federal government, pursuant to 28 U.S.C. §§ 2410 and 1441, and (b) the Conservator commenced the problematic mortgage foreclosure actions in state court (on a repeated, ongoing and continuous basis), thus waiving its right to remove the qui tam action. ( Id. at 12-32.)

2. Defendant Fannie Mae's Opposition Memorandum of Law

Generally, in their opposition memorandum of law, FHFA and Defendant Fannie Mae assert three arguments. (Dkt. No. 25 [Defs. FHFA and Fannie Mae's Opp'n Memo. of Law].)

First, argues FHFA and Defendant Fannie Mae, the Court should deny Plaintiff's motion to substitute for the following reasons: (a) he does not apply, or even mention, the rule that governs his request (i.e., Fed.R.Civ.P. 25); (b) as explained above, although FHFA (as Conservator) possesses the right to intervene in cases in which Fannie Mae is a party, that fact does not mean that the Conservator is automatically substituted in every case involving Fannie Mae; (c) Plaintiff's argument for mandatory substitution relies on his misinterpretation of the "qualified written contracts" provision of HERA, which does not apply because this action has nothing to do with a "qualified financial contract" as defined by HERA; (d) contrary to Plaintiff's argument that "Congress did not intend that Conservator could delegate rights back to [Fannie Mae], " Congress provided that the Conservator may delegate to Fannie Mae the authority to litigate in its own name, when the Conservator deems it appropriate; and (e) Plaintiff does not identify any undue prejudice that would arise from the denial of his motion to substitute (especially given the availability of other procedural mechanisms to achieve the result he desires). ( Id. at 2-4.)

Second, argues FHFA and Defendant Fannie Mae, the Court should deny Plaintiff's motion to join, for the following reasons: (a) he does not apply, or even mention, the rules that govern his request (i.e., Fed.R.Civ.P. 19 and 20); (b) rather than providing any argument whatsoever in support of his joinder request, he discusses whether the Court has jurisdiction to hear this action; and (c) even if Plaintiff had provided an argument in support of his request to join the Acting Director, any such argument would fail because an action against federal officers in their official capacities is barred under the doctrine of sovereign immunity, unless such immunity has been waived (which it has not been, in this case). ( Id. at 6.)

Third, argues FHFA and Defendant Fannie Mae, the Court should not strike the Notice of Removal for the following reasons: (a) rather than address any of the grounds for removal presented in the Notice of Removal, Plaintiff argues merely that the Conservator has "waived" removal through commencement of unspecified "mortgage foreclosure actions"; and (b) in any event, in Paragraphs 63 and 64 of his opposition memorandum of law, Plaintiff does not does not dispute that this Court has jurisdiction to hear this action. ( Id. at 6-7.)

D. Parties' Briefing on Defendant Fannie Mae's Motion to Dismiss

1. Defendant Fannie Mae's Memorandum of Law

Generally, in its memorandum of law, Defendant Fannie Mae asserts six arguments. (Dkt. No. 21, Attach. 1 [Def. Fannie Mae's Memo. of Law].)

First, argues Defendant Fannie Mae, Plaintiff's claims fail because Defendant Fannie Mae is statutorily exempt from the MRT in that (a) the plain language of the exemption statutes immunizes Defendant Fannie Mae and its mortgages from the MRT, (b) the exemption statutes' carve-out clauses do not apply under the circumstances, and (c) the exemption statutes apply regardless of whether Defendant Fannie Mae is deemed a ...


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