Ninth Circuit Rules Fannie Mae, Freddie Mac Not Federal Instrumentalities Under the False Claims Act

The Ninth Circuit Court of Appeals affirmed the U.S. District Court for the District of Nevada’s holding that claims presented to the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) were not subject to liability under 31 U.S.C. Sec. 3729(b)(2)(A)(i).  Fannie Mae and Freddie Mac are private companies, and their sponsorship or charter from the government do not make them federal instrumentalities for the purposes of the False Claims Act.

The relators had alleged in the district court that various lenders and loan servicers sold Fannie Mae and Freddie Mac loans and falsely certified that the loans were free and clear of certain home owner association liens and charges.  The relators’ sole argument for liability under the False Claims Act was that Fannie Mae and Freddie Mac are agencies or instrumentalities of the federal government for the purposes of 31 U.S.C. Sec. 3729(b)(2)(A)(i).  The district court ruled that because Fannie Mae and Freddie Mac are not federal instrumentalities under the False Claims Act, the relators had not stated a proper claim for relief.

The Ninth Circuit affirmed the district court’s ruling because Fannie Mae and Freddie Mac are private companies, despite being sponsored or chartered by the federal government. Although Fannie Mae and Freddie Mac were instrumentalities of the federal government for state and city tax purposes under Rust v. Johnson, 597 F.2d 174 (9th Cir. 1979) and for First Amendment purposes under Lebron v. National Railroad Passenger Corp., 513 U.S. 374 (1995), they were not instrumentalities of the federal government under the False Claims Act.  The Court of Appeals explained that even though an entity is a federal instrumentality for one purpose, it does not mean that the entity is a federal instrumentality for all purposes.

The district court was overruled to the extent that it held a False Claims Act claim could never be brought on a claim made to Fannie Mae and Freddie Mac.  In fact, the Ninth Circuit stated that a properly pled complaint could give rise to liability for claims submitted to Fannie Mae and Freddie Mac under 31 U.S.C. Sec. 3729(b)(2)(A)(ii).  However, the relators did not argue that they had stated a claim under 31 U.S.C. Sec. 3729(b)(2)(A)(ii), nor did they ask for leave to amend their complaint to make such a claim. Therefore, the Ninth Circuit did not express an opinion as to whether the relators could have stated a claim under that section.

Weiner Brodsky Kider PC regularly represents clients throughout the United States in connection with False Claims Act matters.