Byline: Barry Bridges
In a matter of first impression in the federal appellate courts, a 1st Circuit panel has held that the Federal National Mortgage Association otherwise known as Fannie Mae cannot be held vicariously liable for the unauthorized acts of its agents.
The case concerned a plaintiff who sought to hold the government-sponsored enterprise responsible for alleged misrepresentations of his loan servicer, Ditech Financial, that led to the foreclosure of his home.
The 1st Circuit affirmed a U.S. District Court judge in determining that the issue turned on the "Merrill doctrine," a rule derived from Federal Crop Insurance Corporation v. Merrill, a 1947 holding of the U.S. Supreme Court, to the effect that a "federal instrumentality" cannot be held vicariously liable for acts of its agents that were not authorized, even if a private principal could be held liable in same or similar circumstances if there was apparent authority to act.
Crucial to the instant case, the 1st Circuit determined that Fannie Mae is a "federal instrumentality" for purposes of the doctrine and therefore enjoys its protections.
"Since the appellant's claims are predicated on the theory that Fannie Mae should be held to account for the acts of Ditech employees acts that the record does not show were actually authorized by Fannie Mae the district court's entry of summary judgment [in Fannie Mae's favor] seems unimpugnable," Judge Bruce M. Selya wrote on behalf of the panel.
The 21-page decision is Faiella v. Federal National Mortgage Association, Lawyers Weekly No. 01-155-19. The full text of the ruling can be found here.
William C. Sheridan of Londonderry, New Hampshire, was appellate counsel for the plaintiff, while Boston's James W. McGarry represented Fannie Mae. Neither attorney responded to requests for comments prior to deadline.
But Todd S. Dion, a foreclosure defense lawyer who practices both in North Providence and Quincy, Massachusetts, offered his take on the decision.
Dion said the outcome was no "huge surprise" given a similar holding almost 30 years ago from the 7th Circuit pertaining to Fannie Mae's cousin, Freddie Mac.
"Either way, the question of whether Freddie or Fannie is a federal entity can be a very complex one that could go either way depending on the context," Dion said. "The decision made that clear."
Dion turned his attention to Selya's language that "anyone entering into an arrangement with the government...