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Roberts v. Federal Housing Finance Agency

United States District Court, N.D. Illinois, Eastern Division

March 20, 2017

Christopher M. Roberts and Thomas P. Fischer, Plaintiffs,
v.
The Federal Housing Finance Agency, in its capacity as Conservator of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation; Melvin L. Watt, in his official capacity as Director of the Federal Housing Finance Agency; The Department of the Treasury; and Steven T. Mnuchin[1], in his official capacity as Secretary of the Treasury, Defendants.

          MEMORANDUM OPINION AND ORDER

          Honorable Edmond E. Chang United States District Judge.

         Christopher Roberts and Thomas Fischer are shareholders of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). See R. 22, Am. Compl. ¶ 40.[2] Fannie Mae and Freddie Mac-both central figures in the United States' residential mortgage market-have been in conservatorship since the economic downturn of 2008; the Federal Housing Finance Agency (FHFA for short) is their conservator. See Id. ¶¶ 38, 52.

         This case arises from FHFA's involvement, as the companies' conservator, with the Treasury Department. In 2008, FHFA entered into stock purchase agreements with Treasury on Fannie's and Freddie's behalf. Am. Compl. ¶ 56. Under these agreements, Treasury made hundreds of billions of dollars in capital available to the companies in exchange for shares of their preferred stock, which had a variable liquidation preference. See Id. ¶¶ 56, 58, 61-62. The agreements obligated both Fannie and Freddie to pay Treasury a quarterly dividend equal to a fixed percentage of Treasury's liquidation preference. Id. ¶ 65. FHFA and Treasury later modified this dividend formula-in the Third Amendment to the stock purchase agreements-to require Fannie and Freddie to pay the quarterly dividend in an amount roughly equal to their net worth. See Id. ¶ 113.

         The Plaintiffs filed this lawsuit against FHFA and the Treasury Department, [3] principally alleging that, by adopting the new dividend formula in the Third Amendment, FHFA and Treasury had exceeded their statutory authority under the Housing and Economic Recovery Act of 2008 (for convenience's sake, the Recovery Act), Pub. L. No. 110-289, 122 Stat. 2654 (codified, as relevant here, in various sections of Title 12 of the United States Code), and Treasury had acted arbitrarily and capriciously, all in violation of the Administrative Procedure Act, 5 U.S.C. § 706(2)(A), (C)-(D). See Am. Compl. ¶¶ 169, 179, 191. The Defendants now move to dismiss the Plaintiffs' amended complaint, arguing (among other things) that a statutory provision in the Recovery Act bars the relief sought in this case. See R. 39, Joint Mot. to Dismiss. For the reasons stated below, the Defendants' motion is granted and the case is dismissed with prejudice.

         I. Background[4]

         A. Fannie Mae and Freddie Mac

         Fannie Mae and Freddie Mac are government-sponsored enterprises born from statutory charters issued by Congress. See 12 U.S.C. §§ 1716-1723 (Fannie Mae); id. §§ 1451-1459 (Freddie Mac); Am. Compl. ¶ 39. Congress created the companies to, among other things, “provide stability in the secondary market for residential mortgages” and “promote access to mortgage credit throughout the Nation … by increasing the liquidity of mortgage investments and improving the distribution of investment capital available for residential mortgage financing.” 12 U.S.C. § 1716(1), (3). Today, Fannie and Freddie are for-profit, stockholder-owned corporations.[5] See Am. Compl. ¶¶ 2, 38. They purchase mortgages originated by private lenders and bundle them into mortgage-related securities that can be sold to investors. Id.

         B. The Housing and Economic Recovery Act of 2008

         In the midst of the subprime mortgage crisis, Congress enacted the Recovery Act. See Am. Compl. ¶¶ 4, 45. The Recovery Act created FHFA, an independent agency with the power to supervise and regulate Fannie and Freddie. 12 U.S.C. § 4511. FHFA was authorized to place Fannie and Freddie into conservatorship or receivership “for the purpose of reorganizing, rehabilitating, or winding up the[ir] affairs.” See Id. § 4617(a)(2). The Recovery Act also granted Treasury “[t]emporary” authority to “purchase any obligations and other securities issued by” Fannie and Freddie “on such terms and conditions as the Secretary [of Treasury] may determine and in such amounts as the Secretary may determine.” Id. § 1455(1)(1)(A) (Freddie Mac); id. § 1719(g)(1)(A) (Fannie Mae). Treasury's temporary purchasing authority expired on December 31, 2009. 12 U.S.C. § 1455(1)(4) (Freddie Mac); id. § 1719(g)(4) (Fannie Mae). But the Act empowers Treasury to, “at any time, exercise any rights received in connection” with purchases completed before December 31, 2009. 12 U.S.C. § 1455(1)(2)(A), (D) (Freddie Mac); id. § 1719(g)(2)(A), (D) (Fannie Mae).

         The Recovery Act grants FHFA expansive general powers when acting as conservator or receiver:

The Agency may, as conservator or receiver-
(i) take over the assets of and operate the regulated entity with all the powers of the shareholders, the directors, and the officers of the regulated entity and conduct all business of the regulated entity;
(ii) collect all obligations and money due the regulated entity;
(iii) perform all functions of the regulated entity in the name of the regulated entity which are consistent with the appointment as conservator or receiver;
(iv) preserve and conserve the assets and property of the regulated entity; and
(v) provide by contract for assistance in fulfilling any function, activity, action, or duty of the Agency as conservator or receiver.

12 U.S.C. § 4617(b)(2)(B). In addition, FHFA is empowered to “transfer or sell any asset or liability of the regulated entity in default, and may do so without any approval, assignment, or consent with respect to such transfer or sale.” Id. § 4617(b)(2)(G). Specific to the conservator role, FHFA “may … take such action as may be … (i) necessary to put the regulated entity in a sound and solvent condition; and (ii) appropriate to carry on the business of the regulated entity and preserve and conserve the assets and property of the regulated entity.” Id. § 4617(b)(2)(D). (As receiver, by contrast, “the Agency shall place the regulated entity in liquidation and proceed to release upon the assets of the regulated entity in such a manner as the Agency deems appropriate.” Id. § 4617(b)(2)(E).) With respect to either role, FHFA “may” exercise any “incidental powers” necessary to carry out its enumerated powers, as well as “take any action authorized by [Section 4617], which the Agency determines is in the best interests of the regulated entity or the Agency.” Id. § 4617(b)(2)(J). And, upon becoming either conservator or receiver, FHFA “immediately succeed[s] to … all rights, titles, powers, and privileges of the regulated entity, and of any stockholder, officer, or director of such regulated entity with respect to the regulated entity and the assets of the regulated entity.” Id. § 4617(b)(2)(A).

         In addition to giving FHFA those broad powers, the Act limits external interference with FHFA's actions as conservator or receiver. For example, the statute specifies that when acting in either role, “the Agency shall not be subject to the direction or supervision of any other agency of the United States or any State in the exercise of the rights, powers, and privileges of the Agency.” 12 U.S.C. § 4617(a)(7). And “no court may take any action to restrain or affect the exercise of powers or functions of the Agency as a conservator or a receiver.” Id. § 4617(f).

         C. Factual Background

         On September 6, 2008-despite statements made by government officials suggesting that the companies were financially healthy, Am. Compl. ¶ 42-FHFA placed Fannie and Freddie into conservatorship. Id. ΒΆΒΆ 7, 52. The Plaintiffs claim that, at that point in time, neither Fannie nor Freddie were ...


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