United States District Court, N.D. Illinois, Eastern Division
Christopher M. Roberts and Thomas P. Fischer, Plaintiffs,
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, in his official capacity as Secretary of the Treasury, Defendants.
MEMORANDUM OPINION AND ORDER
Honorable Edmond E. Chang United States District Judge.
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. 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.
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.
Plaintiffs filed this lawsuit against FHFA and the Treasury
Department,  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
Fannie Mae and Freddie Mac
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. 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.
The Housing and Economic Recovery Act of 2008
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
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
(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. §
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.
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. ¶¶ 7, 52. The
Plaintiffs claim that, at that point in time, neither Fannie
nor Freddie were ...