October 30, 2017
from the United States District Court for the Northern
District of Illinois, Eastern Division. No. 16 C 2107 -
Edmond E. Chang, Judge.
Wood, Chief Judge, and Bauer and Easterbrook, Circuit Judges.
height of the 2008 financial crisis, Congress created the
Federal Housing Finance Agency (the Agency) and authorized it
to place into conservatorship two critical
government-sponsored enterprises-the Federal National
Mortgage Association and the Federal Home Loan Mortgage
Corporation, commonly known as Fannie Mae and Freddie Mac. 12
U.S.C. § 4617(a). To stabilize Fannie and Freddie, along
with the broader financial markets, Congress em- powered the
U.S. Treasury to purchase their "obligations and other
securities" through the end of 2009. 12 U.S.C.
§§ 1455(1)(1)(A), 1719(g)(1)(A). The Agency and
Treasury acted quickly. In exchange for a cash infusion and
fixed funding commitment for each enterprise, Treasury
received senior preferred shares. Its shares gave it
extraordinary governance and economic rights, including the
right to receive dividends tied to the amount of Treasury
's payments. But the stabilization effort proved to be
more difficult than was initially expected. As Fannie and
Freddie's capital needs mounted, Treasury agreed three
times to modify the original stock purchase agreements. The
First and Second Amendments primarily increased
Treasury's funding commitment. The third
modification-which, unlike the first two, was made after
Treasury's purchasing authority had expired-introduced a
variable dividend under which Treasury's dividend rights
were set equal to the companies' outstanding net worth.
net-worth dividend, sometimes called the Net Worth Sweep, is
at the heart of this litigation. The plaintiffs are private
shareholders of Fannie and Freddie. They sued Treasury and
the Agency, claiming that the Agency violated its duties in
two ways: by agreeing to the net-worth dividend and by
unlawfully succumbing to the direction of Treasury. They
fault Treasury both for exceeding its statutory authority and
failing to follow proper procedures. The district court dis-
missed the complaint for failure to state a claim. See 12
U.S.C. § 4617(f). We affirm.
Mae and Freddie Mac are mammoth institutions. Although they
were chartered by Congress to increase home- loan lending by
injecting liquidity into mortgage markets, they have long
operated as publicly traded corporations. By 2008, they had
come to play an integral role in the United States economy,
backing mortgages valued at trillions of dollars and
representing a substantial portion of all home loans. As the
2008 financial crisis intensified and the national housing
market hovered on the verge of collapse, fears mounted about
their vitality. Congress responded by passing the Housing and
Economic Recovery Act of 2008 (HERA).
authorizes the director of the Agency to appoint the Agency
as conservator or receiver for Fannie or Freddie for a
variety of reasons. 12 U.S.C. § 4617(a)(1)-(3). In
either of those capacities, the Agency "may" then:
(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 con- duct 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.
Id. § 4617(b)(B). Additional provisions of HERA
apply separately to each of the Agency's two possible
roles. The Agency "may, as a conservator, 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)(D). In contrast,
"when acting as receiver, " the Agency "shall
place the regulated entity in liquidation." Id.
§ 4617(b)(E). Finally, the Agency may exercise
"such incidental powers as shall be necessary to carry
out" powers granted to it in either role, and it may
"take any action authorized … which the Agency
deter- mines is in the best interests of the regulated entity
or the Agency." Id. § 4617(b)(J). In
exercising any of these powers, the Agency "shall not be
subject to the direction or supervision of any other agency
of the United States." Id. § 4617(a)(7).
same time as HERA broadly empowers the Agency, it disempowers
courts and existing stockholders, directors, and officers.
Unless otherwise permitted by the statute or re- quested by
the Agency's director, "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). The law also provides that the Agency
"shall, as conservator or receiver, and by operation of
law, immediately succeed 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 [its] assets … ."
Id. § 4617(b)(2)(A); see also id.
Finally, HERA authorized Treasury to purchase securities in
Fannie and Freddie "on such terms and conditions
… and amounts as the Secretary [of the Treasury] may
determine." Id. §§ 1455(1)(1)(A),
1719(g)(1)(A). Treasury's purchasing authority continued
through December 31, 2009, 12 U.S.C. § 1719(g)(4), after
which Treasury could only "hold, exercise any rights
received in connection with, or sell, any" of the
securities it had purchased, 12 U.S.C. § 1719(g)(2)(D).
Congress passed HERA, the Agency promptly placed Fannie and
Freddie into conservatorship and entered into agreements with
Treasury for the sale of senior preferred shares. Treasury
initially invested $1 billion in each company and extended
$100 billion funding commitments to each. Pursuant to
Preferred Stock Purchase Agreements, Treasury received a) an
initial liquidation preference in each company of $1 billion,
to be increased dollar-for-dollar as each company drew on its
$100 billion funding commitment, b) a quarterly cumulative
dividend, c) an annual commitment fee waivable at
Treasury's discretion, and d) warrants to purchase
approximately 80 percent of each company's common stock.
The companies could elect to pay the dividend in cash at an
annualized rate equal to ten percent of Treasury's
outstanding liquidation preference or by ...