People of the State of California, ex rel. et al v. Federal Housing Finance Agency et al

Filing 129

ORDER by Judge Claudia Wilken granting in part and denying in part 49 Motion to Dismiss (cwlc3, COURT STAFF) (Filed on 8/26/2011)

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1 2 3 4 5 6 7 8 IN THE UNITED STATES DISTRICT COURT 9 FOR THE NORTHERN DISTRICT OF CALIFORNIA United States District Court For the Northern District of California 10 11 12 PEOPLE OF THE STATE OF CALIFORNIA, ex rel. KAMALA D. HARRIS, ATTORNEY GENERAL, 13 Plaintiff, 14 v. 15 16 17 18 19 20 21 22 23 24 25 26 27 28 FEDERAL HOUSING FINANCE AGENCY; EDWARD DeMARCO, in his capacity as Acting Director of FEDERAL HOUSING FINANCE AGENCY; FEDERAL HOME LOAN MORTGAGE CORPORATION; CHARLES E. HALDEMAN, Jr., in his capacity as Chief Executive Officer of FEDERAL HOME LOAN MORTGAGE CORPORATION; FEDERAL NATIONAL MORTGAGE ASSOCIATION; and MICHAEL J. WILLIAMS, in his capacity as Chief Executive Officer of FEDERAL NATIONAL MORTGAGE ASSOCIATION, Defendants ________________________________/ No. No. No. No. C C C C 10-03084 10-03270 10-03317 10-04482 CW CW CW CW ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTIONS TO DISMISS (Docket Nos. 49, 41, 74, 18, and 13), AND GRANTING IN PART AND DENYING IN PART SONOMA COUNTY'S MOTION FOR A PRELIMINARY INJUNCTION (Docket No. 33) 1 SONOMA COUNTY and PLACER COUNTY, Plaintiff and Plaintiff-Intervener, 2 3 4 5 6 7 8 9 United States District Court For the Northern District of California 10 11 v. FEDERAL HOUSING FINANCE AGENCY; EDWARD DeMARCO, in his capacity as Acting Director of FEDERAL HOUSING FINANCE AGENCY; FEDERAL HOME LOAN MORTGAGE CORPORATION; CHARLES E. HALDEMAN, Jr., in his capacity as Chief Executive Officer of FEDERAL HOME LOAN MORTGAGE CORPORATION; FEDERAL NATIONAL MORTGAGE ASSOCIATION; and MICHAEL J. WILLIAMS, in his capacity as Chief Executive Officer of FEDERAL NATIONAL MORTGAGE ASSOCIATION, Defendants. 12 / 13 14 SIERRA CLUB, Plaintiff, 15 16 v. 18 FEDERAL HOUSING FINANCE AGENCY; and EDWARD DeMARCO, in his capacity as Acting Director of FEDERAL HOUSING FINANCE AGENCY, 19 Defendants. 17 20 / 21 22 CITY OF PALM DESERT, Plaintiff, 23 24 v. 26 FEDERAL HOUSING FINANCE AGENCY; FEDERAL NATIONAL MORTGAGE ASSOCIATION; and FEDERAL HOME LOAN MORTGAGE CORPORATION, 27 Defendants. 25 28 / 2 1 California, Sonoma and Placer Counties, the City of Palm 2 Desert and the Sierra Club have sued the Federal Housing Finance 3 Agency (FHFA), the Federal National Housing Association (Fannie 4 Mae), the Federal Loan Mortgage Corporation (Freddie Mac) and 5 their directors.1 6 The lawsuits challenge actions by the FHFA, Fannie Mae and Freddie Mac which have allegedly blocked government 7 8 9 programs financing energy conservation.2 Plaintiffs seek declaratory and injunctive relief, alleging violations of the United States District Court For the Northern District of California 10 Administrative Procedures Act (APA), the National Environmental 11 Policy Act (NEPA), various state laws and the Constitution's Tenth 12 Amendment and Spending Clause. 13 Defendants have moved to dismiss all claims.3 Plaintiffs 14 jointly oppose. Sonoma County also moves for a preliminary 15 16 injunction. Defendants' motions to dismiss are GRANTED IN PART. 17 18 19 20 21 22 23 24 25 26 27 28 By stipulation, the claims against Defendants Charles E. Halderman, Jr. and Michael J. Williams, who were sued in their official capacities as Chief Executive Officers for Fannie Mae and Freddie Mac, have been dismissed. No. C 10-03084, Docket No. 83; No. C 10-03270, Docket No. 93. 2 Three similar cases have been filed in federal district courts in Florida and New York: The Town of Babylon v. Federal Housing Finance Agency, et al., 2:10-cv-04916 (E.D.N.Y); Natural Resource Defense Council, Inc. v. Federal Housing Finance Authority, et al., 1:10-cv-07647-SAS (S.D.N.Y.); and Leon County v. Federal Housing Finance Agency, et al., 4:10-cv-00436-RH (N.D.Fla.). The Babylon and Natural Resource Defense Council actions have been dismissed, and notices of appeal have been filed. 1 Unless noted otherwise, citations to the record refer to the California action, C 10-03084. 3 3 1 2 Sonoma County's motion for a preliminary injunction is GRANTED IN PART. BACKGROUND 3 4 5 6 7 The present actions arise from disputes about certain federally funded, state and locally administered initiatives known as Property Assessed Clean Energy (PACE) programs. The Department of Energy substantially funds PACE programs, as part of the 8 9 American Recovery and Reinvestment Act of 2008. Through these United States District Court For the Northern District of California 10 programs, state and local governments finance energy conservation 11 improvements with debt obligations secured by the retrofitted 12 properties. 13 create jobs. 14 15 As a related benefit, the programs are intended to In the Housing and Economic Recovery Act of 2008 (HERA), Public Law 110-289, 122 Stat. 2654, Congress established the FHFA 16 17 18 to regulate and oversee Fannie Mae and Freddie Mac (collectively, the Enterprises), as well as the Federal Home Loan Banks (Banks), 19 which largely control the country's secondary market for 20 residential mortgages. 21 Enterprises Financial Safety and Soundness Act of 1992, 12 U.S.C. 22 § 4501 et seq. (Safety and Soundness Act). 23 24 The HERA amended the Federal Housing The Safety and Soundness Act outlines the regulatory and oversight structure for the Enterprises and the Banks, denominated the regulated entities. 25 26 12 U.S.C. § 4502(20). As amended by the HERA, the Safety and 27 Soundness Act vests in the FHFA the authority to act as a 28 conservator and receiver for the Enterprises and the Banks. 4 12 1 2 3 U.S.C. §§ 4511(b); 4617(a). Since September 6, 2008, both Enterprises have been in FHFA conservatorship. Id. The parties disagree about the nature of the debt obligations 4 created by PACE programs, and the extent to which the obligations 5 create risks for secondary mortgage holders, such as the 6 7 Enterprises. Defendants contend that PACE programs, in particular those that result in lien obligations that take priority over 8 9 mortgage loans, make alienation of the encumbered properties more United States District Court For the Northern District of California 10 difficult, and thus pose risk to the security interests of 11 entities that purchase the mortgages for investment purposes. 12 Plaintiffs allege that Defendants' actions have thwarted PACE 13 programs. 14 imposed procedural requirements in adopting policies about the 15 They claim that (1) Defendants disregarded statutorily PACE debt obligations, (2) Defendants' determinations were 16 17 18 substantively unlawful because they were arbitrary and capricious, and (3) Defendants mischaracterized the legal nature of the 19 obligations, contrary to state law, deeming them loans rather than 20 traditional public assessments. 21 22 23 24 The actions Defendants took are as follows. In a letter dated June 18, 2009, addressed to banking and creditor trade groups, as well as associations for mortgage regulators, governors and state legislators, the FHFA asserted in general terms that the 25 26 PACE program posed risks to homeowners and lenders. On September 27 18, 2009, Fannie Mae issued a "Lender Letter" to its mortgage 28 sellers and servicers in response to questions about PACE 5 1 2 programs, providing a link to the FHFA's June 18, 2009 letter. First Amended Complaint (FAC), Ex. A. 3 On May 5, 2010, Fannie Mae and Freddie Mac both issued 4 letters to their mortgage sellers and servicers, again addressing 5 concerns about PACE programs. 6 7 FAC, Ex. B. On July 6, 2010, the FHFA issued a statement that the PACE programs “present significant safety and soundness concerns that 8 9 must be addressed by Fannie Mae, Freddie Mac and the Federal Home United States District Court For the Northern District of California 10 Loan Banks.” 11 created by PACE programs were different from “routine tax 12 assessments,” and posed significant risks to lenders, servicers, 13 and mortgage securities investors. 14 local governments to reconsider these programs" and called "for a 15 FAC, Ex. C. The FHFA stated that first liens Id. The FHFA "urged state and pause in such programs so concerns can be addressed." Id. The 16 17 18 FHFA directed Fannie Mae, Freddie Mac and the Banks to undertake "prudential actions," including reviewing their collateral 19 policies to assure no adverse impact by PACE programs. 20 Although Defendants have taken the position that the FHFA issued 21 the statement in its capacities as conservator and as regulator, 22 the statement itself does not say so, or cite any statutory or 23 24 Id. regulatory provision. On August 31, 2010, Fannie Mae and Freddie Mac, citing the 25 26 27 FAFA’s July 2010 statement, announced to lenders that they would not purchase mortgages originated on or after July 6, 2010, which 28 6 1 2 3 4 5 6 7 were secured by properties encumbered by PACE obligations. Declaration of Scott Border, Exs. 20 & 21. At the Court's request, on February 8, 2011, the United States submitted a Statement of Interest in these lawsuits. On February 28, 2011, the FHFA's General Counsel sent a letter to General Counsel for Fannie Mae and Freddie Mac, reaffirming that debts arising from PACE programs pose significant 8 9 risks to the Enterprises. Defendants' Notice of New Authority, United States District Court For the Northern District of California 10 Ex. A. 11 and directed that the "Enterprises shall continue to refrain from 12 purchasing mortgage loans secured by properties with outstanding 13 first-lien PACE obligations." 14 ordered that the "Enterprises shall continue to operate in 15 The FHFA invoked its statutory authority as conservator Id. In addition, the letter accordance with the Lender Letters and shall undertake other steps 16 17 18 necessary to protect their safe and sound operations from these first-lien PACE programs." Id. LEGAL STANDARD 19 20 Dismissal is appropriate under Rule 12(b)(1) when the 21 district court lacks subject matter jurisdiction over the claim. 22 Fed. R. Civ. P. 12(b)(1). 23 24 Federal subject matter jurisdiction must exist at the time the action is commenced. Morongo Band of Mission Indians v. Cal. State Bd. of Equalization, 858 F.2d 1376, 25 26 27 1380 (9th Cir. 1988). A federal court is presumed to lack subject matter jurisdiction until the contrary affirmatively appears. 28 7 1 2 3 Stock W., Inc. v. Confederated Tribes, 873 F.2d 1221, 1225 (9th Cir. 1989). Dismissal under Rule 12(b)(6) for failure to state a claim is 4 appropriate only when the complaint does not give the defendant 5 fair notice of a legally cognizable claim and the grounds on which 6 7 it rests. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). A complaint must contain a "short and plain statement of the claim 8 9 showing that the pleader is entitled to relief." Fed. R. Civ. P. United States District Court For the Northern District of California 10 8(a). 11 a claim, the court will take all material allegations as true and 12 construe them in the light most favorable to the plaintiff. 13 Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). 14 However, this principle is inapplicable to legal conclusions; 15 In considering whether the complaint is sufficient to state NL "threadbare recitals of the elements of a cause of action, 16 17 18 19 supported by mere conclusory statements," are not taken as true. Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949-50 (2009) (citing Twombly, 550 U.S. at 555). DISCUSSION 20 21 22 23 24 I. Subject Matter Jurisdiction A. Article III Standing Although Defendants did not initially raise the issue, the United States argues in its Statement of Interest that Plaintiffs 25 26 do not have Article III standing and, therefore, the Court does 27 not have subject matter jurisdiction to consider their claims. 28 “If the court determines at any time that it lacks subject-matter 8 1 jurisdiction, the court must dismiss the action.” Fed. R. Civ. P. 2 12(h)(3). 3 satisfy three requirements--(1) injury in fact; (2) causation; and 4 (3) redressability. 5 560 (1998). 6 7 To establish constitutional standing, a plaintiff must Lujan v. Defenders of Wildlife, 504 U.S. 555, The party invoking federal jurisdiction bears the burden of establishing that it has Article III standing. Steel Co. v. Citizens for a Better Environment, 523 U.S. 83, 103-104 8 9 (1998). On a motion to dismiss, a plaintiff need only show that United States District Court For the Northern District of California 10 the facts alleged, if proved, would confer standing. 11 Delta Water Agency v. United States, 306 F.3d 938, 947 (9th Cir. 12 2002). 13 14 15 Central The United States does not argue that Plaintiffs do not allege "injury in fact," and the Court finds that they do. Rather, the United States asserts that Plaintiffs cannot satisfy 16 17 18 the causation requirement because the Enterprises took the position that PACE debt obligations were incompatible with their 19 uniform security instruments in their May 5, 2010 letters, before 20 the FHFA issued its July 6, 2010 statement. 21 argues that Plaintiffs have alleged no facts suggesting that the 22 Enterprises would have altered their position if the FHFA had not 23 24 The United States issued its July statement. With respect to redressability, the United States asserts 25 26 that it is mere speculation that if the FHFA changed its policy on 27 the PACE program, individuals would be able to obtain mortgages, 28 or refinance existing mortgages, on properties encumbered by PACE9 1 related debt obligations. The United States further argues that 2 it is speculative that the notice and comment process would change 3 the FHFA's and the Enterprises' position with respect to PACE 4 programs. 5 6 7 Plaintiffs claim procedural as well as substantive injury. "A showing of procedural injury lessens a plaintiff's burden on the last two prongs of the Article III standing inquiry, causation 8 9 and redressability." Salmon Spawning & Recovery Alliance v. United States District Court For the Northern District of California 10 Gutierrez, 545 F.3d 1220, 1226 (9th Cir. 2008). 11 has explained that 12 13 14 15 16 17 18 The Supreme Court a litigant to whom Congress has accorded a procedural right to protect his concrete interests . . . can assert that right without meeting all the normal standards for redressability and immediacy. When a litigant is vested with a procedural right, that litigant has standing if there is some possibility that the requested relief will prompt the injurycausing party to reconsider the decision that allegedly harmed the litigant. Massachusetts v. EPA, 549 U.S. 497, 517-18 (2007) (internal 19 quotation marks and citations omitted). 20 that an agency has failed to follow procedural requirements in 21 considering the environmental impact of its action, for purposes 22 of redressability, "[i]t suffices that . . . the [agency's] 23 24 Where a plaintiff asserts decision could be influenced by the environmental considerations that [the relevant statute] requires an agency to study." 25 26 Citizens for Better Forestry v. USDA, 341 F.3d 961, 976 (9th Cir. 27 2003) (alterations and emphasis in original, internal quotation 28 marks omitted); Natural Resources Defense Council, Inc. v. EPA, 10 1 638 F.3d 1183, 1189 n.3 (9th Cir. 2011); Salmon Spawning, 545 F.3d 2 at 1226-27; Sierra Forest Legacy v. United States Forest Service, 3 652 F. Supp. 2d 1065, 1078 (N.D. Cal. 2009). 4 plaintiff alleging a substantive violation must demonstrate that 5 its injury would likely be redressed by a favorable court 6 7 decision." In contrast, "a Salmon Spawning, 545 F.3d at 1228. With regard to causation, Plaintiffs have alleged a 8 9 sufficient connection between Defendants' actions and the United States District Court For the Northern District of California 10 thwarting of PACE programs and their anticipated benefits. 11 hold otherwise would suggest that Congress imposed procedural 12 requirements that have no meaningful effect. 13 Better Forestry, 341 F.3d at 973. 14 15 To See Citizens for Although the FHFA's July 2010 statement was issued after Fannie Mae and Freddie Mac's May 2010 announcements to their 16 17 18 sellers and servicers, the FHFA had publicized its concerns in the prior, June 2009, letter. Fannie Mae, in turn, cited that letter 19 as it raised caution about PACE programs in its September 2009 20 Lender Letter. 21 31, 2010 announcements that they would not purchase PACE- 22 encumbered mortgages originated on or after July 6, 2010, were 23 24 In addition, Fannie Mae's and Freddie Mac's August issued in response to the FHFA's statement. Further, Plaintiffs' claims of procedural violations are 25 26 redressable. If the statutorily mandated procedures were 27 followed, Plaintiffs' interests could be protected by a resulting 28 change in the FHFA, Fannie Mae and Freddie Mac's policy, spurring 11 1 lenders to renew financing of PACE-encumbered properties. 2 Plaintiffs have alleged that, prior to the July 2010 statement, 3 PACE programs were operational and PACE participants were able to 4 refinance their mortgages. 5 FHFA's July 2010 statement and the Enterprises' announcements, the 6 7 They further allege that, after the programs faltered and participants became unable to refinance or transfer their properties without paying off the PACE debt in 8 9 full. FAC ¶ 35. Accepting the allegations as true, the financing United States District Court For the Northern District of California 10 and benefits previously afforded by PACE programs could be renewed 11 as a result of new information gleaned through the notice and 12 comment and environmental review processes and a resulting change 13 in Defendants' position and related marketplace practices. 14 15 Although Plaintiffs' substantive claims are subject to greater scrutiny with regard to Article III standing requirements, 16 17 18 the causation and redressability requirements are adequately plead. The alleged reaction of the marketplace to Defendants' 19 actions and the rapid demise of PACE programs establish a 20 sufficient causal connection between Defendants' actions and 21 Plaintiffs' purported injury. 22 alleged because, if the FHFA’s policy were set aside as arbitrary 23 24 Redressability is sufficiently and capricious, it is likely that financing streams would be renewed. 25 26 This case is distinguishable from Levine v. Vilsack, 587 F.3d 27 986 (9th Cir. 2009), a case upon which the United States relies to 28 argue that Plaintiffs' claims are not redressable. 12 In Levine, the 1 plaintiffs brought suit against the Secretary of Agriculture, 2 alleging that the agency's interpretive rule excluding poultry 3 from the Humane Methods of Slaughter Act (HMSA) was arbitrary and 4 capricious under the APA. 5 inhumane slaughter of poultry under the HMSA, but the statute 6 7 The plaintiffs sought to block the lacked an enforcement provision. Id. at 989. Plaintiffs' goal would be achieved only if the Secretary proceeded to add poultry 8 9 to the list of protected species under the Federal Meat Inspection United States District Court For the Northern District of California 10 Act, a separate statute which was not at issue in the case. 11 at 993-95. 12 Secretary would do so and whether resulting regulations would make 13 the slaughter of poultry more humane. 14 15 Id. The court reasoned that it was speculative whether the Id. at 996-97. The present actions differ because further action by a federal agency would not be required to achieve Plaintiffs' goals. 16 17 18 Plaintiffs have alleged that PACE encumbrances were treated like tax assessments until the FHFA took the actions it did. 19 Plaintiffs adequately allege that a change in the FHFA's policy 20 would lead to a return previous marketplace practices. 21 22 23 24 Accordingly, Plaintiffs' claims sufficiently allege the injury in fact, causation and redressability necessary to establish standing at this stage of the litigation. B. Statutory Preclusion of Judicial Review 25 26 Defendants argue that, pursuant to Federal Rule of Civil 27 Procedure 12(b)(1), the present actions should be dismissed for 28 lack of subject matter jurisdiction. 13 Specifically, Defendants 1 assert that three statutory provisions--12 U.S.C. §§ 4617(f), 2 4635(b), and 4623(d)--preclude judicial review of Plaintiffs' 3 claims for relief. 4 5 6 7 The courts have long recognized a presumption in favor of judicial review of administrative actions. Love v. Thomas, 858 F.2d 1347, 1356 (9th Cir. 1988) (citing Block v. Community Nutrition Inst., 467 U.S. 340, 349-51 (1984)). The presumption 8 9 may be overcome by various means, including "specific language or United States District Court For the Northern District of California 10 specific legislative history that is a reliable indicator of 11 congressional intent" or "by inference of intent drawn from the 12 statutory scheme as a whole." Block, 467 U.S. at 349. 13 Although "great weight" is ordinarily given to an agency's 14 interpretation of a statute it is charged with enforcing, "that 15 deference does not extend to the question of judicial review, a 16 17 18 19 20 21 22 23 24 matter within the peculiar expertise of the courts." Love, 858 F.2d at 1352 n.9. The Court considers whether any of the three provisions preclude its authority to hear Plaintiffs' claims. 1. Section 4617(f) Section 4617(a) authorizes the appointment of the FHFA as conservator or receiver for a regulated entity under certain circumstances. 12 U.S.C. § 4617(a). As conservator, the FHFA 25 26 immediately succeeds to "all rights, titles, powers, and 27 privileges of the regulated entity, and of any stockholder, 28 officer, or director of such regulated entity" with respect to the 14 1 entity and its assets. 12 U.S.C. § 4617(b)(2)(A). The FHFA may 2 take over assets and operate the entity subject to its 3 conservatorship, collect all obligations and money due, perform 4 all functions of the regulated entity in its name consistent with 5 the FHFA's appointment as conservator, and preserve and conserve 6 7 the entity's assets and property. 12 U.S.C. § 4617(b)(2)(B)(i)- (iv). 8 9 Section 4617(f) limits judicial review of such actions, United States District Court For the Northern District of California 10 stating that "no court may take any action to restrain or affect 11 the exercise of powers or functions of the Agency as a conservator 12 or a receiver." 13 interpreting Section 4617(f). 14 the language in the provision is similar to 12 U.S.C. § 1821(j), 15 12 U.S.C. § 4617(f). There is little case law However, the parties recognize that which limits judicial review of actions taken by the Federal 16 17 18 Deposition Insurance Corporation (FDIC) in its capacity as a conservator or receiver. Sahni v. American Diversified Partners, 19 83 F.3d 1054, 1058-59 (9th Cir. 1996). 20 "no court may take any action," except at the request of the FDIC 21 Board of Directors by regulation or order, "to restrain or affect 22 the exercise of powers or functions of the [FDIC] as a conservator 23 24 or a receiver." That provision states that 12 U.S.C. § 1821(j). The Ninth Circuit has stated, "The bar imposed by § 1821(j) 25 26 does not extend to situations in which the FDIC as receiver 27 asserts authority beyond that granted to it as a receiver." 28 Sharpe v. FDIC, 126 F.3d 1147, 1155 (9th Cir. 1997) (citing 15 1 National Trust for Historic Preservation v. FDIC, 995 F.2d 238, 2 240 (D.C. Cir. 1993), judgment vacated, 5 F.3d 567 (D.C. Cir. 3 1993), reinstated in relevant part, 21 F.3d 469 (D.C. Cir. 1994)). 4 In Sharpe, the Ninth Circuit held that the FDIC, in breaching a 5 contract, did not act within its statutorily defined receiver 6 7 powers to disaffirm or repudiate contracts; the court was permitted to review the plaintiffs' breach of contract claim 8 9 United States District Court For the Northern District of California 10 against the FDIC. The FHFA contends that it issued its July 2010 statement and 11 February 2011 letter as conservator of the Enterprises. 12 Plaintiffs respond that Defendants' actions amount to substantive 13 rule-making, and that rule-making is not a part of the FHFA's role 14 as conservator. 15 The FHFA has directed Fannie Mae and Freddie Mac prospectively to refrain from purchasing any mortgage loan secured 16 17 18 19 by property with an outstanding PACE obligation. This appears to amount to substantive rule-making. Distinct from the FHFA's powers as a conservator or receiver, 20 it has supervisory and regulatory authority over Fannie Mae, 21 Freddie Mac and the Federal Home Loan Banks, the regulated 22 entities. 23 24 See 12 U.S.C. § 4511(b); § 4513b; § 4513(a)(1)(A), (B)(i)-(v). Therefore, the Court must next consider whether the FHFA's 25 26 rule-making is pursuant to its authority as a conservator, or to 27 its supervisory or regulatory authority. 28 explained that, "in interpreting a statute, the court will not 16 The Ninth Circuit has 1 look merely to a particular clause in which general words may be 2 used, but will take in connection with it the whole statute (or 3 statutes on the same subject) and the objects and policy of the 4 law." 5 1209, 1219 (9th Cir. 1987) (internal quotation marks omitted). 6 7 Morrison-Knudsen Co., Inc. v. CHG Int'l, Inc., 811 F.2d In Morrison-Knudsen, the Ninth Circuit declined to hold that the Federal Savings and Loan Insurance Corporation's authority to 8 9 adjudicate creditor claims was in keeping with the ordinary United States District Court For the Northern District of California 10 functions of a receiver. 11 that the language in the relevant statute failed to enumerate, and 12 the statutory scheme did not support, the power to adjudicate 13 creditor claims. 14 15 Id. at 1217. The Ninth Circuit found Id. at 1218-20. Here, it is clear from the statutory scheme overall and other provisions of section 4617 that Congress distinguished between the 16 17 18 19 FHFA's powers as a conservator and its authority as a regulator, and did not intend that the former would subsume the latter. Specific provisions of section 4617 include the phrase, "The 20 agency may, as conservator . . .," in reference to the FHFA's 21 authority in that role, while other provisions addressing the 22 FHFA's regulatory powers do not contain analogous language. 23 Compare 12 U.S.C. § 4617(b)(1) and (2)(C) with § 4617(b)(2)(A), 24 25 26 27 28 17 1 (B), (G), (H), (I)(i)(I) and (J)4 and § 4617(b)(4). Section 2 4617(b) indicates that Congress intended to enumerate the FHFA's 3 powers and duties as a conservator, while delegating other duties 4 to the FHFA's regulatory authority. 5 substantive rulemaking as a conservatorship power. 6 The statute does not identify The cases upon which Defendants rely to assert that the 7 8 9 FHFA's powers as a conservator are "sweeping" and "broad," such that its July 2010 statement and February 2011 letter escape United States District Court For the Northern District of California 10 judicial review, are inapposite. 11 typical of the ordinary day-to-day functions of an agency acting 12 as conservator or receiver. 13 1394 (D.C. Cir. 1995) (holding that, pursuant to 12 U.S.C. 14 The cases address FHFA actions See e.g., Freeman v. FDIC, 56 F.3d § 1821(j), the court was precluded from taking any action that 15 might restrain the FDIC from conducting a nonjudicial foreclosure 16 17 sale of assets acquired from a failed bank); National Trust, 995 18 F.2d at 239-41 (holding that a lawsuit to enjoin the FDIC's sale 19 to liquidate assets was precluded by § 1821(j)); Hindes v. FDIC, 20 137 F.3d 148, 160 (3rd Cir. 1998) (precluding an order voiding 21 FDIC action in its corporate capacity, which triggered a state 22 agency to close a bank and appoint the FDIC as receiver); 23 Telematics International, Inc. v. NEMLC Leasing Corp., 967 F.2d 24 25 26 27 28 Although section 4617(b)(2)(J) is worded as a broad, catchall provision, given the overall scheme of section 4617, it would be incorrect to find that section 4617(b)(2)(J) authorizes the FHFA to do anything and everything, including engaging in rule-making, as a conservator. 4 18 1 703, 707 (1st Cir. 1992) (precluding plaintiff from attaching a 2 certificate of deposit held by a bank because the attachment would 3 impede the FDIC from attaching the asset); Save Our Wetlands, Inc. 4 v. State of La., Landmark Lands Co., 1996 WL 194924, *2-3 (E.D. 5 La.) (stating that disposition of a failed institution's assets is 6 7 a power of a receiver, and a challenge to title of a property directly affects the receiver's function); Pyramid Const. Co., 8 9 Inc. v. Wind River Petroleum, Inc., 866 F. Supp. 513, 518-19 (D. United States District Court For the Northern District of California 10 Utah 1994) (precluding an order to rescind the Resolution Trust 11 Corporation's sale of a parcel and force transfer of that parcel 12 from one private party to another); Furgatch v. Resolution Trust 13 Corp., 1993 WL 149084, *2 (N.D. Cal.) (precluding injunction 14 against a bank and trustee to prevent a foreclosure sale because 15 it would indirectly enjoin a foreclosure by the RTC in its role as 16 17 18 conservator). Substantive rule-making is not appropriately deemed action 19 pursuant to the FHFA's conservatorship authority. 20 policy-making with respect to PACE programs does not involve 21 succeeding to the rights or powers of the Enterprises, taking over 22 their assets, collecting money due or operating their business. 23 24 Given the presumption in favor of judicial review, section 4617(f) does not preclude review of the July 2010 statement and February 25 26 The FHFA's 2011 letter. 27 28 19 2. 1 2 Section 4623(d) The FHFA argues that its July 2010 statement was exempt from 3 judicial review pursuant to 12 U.S.C. § 4623(d), which restricts 4 judicial review of any action taken under section 4616(b)(4). 5 Section 4616(b)(1) through (4) describes supervisory actions that 6 5 the FHFA Director may take with respect to "significantly 7 8 9 undercapitalized" regulated entities. Section 4616(b)(4) authorizes the Director to require a "significantly United States District Court For the Northern District of California 10 undercapitalized" regulated entity "to terminate, reduce, or 11 modify any activity that the Director determines creates excessive 12 risk to the regulated entity." 13 establishes a tiered system of classification of the 14 The Safety and Soundness Act capitalization of the regulated entities; "significantly 15 undercapitalized" is the second lowest of the four tiers. See 12 16 17 18 U.S.C. § 4614(a) and (b)(1)(C). It is not clear that the FHFA acted pursuant to section 19 4616(b)(4) because it could have done so only if it found that 20 Defendants assert that Title 12 U.S.C. sections 4623(d) and section 4635(b) preclude judicial review of the July 2010 statement, as alternative arguments to their contention that section 4617(f) bars review. The FHFA issued its February 2011 letter after the parties completed briefing on Defendants' motions to dismiss, and the Court permitted supplemental briefing to address the February 2011 letter. Defendants did not argue that 12 U.S.C. §§ 4635(b) and 4623(d) also apply to the February 2011 letter. They took the position that section 4617(f) precluded review of the February 2011 letter because it was issued expressly in the FHFA's capacity as conservator of Fannie Mae and Freddie Mac. Docket No. 105 and 107. Accordingly, the Court does not address 12 U.S.C. §§ 4635(b) or 4623(d) with respect to the February 2011 letter. 21 22 23 24 25 26 27 28 5 20 1 Fannie Mae, Freddie Mac and the Federal Home Loan Banks were 2 significantly undercapitalized. 3 the FHFA imposed such a classification. 4 entity may be placed into FHFA conservatorship on grounds apart 5 from its capital classification, it is not possible to infer from 6 7 Defendants have not shown that Because a regulated Fannie Mae or Freddie Mac's conservatorship that they were classified as significantly undercapitalized. Nothing in the July 8 9 2010 statement refers to section 4616(b)(4), or makes reference to United States District Court For the Northern District of California 10 undercapitalization. Thus, section 4623(d) does not limit the 11 Court's jurisdiction to hear Plaintiffs' claims. 12 3. Section 4635(b) 13 The FHFA contends that it issued its July 2010 statement 14 pursuant to its enforcement authority6 and, thus, under 12 U.S.C. 15 § 4635(b), the action is beyond the Court's purview. Section 16 17 4635(b) bars judicial review of the "issuance or enforcement of 18 any notice or order" under 12 U.S.C. § 4624(b) and (c). 19 4624(b) and (c) authorize the FHFA to issue orders to "make 20 temporary adjustments to the established standards for an 21 enterprise or both enterprises" and to "require an enterprise, 22 under such terms and conditions as the Director determines to be 23 appropriate, to dispose of or acquire any asset . . ." Sections 12 U.S.C. 24 25 § 4624(b)-(c). 26 27 28 Again, Defendants do not appear to argue that the February 2011 letter was issued under this authority. 6 21 1 Neither sections 4624(b) nor (c) applies to the July 2010 2 statement. 3 not solely the Enterprises. 4 section 4624(b) or any established standard that the FHFA sought 5 to adjust. 6 7 The statement was directed to the regulated entities, The statement does not refer to Defendants now assert that the relevant standard that the FHFA sought to modify is set forth in 12 C.F.R. § 1252.1, a regulation mandating the Enterprises to comply with the portfolio 8 9 holdings criteria established in their respective Senior Preferred United States District Court For the Northern District of California 10 Stock Purchase Agreements with the Department of Treasury. 11 However, the July 2010 statement did not adjust the Stock Purchase 12 Agreements; those agreements simply addressed the amount of 13 mortgage assets that the Enterprises must hold in their 14 portfolios. 15 Finally, section 4624(c) does not avail Defendants because the July 2010 statement did not order the acquisition or 16 17 18 disposal of assets. Thus, if anything, the statement appears to fall under the authority of section 4624(a), which provides that 19 the FHFA Director "shall, by regulation, establish criteria 20 governing the portfolio holdings of the enterprises . . ." 21 would seem to support Plaintiffs' argument that the FHFA's action 22 amounted to substantive rule-making. 23 24 This Accordingly, 12 U.S.C. § 4635(b) does not restrict this Court's jurisdiction over Plaintiffs' claims. 25 26 27 In sum, none of the three statutory provisions upon which Defendants rely--12 U.S.C. § 4617(f), 12 U.S.C. § 4623(d) or 12 28 22 1 U.S.C. § 4635(b)--applies to the FHFA's policy on PACE financing. 2 Plaintiffs' actions are not precluded on these grounds. 3 II. Motion to Dismiss for Failure to State a Claim 4 A. Administrative Procedures Act 5 Plaintiffs allege that the FHFA's policy statements7 on PACE 6 obligations failed to comply with the notice and comment 7 8 9 requirements of, and was arbitrary and capricious in violation of, the APA, 5 U.S.C. §§ 553, 706(2)(D). 1. Judicial review under the APA United States District Court For the Northern District of California 10 11 To invoke judicial review of agency action under the APA, 12 Plaintiffs must demonstrate prudential standing. 13 requirement is distinct from Article III standing, in that it is a 14 This standing "purely statutory inquiry" to determine "whether a particular 15 plaintiff has been granted a right to sue by the statute under 16 17 which he or she brings suit." City of Sausalito v. O'Neil, 386 18 F.3d 1186, 1199 (9th Cir. 2004). 19 prudential standing under the APA, 'the interest sought to be 20 protected by the complainant [must be] arguably within the zone of 21 interests to be protected or regulated by the statute . . . in 22 question.'" 23 "For a plaintiff to have Nat'l Credit Union Admin. v. First National Bank & Trust Co., 522 U.S. 479, 488 (1998) (alteration in original). The 24 25 26 27 28 Plaintiffs assert that the February 2011 letter, as well as the July 2010 statement, are unlawful under the APA; Defendants' supplemental briefing did not address the APA issues as they relate to the February 2011 letter. The Court assumes that the APA analysis of the July 2010 statement applies equally to the February 2011 letter. 7 23 1 test requires that "we first discern the interest 'arguably . . . 2 to be protected' by the statutory provision at issue; we then 3 inquire whether the plaintiff's interests affected by the agency 4 action in question are among them." 5 zone of interest test, "there does not have to be an 'indication 6 7 Id. at 492. To satisfy the of congressional purpose to benefit the would-be plaintiff.'" Id. A plaintiff is outside a provision's zone of interest where "the 8 9 plaintiff's interests are so marginally related to or inconsistent United States District Court For the Northern District of California 10 with the purposes implicit in the statute that it cannot 11 reasonably be assumed that Congress intended to permit the suit." 12 Clarke v. Securities Industry Ass’n, 479 U.S. 388, 399 (1987). 13 The test is not "especially demanding." 14 15 Id. at 399. With regard to the first factor in the zone of interest test, the parties agree that the paramount goal of the Safety and 16 17 18 19 Soundness Act is to protect the stability and ongoing operation of the residential mortgage market. California and the municipalities are arguably within the 20 Safety and Soundness Act’s zone of interests because the housing 21 mortgage market operates alongside a system of laws and 22 assessments that California and the municipalities have erected. 23 24 Although Congress has not expressed a specific purpose to benefit state and local governments through the Safety and Soundness Act, 25 26 California and the municipalities' interests are affected by the 27 Act and are consistent with its purposes. 28 Plaintiffs share an interest in a safe and sustainable secondary 24 The governmental 1 mortgage market and suffer as a result of a faltering mortgage 2 market. 3 reversed the longstanding treatment of local assessments in 4 mortgage lending, thwarted California and the municipalities' PACE 5 programs, and curtailed access to mortgages for residents who 6 7 Defendants' actions, pursuant to the Act, have allegedly participate in the programs. Although there is a potential for disruption inherent in allowing every party adversely affected by 8 9 Defendants' actions to seek judicial review, California and the United States District Court For the Northern District of California 10 municipalities are well-positioned to represent the public 11 interest reliably without undermining the Act's objectives. 12 Clarke, 479 U.S. at 397 n.12 (stating that the ability of a 13 plaintiff to serve as a "reliable private attorney general" is 14 relevant to the zone of interest test.) 15 See The Sierra Club, however, bears a significantly less direct 16 17 18 relationship to the mortgage market. The environmental interests the Sierra Club asserts, even taking account of the Act's public 19 interest provision, are too attenuated from the Act's central 20 purpose to find prudential standing under the APA for the 21 organization on that basis. 22 23 24 Defendants also argue that Plaintiffs have failed to allege a final agency action. Under the APA, judicial review is only permissible for final agency action. 5 U.S.C. § 704. "For an 25 26 agency action to be final, the action must (1) 'mark the 27 consummation of the agency's decisionmaking process' and (2) 'be 28 one by which rights or obligations have been determined, or from 25 1 which legal consequences will flow.'" Oregon Natural Desert Ass'n 2 v. United States Forest Service, 465 F.3d 977 (9th Cir. 2006). 3 determine whether the consummation prong of the test has been 4 satisfied, the court must make a pragmatic consideration of the 5 effect of the action, not its label. 6 7 Id. at 982, 985. To The finality requirement is satisfied when an agency action imposes an obligation, denies a right, or fixes some legal relationship as a 8 9 consummation of the administrative process. Id. at 986-87. "An United States District Court For the Northern District of California 10 agency action may be final if it has a 'direct and immediate . . . 11 effect on the day-to-day business' of the subject party." 12 987 (alteration in original). 13 14 15 Id. at The FHFA presented its July 2010 statement as the consummation of a decision-making process that involved “careful review” and “over a year of working with federal and state 16 17 18 government agencies.” FAC, Ex. A, at 10. The statement was designed to "pause" PACE programs nation-wide. See id. The day 19 the statement was issued, the FHFA's counsel sent it to the 20 California Attorney General. 21 because it immediately imposed on the regulated entities 22 obligations to take certain prudential actions. 23 24 The statement had a legal effect Fannie Mae and Freddie Mac promptly responded on August 31, 2010, publishing announcements to industry lenders that they would no longer 25 26 purchase mortgage loans originated on or after July 6, 2010, 27 secured by properties with an outstanding PACE obligation. 28 Act authorizes the FHFA Director to take enforcement action 26 The 1 against regulated entities to police their lawful operation. See 2 e.g., 12 U.S.C. § 4631(a)(1). 3 distinguishable from Fairbanks North Star Borough v. Army Corps of 4 Engineers, 543 F.3d 586, 593-97 (2008), and Hindes, 137 F.3d at 5 162-63. 6 7 Thus, the present case is The July 2010 statement indicated the FHFA's final stance on PACE obligations, and the February 2011 letter reiterated that policy, thus demonstrating a final agency action by the FHFA 8 9 subject to review under the APA. 2. Notice and comment requirement United States District Court For the Northern District of California 10 11 Title 12 U.S.C. § 4526(b) provides that any regulations 12 issued by the FHFA Director pursuant to the agency's general 13 regulatory authority shall comply with the APA's requirements for 14 notice and comment. 15 "Interpretative rules," however, are exempt from the APA's notice and comment requirements. 5 U.S.C. 16 17 18 § 553(b)(3)(A). This exemption is narrowly construed. Flagstaff Medical Center, Inc. v. Sullivan, 962 F.2d 879, 885 (9th Cir. 19 1992). 20 imposed on orders that result from an agency adjudication. 21 Terrace Community Council v. Cisneros, 37 F.3d 442, 448 (9th Cir. 22 1994). 23 24 Likewise, the notice and comment requirements are not Yesler An interpretive rule is one "'issued by an agency to advise the public of the agency's construction of the statutes and rules 25 26 which it administers.'" Erringer v. Thompson, 371 F.3d 625, 630 27 (9th Cir. 2004) (citing Shalala v. Guernsey Mem'l Hosp., 514 U.S. 28 87, 88 (1995)). "Because they generally clarify the application 27 1 of a law in a specific situation, they are used more for 2 discretionary fine-tuning than for general law making." 3 Flagstaff, 962 F.2d at 886. 4 sometimes referred to as legislative rules, "create rights, impose 5 obligations, or effect a change in existing law pursuant to 6 7 On the other hand, substantive rules, authority delegated by Congress." Erringer, 371 F.3d at 630. "There is no bright-line distinction between interpretative and 8 9 substantive rules." Flagstaff, 962 F.2d at 886. A court need not United States District Court For the Northern District of California 10 accept an agency's characterization of its rule at face value. 11 Hemp Industries Ass'n v. DEA, 333 F.3d 1082, 1087 (9th Cir. 2003). 12 That the FHFA's policy amounted to substantive rulemaking is 13 supported by the FHFA's handling of another issue: Guidance it 14 recently proposed to issue with respect to private transfer fee 15 covenants. On August 16, 2010, the FHFA published a notice and 16 17 18 request for comments in the Federal Register concerning the proposed Guidance that the regulated entities "should not deal in 19 mortgages on properties encumbered by private transfer fee 20 covenants" because "[s]uch covenants appear adverse to liquidity, 21 affordability and stability in the housing finance market and to 22 financially safe and sound investments." 23 24 16, 2010). In this analogous instance, the FHFA apparently deemed it appropriate to comply with the APA notice and comment 25 26 75 Fed. Reg. 49932 (Aug. requirements. 27 28 28 1 The Court finds that the FHFA's policy on PACE obligations 2 amounts to substantive-rulemaking, not interpretive rule-making 3 that would be exempt from the notice and comment requirement. 4 Defendants also argue that the APA's notice and comment 5 requirements do not apply because the July 2010 statement was an 6 7 order resulting from an adjudication. Yesler explains that "adjudications resolve disputes among specific individuals in 8 9 specific cases [and] . . . have an immediate effect on specific United States District Court For the Northern District of California 10 individuals (those involved in the dispute)." 11 (parenthetical in original). 12 prospective, and has a definitive effect on individuals only after 13 the rule subsequently is applied." 14 not refer to a specific homeowner seeking a mortgage, or to a 15 group of PACE participants. 37 F.3d at 448 "Rulemaking, in contrast, is Id. The FHFA's policy does It is a prospective, generally 16 17 18 19 20 applicable directive. Accordingly, it would be inappropriate to apply the adjudication exemption from the APA's notice and comment requirements to the actions of which Plaintiffs complain. 3. Arbitrary and capricious action--discretionary act exemption 21 22 In addition to their procedural claim under the APA, 23 Plaintiffs allege a substantive claim that the FHFA's policy is 24 arbitrary and capricious. 25 and capricious action is exempt from judicial review when the 26 challenged action is "committed to agency discretion by law." 27 U.S.C. § 701(a)(2). Under the APA, a claim for arbitrary In the Ninth Circuit there are two 28 29 5 1 2 circumstances in which judicial review is foreclosed by § 701(a)(2). 8 The first of these of circumstances is that in which a court would have no meaningful standard against which to judge the agency's exercise of discretion and there thus is no law to apply. The second such circumstance is that in which the agency's action requires a complicated balancing of a number of factors which are peculiarly within [the agency's] expertise, including the prioritization of agency resources, likelihood of success in fulfilling the agency's statutory mandate, and compatibility with the agency's overall policies. 9 Newman v. Apfel, 223 F.3d 937, 943 (9th Cir. 2000)(internal 3 4 5 6 7 United States District Court For the Northern District of California 10 quotation marks and citations omitted, alteration in original). 11 In section 4526(b), the Safety and Soundness Act expressly 12 13 adopts the requirements of the APA with respect to its regulatory 14 actions, giving rise to a presumption of judicial oversight. 15 U.S.C. § 4526(b). 16 embodies a 'basic presumption of judicial review.'"). 17 FHFA has "wide discretion" does not establish that it may justify 18 its choices on "specious grounds." 19 12 See Newman, 223 F.3d at 943 ("[T]he APA Id. That the The Ninth Circuit has "emphasized that § 701(a)(2) stakes out 'a very narrow 20 exception.'" Id. (citing Citizens to Preserve Overton Park v. 21 22 Volpe, 401 U.S. 402, 410 (1971)). In Newman, the Ninth Circuit approved judicial review of 23 24 Social Security regulations defining the statutory terms, 25 "reliable" and "currently available" information. 26 943. 27 available, pursuant to the regulation, a different method of 223 F.3d at When certain information was deemed reliable and currently 28 30 1 calculating Supplemental Security Income benefits would apply. 2 Id. at 939. 3 definitions of the terms "reliable" and "currently available" were 4 arbitrary and capricious. 5 that the claim was subject to judicial review. 6 7 The plaintiff claimed that the regulation's The Ninth Circuit agreed, after holding The court reasoned that the definition and application of the two statutory terms, and of the terms "arbitrary" and "capricious," did not defy 8 9 "meaningful review" or involve a complicated balancing of a number United States District Court For the Northern District of California 10 of factors "peculiarly within the agency's expertise." 11 943. 12 The same reasoning applies to the present case. Id. at Plaintiffs' 13 claims would require the Court to determine whether the FHFA's 14 decision to treat debt obligations arising from PACE programs as 15 assessments, rather than loans, was arbitrary and capricious. 16 17 18 19 20 Under this limited review, the claims do not oblige the Court to evaluate whether the FHFA arrived at the correct conclusion, as a matter of policy. The FHFA action challenged here is unlike the agency actions 21 disputed in cases in which courts have found review precluded. 22 See e.g., Lincoln v. Vigil, 508 U.S. 182 (1993) (agency's 23 24 allocation of a lump-sum appropriation); Heckler v. Chaney, 470 U.S. 821, 831 (agency's decision not to institute enforcement 25 26 proceedings); Center for Policy Analysis on Trade and Health v. 27 Office of the United States Trade Representative, 540 F.3d 940, 28 947 (9th Cir. 2008) (political question regarding committee 31 1 membership). The FHFA's obligation to consider the impact of the 2 PACE programs in a manner that is not arbitrary or capricious does 3 not involve a complicated political calculus or the balancing of 4 multiple factors so peculiarly within the agency's expertise that 5 judicial review is unwarranted. 6 7 In sum, the FHFA's July 2010 statement and February 2011 letter are not insulated from judicial review for arbitrariness by 8 9 the discretionary act exemption. United States District Court For the Northern District of California 10 B. NEPA Claims 11 California, Sonoma County, Palm Desert and the Sierra Club 12 assert claims for violation of the NEPA based on the FHFA's 13 failure to consider the environmental impact of its actions.8 14 Defendants move to dismiss the NEPA causes of action for failure 15 to state a claim. 16 17 The NEPA requires federal agencies to prepare a detailed 18 Environmental Impact Statement (EIS) for all "major Federal 19 actions significantly affecting the quality of the human 20 environment." 21 Inc. v. Water Supply, 295 F.3d 955, 959 (9th Cir. 2002). 22 alternative, an agency may prepare a more limited environmental 23 42 U.S.C. § 4332(2)(C); Ka Makani 'O Kohala Ohana, In the assessment (EA) concluding in a "Finding of No Significant 24 25 26 27 28 The parties' supplemental briefing did not address the NEPA issues with regard to the February 2011 letter, which reaffirmed the FHFA's July 2010 statement. The Court's NEPA analysis of the July 2010 statement applies equally to the February 2011 letter. 8 32 1 2 Impact." San Luis Obispo Mothers for Peace v. Nuclear Regulatory Com'n., 449 F.3d 1016, 1020 (9th Cir. 2006). 3 "Because NEPA does not contain a separate provision for 4 judicial review, we review an agency's compliance with NEPA under 5 the Administrative Procedure Act . . ." 6 7 959. Ka Makani, 295 F.3d at This Court earlier held that Plaintiffs, other than the Sierra Club, satisfied the zone of interest test under the APA 8 9 with respect to the Safety and Soundness Act. The Court must now United States District Court For the Northern District of California 10 consider whether Plaintiffs are within the zone of interest sought 11 to be protected by the NEPA. 12 Norton, 420 F.3d 934, 939 (9th Cir. 2005). 13 14 15 See Ashley Creek Phosphate Co. v. "NEPA's purpose is to protect the environment." Better Forestry, 341 F.3d at 976. Citizens for The statute's "twin aims" are to place upon a federal agency "the obligation to consider every 16 17 18 significant aspect of the environmental impact of a proposed action" and "ensure that the agency will inform the public that it 19 has indeed considered environmental concerns in its decisionmaking 20 process." 21 Council, Inc., 462 U.S. 87, 97 (1983). 22 present actions asserting NEPA claims, including the Sierra Club, 23 24 Baltimore Gas and Elec. Co. v. Natural Resource Defense All Plaintiffs in the plainly seek to protect the environment and, as a result, the zone of interest requirement is satisfied. 25 26 Defendants next contend that the adoption of the FHFA's PACE 27 policy was not a major federal action significantly altering the 28 quality of the human environment because Plaintiffs' alleged 33 1 environmental injury is not "fairly traceable" to the policy. 2 However, in making this argument Defendants incorrectly rely on 3 Lujan's discussion of Article III standing, 504 U.S. at 561, 4 rather than authority addressing prudential standing under the 5 APA. 6 7 Plaintiffs have adequately alleged that the FHFA's policy has decimated PACE programs and significantly impacted the environment by depriving California and its citizens of 8 9 United States District Court For the Northern District of California 10 opportunities to improve water and energy conservation. Nor does Northcoast Environmental Center v. Glickman, 136 11 F.3d 660 (9th Cir. 1998), demonstrate that Plaintiffs have failed 12 to satisfy the "major federal action" requirement. 13 presented a challenge to an inter-agency program that involved 14 activities that did not have an "actual or immediately threatened 15 Northcoast effect," because they implicated setting guidelines and goals for 16 17 18 research, management strategies and information sharing, rather than specific activities with a direct impact. Id. at 669-70. 19 Here, however, Plaintiffs do not challenge such a broad program 20 involving activities preliminary to discrete agency action. 21 Relying on National Wildlife Federation v. Espy, 45 F.3d 22 1337, 1343 (9th Cir. 1995), Defendants also argue that the FHFA's 23 24 adoption of its PACE policy was not a major federal action because it did not alter an environmental status quo, as required to 25 26 trigger obligations under the NEPA. Defendants' reliance on 27 National Wildlife Federation is unavailing. 28 court found that the contested agency action did not alter the 34 In that case, the 1 environmental status quo because the grazing of a certain wetland 2 parcel was occurring before the agency transferred the parcel and 3 the transfer would simply allow a continuation of the grazing. 4 Id. at 1343-44. 5 changed the status quo by thwarting financing for PACE-encumbered 6 7 Here Plaintiffs allege that the FHFA's policy properties, thus curtailing energy conservation efforts that were ongoing beforehand. The policy, by the terms of the July 2010 8 9 statement, aimed to place PACE programs on "pause," and changed United States District Court For the Northern District of California 10 the status quo by blocking these emerging environmental 11 conservation efforts, through the direction of marketplace 12 practices. 13 For purposes of this motion, Plaintiffs sufficiently allege 14 that the FHFA's policy entailed a major federal action under the 15 NEPA. 16 17 18 Finally, Defendants contend that environmental review would serve no purpose because the FHFA is statutorily precluded from 19 altering its safety and soundness determinations based on 20 environmental concerns. 21 statute creates an "irreconcilable and fundamental conflict." 22 Flint Ridge Development Co. v. Scenic Rivers Ass'n of Okalhoma, 23 24 The NEPA gives way when a competing 426 U.S. 776, 788 (1976). The FHFA's dual obligations to ensure that the regulated 25 26 entities operate safely and soundly and in the public interest do 27 not indicate that the agency's consideration of the environmental 28 impact resulting from its actions with regard to the PACE programs 35 1 is precluded. Notably, the NEPA does not mandate results, but 2 simply requires a process by which the agency considers 3 environmental impact and informs the public of its decision-making 4 process. 5 6 7 Defendants argue that the FHFA was required to act without regard to environmental concerns due to the national housing crisis. The FHFA, however, admittedly engaged in a year-long 8 9 review, consulting with various stakeholders. Thus, Defendants United States District Court For the Northern District of California 10 cannot be heard to argue that the urgency of the crisis and the 11 FHFA's statutory duties created an insurmountable conflict with 12 NEPA's requirements. 13 an irreconcilable conflict because the relevant statute required a 14 time frame that did not permit NEPA compliance). 15 Cf., Flint Ridge, 426 U.S. at 791 (finding Department of Transportation v. Public Citizen is not on 16 17 18 point. There the Supreme Court found that an agency's EIS was not required to include the environmental impact of Mexican motor 19 carriers entering the United States because the agency had no 20 authority to prevent the carriers from cross-border operations. 21 541 U.S. 752, 767 (2004). 22 bar to the FHFA's authority to consider environmental impacts. 23 24 Here, however, there is no categorical Grand Council of the Crees v. Federal Energy Regulatory Commission, 198 F.3d 950 (D.C. Cir. 2000), is inapposite because 25 26 27 28 it did not address the Safety and Soundness Act. Because Plaintiffs have satisfied the zone of interest test and alleged a major federal action that has altered the 36 1 environmental status quo, and because environmental considerations 2 are not precluded by the Safety and Soundness Act, Plaintiffs have 3 stated cognizable claims for violation of the NEPA. 4 C. Tenth Amendment Commerce Clause 5 Placer County claims that the FHFA violated the 6 7 Constitution's Tenth Amendment Commerce Clause by interfering with the county's taxation and assessment powers. Even if the FHFA 8 9 interfered with Placer County's authority, the FHFA's actions are United States District Court For the Northern District of California 10 not barred by the federal Commerce Clause. 11 that Congress may impede a State's power to tax, where the 12 enactment is a proper exercise of its constitutional authority. 13 McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 436 (1819). 14 recent case affirming a dismissal of a Tenth Amendment challenge 15 It is well established In a to a federal banking regulation, the Supreme Court stated, 16 17 18 "Regulation of national banking operations is a prerogative of Congress under the Commerce and Necessary and Proper Clauses." 19 Watters v. Wachovia Bank, N.A., 550 U.S. 1, 22 (2007). 20 County's response that state and local laws authorizing PACE 21 programs do not attempt to regulate banks is unavailing because 22 its Tenth Amendment claim challenges the FHFA's action pursuant to 23 24 Placer the Safety and Soundness Act. Furthermore, Placer County concedes that its claim does not 25 26 arise from a theory that a federal program commandeered the 27 legislative process of the States by directly compelling them to 28 enact and enforce a federal regulatory program. 37 Yet it cites no 1 authority for the proposition that a federal agency's action that 2 indirectly interferes with a state or local sovereign's assessment 3 powers may form the basis for a Tenth Amendment claim. 4 Accordingly, Placer County's Tenth Amendment claim is dismissed. 5 Leave to amend is not warranted because Placer County's theory is 6 7 not cognizable. D. Spending Clause 8 9 Where Congress grants money pursuant to its powers under the United States District Court For the Northern District of California 10 Constitution's Spending Clause, any conditions imposed on receipt 11 of the funds must be unambiguously authorized by Congress. 12 Pennhurst State School and Hosp. v. Halderman, 451 U.S. 1, 17 13 (1981). 14 Clause by placing conditions on PACE programs without clear 15 Placer County alleges that the FHFA violated the Spending authorization from Congress to do so. Defendants, however, 16 17 18 correctly point out that the FHFA's policy does not impose any terms, let alone ambiguous requirements, for States and counties 19 to receive federal funds to support their PACE programs. 20 the policy directed the regulated entities to undertake 21 "prudential actions" with respect to the programs. 22 that makes a program more costly or difficult to operate, without 23 24 Rather, A requirement imposing a substantive condition not clearly required by Congress, does not give rise to a Spending Clause violation. See Winkelman 25 26 ex rel. Winkelman v. Parma City School Dist., 550 U.S. 516, 533-34 27 (2007). Therefore, Placer County's Spending Clause claim is 28 dismissed without leave to amend. 38 E. Claim for Declaratory Relief 1 2 Plaintiffs seek declaratory relief in the form of an order 3 stating that, under California law, debt obligations created by 4 their PACE programs are assessments, not loans. 5 resolve the asserted substantive claims, but a claim for 6 7 The Court will declaratory relief is not a means for a party independently to seek court interpretations of legal terms. Plaintiffs' claim for 8 9 United States District Court For the Northern District of California 10 declaratory relief is dismissed without leave to amend. III. State Law Claims Plaintiffs’ state law claims are subject to dismissal due to 11 12 various deficiencies in their allegations that Defendants point 13 out. 14 law, the Court dismisses them without leave to amend for that 15 However, because the claims are clearly preempted by federal reason. Federal preemption arises under the Supremacy Clause of 16 17 18 19 20 21 22 23 24 the United States Constitution and applies in the following three circumstances: First, Congress may state its intent through an express preemption statutory provision. Second, in the absence of explicit statutory language, state law is preempted where it regulates conduct in a field that Congress intended the Federal Government to occupy exclusively . . . Finally, state law that actually conflicts with federal law is preempted. Kroske v. U.S. Bank Corp., 432 F.3d 976, 981 (9th Cir. 2005) (citing English v. General Elec. Co., 496 U.S. 72, 78-79 (1990)). 25 26 In general, there is a presumption against federal 27 preemption. See id. Here, the presumption against federal 28 preemption does not apply because there is a history of a 39 1 significant federal presence in the area of regulating the safety 2 and soundness of the Enterprises. 3 Corp., 514 F.3d 1001, 1005 (9th Cir. 2008). 4 based on an actual conflict arises "where it is impossible for a 5 private party to comply with both state and federal requirements, 6 7 See Silvas v. E*Trade Mortgage Federal preemption or where state law stands as an obstacle to the accomplishments and execution of the full purposes and objectives of Congress." 8 9 English, 496 U.S. at 79 (internal citations removed). Congress United States District Court For the Northern District of California 10 has established the FHFA to serve as the primary regulatory 11 authority supervising the Enterprises and the Federal Home Loan 12 Banks. 13 ability to establish uniform and consistent standards for the 14 regulated entities, and thwart its mandate to assure their safe 15 Exposure to state law claims would undermine the FHFA's and sound operation. If Plaintiffs’ state claims were not 16 17 18 19 20 preempted, liability based on these claims would create obstacles to the accomplishment of the policy goals set forth in the Safety and Soundness Act. Plaintiffs argue, in the alternative, that a ruling on the 21 federal preemption defense is premature. 22 FHFA must make a factual showing that PACE-encumbered mortgages 23 24 They suggest that the pose an actual obstacle to the purpose and goals of the Safety and Soundness Act. Plaintiffs do not cite any authority for requiring 25 26 such a showing, and it would defeat the purpose of conflict 27 preemption, which is to preserve the supremacy of federal law in 28 an area that Congress intended to occupy. 40 See Fidelity Federal 1 Savings and Loans Ass'n. v. de la Cuesta, 458 U.S. 141, 169-70 2 (1982). 3 showing. 4 5 6 7 Accordingly, preemption does not depend on such a Plaintiffs’ state law claims are preempted by federal law and are dismissed without leave to amend. IV. Preliminary Injunction Sonoma County has moved for a preliminary injunction, which 8 9 California has supported as amicus curiae. Sonoma County requests United States District Court For the Northern District of California 10 that the status quo be restored by setting aside Defendants' 11 policies regarding PACE debt obligations. 12 the parties filed supplemental briefing on the balance of 13 hardships that might result from a narrower injunction directing 14 the FHFA merely to initiate the notice and comment process, 15 At the Court's request, without changing its current policies. 16 17 18 “A plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to 19 suffer irreparable harm in the absence of preliminary relief, that 20 the balance of equities tips in his favor, and that an injunction 21 is in the public interest.” 22 Inc., 555 U.S. 7, 19 (2008). 23 24 Winter v. Natural Res. Def. Council, Alternatively, “a preliminary injunction could issue where the likelihood of success is such that serious questions going to the merits were raised and the 25 26 balance of hardships tips sharply in plaintiff's favor,” so long 27 as the plaintiff demonstrates irreparable harm and shows that the 28 injunction is in the public interest. 41 Alliance for the Wild 1 Rockies v. Cottrell, 632 F.3d 1127, 1131 (9th Cir. 2011) (citation 2 and internal quotation and editing marks omitted). 3 employ a sliding scale when considering a plaintiff's likelihood 4 of success on the merits and the likelihood of irreparable harm. 5 Id. 6 7 The court may “Under this approach, the elements of the preliminary injunction test are balanced, so that a stronger showing of one element may offset a weaker showing of another." Id. 8 9 Sonoma County has not demonstrated a likelihood that it will United States District Court For the Northern District of California 10 prevail on the merits to obtain the sweeping relief it initially 11 requested. 12 favor with regard to that relief. 13 established a likelihood that it will succeed in its efforts to 14 require the FHFA to comply with the APA's notice and comment 15 Nor does the balance of hardships tip sharply in its requirements. However, Sonoma County has The balance of hardships tips sharply towards 16 17 18 Sonoma County in that the FHFA has failed to mention any prejudice that would result if it were to proceed with the notice and 19 comment process, as long as it was not required to change its 20 policy in the meantime. 21 motion for a preliminary injunction requiring the FHFA, without 22 changing its current policy, to proceed with the notice and 23 Thus, the Court GRANTS Sonoma County's comment process relating to its policy on PACE-related debts. 24 CONCLUSION 25 26 Plaintiffs have Article III standing, and the provisions of 27 the Safety and Soundness Act do not preclude judicial review of 28 Plaintiffs' claims. Plaintiffs, except for the Sierra Club, may 42 1 pursue their claims for violations of the APA. The Sierra Club's 2 APA claims are dismissed without leave to amend. 3 satisfied the requirements necessary to pursue claims for 4 violation of the NEPA. 5 Amendment and the Spending Clause and Plaintiffs' claims for 6 7 Plaintiffs have Placer County's claims under the Tenth declaratory relief are dismissed without leave to amend. Plaintiffs' state law claims are preempted by federal law and are 8 9 dismissed without leave to amend. Thus, Defendants' motions to United States District Court For the Northern District of California 10 dismiss are GRANTED IN PART AND DENIED IN PART. 11 Docket No. 49; C 10-03270, Docket Nos. 41 and 74; C 10-03317, 12 Docket No. 18; C 10-04482, Docket No. 13. 13 14 15 C 10-03084, Sonoma County's motion for a preliminary injunction is GRANTED IN PART. C 10-03270, Docket No. 33. The Court will, by a separate order, require the FHFA, without withdrawing its July 16 17 18 2010 statement or its February 2011 letter, to proceed with the notice and comment process with regard to those directives. The 19 County shall submit a proposed form of order after submitting it 20 to Defendants for approval as to form. 21 IT IS SO ORDERED. 22 23 24 Dated: August 26, 2011 CLAUDIA WILKEN United States District Judge 25 26 27 28 43

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