Jacobs et al v. Federal Housing Finance Agency et al
MEMORANDUM OPINION re 65 Motion to Dismiss, 67 Motion to Dismiss, and 62 First Amended Complaint. Signed by Judge Gregory M. Sleet on 11/27/2017. (asw)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
DAVID JACOBS and GARY HINDES, on behalf of
themselves and all others similarly situated, and
derivatively on behalf of the Federal National Mortgage
Assoc. and Federal Home Loan Mortgage Corp.,
THE FEDERAL HOUSING FINANCE AGENCY, in its
capacity as Conservator of the Federal National
Mortgage Assoc. and the Federal Home Loan Mortgage
Corp., and THE UNITED STATES DEPARTMENT OF
THE FEDERAL NATIONAL MORTGAGE ASSOC.
and THE FEDERAL HOME LOAN MORTGAGE
Civ. No. 15-708-GMS
Myron T. Steele, Esq., Michael A. Pittenger, Esq., Christopher N. Kelly, Esq., and Alan R.
Silverstein, Esq. of Potter Anderson & Corroon LLP, Wilmington, DE. Counsel for Plaintiffs.
Robert l Stearn, Jr., Esq. and Robert C. Maddox, Esq. of Richards, Layton & Finger, P.A.,
Wilmington, DE. Counsel for Defendants Federal Housing Finance Agency, Federal National
Mortgage Assoc., and Federal Home Loan Mortgage Corp. Of Counsel: Howard N. Cayne,
Esq., Asim Varma, Esq., and David B. Bergman, Esq. of Arnold & Porter Kaye Scholer LLP,
Washington, DC; Jeffrey W. Kilduff, Esq. and Michael Walsh, Esq. of O'Melveny & Meyers
LLP, Washington, DC; and Michael Joseph Ciatti, Esq. and Graciela Maria Rodriquez, Esq. of
King & Spalding LLP, Washington DC.
David C. Weiss, Esq. and Jennifer L. Hall, Esq. of U.S. Attorney's Office, Wilmington, DE.
Counsel for Defendant U.S. Dept. of Treasury. Of Counsel: Chad A. Readler, Esq., Diane
Kelleher, Esq., Thomas D. Zimpleman, Esq., Deepthy Kishore, Esq., and Robert C. Merritt, Esq.
of U.S. Dept. of Justice Civil Division, Washington DC.
Dated: November __J;}_, 2017
, istrict Jud
This action is one of several lawsuits filed by the stockholders of the Federal National
Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Association
("Freddie Mac") challenging what the parties call a "Net Worth Sweep," which is a provision in
the Third Amendment to the Amended and Restated Senior Preferred Stock Purchase Agreements
(the "Third Amendment") governing the payment of dividends.
The Third Amendment was
entered into by the United States Department of the Treasury ("Treasury") and the Federal Housing
Finance Agency (the "Agency," and collectively with Fannie Mae, Freddie Mac, and Treasury, the
"Defendants"). At the time, the Agency was acting in its capacity as conservator of Fannie Mae
and Freddie Mac (each a "Company," and collectively, the "Companies"). Plaintiffs David Jacobs
and Gary Hines (collectively, "Plaintiffs") seek equitable relief based on their assertion that the
Net Worth Sweep violates state statutory schemes governing corporations and unjustly emiches
Defendants. (D.I. 62 ifif 79-108).
The court has subject matter jurisdiction over this action pursuant to 28 U.S.C. §§ 1331,
1332, and 1367. Currently pending before the court are Defendants' motions to dismiss the
complaint. (D.I. 65, D.I. 67). Defendants have raised a multitude of arguments as to why the
complaint should be dismissed, including the anti-injunction clause in the Housing and Economic
Recovery Act of2008 ("HERA"), 12 U.S.C. § 4617(±), the succession clause in HERA, 12 U.S.C.
§ 4617(b)(2)(A)(i), the requirement to state a claim under Fed. R. Civ. P. 12(b)(6), issue preclusion
and, with respect to Treasury alone, sovereign immunity. (D.I. 66, D.I. 68). For the reasons
discussed below, the court finds that the anti-injunction clause in Section § 4617(±) deprives it of
subject matter jurisdiction. Because Plaintiffs do not clear this threshold hurdle, the court is
dismissing the complaint without reaching Defendants' other arguments.
Fannie Mae and Freddie Mac
Fannie Mae and Freddie Mac are government-sponsored enterprises (a "GSE") created to
increase liquidity in the mortgage market. (D.I. 68 at 5; D.I. 62 iii! 30-31). A GSE is a corporation
established by congressional charter but privately owned, meaning its stock is owned by private
entities and individuals. 2 U.S.C. 622(8). For purposes of corporate governance, the Companies
had to designate the law of the state in which its principal office is located or Delaware General
Corporation Law. (D.I. 62 at ii 32 (citing 12 C.F.R. § 1710.10)). Fannie Mae selected Delaware
law, and Freddie Mac selected Virginia law. (Id. at ii 32).
In 2008, a global financial crisis and nationwide decline in the housing market caused the
Companies to suffer loses. (Id. at
To address the crisis, Congress passed HERA, which
authorized the Agency to place the Companies into conservatorship or receivership. (Id.
ii 34; see
also 12 U.S.C. § 4617(2)). On September 6, 2008, the Agency exercised its power under HERA
and placed the Companies into conservatorship. (D.I. 62 iJ 35). Shortly thereafter, each Company,
acting through the Agency as a conservator, entered into a Preferred Stock Purchase Agreement (a
"Stock Purchase Agreement") with Treasury. (Id. at ii 36). Under the Stock Purchase Agreements,
Treasury committed to advance funds to the Companies for each quarter in which the Companies'
liabilities exceeded its assets, so as to maintain the Companies' positive net worth. (D.I. 68 at 7).
The funding commitment was capped at $100 billion for each Company. (D.I. 62
iii\ 8, 36).
return, Treasury received from each Company shares of a newly created class of senior preferred
stock worth $1 billion and warrants to purchase 79.9% of the common stock. (Id.
Purchase Agreements gave Treasury the right to: (1) an aggregate liquidation preference equal to
$1 billion plus the sum of all additional amounts drawn on Treasury's funding commitment; and
(2) a quarterly dividend equal to a percentage of the outstanding liquidation preference: 10%, if
paid in cash, or 12%, if paid "in-kind." (Id. at~~ 8-9). If the quarterly dividend was in-kind, the
amount would be added to the liquidation preference. (Id.
The Stock Purchase Agreements were amended twice in 2009-first, on May 6, 2009, to
raise the funding commitment for each Company from $100 billion to $200 billion and, again, on
December 24, 2009, to raise the funding commitment according to a formula that would be capped
at the end of 2012. (D.I. 68 at 8). On August 17, 2012, Treasury and the Agency, acting as
conservator for the Companies, entered into the Third Amendment. (D.I. 62
1). Among other
things, the Third Amendment changed the formula for calculating the quarterly dividend. (D.I. 68
at 9). Now, the Companies would owe a quarterly dividend in the amount (if any) of the
Company's positive net worth, minus a capital reserve. (D.I. 66 at 9). Plaintiffs refer to this
dividend formula as a "Net Worth Sweep," and allege that Defendants agreed to the Net Worth
Sweep as way to improperly expropriate for the federal government the value the Companies were
generating after they returned to profitability in 2012. (D.I. 62 ~~ 39, 42, 46).
Plaintiff Jacobs has continuously held stock in Fannie Mae and Freddie Mac since
November 2009. (D.I. 62 ~ 24). According to the complaint, Plaintiff Hindes "has been an investor
in Fannie Mae and Freddi Mac since 2011." (Id.
25). The complaint does not allege, however,
that Hindes currently holds any Fannie Mae stock. In addition, Hindes currently holds Freddie
Mac stock purchased in February 2015, i.e., purchased after Defendants executed the Third
Amendment that serves as the basis for his claims. 1 (Id.).
STANDARD OF REVIEW
Under Fed. R. Civ. P. 12(b)(l), a complaint may be dismissed for "lack of subject-matter
jurisdiction." Challenges to subject matter jurisdiction may be facial or factual. Lincoln Ben. Life
Co. v. AEI Life, LLC, 800 F.3d 99, 105 (3d Cir. 2015). A facial attack contests the sufficiency of
the pleadings, whereas a factual attack contests the sufficiency of jurisdictional facts.
According to Defendants, Section 4617(±) is a facial attack to subject matter jurisdiction. 2 (D.I.
66 at 9; D.I. 68 at 9). In reviewing a facial attack, "the court must only consider the allegations of
the complaint and documents referenced therein and attached thereto, in the light most favorable
to the plaintiff." Gould Elec. Inc. v. United States, 220 F.3d 169, 176 (3d Cir. 2000).
Section 4617(±) of HERA states, in relevant part, that "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."
12 U.S.C. § 4617(±). Courts construing the scope of Section 4617(±) have relied on decisions
addressing Section 1821 G), a nearly identical jurisdictional bar applicable to conservatorships with
the Federal Deposit Insurance Corporation ("FDIC") and its predecessor, the Resolution Trust
The timing of Hindes' investments in the Companies raises questions regarding his
standing and adequacy as a representative plaintiff. See, e.g., Quadrant Structured Prod. Co., Ltd.
v. Vertin, 102 A.3d 155, 178 (Del. Ch. 2014) (describing Delaware's contemporaneous and
continuous ownership requirements for derivative plaintiffs); In re Heckmann Corp. Sec. Litig.,
2013 WL 2456104, at *11 (D. Del. June 6, 2013) (stating that the interests of the putative class
representative is usually similar to and sufficiently aligned with the potential class members,
because all class members suffered the same harm).
Plaintiffs have not challenged this assertion.
Corporation ("RTC"). 3 Natural Res. Def Council, Inc. v. Fed. Housing Fin. Agency, 815 F. Supp.
2d 630, 641 (S.D.N.Y. 2011), aff'd sub nom. Town of Babylon v. Fed. Housing Fin. Agency, 699
F.3d 221 (2d Cir. 2012); Saxton v. Fed. Housing Fin. Agency, 245 F. Supp. 3d 1063, 1075 (N.D.
Iowa 2017) (stating that Section 4617(f) has the same scope as the substantially similar antiinjunction provision in Section 1821 G)).
As construed, Section 4617(f) deprives the court of subject matter jurisdiction over claims
seeking equitable and injunctive relief, unless the challenged actions are outside the Agency's
statutory powers. See Perry Capital LLC v. Mnuchin, 864 F.3d 591, 612 (D.C. Cir. 2017)
(Plaintiffs burden is to show that the Agency's actions were "frolicking outside of statutory limits
as a matter of law"); see also Gross v. Bell Sav. Bank PA SA, 974 F.2d 403, 407 (3d Cir. 1992)
(stating that Section 1821(j) permits review only "where the [FDIC] is acting clearly outside its
statutory powers"). As a threshold matter, Plaintiffs seek "equitable and injunctive relief' against
both the Agency and Treasury. (D.I. 62
C). Specifically, Plaintiffs seek: (i) a declaratory
judgment that the Net Worth Sweep is void and unenforceable under Section 151 of the Delaware
General Corporation Law ("DGCL") and Section 13 .1-63 8 of the Virginia Stock Corporation Act
("VSCA"); (ii) a declaratory judgment that Treasury was unjustly enriched, (ii) rescission of the
Net Worth Sweep; and (iv) restitution. (Id.
84, 92, 99, 106, and Prayer for Relief). There is
no dispute that this relief, if granted against the Agency when the Agency was acting within its
Section 1821(j) is codified in the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA"), and states in relevant part: "no court may take any action
... to restrain or affect the exercise of powers or functions of the [FDIC or RTC] as a conservator
or a receiver." 12 U.S.C. § 1821(j).
power, would restrain or affect the Agency's use of its power. 4 (D.I. 69 at 33-35, 39). This leaves
two questions for the court. Was the Third Amendment outside the Agency's statutory powers?
Would the same equitable relief, if granted against Treasury, restrain or affect the Agency's use of
its powers? Each of these questions will be addressed in tum.
Claims Against The Agency
The powers of the Agency, as conservator, are "defined by" its governing statute, HERA,
without any exception or limitation for compliance with other laws. See Rosa v. Resolution Trust
Corp., 938 F.2d 383, 398 (3d Cir. 1991) (stating that the powers of the RTC as conservator or
receiver "are defined by FIRREA"). Where the Agency performs functions assigned to it under
HERA, equitable and injunctive relief will be denied "even where [it] acts in violation of other
statutory schemes." Gross, 974 F.2d at 407; see also Rosa, 938 F.2d at 398 ("[T]o the extent of a
conflict between [Section 1821 (j)] and provisions of ERISA authorizing relief, § 1821 (j)
controls"). Plaintiffs try to avoid this adverse precedent by arguing that the purported violations
of the DGCL and VSCA (i.e., state corporate law) are not claims based on "other statutory
schemes." (D.I. 69_ at 39). Instead, these violations "contravened and exceeded [the Agency's]
statutory authority under HERA itself."
For the reasons explained below, the court
Courts have consistently held that rescission, restitution, and declaratory judgments
restrain or affect the conservator's powers. See, e.g., BKWSpokane, LLC v. Fed. Deposit Ins.
Corp., 663 Fed. App'x 524, 527 (9th Cir. 2016) (stating that Section 1821(j) bars a claim for unjust
enrichment); Hindes v. Fed. Deposit Ins. Corp., 137 F.3d 148, 159 (3d Cir. 1998) (agreeing that
Section 1821 (j) precluded claims for declaratory judgment and rescission); Freeman v. Fed.
Deposit Ins. Corp., 56 F.3d 1394, 1399 (D.C. Cir. 1995) (stating that Section 1821(j) bars
declaratory relief and rescission); Centennial Assocs. Ltd. P 'ship v. Fed. Deposit Ins. Corp., 927
F. Supp. 806, 812 (D.N.J. 1996) (stating that Section 182l(j) deprives courts of the power to grant
The court will first explain why the Agency was acting within its statutory powers when it
executed the Third Amendment and then explain why it rejects Plaintiffs' arguments to the
Only two of Plaintiffs' arguments require extended discussion: (1) that HERA's
succession clause incorporates into the Agency's powers any limitations the DGCL and VSCA
placed on the Companies' powers, and (2) that the Agency exceeded its powers by failing to follow
HERA's procedures for repudiating private contracts. Plaintiffs' remaining arguments are a
hodgepodge that can be summarily rejected.
The Agency's Statutory Powers
This court concludes, like several other courts, that the Agency acted within its powers
under HERA when it entered into the Third Amendment. Under Section 4617(b), the Agency may
be appointed conservator "for the purpose of reorganizing, rehabilitating, or winding up the affairs
of a regulated entity." 12 U.S.C. § 4617(a)(2). The Agency has the power to: (i) "take over the
assets of and operate" the Companies, (ii) "conduct all business" of the Companies, and (iii)
"transfer or sell any asset" of the Companies "without any approval, assignment, or consent." 12
U.S.C. § 4617(b)(2)(B)&(G). In addition, the Agency has the power to take any actions: (i)
"necessary to put [the Companies] in a sound and solvent condition;" and (ii) "appropriate to ...
preserve and conserve the assets of the regulated entity." 12 U.S.C. § 4617(b)(2)(D).
The Stock Purchase Agreement and the Third Amendment thereto provided a funding
commitment intended to ensure that the Companies remained in a sound and solvent condition.
(See D.I. 66-1
A). In exchange for the funding commitment, the Agency transferred or sold
(or committed to transfer or sell) assets of the Companies to the U.S. Treasury, in the form of
quarterly dividends and a liquidation preference. (Id. at § 3). The Third Amendment changed the
terms by which those assets would be transferred or sold. (D.1. 66-3). Accordingly, as several
other courts have found, the Third Amendment falls squarely within the powers granted to the
Agency under HERA, because renegotiating dividend agreements, managing debt obligations, and
ensuring ongoing access to capital are some of the quintessential tasks of reorganizing, operating,
and preserving a business. See Perry Capital, 864 F.3d at 607 (finding that the Agency's
execution of the Third Amendment fell squarely within its statutory authority to operate the
Companies, reorganize their affairs, and take such action as may be appropriate to carry on their
business); Collins v. Fed. Housing Fin. Agency, 254 F. Supp. 3d 841, 846 (S.D. Tex. 2017) (stating
that plaintiffs failed to demonstrate that the Third Amendment was "outside the scope of [the
Agency's] broad authority as conservator"); Saxton, 245 F. Supp. 3d at 1076 (finding that the
Agency's powers as conservator "plainly allow for the actions contemplated by the Third
Amendment"); Roberts, 243 F. Supp. 3d at 963 ("All told, the Plaintiffs have not sufficiently
alleged that [the Agency] acted outside the bounds of its statutory authority" when executing the
Third Amendment); Robinson v. Fed. Housing Fin. Agency, 223 F. Supp. 3d 659, 667-71 (E.D.
Ky. 2016) (holding that the Third Amendment was within the Agency's powers and functions).
HERA's Succession Clause
Plaintiffs argue that the Third Amendment exceeded the Agency's statutory powers under
HERA, because it contravened the DGCL and VSCA, i.e., the state corporate law of Delaware and
Virginia respectively. (D.1. 69 at 36-38). According to Plaintiffs, HERA incorporated all of the
restrictions state corporate law imposes on the Companies and, as a result, the Agency "may not
take actions as conservator that Fannie [Mae] and Freddie [Mac] could not themselves have taken."
(Id. at 36-37). Plaintiffs base this argument on the succession clause in HERA, which states that
the Agency, as conservator, "immediately succeed[s] to ... all rights, titles, powers, and privileges
of the regulated entity, and of any stockholder, officer, or director of [the Companies] with respect
to the [Companies]."5 (Id. at 36 (citing 12 U.S.C. § 4617(b)(2)(A)).
The court finds this argument 'unpersuasive for many reasons. First, Plaintiffs' reading of
Section 4617(f)-which would make equitable relief against the Agency available in every
situation where it would be available against the Companies-renders Section 4617(f) superfluous.
As a general rule of statutory construction, courts "strive to avoid a result that would render
statutory language superfluous, meaningless, or irrelevant." Cushman v. Trans Union Corp., 115
F.3d 220, 225 (3d Cir. 1997). Second, Plaintiffs' reading is contrary to well-established case law
that equitable relief will be denied, "even where the [conservator] acts in violation of other
statutory schemes." Gross, 974 F.2d at 407; Rosa, 938 F.2d at 397 (rejecting argument that the
FDIC exceeds its statutory authority for purposes of Section 1821 G) when the challenged acts are
illegal under ERISA). If a conservator exceeded its statutory powers when it violated state law,
then claims based on violations of other statutory schemes would not have been barred by Section
18210) or Section 4617(f). Third, Plaintiffs' interpretation is inconsistent with the purpose of
HERA itself. The sweeping limitations Section 4617(f) places on judicial review "may appear
drastic," but that fully accords with Congress' intent to broadly empower the Agency to act in
times of extraordinary financial crisis. Perry Capital, 864 F.3d at 605.
Plaintiffs also base their argument on two other HERA prov1s10ns: the Agency's
discretionary authority to perform all functions of the Companies "in the name of' the
Companies," and to operate the Companies "with all the powers of the shareholders, the directors,
and the officers." (D.I. 69 at 36 (citing 12 U.S.C. § 4617(b)(2)(B))). Because these grants of
authority "are permissive powers of [the Agency] and not duties with which they are required to
comply," see Robinson, 223 F. Supp. 3d at 669 (emphasis in original omitted), they are far weaker
statutory grounds for Plaintiffs' argument than the succession clause. So the court will not address
Finally, the cases Plaintiffs cite in support of their argument are easily distinguishable.
(See, D.I. 69 at 36-37). 0 'Melveny & Myers addressed whether "federal common law" preempted
state common law when the FDIC asserted state tort claims, in its capacity as a receiver.
O'Melveny & Myers v. Fed Deposit Ins. Corp., 512 U.S. 79, 86 (1994). O'Melveny & Myers did
not address, in any manner whatsoever, whether the FDIC's statutory powers were curtailed by
state law when it stepped into the shoes of a failed bank. In Bank of Manhattan and Sharpe, the
courts found that Section 1821 (j) did not bar plaintiffs from asserting a breach of contract claim
against the FDIC, in its capacity as receiver for a bank, because the FDIC was bound by the terms
of a private commercial contract executed by plaintiffs and the bank before the receivership. See
Bank of Manhattan, NA. v. Fed Deposit Ins. Corp., 778 F.3d 1133, 1135-36 (9th Cir. 2015);
Sharpe v. Fed Deposit Ins. Corp., 126 F.3d 1147, 1154-55 (9th Cir. 1997). Here, Plaintiffs are
not asserting a breach of contract claim. Indeed, Plaintiffs do not have a private commercial
contract with either Fannie Mae or Freddie Mac. Finally, neither Fleischer nor Ridder mention
FIRREA (the act containing Section 1821(j)), let alone address whether FIRREA's grant of
authority to the FDIC incorporated state law restrictions on the bank's powers. See Ridder v.
CityFed Fin. Corp., 47 F.3d 85, 87 (3d Cir. 1995); Fleischer v. Fed Deposit Ins. Corp., 70 F.
Supp. 2d 1238 (D. Kan. 1999). For all of these reasons, the court is not persuaded that HERA
incorporated state law limitations on the Companies' authority in such a manner that the Agency
exceeds its statutory authority under HERA when it violates state law.
HERA's Repudiation of Contracts Clause
Plaintiffs argue that the Agency exceeded its statutory authority under HERA by not
complying with the requirements of Section 4617(d), which governs the Agency's repudiation of
contracts between the Companies and third-parties. (D.1. 69 at 38-39). Plaintiffs' argument on
this point is cryptic, but it appears to string together the following assertions. The bylaws of a
corporation are treated by the courts like contracts. (Id.). Thus, Plaintiffs had a contract with the
Companies. The bylaws of Fannie Mae and Freddie Mac specified that they would be governed
by the state law of Delaware and Virginia, respectively. (D.I. 62
if 32). Thus, the terms of
Plaintiffs' contract with the Companies incorporated the DGCL and the VSCA. (Id. at iii! 52, 55).
The Third Amendment purportedly violated Section 151 of the DGCL and Section 13.1-638 of the
VSCA. (Id. at iii! 55, 83). Thus, the Third Amendment "repudiated" the Companies' contract with
Plaintiffs. (D.I. 69 at 38-39). HERA requires that any contracts repudiated by the Agency must
be repudiated within the 18 months following the Agency's appointment as a conservator. (Id.).
The Agency became conservator of the Companies in 2008 and the Third Amendment was
executed in 2012. (D.I. 62 if 1, 35). Thus, the Agency did not repudiate Plaintiffs' contract with
the Companies within 18 months of its appointment. (D.I. 69 at 38-39). The failure to repudiate
a contract within the time allowed under Section 4617(d) means the Agency exceeded its statutory
powers granted in Section 4617(b) to operate the business and sell or transfer its assets. (Id.).
Laid out in this way, the flaws in Plaintiffs' argument become clear. Plaintiffs ask the court
to equate a violation of a state statute with the act of repudiating a contract, but cite no authority
to support their assertion. 6 Plaintiffs also cite no authority for the proposition that the Agency's
failure to comply with the 18 month requirement for repudiating contracts means the Agency
exceeded its powers to operate the business. Indeed, cases dismissing equitable claims under
Plaintiffs cite to cases stating that bylaws "have all the force of contracts." (D.I. 69 at 38
(citing Lee v. Va. Educ. Ass'n, Inc., 1969 WL 101681, at *1 (1969); Allen v. El Paso Pipeline GP
Co., LLC, 90 A.3d 1097, 1107 (Del. Ch. 2014)). But this only shows that courts will rely on
contract principles in deciding how to construe and enforce bylaws.
Section 1821 (j), notwithstanding allegations that the conservator failed to timely repudiate a
contract, indicate that the conservator does not exceed its statutory authority by failing to comply
with the 18 month timing requirement. See MBIA Ins. Corp. v. Fed Deposit Ins. Corp., 708 F.3d
234, 247 (D.C. Cir. 2013) (dismissing claims seeking a declaratory judgment and injunctive relief
under Section 1821 (j) notwithstanding fact that claims were based on receiver's failure to repudiate
a contract in a timely manner); Bender v. CenTrust Mortg. Corp., 833 F. Supp. 1540, 1542-43
(S.D. Fla. 1992) aff'd, 51 F.3d 1027 (11th Cir. 1995) (same). Accordingly, the court finds that,
even if the Third Amendment violated state law and that violation should be treated like a
repudiation of a contract, the Agency did not exceed its statutory powers in failing to repudiate the
contract in a timely manner.
Plaintiffs' Hodgepodge of Other Arguments
.Plaintiffs raise a hodgepodge of weaker arguments as to how the Agency exceeded its
statutory powers under HERA. Each of these arguments are rejected for the reasons explained
below. First, Plaintiffs argue that the transfer of the Companies assets "ignore HERA's detailed
procedures and order of priorities for the distribution of assets during liquidation," codified at 12
U.S.C. § 4617(b)(3)-(9), (c). (D.1. 69 at 42). The Companies, however, are not in liquidation, so
those provisions do not apply to the Net Worth Sweep.
Second, Plaintiffs make the cursory assertion that, under Section 4617(b)(2)(G), the
Agency may only transfer assets "as conservator or receiver," but the Agency "was not acting in
either capacity" when it paid the Net Worth Sweep in accordance with the terms of the Third
Amendment. (Id.). The Agency has only three capacities: conservator, receiver, or regulator.
Plaintiffs have made no argument and cited no authority to show that the Agency was acting as a
regulator when it executed the Third Amendment. In addition, the Complaint alleges that the Third
Amendment was executed by the Agency "in its capacity as conservator of Fannie Mae and
Freddie Mac." (D.I. 62 ~ 1). Accordingly, this argument fails.
Third, Plaintiffs assert that the Net Worth Sweep exceeded the Agency's powers, because
it did not put the Companies in a "sound and solvent condition," and/or "preserve and conserve
their assets and property," as HERA purportedly requires. (Id. at 43 (internal brackets omitted)).
As several other courts have explained in rejecting similar arguments, these are permissive powers
under HERA, not obligatory. Perry Capital, 864 F.3d at 606-07. The Agency's "alleged failure
to exercise its permissive power ... does not remove Plaintiff's claims from the ambit of Section
4617(f)'s bar on equitable relief." Robinson, 223 F. Supp. 3d at 670; Roberts, 243 F. Supp. 3d at
962---03; Saxton, 245 F. Supp. 3d at 1076.
Similarly, Plaintiffs argue that the Net Worth Sweep exceeded the Agency's powers,
because it did not "maximize the net present value return." (D.I. 69 at 43). As the Fifth Circuit
explained in rejecting this same argument: "[Plaintiffs] fail (or refuse) to recognize the
difference between the exercise of a function or power that is clearly outside the statutory authority
of the [Agency] on the one hand, and improperly or even unlawfully exercising a function or power
that is clearly authorized by statute on the other." Ward v. Resolution Trust Corp., 996 F.2d 99,
103 (5th Cir. 1993). None can question that the Agency, as conservator, is statutorily authorized
to transfer or sell the assets of the Companies. Id. So, "even assuming arguendo, that (as alleged
by [Plaintiffs]) the [Agency] exercised the power or function of [transferring or selling assets] in
a way that failed to maximize the net present value return or to afford fair and consistent treatment
to all [stockholders], [Plaintiffs] could not prevail." Id. "For, even ifthe [Agency] improperly or
unlawfully exercised an authorized power or function, it clearly did not engage in an activity
outside its statutory powers." Id.
Finally, Plaintiffs suggest that the powers granted to the Agency under Section 4617 are
limited to "routine transfers of discrete assets," which the Net Worth Sweep purportedly was not.
(D.I. 69 at 44). Plaintiffs, again, cite no authority supporting this suggestion. The plain text of
Section 4617 includes no such limitation. And, reading such a limitation into Section 4617 would
be contrary to the very purpose for which HERA was enacted-to mitigate the effects of a global
financial crisis that was far from routine.
Claims Against Treasury
It is well established that Plaintiffs cannot make an end-run around Section 4617(£) by
asserting claims for equitable and injunctive relief against the Agency's contractual counterparty,
when the contract in question was within the scope of the Agency's powers. Perry Capital LLC
v. Lew, 70 F. Supp. 3d 208, 222 (D.D.C. 2014). Section 4617(£) bars claims that "restrain or affect"
the Agency's exercise of its powers, and a claim against the Agency's counterparty "affect[s]" the
Agency's exercise of its powers. See Perry Capital, 864 F.3d at 615 ("[T]he effect of any
injunction or declaratory judgment aimed at Treasury's adoption of the Third Amendment would
have just as direct and immediate an effect as ifthe injunction operated directly on [the Agency].");
Dittmer Prop., L.P. v. Fed. Deposit Ins. Corp., 708 F.3d 1011, 1017 (8th Cir. 2013) (finding that
a claim against the FDIC's counterparty "would certainly restrain or affect FDIC's powers");
Hindes v. Fed. Deposit Ins. Corp., 137 F.3d 148, 160 (3d Cir. 1998) (barring a claim against a
third party which would "have the same practical result as an order directed against the FDIC");
Roberts, 243 F. Supp. 3d at 960 ("It takes two to tango, and undoing one side of the Third
Amendment against Treasury necessarily affects [the Agency], which is, after all, the other party
to the Third Amendment."). Accordingly, Section 4617(£) bars Plaintiffs' claims against Treasury.
See Saxton, 245 F. Supp. 3d at 1078 (holding that plaintiffs' claims against Treasury are barred by
Section 4617(f) because such relief would undoubtedly restrain or affect the Agency's functions
as a conservator); Robinson, 223 F. Supp. 3d at 666 (same).
Motion to Strike
Plaintiffs have asked the court to take judicial notice of documents purportedly
undermining any assertion by Defendants that: (1) the Net Worth Sweep was necessary to stop the
Companies' circular practice of borrowing funds from Treasury in order to pay Treasury the
quarterly dividend; and (2) the Agency entered into the Third Amendment in order to preserve and
conserve the assets of the Companies. (D.I. 75 at 3). In the alternative, Plaintiffs ask the court
strike any arguments that rely on these assertions. The court denies the motion as moot. The court
did not rely on these assertions or any facts related to these assertions in deciding the motion to
dismiss, as that would have been improper under the standard of review for a facial attack on
subject matter jurisdiction.
For the foregoing reasons, Defendants' motions to dismiss (D.I. 65, D.I. 67) are granted.
The complaint (D.I. 62) is dismissed with prejudice, because lack of subject matter jurisdiction
cannot be cured by amendment. See US. ex rel. Schumann v. Astrazeneca Pharm. L.P., 769 F.3d
837, 849 (3d Cir. 2014). Plaintiffs' motion for judicial notice of documents or, in the alternative,
to strike certain arguments in Defendants' briefs (D.I. 75) is denied as moot. An appropriate order
will be entered.
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