FAIRHOLME FUNDS, INC. et al v. FEDERAL HOUSING FINANCE AGENCY, et al

Filing 230

UNSEALED MEMORANDUM AND OPINION re SEALED MEMORANDUM OPINION 221 filed in 13-CV-1053 AND 222 in 13-MC-1288 signed by Judge Royce C. Lamberth on 10/13/2022.. Unsealed by Judge Royce C. Lamberth on 10/20/2022. (lsj)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
FAIRHOLME FUNDS, INC., et al.,
Plaintiffs,

v.

Case No. 1:13-cv-1053-RCL

FEDERAL HOUSING FINANCE
AGENCY, et al. ,
Defendants.

In re Fannie Mae/Freddie Mac Senior
Preferred Stock Purchase Agreement Class
Action Litigations

This Memorandum Opinion relates to:
ALL CASES

Case No. 1:13-mc-1288-RCL

CLASS ACTION

" ' ' l'fLED lJNB~ &~

IO(-,.,[.....

MEMORANDUM OPINION

Ten different motions in limine are now pending before the Court, all of which were
discussed to some extent in the recent pretrial conference. This Memorandum Opinion sets forth
the Court's reasoning for its disposition of those motions in the accompanying Order. Many of the
motions in limine raise closely related issues, but in the interest of clarity, the Court will consider
them one by one, beginning with plaintiffs' motions, followed by defendants' motions.

I.

Plaintiffs' Motions
A. Plaintiffs' Motion in Limine to Exclude Certain Opinions and Testimony of
Defendants' Expert Mukarram Attari (Fairholme ECF No. 161, Classs ECF No. 156)

Defendants plan to call their expert Dr. Mukarram Attari to testify that it was reasonable
for FHFA to agree to the Third Amendment and that it did not harm plaintiffs. Plaintiffs move to
exclude two of Dr. Attari's opinions: (1) that, based on an "event study" he conducted of bond

yields following the announcement of the Third Amendment, that announcement caused a
tightening of the difference in yield between GSE bonds and Treasury bonds ("Treasury spread");
and (2) that if the periodic commitment fee ("PCF") to which Treasury was entitled prior to the
Third Amendment were assessed, it would have been set at the GSEs' net profits. For the reasons
that follow, this motion will be GRANTED in part and DENIED in part.
1. The Event Study and Bond Yields

Plaintiffs argue that Dr. Attari's opinion that the Third Amendment caused the decline in
the GSE bonds' Treasury spread should be excluded as unreliable under Federal Rule of Evidence
702 because it fails to account for a potentially confounding variable, namely another part of the
Third Amendment, separate from the Net Worth Sweep, that required the GSEs to accelerate the
winddown of their retained mortgage portfolios. But Dr. Attari never claims that his event study
alone isolates the impact of the Net Worth Sweep from the impact of other aspects of the Third
Amendment on bond yields. See Attari Rep.

,r,r 80-87, Ex. A to Pis.' Mot, Fairholme ECF No.

161-2, Class ECF No. 156-2 (referring only to "the Third Amendment" and not the Net Worth
Sweep). Plaintiffs cite a number of cases for the proposition that "[a]n event study that fails to
disaggregate the effects of confounding factors must be excluded because it misleadingly suggests
to the jury that a sophisticated statistical analysis proves th~ impact of' the event being studied,
Bricklayers and Trowel Trades Intern. Pension Fund v. Credit Suisse First Boston, 853 F. Supp.

2d 181, 190 (D. Mass. 2012); see Pis.' Reply at 4-5, Fairholme ECF No. 174, Class ECF No. 167,
but those cases deal with an expert's failure to account for variables that might confound their
actual conclusions.

The real dispute is thus over whether Dr. Attari's opinion about the entire Third
Amendment "will help the trier of fact ... to determine a fact in issue." Fed. R. Evid. 702(a). And
understanding the effect of the entire package of changes included in the Third Amendment-the
2

Net Worth Sweep and everything else-could conceivably help the jury determine whether
shareholders could reasonably have expected FHFA, under the circumstances, to agree to a major
part of that package in its role as conservator. Moreover, plaintiffs can always cross-examine Dr.
Attari regarding the weight that the jury should give to the market's reaction to the entire package,
which also alleviates plaintiffs' concern that his use of the phrase "Third Amendment," which
other witnesses will use to refer to the Net Worth Sweep in particular, will be substantially
prejudicial.
For these reasons, plaintiffs' motion in limine to preclude Dr. Attari's testimony will be
DENIED insofar as it seeks to exclude Dr. Attari's testimony about his event study and bond

yields.

2. The Amount of the PCF
Plaintiffs argue that Dr. Attari's opinion that the PCF would have been set at the GSEs' net
profits should be excluded as unreliable under Rule 702 because it relies on essentially no
methodology at all. Specifically, Dr. Attari reasons as follows: (1) "The [agreements between
FHFA and Treasury] provided that the PCF be set based on the market-determined value of the
[Treasury] Commitment," (2) "[a] market participant would typically set the PCF based on the role
of the Commitment," (3) "in this case, the role of the Commitment was to provide the GSEs with
equity capital," (4) [p]roviders of equity capital typically receive the firm's profits," and therefore
(5) "as an initial estimate, a market-determined PCF would be set at the level of the GSEs' profits."
Attari Rep. ,r 105, Ex. A to Pis.' Mot., Fairholme ECF No. 161-2, Class ECF No. 156-2.
As plaintiffs note, Dr. Attari so reasons without citation to anything, or any explanation
that he is relying on his experience in the field of financial economics. Defendants argue that no
citation is necessary, because he is relying on basic financial-economic concepts, and "Rule 702
imposes no minimum citation requirement." In re Fluidmaster, Inc., Water Connector
3

Components Prod. Liab. Litig., No. 14-cv-5696, 2017 WL 1196990, at *7 (N.D. Ill. Mar. 31,
2017). But while there may be no need to cite evidence for basic financial concepts like the
principle that providers of equity capital usually receive a firm's profits, the Court is troubled by
the lack of citation or explanation for the proposition that "[a] market participant would typically
set the PCF based on the role of the Commitment," Attari Rep.

,r 105,

Ex. A to Pis.' Mot.,

Fairho/me ECF No. 161-2, Class ECF No. 156-2, and the leap from that proposition to the
assumption that the market value of the Commitment would be 100 percent of what is due to
providers of equity capital. In their opposition to this motion, defendants do not explain where that
proposition came from, except perhaps to suggest that the entire passage from the expert report
draws on Dr. Attari's experience as a financial economist and an analogy to bankruptcy financing.
See Defs.' Opp' n at 16-19, Fairholme ECF No. 168, Class ECF No. 161. But Dr. Attari did not
claim to be relying on his expertise or experience when he stated, as if it were obvious, how a
market participant would typically set the PCF or anything like it. This portion of Dr. Attari 's
testimony thus does not appear to be supported by reliable methodology, as Rule 702 requires.
For these reasons, plaintiffs' motion in limine to exclude Dr. Attari's testimony will be
GRANTED insofar as it seeks to exclude under Rule 702 Dr. Attari's testimony that the PCF

would have been set at 100 percent of the GSEs' net profits.
B. Plaintiffs' Motion in Limine to Exclude Opinions of Defendants' Expert S.P. Kothari
(Fairholme ECF No. 162, Class ECF No. 157)

Defendants plan to call their expert Professor S.P. Kothari to testify that it was reasonable
for FHFA to run the GSEs in a manner that did not benefit shareholders and that given the
circumstances, shareholders did not reasonably expect to be paid dividends before the Third
Amendment took effect. Plaintiffs move to exclude Professor Kothari's testimony on grounds that
it is ( 1) irrelevant, because it is premised on an incorrect legal standard; (2) partially just a summary

4

of evidence rather than expert opinion; and (3) unreliable and unduly confusing to the extent that
it is expert opinion.
Plaintiffs argue that Professor Kothari's testimony regarding shareholders' reasonable
expectations is irrelevant because defendants instructed him to consider only publicly available
information, and under the correct standard, even nonpublic information is relevant to the implied
covenant claim. That argument is unpersuasive. To be sure, plaintiffs are correct to a certain extent
about the relevant standard. Defendants cite no authority for the proposition that nonpublic
information can never be relevant to reasonable expectations for purposes of an implied covenant
claim. As emphasized in the summary judgment opinion, whether defendants acted arbitrarily or
unreasonably and thereby breached the implied covenant is determined in reference to plaintiffs'
reasonable expectations. Fairholme Funds, Inc. v. Fed Housing Finance Agency ("Fairholme If'),
Nos. 13-cv-1053, 13-mc-1288, 2022 WL 4745970, at *6 (D.D.C. Oct. 3, 2022). And here,
plaintiffs could logically argue that shareholders would have reasonably expected at the time of
contracting that FHFA as conservator would act in good faith on whatever information it had at
the time of the alleged breach. Moreover, the Court's 2018 opinion on defendants' motion to
dismiss plaintiffs' amended complaint cited nonpublic information, including that "Treasury
understood that the GSEs were about to achieve sustained profitability," as possible evidence that
plaintiffs could not reasonably have expected FHFA to agree to the Net Worth Sweep. Fairholme
Funds, Inc. v. FHFA ("Fairholme l'), 2018 WL 4680197, at *11 (D.D.C. Sept. 28, 2018). Butjust

because nonpublic information might be relevant, that does not mean that an expert opinion based
only on public information is irrelevant. Information publicly available in the months leading up
to the enactment of the Third Amendment could simply be part of why shareholders reasonably
could or could not have expected FHFA to agree to the Net Worth Sweep.

5

Plaintiffs also argue that a large portion of Professor Kothari's testimony is not helpful
expert testimony under Rule 702 because it merely provides a summary of publicly available
information and then draws conclusions from that information that the jury itself could draw. See
Kothari Rep.

,r,r 78-141, Fairho/me ECF No.

162-2, Class ECF No. 157-2. Defendants respond

that given how complex the economic issues are in this case, Professor Kothari's testimony will
be helpful to the jury because he, as an expert on accounting and finance, can provide "specialized
context for understanding how to connect the dots, to utilize" the publicly available information
regarding the GSEs' financial state and shareholder expectations that would otherwise be "foreign
to the jury." SCCI Hosps. OfAm., LLC v. Home-Owners Ins. Co., 571 F. Supp. 3d 942, 950 (N.D.
Ind. 2021). The Court finds defendants' argument more persuasive. "An expert's opinion may
overlap with the jurors' own experiences or cover matters that are within the average juror's
comprehension, so long as the expert uses some kind of specialized knowledge to place the
litigated events into context." Viamedia, Inc. v. Comcast Corp., 951 F.3d 429, 484 (7th Cir. 2020),
cert. denied, 141 S. Ct. 2877 (2021) (internal quotation marks, citations, and brackets omitted).

Professor Kothari will do just that, and more-his testimony concerns matters that are arguably
beyond the average juror's comprehension.
Finally, plaintiffs argue that a portion of Professor Kothari's testimony offering an
empirical analysis of why shareholders reasonably could have expected an outcome similar to the
Net Worth Sweep should be excluded under Rule 702 as unreliable and confusing. See Kothari
Rep.

,r,r 142-53, Fairho/me ECF No.

162-2, Class ECF No. 157-2. As the Court understands it,

this part of plaintiffs' motion is now moot, as the portion of Professor Kothari's testimony it
concerns relies heavily on the discounted cash flow ("DCF") analysis of plaintiffs' expert witness
Dr. Joseph Mason, and defendants represented at the pretrial conference that they no longer wish

6

to call Professor Kothari to discuss Dr. Mason's DCF analysis in light of the Court's summary
judgment decision.
For these reasons, plaintiffs' motion in limine to exclude Professor Kothari's testimony
will be DENIED. 1

C. Plaintiffs' Motion in Limine to Admit Evidence Pursuant to Rules 801 and 803
(Fairholme ECF No. 176, Class ECF No.169)
Plaintiffs move for a ruling that 22 different documents largely prepared by officials at
Treasury (which is not a party to the case) are admissible as nonhearsay or falling under a hearsay
exception. Specifically, plaintiffs argue that all of those documents are admissible as coconspirator
statements under Federal Rule of Evidence 801(d)(2)(E) or as public records setting out an
agency's activities under Federal Rule of Evidence 803(8)(A)(i).
Plaintiffs argue that all of Treasury's communications about the Net Worth Sweep leading
up to the enactment of the Third Amendment are admissible as coconspirator statements under
Rule 801 (d)(2)(E) because they are statements by FHFA's joint venturer made in furtherance of a
joint venture-implementing the Net Worth Sweep. That argument is unpersuasive. The D.C.
Circuit, unlike some other circuits, has "extend[ed] the [coconspirator] exception" of Rule
801(d)(2)(E) beyond criminal conspiracies, "to joint venturers' statements during and in
furtherance of the joint venture." Miller v. Holzmann, 563 F. Supp. 2d 54, 85 n.28 (D.D.C. 2008).
However, the lawful-joint-venture cases plaintiffs cite involve parties on the same side of an
enterprise or business relationship, not counterparties to a contract. See United States v. Gewin,
471 F.3d 197, 200 (D.C. Cir. 2006) ("common enterprise of stock promotion"); United States v.
Brockenborrugh, 575 F.3d 726, 730-32 (relationship between defendant and his real estate agent).

1
The Court will GRANT defendants' motion for leave to file a supplemental brief addressing the effects of the
summary judgment decision on this motion, which the Court has also considered.

7

The Circuit has explained that its extension of the coconspirator exception to lawful joint ventures
is "bas~d on concepts of agency and partnership law." Gewin, 471 F.3d at 201. Agreeing to a
contract is not the same thing as entering an agency or partnership relationship, and it would make
little sense to extend the rule further, to any statements made by a party's contractual counterparty
made in furtherance of negotiating a contract between them. 2
Plaintiffs also argue that the same documents are independently admissible as public
records setting out an agency's activities under Rule 803(8)(A)(i) because they document
meetings, deliberations, presentations, and the like performed as part of agency activities.
Defendants argue that none of the documents "set out" Treasury's "activities" because every one
of them records either preliminary agency deliberations or the agency's description of another
agency's activities-FHFA's. This is a closer issue.
Defendants are right that many of the documents are records of internal Treasury
deliberations about whether, when, and how to pursue the Net Worth Sweep. See, e.g., Mem. from
Jeffrey Goldstein to Sec. Geithner, Ex. A-1 to Pis.' Mot., Fairho/me ECF No. 176-2, Class ECF
No. 169-2. While the D.C. Circuit has not addressed the question, at least one other Circuit has
held that "preliminary or interim evaluative opinions of agency staff members" do not fall under
this particular branch of the public records exception, which typically is invoked to admit
retrospective records of agency operations. Smith v. Isuzu Motors Ltd., 137 F.3d 859, 851 (5th Cir.
1998). 3 And if Rule 803(8)(A)(i)' s exception for records setting out agency activities covered
virtually all records relevant to the agency's business, then Rule 803(8)(A)(iii)'s exception for

2

Plaintiffs c en suggested at the pretrial conference that the coconspirator exception shou ld extend to statements made
by attorneys in the course of working cooperatively toward pretrial c identiary agreements. Surely that reading
stretches the word "coconspirator," even interpreted to mean "joint venturer," to its breaking point.
3
The Fifth Circuit in Smith was interpreting an older version of the public records exception, former Rule 803(8)(A),
but the operative words on which the court relied "set forth" and "activities"-remain the same.

8

"factual findings from a legally authorized investigation" would be superfluous. The Court is
therefore reluctant to admit all 22 of the documents at issue in this motion simply because they are
some form of Treasury document related to Treasury business. But other documents actually

memorialize Treasury activities as they ostensibly occurred-for example, a memorandum
summarizing a meeting between Treasury Secretary Geithner and FHFA Acting Director DeMarco
in June 2012. See Mem. from M. Stegman to M. Miller (June 25, 2012), Ex. A-6 to Pis.' Mot.,
Fairholme ECF No. 176-7, Class ECF No. 169-7. Defendants offer no persuasive explanation as

to why that document or others like it would not be a record setting out an agency's activities
within the meaning of Rule 803(8)(A)(i).
Defendants' argument about many of the records setting out another agency or party's
activities is less persuasive. Courts have held Rule 803(8)(A)(i) inapplicable to documents
describing the activities of an entity besides the agency that prepared them, see, e.g., United States
v. El-Mezain, 664 F.3d 467, 499 (5th Cir. 2011), but that does not mean that any Treasury

document otherwise admissible as a public record-for example, the aforementioned memo
regarding the meeting between Secretary Geithner and Acting Director DeMarco-is inadmissible
simply because its description of Treasury business also includes information about FHFA.
At any rate, the admissibility of these documents, which vary in form and content, does not
lend itself well to a sweeping motion in limine covering 22 exhibits. Accordingly, plaintiffs'
motion in limine to admit these documents pursuant to Rules 801 and 803 will be DENIED.
Should plaintiffs offer these documents at trial, they should be mindful that (1) the Court will not
admit any of them under the coconspirator exception and (2) the Court will admit them under the
"activities" branch of the public records exception only to the extent that they memorialize or
record agency business.

9

D. Plaintiffs' Omnibus Motion in Limine (Fairholme ECF No. 182, Class ECF No. 176)

Plaintiffs' "omnibus motion in limine" includes six different motions in limine.
1. Motion in Limine to Preclude Evidence and Arguments Inconsistent with the
Court's 2018 Opinion

First, plaintiffs move to preclude arguments and evidence they see as inconsistent with the
Court's 2018 motion to dismiss opinion: those implying that the "time of contracting" was in
August 2012, just days before the Third Amendment's announcement, and those implying that
only publicly available information is relevant to shareholders' reasonable expectations. This
motion will be GRANTED in part.
(i) Information in existence as of the date of the Third Amendment

Plaintiffs move to preclude defendants from offering evidence or arguments defining
shareholders' reasonable expectations in reference to information publicly available on the eve of
the Third Amendment rather than the beginning of the Conservatorship or the enactment of the
Second Amendment. Although plaintiffs' argument on this point has some merit, resolving it in
their favor will not quite have the effect they likely expect.
The Court has never precisely defined the "date of contracting" for purposes of the implied
covenant claim in this case. The 2018 motion to dismiss opinion explained that "the time of
contracting for the purposes of the implied covenant inquiry must be the time of the most recent
change in contract-whether by amendment or change in law," including changes to federal law
"affecting the governance of the GS Es and their relationships with their shareholders," such as the
beginning of the conservatorship in 2008. Fairholme I, 2018 WL 4680197, at *9. Two subsequent
opinions gave slightly different characterizations of that holding, with the class certification
opinion stating that "the Court set the date of the Recovery Act's enactment and the FHFA's
appointment as conservator as the barometer to evaluate the parties' reasonable expectations," In

10

re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action Litig., No.
13-mc-1288, 2021 WL 5799379, at *8 (D.D.C. Dec. 7, 2021), and the summary judgment opinion
stating in a footnote that " [t]he Court has previously held that the relevant time of 'contracting' for
purposes evaluating plaintiffs' implied covenant claim is the time immediately before the
enactment of the Third Amendment," Fairholme II, 2022 WL 4745970, at *13 n.9. 4 The Court
now believes it would facilitate trial preparations to settle the matter definitively.
Plaintiffs argue that the relevant time of contracting is either the beginning of the
conservatorship in 2008 or, at the latest, the enactment of the Second Amendment in 2009.
Defendants argue that it is just days before the enactment of the Third Amendment in August 2012,
with the implementation of an obscure federal regulation tangentially related to shareholder
dividends, see 77 Fed. Reg. 33950--64 (June 8, 2012) (ef£ Aug. 7, 2012). Plaintiffs have the better
of this argument. It appears "the most recent change in contract," Fairholme I, 2018 WL 4680197,
at *9, that arguably had any significant impact on shareholders' reasonable expectations was the
Second Amendment. Defendants make no meaningful argument as to precisely in what way the
2012 regulation they cite should have informed shareholders' reasonable expectations.
Accordingly, the Court now clarifies, consistent with its 2018 motion to dismiss opinion, that the
"date of contracting" for purposes of plaintiffs' implied covenant claim is no later than December
24, 2009, the date that the Second Amendment took effect.
However, the Court cautions that in a very important sense, the debate over when to fix
that date is largely academic, because that date will not necessarily serve as an evidentiary cutoff
point. Even with a "date of contracting" in 2009, since the shareholder contracts incorporated

4

The latter statement was not essential to the Court's holding and was made merely to emphasize that the "time of
contracting" was after the beginning of the conservatorship, rather than at the issuance of the shares.

11

HERA and the PSPAs, one factor that might influence shareholders' reasonable expectations
would be HERA's authorization of FHFA, as conservator, to act "in the best interests of the
regulated entity or the Agency." 12 U.S.C. § 4617(b)(2)(J)(ii). And while information that became
available after December 24, 2009 might not itself inform shareholders' reasonable expectations
for implied covenant purposes, that same information might be relevant to the circumstances
surrounding the adoption of the Third Amendment, and whether FHPA, in its role as conservator,
reacted to those circumstances in a manner that shareholders reasonably could have expected given
the most recent, meaningful change in the contract.
Accordingly, this part of the first motion in plaintiffs' omnibus motion in limine will be
GRANTED insofar as defendants are precluded from arguing that the "date of contracting" for

purposes of plaintiffs' implied covenant claim is any ~ater than December 24, 2009. However, the
Court emphasizes once again that this ruling does not preclude the introduction of all evidence of
events that occurred after that date.
(ii) Publicly available information in general

Plaintiffs also move to preclude defendants from arguing that nonpublic information is
irrelevant to shareholders' reasonable expectations. As explained above with respect to Professor
Kothari's testimony, see supra Part LB, plaintiffs are correct that such information is relevant to
whether FHFA acted in a manner consistent with shareholders' reasonable expectations.
Moreover, defendants' opposition to this part of plaintiffs' motion relies largely on a theory
rejected in the Court's summary judgment opinion, that an "implied covenant claim involves a
two-pronged inquiry." Fairholme II, 2022 WL 4745970, at *6. Accordingly, this part of the first
motion in plaintiffs' omnibus motion in limine will be GRANTED, and defendants will be

12

precluded from arguing that only publicly available information is relevant to whether .FHFA's
actions violated shareholders' reasonable expectations.
2. Motion in Limine to Preclude Securities Analyst Reports

Second, plaintiffs move to preclude defendants from offering securities analyst reports
about the state of the GS Es' finances leading up to the Third Amendment, arguing that those
reports are both hearsay and improper lay opinion testimony that defendants have never offered as
expert testimony. The Court agrees that defendants apparently seek to offer these reports for
hearsay purposes-that is, for "the truth of the matter asserted," Fed. R. Evid. 801-and thus need
not reach the lay opinion issue. Defendants argue that they will offer the reports not to prove that
they accurately reflected the GSEs' financial states, but for their effect on shareholders' reasonable
expectations and FHFA's decisionmaking process about amending the PSPAs. But a generic
reasonable shareholder would only believe the reports if there were reason to believe they were
accurate, and defendants cite no evidence that FHFA actually relied on any of the specific
securities analyst reports they plan to offer. Accordingly, the second motion in plaintiffs' omnibus
motion in limine will be GRANTED insofar as defendants may not offer the securities analyst
reports unless they can show that any specific report factored into FHFA's decisionmaking process
or a hearsay exception applies.
3. Motion in Limine to Preclude Evidence or Arguments About Dismissed Claims or
Other Cases

Third, plaintiffs move to preclude defendants from referencing (a) claims dismissed in this
case, (b) other similar cases, and (c) the Supreme Court's decision in Collins v. Yellen, 141 S. Ct.
1761 (2021), arguing that such references would be substantially more prejudicial than probative
and thus excludable under Federal Rule of Evidence 403. The first two points are moot, because
defendants represent that they will not reference the earlier claims in this case or other, non-Collins

13

cases. See Defs.' Opp'n at 30-31, Fairholme ECF No. 190, Class ECF No. 184. As for references
to Collins, it is possible that certain references to portions of the Supreme Court's opinion in that
case could be prejudicial to plaintiffs or confusing to the jury, because it held that "FHFA could
have reasonably concluded that [the Net Worth Sweep] was in the best interests of members of the
public who rely on a stable secondary mortgage market," and "[t]he Recovery Act therefore
authorized the Agency to choose this option." Collins, 141 S. Ct. at 1177. For reasons explained
in the summary judgment opinion, Collins involved a different standard than this case, but used
somewhat similar terminology. Still, neither plaintiffs nor defendants have fully explained the
specific purposes for which defendants might reference Collins, and thus this issue does not lend
itself to resolution at the motion in limine stage. Accordingly, the third motion in plaintiffs'
omnibus motion in limine will be DENIED. Plaintiffs are free, however, to object to specific
references to Collins at trial if and when they occur.

4.-6. Motions in Limine to Preclude "Windfall" Evidence or Arguments, Testimony
of Bruce Berkowitz, and Evidence or Arguments About Plaintiffs' Wealth and
Sophistication
The last three motions in plaintiffs' omnibus motion in limine are closely related, and the
Court considers them together. Plaintiffs move to preclude defendants from offering evidence or
arguments that certain class members who purchased their stock after the Net Worth Sweep went
into effect (many of them as an investment in this litigation) and thus might receive a "windfall"
if they won a judgment; the deposition testimony of Bruce Berkowitz, the owner of a former
individual plaintiff entity who is now a class member; and any evidence or arguments about
plaintiffs' wealth or sophistication.
Defendants represent that they do not intend to offer any such evidence or arguments, or
Berkowitz's testimony, unless plaintiffs offer the testimony of the class representatives and the
representative of another one of the individual plaintiffs. As explained below, see infra Part II.C,
14

the Court will not preclude those plaintiffs' testimony in full, but it will limit their testimony to
their background and the basic facts allegedly giving rise to their claims, such as their stock
ownership and loss of dividend rights, rather than their subjective expectations regarding FHF A's
conduct. In other words, plaintiffs will be allowed to show the jury who the class representatives
and one of the individual plaintiffs are and why they are suing. It is unclear how Berkowitz's
deposition testimony could similarly be relevant to explaining who the class representatives or
individual plaintiffs are or helping to disprove any part of plaintiffs' case, given that he is now
simply an unnamed class member, so the Court will GRANT the motion in limine to exclude that
testimony. Because "the contractual rights [plaintiffs] seek to enforce ... inhere in the security,
traveling to each subsequent acquirer," Fairholme I, 2018 WL 4680197, at *8, the time that any
plaintiff purchased GSE shares is irrelevant, and thus the Court will GRANT the motion to
preclude evidence or arguments on that point. However, as explained below, see infra Part II.C,
the Court will not allow plaintiffs to elicit similar testimony from their witnesses. Finally, the Court
will GRANT the motion to preclude any evidence or argument regarding shareholders' wealth or
sophistication. Such evidence is completely irrelevant to the claims in this case and would be
substantially more prejudicial than probative, and thus excludable under Rule 403, even if it were
of some marginal relevance. It is unclear whether defendants even intend to offer such evidence
or arguments, but it is hard to imagine them being offered for any purpose other than to make
plaintiffs seem less sympathetic to the jury.
II.

Defendants' Motions
A. Defendants' Motion in Limine to Exclude Testimony of Plaintiffs' Expert Bala
Dharan (Fairholme ECF No. 159, Class ECF No. 154)
Plaintiffs plan to call their expert Dr. Bala Dharan to testify that the Net Worth Sweep was

not reasonably necessary. Defendants argue that Dr. Dharan's testimony should be excluded as

15

irrelevant because whether the Net Worth Sweep was "necessary" is not relevant under the legal
standard for whether there has been a breach of the implied covenant of good faith and fair dealing.
That argument is unpersuasive. True, the relevant inquiry is "the parties' reasonable expectations
at the time ofcontracting." Nemec v. Shrader, 991 A.2d 1120, 1125 (Del. 2010). But the effect of
a particular action on the GSEs' solvency is potentially relevant to whether shareholders could
reasonably FHFA, as conservator, to take that action.
Defendants also argue that Dr. Dharan's testimony should be excluded insofar as it relies
on nonpublic information, because plaintiffs' "reasonable expectations" could have been informed
only by what they knew. That argument fails for the reasons stated above. See supra Parts LB,
I.D.1.ii,
Accordingly, defendants' motion in limine to exclude Dr. Dharan's testimony will be

DENIED.
B. Defendants' Motion in Limine to Exclude Testimony of Plaintiffs' Expert Joseph
Mason (Fairholme ECF No. 160, Class ECF No. 155)

Throughout much of this litigation, plaintiffs have planned to call Dr. Joseph Mason as
their primary expert witness on damages. Defendants moved to exclude his testimony because the
vast majority of it, including his DCF analysis, relies on impermissibly speculative assumptions,
and another portion proposes rescission and restitution, a remedy unavailable in this case as a
matter of law. After this motion was fully briefed, the Court largely rendered it moot by holding
that Dr. Mason's DCF analysis did not create a genuine dispute as to whether the Net Worth Sweep
deprived plaintiffs of dividends they otherwise were reasonably certain to have received and that
HERA indeed barred his proposed alternative remedy ofrescission and restitution. See Fairholme
II, 2022 WL 4745970, at *7-12; Mem. Op. at 8-11, Fairholme ECF No. 217, Class ECF No. 217.

16

At the pretrial conference, the parties only disputed whether Dr. Mason's testimony should
be limited to the statement in his reply report that one of Dr. Attari's event studies established lostdividends expectation damages of approximately $1.6 billion, or whether he should be permitted
to testify that a better estimate would be $2.9 billion, based on his belief that shares actually lost
100 percent of their value as a result of the Net Worth Sweep. The Court believed it had put that
issue to rest in its most recent Memorandum Opinion denying plaintiffs an opportunity to serve a
supplemental expert report expounding on that theory, see id. at 3-5, but plaintiffs argued at the
pretrial conference that the $2.9 billion figure, which did not appear in any report or deposition,
was "implicit" in $1.6 billion figure. That is pure sophistry that ignores the role that disclosure of
expert testimony during discovery plays in allowing one's opponent a fair opportunity to prepare
for trial.
Accordingly, defendants' motion in limine to exclude Dr. Mason's testimony will be

GRANTED insofar as Dr. Mason may not testify about his DCF analysis, his rescission
calculations, or his newly stated opinion that the appropriate measure of lost share value is I 00
percent of that value on the day before the Net Worth Sweep.

C. Defendants' Motion in Limine to Exclude Evidence of Plaintiffs' Subjective
Expectations (Fairholme ECF No. 183, Class ECF No. 177)
Plaintiffs plan to call some of the class representatives and a representative of one of the
individual plaintiffs, Berkeley Insurance Company, to testify, and to offer the deposition testimony
of another class representative, regarding those witnesses' backgrounds, their purchases of GSE
stock, and whether the Net Worth Sweep was consistent with their expectations. Defendants move
to exclude that testimony as irrelevant and prejudicial, arguing that plaintiffs' subjective
expectations are not relevant under the objective standard that applies in this case and that these
witnesses provide a skewed sample of the class that will confuse the jury as to its makeup.

17

Defendants are correct that, as the Court recognized in the opinion on class certification,
"whether the Third Amendment violated the reasonable expectations of the parties" is "an
objective inquiry." In re Fannie Mae/Freddie Mac, 2021 WL 5799379, at *8. Thus, it is hard to
see how plaintiffs' subjective expectations could be relevant to that inquiry. Plaintiffs claim that
the weight of authority holds that "regardless of the 'objective' nature of the pertinent legal
standard, plaintiffs are permitted to testify about their own 'subjective' perceptions and beliefs,"
Pis.' Mot. at 7, Fairholme ECF No. 183, Class ECF No. 177, but many of the cases they cite are
completely inapposite. One is a personal injury case in which the court allowed testimony
regarding the victim's injuries, where the objective reasonable-person standard was for liability.
See Rockwell v. State Farm Mut. Auto. Ins. Co., No. 18-cv-722, 2022 WL 343665, at *2 (D. N.M.
Feb. 4, 2022). The others all concern a single California consumer-protection statute with an
objective "substantial impairment" standard. While some federal courts hearing claims brought
under that statute have allowed some testimony on consumers' subjective expectations, see, e.g.,
Zomordian v. BMW ofN Am., LLC, No. 17-cv-5061, 2018 WL 10087304, at *5 (C.D. Cal. Aug.
7, 2018), others have not, see, e.g., Gilfenbain v. Jaguar Land Rover N Am., LLC, No. 19-cv10027, 2022 WL 2232226, at *2 (C.D. Cal. Mar. 28, 2022). Here, any individual shareholder's
subjective expectations are totally irrelevant to the objective inquiry of whether the Net Worth
Sweep violated a generic, reasonable shareholder's expectations.
Likewise, the fact of when plaintiffs purchased their shares is irrelevant, and likely to be
substantially confusing to the jury, since, as explained in the 2018 motion to dismiss opinion,
plaintiffs' implied covenant rights "inhere in the security, traveling to each subsequent acquirer."
Fairholme I, 2018 WL 4680197, at *8. And any marginal relevance that the fact of when these

18

plaintiffs purchased their shares might have is substantially outweighed by the risk of jury
confusion as to whether that matters, so that evidence is excludable under Rule 403.
However, that does not mean that these witnesses have no admissible testimony to offer.
The Court is unaware of any case in which a court has prevented the plaintiffs who brought that
case from giving any testimony whatsoever. In this case, there is no reason to preclude the class
representatives or Berkeley's representative from testifying, for example, that they own GSE stock,
that their dividend rights were extinguished as a result of the Net Worth Sweep, and why they
brought this lawsuit. Nor is there any reason to preclude them from testifying to the contents of
the shareholder contract.
For these reasons, defendants' motion in limine to exclude the class representatives' and
Berkeley representative's testimony will be GRANTED insofar as those witnesses may not testify
as to whether the Net Worth Sweep violated their subjective expectations or when they purchased
their shares and DENIED in all other respects.

D. Defendants' Motion in Limine to Exclude Evidence of White House and Treasury
Motive or Intent Not Communicated to FHFA (Fairholme ECF No. 184, Class ECF
No.178)
Defendants move to exclude 19 documents that they characterize as evidence of Treasury's
or the White House's intent regarding the Net Worth Sweep that was not communicated to FHFA.
Most of these documents are also discussed in plaintiffs' motion in limine to admit documents
pursuant to Rules 801 and 803. See supra Part LC. In their own motion, defendants argue that
because the relevant inquiry is whether FHFA violated shareholders' reasonable expectations, the
motives Qf FHFA's contractual counterparty in negotiations over the Third Amendment are
irrelevant and substantially more prejudicial than probative. That argument is unpersuasive. First,
some of the documents memorialize conversations between FHFA and Treasury. See, e.g., Memo
from Mary Miller to Michael Stegman, Fairholme ECF No.184-10, Class ECF No. 178-10
19

(describing meeting between Treasury Secretary and FHFA Acting Director). Moreover, it is
conceivable that evidence of Treasury's negotiating position or pressures from the White House
could provide some insight into whether FHFA in fact negotiated the Third Amendment in
accordance with shareholders' reasonable expectations. For example, after offering a document
suggesting that Treasury intended to wind down the GSEs, plaintiffs might ask an FHFA witness
if he was aware of and shared that intent. Accordingly, defendants' motion in limine to exclude
evidence of Treasury's and the White House's intent will be DENIED. However, defendants are
free to raise any hearsay objections to the same documents at trial.
E. Defendants' Motion in Limine to Exclude Testimony of Plaintiffs' Summary Witness
Susan Hartman (Fairholme ECF No. 187, Class ECF No. 181)

Plaintiffs plan to call a retained accountant, Susan Hartman, as a lay witness to offer
summary evidence, present demonstratives, and read otherwise ·admissible documents into the
record. Defendants move to exclude Hartman's testimony. Defendants' objections fall into six
general categories, which the Court will consider in turn.
1. Reading Documents Into the Record

Defendants argue that Hartman should be precluded from reading otherwise-admissible
documents into the record because they are not sufficiently voluminous to warrant summarization
under Federal Rule of Evidence 1006. 5 That argument is unpersuasive.
To be admissible under Rule 1006, summary evidence "must summarize documents so
voluminous as to make comprehension difficult and inconvenient, although not necessarily
literally impossible." United States v. Hemphill, 514 F.3d 1350, 1358 (D.C. Cir. 2008) (internal
quotation marks, ellipsis, and citation omitted). As plaintiffs note, Hartman indeed proposes to

5
Defendants also argued that Hartman should be precluded from reading portions of HERA into the record, but
plaintiffs represented at the pretrial conference that they no longer plan to have her do so.

20

summarize some voluminous records, including over 55,000 pages of the GSEs' public financial
filings. But as defendants point out, many documents she proposes to summarize are not
voluminous at all, such as the PSPAs and their amendments, which together total 53 pages, and
certain provisions from the GSEs' QI and Q2 2012 SEC Form lOQs.
The real dispute with respect to the non-voluminous documents Hartman proposes to read
into the record is whether a witness called to offer summary evidence under Rule 1006 can also
read into the record non-summary evidence that is otherwise admissible. Retaining a summary
witness to also read documents into the record as anyone else could is admittedly an unusual
procedure. But defendants cite no authority holding that a summary witness cannot also read
admissible non-summary evidence into the record. Plaintiffs, on the other hand, cite some authority
suggesting the opposite, at least in criminal cases, see United States v. Baker, 923 F.3d 390, 397
(5th Cir.2019), and the Court sees no reason why a civil case should be any different. If defendants
want to pay Hartman to do work that otherwise could be done by a paralegal or any other witness,
that is their choice. And to the extent defendants challenge the selection of documents Hartman
will read into the record, such as the particular quarters for the Form lOQs, they cite no authority
for the proposition that a witness reading documents into the record as a part of non-summary
testimony must also read documents, or portions thereof, that shed a more favorable light on the
opposing party. If defendants think the non-summary portions of Hartman's testimony omit key
documents, they are free to offer those documents ,into evidence themselves.

2. S&P/Case-Schiller National Home Price Index
Defendants argue that a chart of home prices that Hartman compiled using data from the
S&P/Case-Schiller National Home Price Index site---data that defendants do not dispute are
admissible-is inadmissible under Rule 1006. Plaintiffs counter that the chart is admissible as a
demonstrative or pedagogical aide under Federal Rule of Evidence 611 (a). While Rule 611 (a) itself
21

merely governs the "reasonable control" a "court should exercise ... over the mode and order of
examining witnesses and presenting evidence," Fed. R. Evid. 61 l(a), courts have interpreted it to
allow parties to offer summary charts and other pedagogical aides that are not themselves evidence
but aid the jury's understanding of the evidence in a complex case. See Atlanta Channel, Inc. v.
Solomon, 583 F. Supp. 3d 174, 212 (D.D.C. 2022). This is indeed a complex case in which
demonstratives could be helpful. However, since demonstratives themselves are not evidence, and
plaintiffs do not argue that the home price index data are sufficiently voluminous to warrant
summarization under Rule I 006, the Court will not allow Hartman to present her charts
summarizing those data unless the data are first offered into evidence. But if plaintiffs were to
offer the data into the record first, as they suggested at the pretrial they would be willing to do, the
Court sees no reason why Hartman's chart could not come in as a demonstrative.

3. Timeline
Defendants next argue that a timeline Hartman created showing events between the
adoption of HERA and the most recent amendments to the PSPAs is inadmissible under Rule I 006.
Again, plaintiffs respond that they intend to offer that timeline as a demonstrative under Rule
6ll(a). Here, there is no issue with the information contained in the demonstrative not already
being in evidence. For the same reason the Court sees no problem with allowing a summary
witness to present non-summary evidence, it sees no problem with allowing a summary witness to
present non-summary demonstratives of evidence already in the record.

4. "Summaries" of the PSPAs and Amendments
· Defendants argue that Hartman should be precluded from paraphrasing portions of the
PSP As and their amendments because those documents are not sufficiently voluminous to warrant
summarization under Rule 1006. Plaintiffs again counter that she is merely presenting a
pedagogical aide allowable under Rule 61 l(a). The nature of this portion of Hartman's testimony
22

is presently somewhat unclear, but based on the description in plaintiffs' opposition, see Pis.'
Opp'n at 25-27, Fairholme ECF No. 193, Class ECF No. 187, it appears that she proposes to offer
a chronology of the PSPAs and how the amendments changed them. Assuming the documents
themselves are first offered into evidence, the Court sees no reason why it should treat an oral
chronology of their key provisions, based on stipulations to which both parties have agreed about
what those provisions said, any differently from a visual timeline that ordinarily would be
allowable as a demonstrative. Accordingly, the Court will not exclude the "summaries" of the
PSPAs and their amendments. That being said, if at any point Hartman's testimony begins to veer
into the territory of argument or analysis, defendants are free to object under another Rule of
Evidence, such as Rule 702.
5. Certificates of Designation
Defendants argue that Hartman should not be permitted to summarize the presence of
certain provisions in the GSEs' certificates of designation-which they appear to concede are
admissible and voluminous for Rule I 006 purposes-because she will only highlight portions of
the certificates that plaintiffs think significant. But parties "call witnesses, including summary
witnesses, to prove their case." United States v. Cooper, 949 F.3d 744, 750 (D.C. Cir. 2020). Just
because summary testimony is helpful to the party who offers it does not mean it is inadmissible
under Rule 1006 or excludable under Rule 403. And defendants do not identify any specific
omissions that make the proposed summary of the certificates misleading or prejudicial.
6. Calculations
Finally, defendants argue that certain calculations summarizing the amount of funds the
GSEs raised through stock issuances, as well as dividends and draws, are improper summary

23

evidence under Rule I 006. 6 Their only argument on that point, however, is that they are willing to
stipulate to those numbers, and thus there is no need to summarize the underlying financial records.
Defendants cite no authority for the proposition that a party may not offer evidence of facts to
which its opponent is willing to stipulate.
*

*

*

For these reasons, the Court will GRANT plaintiffs' motion in limine to exclude
Hartman's testimony only insofar as she proposes to present demonstratives of non-voluminous
records that are not themselves offered into evidence and DENY that motion in all other
respects.

F. Motion in Limine to Compel One Appearance of Defendants' Fact Witness Edward
DeMarco (Fairholme ECF No. 209, Class ECF No. 206)
As explained at the pretrial conference, this motion was filed long after the deadline for
pretrial motions with no excuse, defendants having known about its impetus since May of this
year. Accordingly, the motion in limine will be DENIED as untimely. However, the Court reserves
decision on whether to approve any alternative procedure for DeMarco's testimony until trial,
especially if the parties are able to reach an agreement.

III.

Conclusion

For the foregoing reasons:
Defendants' Motion in Limine to Exclude the Testimony of Dr. Balan Dharan (Fairholme
ECF No. 159, Class ECF No. 154) will be DENIED.

6

It is unclear at this point whether all of the specific charts to which this portion of defendants' motion refers are
summaries of voluminous records or demonstratives collecting data from documents already offered into evidence.
But defendants' objection apparently is not that the records containing the data are insufficiently voluminous or that
they are being offered as evidence themselves rather than Rule 61 l(a) demonstratives. Defendants are free to raise
such an objection at trial if needed.

24

Defendants' Motion in Limine to Exclude the Testimony of Dr. Joseph Mason (Fairholme
ECF No. 160, Class ECF No. 155) will be GRANTED insofar as Dr. Mason may not testify about
his DCF analysis, his rescission calculations, or his newly stated opinion that the appropriate
measure of lost share value is 100 percent of that value on the day before the Net Worth Sweep.
Plaintiffs' Motion in Limine to Exclude the Testimony of Dr. Mukarram Attari (Fairholme
ECF No. 161, Class ECF No. 156) will be DENIED with respect to the bond yield event study
and GRANTED with respect to the hypothetical setting of the PCF.
Plaintiffs' Motion in Limine to Exclude the Testimony of Professor S.P. Kothari
(Fairholme ECF No. 162, Class ECF No. 156) will be DENIED.
Plaintiffs' Motion in Limine to Admit Evidence Pursuant to Federal Rules of Evidence 801
and 803 (Fairholme ECF No. 176, Class ECF No. 157) will be DENIED.
Plaintiffs' Omnibus Motion in Limine (Fairholme ECF No. 182, Class ECF No. 176) will
be GRANTED in part and DENIED in part as follows:
1) Defendants will be precluded from arguing that the "date of contracting" was any

date after December 24, 2009, or that only publicly available information is relevant .
to shareholders' reasonable expectations.
2) Defendants' securities analyst reports will be excluded as hearsay unless defendants
can show that any specific report factored into FHFA's decisionmaking process or
a hearsay exception applies.
3) Defendants will not be precluded at this stage from making any reference to Collins
v. Yellen.
4) The deposition testimony of Bruce Berkowitz will be excluded.
5) Defendants will be precluded from offering evidence or arguments regarding when
plaintiffs purchased their shares, with the understanding that the same ruling applies
to plaintiffs.
6) Defendants will be precluded from offering evidence or arguments regarding
plaintiffs' wealth or sophistication.

25

Defendants' Motion in Limine to Exclude Evidence of Plaintiffs' Subjective Expectations
(Fairholme ECF No. 183, Class ECF No. 177) will be GRANTED insofar as plaintiffs may not

offer evidence of individual shareholders' subjective expectations or when they purchased their
shares and DENIED in all other respects.
Defendants' Motion in Limine to Exclude Evidence of Treasury or White House Intent Not
Communicated to FHFA (Fairholme ECF No. 184, Class ECF No. 178) will be DENIED.
Defendants' Motion in Limine to Exclude the Testimony of Susan Hartman (Fairholme
ECF No. 187, Class ECF No. 181) will be GRANTED insofar as she proposes to present
demonstratives of non-voluminous records that are not themselves offered into evidence and
DENIED in all other respects.

Defendants' Motion in Limine to Compel One Appearance of Defendants' Fact Witness
Edward DeMarco (Fairholme ECF No. 209, Class ECF No. 206) will be DENIED as untimely.
Defendants' Motion for Leave to File a Supplemental Memorandum Regarding Professor
Kothari's Testimony (Fairholme ECF No. 213, Class ECF No. 212) will be GRANTED.
A separate Order consistent with this Memorandum Opinion shall issue this date.

Date: October 13, 2022

/s/ Royce C. Lamberth
Royce C. Lamberth
United States District Judge

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