Roberts et al v. The Federal Housing Finance Agency et al

Filing 74

MEMORANDUM Opinion and Order signed by the Honorable Edmond E. Chang. For the reasons stated in the Opinion, Defendants' motions to dismiss [39, 40] are granted. The case is dismissed with prejudice. A separate AO-450 judgment shall be entered. The status hearing of 04/04/2017 is vacated. Civil case terminated. Emailed notice(slb, )

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
Christopher M. Roberts and
Thomas P. Fischer,
Plaintiffs,
v.
The Federal Housing Finance Agency, in
its capacity as Conservator of the Federal
National Mortgage Association and the
Federal Home Loan Mortgage Corporation;
Melvin L. Watt, in his official capacity as
Director of the Federal Housing Finance
Agency; The Department of the Treasury;
and Steven T. Mnuchin1, in his official
capacity as Secretary of the Treasury,
Defendants.

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No. 16 C 02107
Judge Edmond E. Chang

MEMORANDUM OPINION AND ORDER
Christopher Roberts and Thomas Fischer are shareholders of the Federal
National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage
Corporation (Freddie Mac). See R. 22, Am. Compl. ¶ 40.2 Fannie Mae and Freddie
Mac—both central figures in the United States’ residential mortgage market—have
been in conservatorship since the economic downturn of 2008; the Federal Housing
Finance Agency (FHFA for short) is their conservator. See id. ¶¶ 38, 52.

1The

current Secretary of the Treasury, Steven T. Mnuchin, is substituted for the
former Secretary of the Treasury, Jacob J. Lew. See Fed. R. Civ. P. 25(d).
2Citations to the record are noted as “R.” followed by the docket number and, if
necessary, the page or paragraph number.

1

This case arises from FHFA’s involvement, as the companies’ conservator,
with the Treasury Department. In 2008, FHFA entered into stock purchase
agreements with Treasury on Fannie’s and Freddie’s behalf. Am. Compl. ¶ 56.
Under these agreements, Treasury made hundreds of billions of dollars in capital
available to the companies in exchange for shares of their preferred stock, which
had a variable liquidation preference. See id. ¶¶ 56, 58, 61-62. The agreements
obligated both Fannie and Freddie to pay Treasury a quarterly dividend equal to a
fixed percentage of Treasury’s liquidation preference. Id. ¶ 65. FHFA and Treasury
later modified this dividend formula—in the Third Amendment to the stock
purchase agreements—to require Fannie and Freddie to pay the quarterly dividend
in an amount roughly equal to their net worth. See id. ¶ 113.
The Plaintiffs filed this lawsuit against FHFA and the Treasury
Department,3 principally alleging that, by adopting the new dividend formula in the
Third Amendment, FHFA and Treasury had exceeded their statutory authority
under the Housing and Economic Recovery Act of 2008 (for convenience’s sake, the
Recovery Act), Pub. L. No. 110-289, 122 Stat. 2654 (codified, as relevant here, in
various sections of Title 12 of the United States Code), and Treasury had acted
arbitrarily and capriciously, all in violation of the Administrative Procedure Act, 5
U.S.C. § 706(2)(A), (C)-(D). See Am. Compl. ¶¶ 169, 179, 191. The Defendants now
move to dismiss the Plaintiffs’ amended complaint, arguing (among other things)
that a statutory provision in the Recovery Act bars the relief sought in this case. See

3The

complaint also names the heads of FHFA and the Treasury Department in
their official capacities, which is no different than suing the agencies themselves.

2

R. 39, Joint Mot. to Dismiss. For the reasons stated below, the Defendants’ motion
is granted and the case is dismissed with prejudice.
I. Background4
A. Fannie Mae and Freddie Mac
Fannie Mae and Freddie Mac are government-sponsored enterprises born
from statutory charters issued by Congress. See 12 U.S.C. §§ 1716-1723 (Fannie
Mae); id. §§ 1451-1459 (Freddie Mac); Am. Compl. ¶ 39. Congress created the
companies to, among other things, “provide stability in the secondary market for
residential mortgages” and “promote access to mortgage credit throughout the
Nation … by increasing the liquidity of mortgage investments and improving the
distribution of investment capital available for residential mortgage financing.” 12
U.S.C. § 1716(1), (3). Today, Fannie and Freddie are for-profit, stockholder-owned

4The

Defendants have asked the Court to consider two categories of documents that
were not attached to the Plaintiffs’ amended complaint: (1) documents incorporated in the
amended complaint by reference and (2) Securities and Exchange Commission filings. See
R. 39-1, Joint Defs.’ Br. at 10 n.1; R. 40, Treasury Defs.’ Br. at 10 n.2. As a general matter,
a court may not consider documents other than the complaint and documents attached to
the complaint when deciding a motion to dismiss. See Fed. R. Civ. P. 12(d). There is,
however, an exception for documents that have been referred to in a complaint, if they are
central to the plaintiff’s claims. See Rosenblum v. Travelbyus.com Ltd., 299 F.3d 657, 661
(7th Cir. 2002). A district court may also “take judicial notice of matters of public record”
without converting a motion to dismiss into a motion for summary judgment. See Henson v.
CSC Credit Servs., 29 F.3d 280, 284 (7th Cir. 1994) (internal quotation marks omitted). To
decide this motion to dismiss, the Court has considered the stock certificates issued
pursuant to the stock purchasing agreements as well as the three amendments to the stock
purchasing agreements, see R. 39-3, Senior Preferred Stock Certificates; R. 39-2, First
Amendment; R. 39-4, Second Amendment; R. 39-5, Third Amendment, because their terms
are repeatedly referenced in the amended complaint, see Am. Compl. ¶¶ 9-12, 18, 22-23, 29,
56, 61-79, 102, 110, 113-114, 116, 120-22, and are central to the Plaintiffs’ claims. The
Court has not considered any other documents encompassed by the Defendants’ request,
however, because the Defendants did not provide them to the Court and because it was not
necessary to do so to decide the motion to dismiss.

3

corporations.5 See Am. Compl. ¶¶ 2, 38. They purchase mortgages originated by
private lenders and bundle them into mortgage-related securities that can be sold to
investors. Id.
B. The Housing and Economic Recovery Act of 2008
In the midst of the subprime mortgage crisis, Congress enacted the Recovery
Act. See Am. Compl. ¶¶ 4, 45. The Recovery Act created FHFA, an independent
agency with the power to supervise and regulate Fannie and Freddie. 12 U.S.C.
§ 4511. FHFA was authorized to place Fannie and Freddie into conservatorship or
receivership “for the purpose of reorganizing, rehabilitating, or winding up the[ir]
affairs.” See id. § 4617(a)(2). The Recovery Act also granted Treasury “[t]emporary”
authority to “purchase any obligations and other securities issued by” Fannie and
Freddie “on such terms and conditions as the Secretary [of Treasury] may
determine and in such amounts as the Secretary may determine.” Id. § 1455(l)(1)(A)
(Freddie Mac); id. § 1719(g)(1)(A) (Fannie Mae). Treasury’s temporary purchasing
authority expired on December 31, 2009. 12 U.S.C. § 1455(l)(4) (Freddie Mac); id. §
1719(g)(4) (Fannie Mae). But the Act empowers Treasury to, “at any time, exercise
any rights received in connection” with purchases completed before December 31,
2009. 12 U.S.C. § 1455(l)(2)(A), (D) (Freddie Mac); id. § 1719(g)(2)(A), (D) (Fannie
Mae).
The Recovery Act grants FHFA expansive general powers when acting as
conservator or receiver:
5Before

entering conservatorship, Fannie and Freddie had both issued common stock
and several series of preferred stock. Am. Compl. ¶ 40. Fischer owns Fannie and Freddie
common stock, while Roberts owns Fannie and Freddie preferred stock. Id.

4

The Agency may, as conservator or receiver—
(i) take over the assets of and operate the regulated entity with all the powers
of the shareholders, the directors, and the officers of the regulated entity and
conduct all business of the regulated entity;
(ii) collect all obligations and money due the regulated entity;
(iii) perform all functions of the regulated entity in the name of the regulated
entity which are consistent with the appointment as conservator or receiver;
(iv) preserve and conserve the assets and property of the regulated entity;
and
(v) provide by contract for assistance in fulfilling any function, activity,
action, or duty of the Agency as conservator or receiver.
12 U.S.C. § 4617(b)(2)(B). In addition, FHFA is empowered to “transfer or sell any
asset or liability of the regulated entity in default, and may do so without any
approval, assignment, or consent with respect to such transfer or sale.” Id.
§ 4617(b)(2)(G). Specific to the conservator role, FHFA “may … take such action as
may be … (i) necessary to put the regulated entity in a sound and solvent condition;
and (ii) appropriate to carry on the business of the regulated entity and preserve
and conserve the assets and property of the regulated entity.” Id. § 4617(b)(2)(D).
(As receiver, by contrast, “the Agency shall place the regulated entity in liquidation
and proceed to release upon the assets of the regulated entity in such a manner as
the Agency deems appropriate.” Id. § 4617(b)(2)(E).) With respect to either role,
FHFA “may” exercise any “incidental powers” necessary to carry out its enumerated
powers, as well as “take any action authorized by [Section 4617], which the Agency
determines is in the best interests of the regulated entity or the Agency.” Id.
§ 4617(b)(2)(J). And, upon becoming either conservator or receiver, FHFA
5

“immediately succeed[s] to … all rights, titles, powers, and privileges of the
regulated entity, and of any stockholder, officer, or director of such regulated entity
with respect to the regulated entity and the assets of the regulated entity.” Id.
§ 4617(b)(2)(A).
In addition to giving FHFA those broad powers, the Act limits external
interference with FHFA’s actions as conservator or receiver. For example, the
statute specifies that when acting in either role, “the Agency shall not be subject to
the direction or supervision of any other agency of the United States or any State in
the exercise of the rights, powers, and privileges of the Agency.” 12 U.S.C.
§ 4617(a)(7). And “no court may take any action to restrain or affect the exercise of
powers or functions of the Agency as a conservator or a receiver.” Id. § 4617(f).
C. Factual Background
On September 6, 2008—despite statements made by government officials
suggesting that the companies were financially healthy, Am. Compl. ¶ 42—FHFA
placed Fannie and Freddie into conservatorship. Id. ¶¶ 7, 52. The Plaintiffs claim
that, at that point in time, neither Fannie nor Freddie were in financial distress or
in danger of defaulting on their debts. Id. ¶¶ 52, 55.
The next day, Treasury exercised its statutory purchasing authority by
entering into stock purchasing agreements with FHFA, which was acting in its role
as Fannie’s and Freddie’s conservator. Am. Compl. ¶¶ 9, 56-57. Under the stock
purchasing agreements, Treasury committed to provide each company up to $100
billion to ensure that both maintained a positive net worth. Id. ¶ 61. In exchange for

6

the capital infusion, Treasury received one million senior preferred shares in each
company, as well as warrants to purchase 79.9% of their common stock. Id. ¶ 62.
The senior preferred shares entitled Treasury to (1) a one-billion-dollar liquidation
preference; (2) a dollar-for-dollar increase of the liquidation preference any time
Fannie or Freddie drew upon Treasury’s funding commitment; (3) quarterly
dividends that Fannie or Freddie could pay at a rate of 10% of the liquidation
preference or by increasing the liquidation preference by 12%; and (4) a quarterly
periodic commitment fee.6 Id. ¶¶ 63, 65, 72. The stock purchase agreements also
contained a variety of covenants constraining the companies’ (and FHFA’s) actions.
See id. ¶ 74. FHFA, for example, agreed not to terminate the companies’
conservatorships without the prior written consent of Treasury. Id.
In May 2009, FHFA and Treasury executed the First Amendment to the
stock

purchasing

agreements,

which

increased

Treasury’s

total

funding

commitment from $100 billion per company to $200 billion per company. Am.
Compl. ¶ 77. Then, in December 2009, FHFA and Treasury entered into the Second
Amendment, which “established a formula to allow Treasury’s total commitment to
each Company to exceed (but not fall below) $200 billion depending upon any
deficiencies experienced in 2010, 2011, and 2012, and any surplus existing as of
December 31, 2012.” Id. ¶ 79.
From the outset of the conservatorships, FHFA made assumptions about
Fannie’s and Freddie’s future financial prospects that required the companies to

6Treasury

repeatedly exercised its option under the stock purchase agreements to
waive the commitment fee. Am. Compl. ¶ 72.

7

write down the value of significant tax assets and establish large loan reserves. Am.
Compl. ¶¶ 81-83. As a result, both Fannie and Freddie reported non-cash losses
which decreased their reported net worth by hundreds of billions of dollars. Id. ¶ 81.
According to the Plaintiffs, these losses forced the companies to draw on Treasury’s
funding commitment, which thereby increased Treasury’s liquidation preference.
See id. ¶ 85. The companies also drew additional funds to pay cash dividends to
Treasury (even though they could have elected to pay the dividends by increasing
Treasury’s liquidation preference). See id. ¶¶ 14, 85. To date, Fannie and Freddie
have drawn a total of $187 billion from Treasury; around $26 billion of the total was
used to pay the cash dividends. Id. ¶ 85.
Despite the establishment of the large loan reserves and the tax-assets writedown, by 2012 Fannie and Freddie had returned to profitability (and FHFA and
Treasury were aware of this).7 Am. Compl. ¶¶ 86-89, 92-98, 101-02. Yet, in August
2012, FHFA and Treasury executed the Third Amendment to the stock purchasing
agreements. Id. ¶¶ 17, 102. The Plaintiffs allege that FHFA (as conservator) agreed
to the Third Amendment at the insistence of Treasury, and that it is part of
Treasury’s “long-term plan” to keep the companies from emerging from
conservatorship. See id. ¶¶ 103-07, 109-12, 133-34, 136, 138-40, 142-43.
The Third Amendment replaced the previous dividend formula with the
requirement that Fannie and Freddie pay quarterly dividends in the amount of
their entire net worth less a capital reserve amount that started at $3 billion and

7In

the first two quarters of 2012, the companies posted profits totaling more than
$11 billion. Am. Compl. ¶ 92.

8

will decrease to zero by January 1, 2018. Am. Compl. ¶ 113. As of the filing of the
amended complaint, the companies had paid $129 billion more under this new
dividend formula than they would have had to pay under the original dividend
formula.8 Id. ¶¶ 18, 128-29. Treasury has now recouped $245 billion, which is $58
billion more than it invested in Fannie and Freddie. Id. ¶¶ 18, 154. Dividend
payments do not pay down Treasury’s liquidation preference, so the liquidation
preference today is $189 billion. Id. ¶ 155.
D. Procedural History
The Plaintiffs brought this suit under the Administrative Procedure Act (the
APA), claiming that FHFA exceeded its conservatorship authority under the
Recovery Act by entering into certain provisions of the stock purchase agreements,
as well as by agreeing to the new dividend formula under the Third Amendment.
See Am. Compl. ¶¶ 158-69 (Count One). They also claim—only with regard to the
Third Amendment’s new dividend formula—that Treasury exceeded its temporary
purchasing authority under the Recovery Act (Count Two) and acted arbitrarily and
capriciously (Count Three). See id. ¶¶ 170-91. The Plaintiffs request declaratory and
injunctive relief, but no monetary damages. See id. ¶ 192.
The Defendants have filed a motion to dismiss under Rule 12(b)(1) for lack of
subject matter jurisdiction. See Joint Mot. to Dismiss. They assert a variety of
grounds against the amended complaint, including a threshold issue, specifically,
that judicial review of the Plaintiffs’ claims is barred by 12 U.S.C. § 4617(f), as well
8Fannie

and Freddie have elected to pay these dividends in cash, even though their
net worth includes cash and non-cash assets. Am. Compl. ¶ 147. They have funded payment
through the issuance of debt securities. Id.

9

as by 12 U.S.C. § 4623(d). The agencies also argue that the Plaintiffs lack standing
in light of a provision in the Recovery Act, 12 U.S.C. § 4617(b)(2)(A)(i); that the
Plaintiffs’ claims are time-barred; and that the Plaintiffs’ claims are barred by the
doctrine of issue preclusion. See R. 39-1, Joint Defs.’ Br.; R. 40, Treasury Defs.’ Br.;
R. 41, FHFA Defs.’ Br.
II. Standard of Review
In invoking 12 U.S.C. § 4617(f), which says that “no court may take any
action to restrain or affect the exercise of powers or functions of [FHFA] as a
conservator or a receiver,” the Defendants contend that subject matter jurisdiction
has been withdrawn over the claims in this case. Joint Defs.’ Br. at 17-19. But it is
not clear that this provision is a jurisdiction-stripping statute, rather than a meritsbased limit on the usual claims that a party might assert against a government
agency. The Supreme Court has emphasized the need to draw the line carefully
between lack of jurisdiction (which truly goes to the power of a court to hear a case)
versus lack of merit (that is, a failure to state a claim for which relief can be
granted). Practically speaking, however, it makes no difference here because the
key point is that the allegations in the amended complaint must be accepted as true
either way. Either the government is making a facial challenge to subject matter
jurisdiction, in which case the allegations must be accepted as true (plus the
Plaintiffs get the benefit of reasonable inferences), see Silha v. ACT, Inc., 807 F.3d
169, 173 (7th Cir. 2015), or the government is really arguing that Section 4617(f)
prevents the Plaintiffs from stating a claim based on the amended complaint’s

10

allegations—which again must be accepted as true, giving the Plaintiffs all
reasonable inferences. In considering a similar anti-injunction provision involving
the FDIC, 12 U.S.C. § 1821(j), the Seventh Circuit did not describe the obstacle to
suit as a jurisdictional one, but rather as an obstacle to providing a remedy in a case
over which the district court otherwise had subject matter jurisdiction, see Courtney
v. Halleran, 485 F.3d 942, 948 (7th Cir. 2007). (In a later case, the Seventh Circuit
noted that “some circuits frame Section 1821(j) as a jurisdictional inquiry,” but it
did not itself decide whether the anti-injunction provision is jurisdictional.
Veluchamy v. FDIC, 706 F.3d 810, 817 (7th Cir. 2013).) Like § 1821(j), § 4617(f) does
not use the word “jurisdiction.” And the D.C. Circuit has assumed that § 4617(f) is a
merits question, not a subject matter jurisdiction question. Perry Capital LLC v.
Mnuchin, 848 F.3d 1072, 1085-86 (D.C. Cir. 2017) (“Perry Capital (D.C. Cir.)”). This
Court also considers § 4617(f) to be a merits question, rather than a jurisdictional
one, but to repeat, it makes no practical difference in this case.
III. Analysis
The Defendants contend that 12 U.S.C. § 4617(f) prohibits the court from
providing relief for Plaintiffs’ claims. See Joint Defs.’ Br. at 17-27; Treasury Defs.’
Br. at 13-20; FHFA Defs.’ Br. at 6-9. The Court agrees.9
The Plaintiffs have brought all three counts of their amended complaint
under the Administrative Procedure Act—which generally authorizes judicial
review of agency action—but the APA provisions on which the Plaintiffs rely do not
9Because

the argument for dismissal under 12 U.S.C. § 4617(f) is independent of the
other arguments that the Defendants have offered in support of their motion to dismiss, the
Court need not address their remaining arguments.

11

apply where a substantive “statute[] preclude[s] judicial review.” 5 U.S.C.
§ 701(a)(1); see Heckler v. Chaney, 470 U.S. 821, 828 (1985). Here, § 4617(f) says
that “no court may take any action to restrain or affect the exercise of powers or
functions of [FHFA] as a conservator or a receiver.” That section no doubt is a
limitation on judicial review; the question is, how broad is that limitation?
Although the Seventh Circuit has yet to comment on the scope of § 4617(f),
that court has interpreted the nearly identical anti-injunction bar contained in the
Financial Institutions Reform Recovery and Enforcement Act. See 12 U.S.C.
§ 1821(j) (“[N]o court may take any action … to restrain or affect the exercise of
powers or functions of the [FDIC] as a conservator or a receiver.”); see also
Veluchamy, 706 F.3d at 817-18; Courtney, 485 F.3d at 946-50. When interpreting
that similar provision, the Seventh Circuit has said that 12 U.S.C. § 1821(j)
“effect[s] a sweeping ouster of courts’ power to grant equitable remedies,”
Veluchamy, 706 F.3d at 817 (internal quotation marks omitted), but only where the
agency has acted within its statutory conservatorship or receivership authority, see
Courtney, 485 F.3d at 948-49; Chem. Futures & Options, Inc. v. Resolution Trust
Corp., 832 F. Supp. 1188, 1192 (N.D. Ill. 1993). That is to say, if the agency has
acted outside its statutory authority (or, to use the legal turn of phrase, “ultra
vires”), then the anti-injunction bar in § 1821(j) will not apply. But if the FDIC acts
within its statutory authority as a conservator or receiver, then courts cannot enter
orders to restrain or affect the FDIC’s conservatorship or receivership. This
interpretation should apply to the virtually identical statutory text in § 4617(f),

12

which is the Recovery Act’s version of the anti-injunction bar. See Merrill Lynch,
Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 85 (2006) (“[W]hen judicial
interpretations have settled the meaning of an existing statutory provision,
repetition of the same language in a new statute indicates, as a general matter, the
intent to incorporate its … judicial interpretations as well.” (internal quotation
marks omitted)).
Although the Seventh Circuit has not yet interpreted § 4617(f), federal courts
in other circuits have. See, e.g., Cty. of Sonoma v. Fed. Hous. Fin. Agency, 710 F.3d
987, 992-95 (9th Cir. 2013); Leon Cty. v. Fed. Hous. Fin. Agency, 700 F.3d 1273,
1276-79 (11th Cir. 2012); Town of Babylon v. Fed. Hous. Fin. Agency, 699 F.3d 221,
227-28 (2d Cir. 2012). Indeed, some cases from other circuits have dealt with nearly
identical claims brought by Fannie and Freddie shareholders against FHFA and
Treasury. See Perry Capital (D.C. Cir.), 848 F.3d at 1086-97; Robinson v. Fed. Hous.
Fin. Agency, 2016 WL 4726555, at *3-8 (E.D. Ky. Sept. 9, 2016); Perry Capital LLC
v. Lew, 70 F. Supp. 3d 208, 219-229 (D.D.C. 2014) (“Perry Capital (D.D.C.)”), aff’d in
part, rev’d in part sub nom. Perry Capital (D.C. Cir.), 848 F.3d 1072.10 What the
Seventh Circuit has said for the FDIC in applying § 1821(j), courts have said for
FHFA and the Treasury Department in applying § 4617(f). See Perry Capital (D.C.
Cir.), 848 F.3d at 1086-87; Cty. of Sonoma, 710 F.3d at 992; Leon Cty., 700 F.3d at
1278; Town of Babylon, 699 F.3d at 227-28; Robinson, 2016 WL 4726555, at *3-4;
Perry Capital (D.D.C.), 70 F. Supp. 3d at 220, 222.
10As

out-of-circuit (and, for two of the three, district court) decisions, Perry Capital
(D.C. Cir.), Perry Capital (D.D.C.), and Robinson are not binding on this Court. But they
are well-reasoned and persuasive in interpreting § 4617(f).

13

Because the Plaintiffs in this case seek only equitable relief, their claims
must be dismissed unless FHFA acted beyond the scope of its powers as
conservator. And whether FHFA acted beyond the scope of its powers depends, in
part, on whether Treasury acted within the scope of its statutory purchase
authority. For if Treasury entered into the Third Amendment in contravention of
the Recovery Act, “then FHFA is functionally complicit in its counterparty’s
misconduct,” and Treasury’s ultra vires conduct is imputed to FHFA. See Perry
Capital (D.D.C.), 70 F. Supp. 3d at 222; see also Robinson, 2016 WL 4726555, at *3
n.1 (“The Court recognizes that FHFA might also be subject to suit if Treasury
exceeded its statutory authority in executing the Third Amendment.”). But if
neither Treasury nor FHFA acted outside their respective grants of authority, then
§ 4617(f) bars this lawsuit.
The Plaintiffs argue that § 4617(f) only bars claims for equitable relief
against FHFA—so it cannot be used in this case to dismiss the claims against
Treasury. It is true that, in limiting court action, the specific government agency
referred to in § 4617(f) is FHFA. But the breadth of the ban is not so cramped as the
Plaintiffs allege. Instead of disabling courts from entering orders directed at FHFA
and only FHFA, the statutory text goes further: courts can take no “action” that
would “restrain”—or even “affect”—“the exercise of powers or functions of” FHFA as
a conservator. 12 U.S.C. § 4617(f) (emphasis added). So it is not just FHFA that is
off limits, but also any court order that would affect the exercise of FHFA’s powers
or functions.

14

Here, the Plaintiffs’ prayer for relief seeks, among other things, a declaration
that the new dividend formula from the Third Amendment is invalid; an injunction
returning dividend payments made according to the new formula to Fannie and
Freddie; an injunction preventing Treasury from implementing the new formula;
and vacatur of the Third Amendment. See Am. Compl. ¶ 192. All of these requests
for relief would “restrain or affect” the exercise of FHFA’s powers as conservator.
Impeding the enforcement of the Third Amendment “affect[s]” FHFA’s ability to
“conduct all business” for the companies, 12 U.S.C. § 4617(b)(2)(B)(i), enter into
contracts on their behalf, id. § 4617(b)(2)(B)(v), and “take any action authorized by
[§ 4617], which [FHFA has] determine[d] is in the best interests of the [companies]
or [FHFA],” id. § 4617(b)(2)(J)(ii). And because FHFA is a party to the Third
Amendment, granting the requested relief against Treasury also “would have just
as direct and immediate an effect as if the injunction operated directly on FHFA.”
Perry Capital (D.C. Cir.), 848 F.3d at 1096. It takes two to tango, and undoing one
side of the Third Amendment against Treasury necessarily affects FHFA, which is,
after all, the other party to the Third Amendment. So § 4617(f) can operate to bar
claims against Treasury, so long as FHFA and Treasury acted within their legal
authority.
One final point before turning to whether the Plaintiffs have sufficiently
alleged that either FHFA or Treasury acted outside the scope of its authority. When
considering whether FHFA or Treasury has acted ultra vires, the agencies’ motives

15

are irrelevant.11 See Perry Capital (D.C. Cir.), 848 F.3d at 1093 (“[F]or purposes of
applying Section 4617(f)’s strict limitation on judicial relief, allegations of motive
are neither here or there….”); Cty. of Sonoma, 710 F.3d at 993 (“[I]t is not our place
to substitute our judgment for FHFA’s….”); Cont’l W. Ins. Co. v. Fed. Hous. Fin.
Agency, 83 F. Supp. 3d 828, 840 n.6 (S.D. Iowa 2015) (“[I]t is not the role of this
Court to wade into the merits or motives of FHFA and Treasury’s actions—rather
the Court is limited to reviewing those actions on their face and determining if they
were permissible under the authority granted by the [Recovery Act].”); Perry
Capital (D.D.C.), 70 F. Supp. 3d at 226 (“FHFA’s underlying motives or opinions …
do not matter for the purposes of § 4617(f).”); see also Robinson, 2016 WL 4726555,
at *6-7; cf. Gross v. Bell Sav. Bank PA SA, 974 F.2d 403, 408 (3d Cir. 1992) (holding
with respect to 12 U.S.C. § 1821(j) that “the availability of injunctive relief does not
hinge on [the court’s] view of the proper exercise of otherwise-legitimate power”).
Section 4617(f) prohibits courts from restraining the “exercise of [FHFA’s] powers or
functions”—it makes no exception for instances when FHFA supposedly had an
improper motive but acted within its authority. Nothing in the Recovery Act limits
FHFA to exercising its powers only when it has proper “motives,” as the Plaintiffs
seem to think. Nor must FHFA act with a motive that exclusively favors the
interests of Fannie or Freddie. Instead, the Recovery Act permits FHFA to “take
11The

Plaintiffs cite Leon County v. Federal Housing Finance Agency, 700 F.3d 1273
(11th Cir. 2012), as supporting the proposition that FHFA’s “purpose” might be relevant to
whether it acted within the scope of its statutory authority. R. 46, Pls.’ Resp. Br. at 22. But
Leon County says that a court should consider purpose (among other things) when
determining whether FHFA took a particular action as a conservator or as a regulator, see
700 F.3d at 1278, not when determining whether FHFA’s actions as a conservator were
within the scope of its statutory powers as a conservator.

16

any action authorized by [§ 4617], which the Agency determines is in the best
interests of the regulated entity or the Agency,” see 12 U.S.C. § 4617(b)(2)(J)(ii)
(emphasis added).
With the parameters of § 4617(f) in place, the Court now addresses whether
FHFA or Treasury acted outside their statutory authority.
A. FHFA
The Plaintiffs allege that FHFA exceeded its statutory authority in a variety
of ways when it entered into the Third Amendment, see Am. Compl. ¶¶ 158-68, but
their allegations can be distilled into two sets of arguments. First, they claim that
FHFA entered into the Third Amendment “at the insistence and under the direction
and supervision of Treasury” and have “cede[d] substantial control over the
operation of Fannie and Freddie in conservatorship to Treasury,” in violation of 12
U.S.C. § 4617(a)(7). Id. ¶¶ 163, 167; see also R. 46, Pls.’ Resp. Br. at 24-26. Second,
they assert that entering into the Third Amendment was “inimical” to FHFA’s core
mandates as conservator, in particular its statutory obligations to “put the
[companies] in a sound and solvent condition,” 12 U.S.C. § 4617(b)(2)(D)(i), and to
“preserve and conserve [their] assets and property,” id. § 4617(b)(2)(D)(ii). Am.
Compl. ¶¶ 160-62, 165-66, 168; Pls.’ Resp. Br. at 27-35. Neither of these arguments
has merit.

17

1. Section 4617(a)(7): Other-Agency Direction
The Plaintiffs first argue that FHFA’s interactions with Treasury run afoul of
12 U.S.C. § 4617(a)(7). Section 4617(a)(7) says that FHFA, “[w]hen acting as
conservator or receiver … shall not be subject to the direction or supervision of any
other agency of the United States or any State in the exercise of the rights, powers,
and privileges of the agency.” The Plaintiffs believe that FHFA violated this
provision in two ways: (1) FHFA “subject[ed] itself to Treasury’s will” when it
entered into the Third Amendment, and (2) FHFA ceded “extraordinary control”
over the companies’ operation when it entered into the stock purchase agreements
(a fact that was exacerbated by the Third Amendment). Pls.’ Resp. Br. at 24-25. But
other than making the conclusory allegation that Treasury had a long-term plan to
“seize” Fannie and Freddie for the “exclusive benefit” of the federal government, see
Am. Compl. ¶ 133, the Plaintiffs have alleged no facts from which it can be
reasonably inferred that something like that actually happened. At most, on the
facts alleged, Treasury came up with the idea for the new dividend formula in the
Third Amendment and proposed it to FHFA. Formulating a plan and proposing it to
FHFA does not mean that Treasury was subjecting FHFA to its “direction” or
“supervision.” As the district court pointed out in Perry Capital (D.D.C.),
“[u]ndoubtedly, many negotiations arise from one party conjuring up an idea, and
then bringing their proposal to the other party.” 70 F. Supp. 3d at 227. FHFA
simply did not, on the facts alleged, violate § 4617(a)(7) by entering into the Third
Amendment.

18

Nor did it violate § 4617(a)(7) by entering into the stock purchase
agreements. The Plaintiffs point out that the agreements contain covenants
prohibiting FHFA from taking certain actions with respect to the companies
without the prior written consent of Treasury. See Am. Compl. ¶ 74. This might be
problematic—except that Treasury’s actions were contemplated by the Recovery Act
itself. At the same time that Congress enacted § 4617(a)(7), it authorized Treasury
to purchase securities from Fannie and Freddie “on such terms and conditions as
the Secretary [of Treasury] may determine.” 12 U.S.C. §§ 1455(l)(1)(A),
1719(g)(1)(A). In doing so, it made clear that Fannie and Freddie could not be forced
to issue securities “without mutual agreement” between the companies and
Treasury. Id. (“Nothing in this subsection requires the corporation to issue
obligations or securities to the Secretary without mutual agreement between the
Secretary and the corporation.”). Sections 1455(l)(1)(A) and 1719(g)(1)(A) must be
read in harmony with Section 4617(a)(7). See FDA v. Brown & Williamson Tobacco
Corp., 529 U.S. 120, 133 (2000) (“It is a fundamental canon of statutory construction
that the words of a statute must be read in their context and with a view to their
place in the overall statutory scheme. A court must therefore interpret the statute
as a symmetrical and coherent regulatory scheme, and fit, if possible, all parts into
an harmonious whole.” (internal quotation marks and citations omitted)). Together,
the provisions protect FHFA (in its role as conservator for the companies) from
being subject to Treasury’s supervision and direction against FHFA’s will, but they

19

do not prevent FHFA from voluntarily entering into to a purchase agreement that
gives Treasury a say in decisions that would impact Treasury’s investment.
2. Conservator Duties
Contrary to the Plaintiffs’ arguments, Pls.’ Resp. Br. at 16, FHFA did not
violate any “core statutory mandates” as conservator—largely because these
mandates do not exist, at least not as the Plaintiffs have alleged. The Plaintiffs say
that, by using the term “conservatorship,” Congress injected longstanding,
preexisting conservatorship principles into the Recovery Act. See id. at 27. It is true
that courts presume that where a well-established term has been used in a statute,
Congress intended that term to have its customary meaning. McDermott Int’l, Inc.
v. Wilander, 498 U.S. 337, 342 (1991). But this presumption does not apply where
Congress has employed the term in a fashion that contravenes that established
meaning. See id. And here Congress did not set up a typical conservatorship. This is
best evidenced by the fact that FHFA is empowered, in its role as conservator, to act
in its own best interests. See 12 U.S.C. § 4617(b)(2)(J)(ii). As a result, the ordinary
understanding of a conservator is irrelevant to whether FHFA acted outside the
bounds of its statutory authority, and the Court must look to the statute’s text to
determine the scope of the agency’s powers and responsibilities as conservator.
Section 4617(b)(2)(D) says that FHFA “may, as conservator, take such action
as may be— (i) necessary to put the regulated entity in a sound and solvent
condition; and (ii) appropriate to carry on the business of the regulated entity and
preserve and conserve the assets and property of the regulated entity.” 12 U.S.C.

20

§ 4617(b)(2)(D) (emphasis added). The Plaintiffs maintain that these are
“obligations” that FHFA contravened by entering into the Third Amendment. See
Pls.’ Resp. Br. at 30. But § 4617(b)(2)(D) uses the permissive term “may,” not the
compulsory term “shall,” which makes the actions listed discretionary rather than
obligatory. The structure of the statute supports this interpretation. Section
4617(b)(2)(D) is entitled “Powers as conservator,” and it is nestled under the
heading “General powers.” 12 U.S.C. § 4617(b)(2). Both of these headings fall under
the subsection setting forth “Powers and duties of the Agency as conservator or
receiver.” Id. § 4617(b). The differences between the three provision headings
suggests that (1) “powers” are different than “duties,” and (2) § 4617(b)(2)(D) grants
power in lieu of creating a duty. Ultimately, FHFA cannot be said to have violated a
duty that did not exist.
Even if § 4617(b)(2)(D) required FHFA to take action to put Fannie and
Freddie in a “sound and solvent condition” and to “preserve and conserve” their
assets and property—to the exclusion of other interests—the agency still did not act
ultra vires. The Plaintiffs admit that, under FHFA’s conservatorship, the companies
have returned to profitability. Am. Compl. ¶ 18. And Treasury’s funding
commitment guarantees that Fannie and Freddie will remain solvent. See id. ¶ 61
(noting that the purpose of Treasury’s commitment was to ensure that the
companies maintain a positive net worth). What’s more, nothing in the Act says
that FHFA must preserve and conserve assets in order to guarantee that the
companies can pay dividends to non-Treasury shareholders or can return to private

21

control. See Perry Capital (D.C. Cir.), 848 F.3d at 1090. Indeed, FHFA can operate
the companies as a conservator in anticipation of moving onto receivership. See 12
U.S.C. § 4617(a)(4)(D). All told, the Plaintiffs have not sufficiently alleged that
FHFA acted outside the bounds of its statutory authority.12
B. Treasury Department
Lastly, the Plaintiffs allege that Treasury exceeded its statutory purchase
authority when it entered into the Third Amendment because (1) its purchase
authority had expired; and (2) it disregarded its fiduciary duties to the companies’
minority shareholders. See Pls.’ Resp. Br. at 46-53. Neither of these arguments have
merit. There is zero hint in the Recovery Act, or anywhere else, that Congress
intended for state-law-type fiduciary duties to apply to Treasury in the exercise of
its Recovery Act purchase authority. See Robinson, 2016 WL 4726555, at *4 n.3.
And the Third Amendment was an exercise of rights received in connection with
securities it had purchased before its purchase authority expired, see 12 U.S.C.
§ 1455(1)(2)(A), (D); id. § 1719(g)(2)(A), (D), not a new purchase. The previous
agreements gave Treasury (and FHFA) the right to amend the agreements at a
later date. See, e.g., R. 39-2, First Amendment at 13. And the Third Amendment
substituted one dividend obligation for another; it did not increase Treasury’s
funding commitment or entitle Treasury to new securities. See Robinson, 2016 WL

12For

the same reasons that FHFA did not violate any core mandates as conservator
when it entered into the Third Amendment, FHFA did not act ultra vires with respect to
those aspects of the stock purchase agreements that the Plaintiffs say were exacerbated by
the Third Amendment.

22

4726555, at *4; Perry Capital (D.D.C.), 70 F. Supp. 3d at 224. No new purchase
occurred.
In sum, under the facts alleged, neither FHFA nor Treasury acted outside the
scope of its authority under the Recovery Act.13 Section 4617(f) bars this court from
granting relief for the Plaintiffs’ claims, and the Defendants’ motion to dismiss is
granted.
IV. Conclusion
For the reasons discussed, the Plaintiffs’ amended complaint is dismissed.
The dismissal is with prejudice because the Plaintiffs’ have already amended the
complaint and they offer no additional possible amendments to get around the bar
of Section 4617(f). A separate judgment shall be entered, and the status hearing of
April 4, 2017 is vacated.

ENTERED:

s/Edmond E. Chang
Honorable Edmond E. Chang
United States District Judge
DATE: March 20, 2017

13The

Defendants also argue that subsequent legislation by Congress has impliedly
endorsed the Third Amendment. See Treasury Defs.’ Br. at 18-20; FHFA Defs.’ Br. 6-9. In
light of the Court’s holding, there is no need to investigate this post-enactment legislative
history, nor offer a conclusion on the value (if any) of appropriations bills as evidence of
congressional approval of agency action.

23