Sisti v. Federal Housing Finance Agency et al

Filing 39

MEMORANDUM AND ORDER denying 27 Motion for Judgment on the Pleadings - So Ordered by District Judge John J. McConnell, Jr. on 8/2/2018. (Barletta, Barbara)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
)

JUDITH A. SISTI,
Plaintiff,

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)
)
)
)

v.

FEDERAL HOUSING FINANCE
AGENCY, FEDERAL HOME LOAN
"MORTGAGE CORPORATION, and
NATIONSTAR MORTGAGE, LLC,
Defendants.

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)
)
)
)

C.A. No. 17·005-JJM·LDA

--------------~)
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CYNTHIA BOSS,
Plaintiff,

)
)
)
)
)

v.

FEDERAL HOUSING FINANCE
AGENCY and FEDERAL NATIONAL
MORTGAGE ASSOCIATION,
Defendants.

C.A. No. 17-042-JJM-LDA

)
)
)
)

_________________________ )

MEMORANDUM AND ORDER
JOHN J. MCCONNELL, JR., United States District Judge.
'fhe Plaintiffs in these cases seek a ruling that Defendants Federal Housing
Finance Agency ("FHFA"), Federal National Mortgage Association ("Fannie Mae"),
and Federal Home Loan Mortgage Corporation ("Freddie rviac") are government
actors, and thus, violated the Plaintiffs' Fifth Amendment due process rights when
they conducted non-judicial foreclosures on the Plaintiffs' homes. The Defendants
have moved for judgment on the pleadings. For the following reasons, their motions
are DENIED.

I.

BACKGROUND
Because the Defendants have moved for judgment on the pleadings, the Court

accepts as true the well-pleaded facts from the Amended Complaints and draws all
reasonable inferences in the Plaintiffs' favor. Doe v. Brown Univ., --- F.3d ----, 2018
WL 3454469, at *1 (1st Cir. July 18, 2018).
A.

Fannie Mae, Freddie Mac, and FHFA

During the subprime mortgage crisis, Congress passed the Housing and
Economic Recovery Act of 2008 ("HERA"), 12 U.S.C. § 4501 et seq., creating FHFA
and empowering it to supervise and regulate Fannie Mae and Freddie :Mac
(collectively, the "government-sponsored enterprises" or "GSEs").

HERA also

empowered FHFA to place the GSEs into conservatorship or receivership "for the
purpose of reorganizing, rehabilitating, or winding up the affairs" of the GSEs. 12
U.S.C. § 4617(a)(2). FHFA's director exercised this power in the fall of 2008 and
placed the GSEs into conservatorship.
While acting as conservator, FHFA controls all of the rights, titles, powers, and
privileges of the shareholders and boards of directors of the GSEs. FHFA elects the
entirety of both boards of directors; the shareholders do not. FHFA also determines
the boards' size and scope of authority.
FHFA controls the business activities of the GSEs, and manages them to serve
public ends. It does not manage the GSEs to maximize profitability or shareholder
returns.

FHFA prohibits the GSEs from paying any dividends to their common

shareholders.

2

There is no date certain for when the conservatorship will end, nor will it end
upon the completion or attainment of predetermined criteria.

Instead, FHFA's

director has total authority and discretion over whether its control of the GSEs will
end. I
Presently, the United States government owns all of the senior preferred stock
of the GSEs; this stock is senior in right for both dividends and liquidation to all other
preferred or common stock. The government also has warrants to purchase 79.9% of
the GSEs' common stock. The GSEs cannot issue new shares, declare dividends, or
dispose of assets without approval of the U.S. Treasury. In exchange, Fannie Mae
has received some $116 billion from the Treasury to maintain liquidity; Freddie Mac
has received some $71 billion.
Both GSEs have paid more dividends into the Treasury than they received in
the bailout: Fannie IVIae has paid approximately $151 billion and Freddie .Mac has
paid approximately $98 billion. However, under the senior preferred stock purchase
agreement, these dividend payments do not reduce the government's ownership
interest in the GSEs. The Congressional Budget Office considers payments from the
GSEs into the Treasury to be "intragovernmental payments."
The GSEs cannot redeem the senior preferred stock prior to the termination of
the government's funding commitment; that will not occur until all of the GSEs'
liabilities have been satisfied.

1 The director of FHFA can either issue an order terminating the
conservatorship, or can appoint FHFA receiver of the GSEs. If the latter action is
taken, the conservatorship ends, but FHFA would maintain control as receiver.

3

After appointing itself conservator of the GSEs, FHFA created the Servicer
Alignment Initiative ("SAl"), which directs actions taken by the GSEs' mortgage
servicers when servicing a delinquent mortgage. The SAl requires servicers of GSEowned mortgages to follow specific timelines for processing foreclosures. The SAl
directed the GSEs' servicers to use non-judicial foreclosure procedures when
foreclosing in Rhode Island.
B.

The Plaintiffs

Jtldith Sisti owned real property in North Providence, Rhode Island, subject to
a mortgage. In 1\IIay of 2012, Ms. Sisti became delinquent on her mortgage payments.
Four years later, Defendant Nationstar 1\tiortgage, LLC, 2 as agent for Freddie Mac,
conducted a foreclosure sale on lVIs. Sisti's property. Freddie Mac made the highest
bid, and Nationstar signed and recorded a foreclosure deed. This was a non-judicial
foreclosure: none of the Defendants IH'ovided JVIs. Sisti the opportunity to have an
evidentiary hearing, to confront or cross-examine witnesses, to present arguments
and evidence, to be represented by counsel, or to have a neutral hearing officer
adjudicate the matter.

Following the foreclosure, Freddie Mac sought to evict

Ms. Sisti.
Cynthia Boss owned real property in Woonsocket, Rhode Island, subject to a
mortgage held by Santander Bank.3

Santander Bank assigned its interest in

2

Nationstar has not moved for judgment on the pleadings nor made any other
dispositive motion in 1\tis. Sisti's case.
Santander was named a Defendant in Ms. Boss' case; however, the bank was
previously dismissed by stipulation.
3

4

Ms. Boss's mortgage to Fannie Mae in 2014. In JVIarch of 2016, Fannie 1VIae conducted
a foreclosure sale on lVIs. Boss's property in which Fannie Mae made the highest bid.
Following the sale, Fannie Mae and Santander signed and recorded a foreclosure
deed. Just like 1Vls. Sisti, lVIs. Boss did not have the opportunity to be heard, confront
and cross witnesses, present arguments and evidence, have counsel, or have a neutral
decisionmaker during her foreclosure proceedings. Fannie Mae has sued in state
court to evict JVIs. Boss.
Seeking to prevent their evictions, Ms. Sisti sued FHFA, Freddie Mac, and
Nationstm·; I'vls. Boss sued FHFA, Fannie Mae, and Santander. Plaintiffs allege that
FHFA, Fannie Mae, and Freddie Mac are government entities, and as such, that they
deprived the Plaintiffs of due process by conducting non-judicial foreclosures. FHFA,
Fannie Mae, and Freddie JVIac have moved for judgment on the pleadings. Because
these cases present the same legal issues, the Court consolidated them for oral
argument and disposition of the motions:1
II.

STANDARD OF REVIEW
Federal Rule of Civil Procedure 12(c) allows a party to move for judgment on

the pleadings.

"A motion for judgment on the pleadings bears a strong family

resemblance to a motion to dismiss under Federal Rule of Civil Procedure 12(b)(G),
and these two types of motions are treated in much the same way." IL:,wdo v. R.l

"In addition, both Plaintiffs are represented by the same attorney, and FHFA,
Fannie IVIae, and Freddie lVIac are represented by the same counsel. 'rhe briefs filed
in both cases are nearly identical. For purposes of this motion, the only difference is
that Ms. Sisti has sued Freddie Mac whereas Ms. Boss has sued Fannie Mae.
5

State Ed. of Elections, 880 F.3cl 53, 58 (1st Cir. 2018). "[A] 'court may not grant a
defendant's Rule 12(c) motion "unless it appears beyond doubt that the plaintiff can
prove no set of facts in support of his claim which would entitle him to relief."'" Curran

v. Cousins, 509 F.3d 36, 43 (1st Cir. 2007) (quoting RiveJ"c:'1-Gomez v. de Castro, 843
F.2d 631, 635 (1st Cir. 1988)).
III.

DISCUSSION
The Court begins by briefly addressing the relevant case law. 1'he Court next

examines the claims as to Fannie Mae and Freddie Mac. Finally, the Court turns its
analysis to FHFA as the conservator of the GSEs.

A.

The relevant case law

The Court holds that the Plaintiffs can prove that the GSEs and FHFA·asconservator are government actors, and thus, can prove that the Defendants denied
Plaintiffs due process by conducting non-judicial foreclosures. This Court is aware
that this holding is contrary to every other court to reach the issue. Numerous district
courts, as well as the Sixth and D.C. Circuits, have concluded that the Defendants
are not government actors for purposes of constitutional claims-a fact the
Defendants emphasized throughout their briefing and at oral argument (as well they
should have). See, e.g:, Defs.' Reply at 29-33 (listing decisions of other courts).
Nevertheless, none of those cases is binding on this Court; they are only
available to the Court for any persuasive value they may have. This Court, however,
is duty-bound to conduct an independent inquiry of the matter before it, bound by the
law that controls it. See D'Arezzo v. Providence Ctr., Inc., 142 F. Supp. 3d 224, 22829 (D.R.I. 2015). In so doing, the Court is not persuaded by the reasoning of prior
6

cases~cliscussecl

more below-and instead concludes that the Defendants can be

found to be government actors.
B.

The Plaintiffs can prove that Fannie Mae and Freddie Mac are
government actors fo1· purposes of constitutional claims.

The starting point for the Court's analysis is LebTon v. National RailToad

Passenger ColJJ., 513 U.S. 374 (1995). In Lebron, the United States Supreme Court
announced that, where "the Government [1] creates a corporation by special law, [2]
for the furtherance of governmental objectives, and [3] retains for itself permanent
authority to appoint a majority of the directors of that corporation," then the
corporation is "part of the Government" for constitutional claims. I d. at 400.

Lebron involved a challenge to Amtrak's refusal to display a billboard; the
plaintiff argued that Amtrak was a government entity, and therefore, that it violated
the First and Fifth Amendments in rejecting the advertisement. Id. at 377. Amtrak,
however, argued that Congress had explicitly declared it to not be a government
entity, and that that language controlled. Id. at 392. The Court rejected Amtrak's
arguments, holding that "[i]t is not for Congress to make the final determination of
Amtrak's status as a Government entity for purposes of determining the
constitutional rights of citizens affected by its actions." Id. To allow Congress to
determine whether the Constitution applied to a government·createcl entity would
allow the government "to evade the most solemn obligations imposed in the
Constitution by simply resorting to the corporate form."

I d. at 397.

The Court

explained, "[o]n that thesis, Plessy v. Fe1·guson, 163 U.S. 537 (1896), can be
resurrected by the simple device of having the State of Louisiana operate segregated

7

trains through a state·owned Amtrak." Leb1·on, 513 U.S. at 397; see also id. at 39293 ("The Constitution constrains governmental action 'by whatever instruments or in
whatever modes that action may be taken.' And under whatever congressional label."
(quoting Ex parte Virginia, 100 U.S. 339, 346-47 (1880))).
Turning its analysis to whether Amtrak was in fact a government actor, the

Lebron Court noted that "Amtrak is not merely in the temporary control of the
Government (as a private corporation whose stock comes into federal ownership
might be); it is established and organized under federal law for the very purpose of
pursuing federal governmental objectives, under the direction and control of federal
governmental appointees." Id at 398. The Court then noted that, despite a history
of treating the government as any other shareholder when it acquires interest in a
corporation, see id. at 398-99, this treatment did not necessarily follow where "the
State has specifically created that corporation for the furtherance of governmental
objectives, and not merely holds some shares but controls the operation of tl1e

corporation through its appointees." Lebron, 513 U.S. at 399 (emphasis added).
The LebTon Court next recounted its decision in the Regional Rml

Reorganization Act Cases, 419 U.S. 102 (1974), where the Court distinguished
Amtrak from Conrail, noting that the latter was not a federal instrumentality. 513
U.S. at 399. It reached this conclusion despite the government having the power to
appoint the majority of Conrail's directors because it had a provision automatically
terminating government control: "[f]ull voting control" would revert to Conrail
shareholders if federal obligations fell below fifty percent of the railroad's

8

indebtedness. Id. (alteration in original) (quoting Reg'/ Rail, 419 U.S. at 152); see

also id. (also relying on the fact that Conrail's directors were required to operate the
entity for private purposes).
Twenty years later, the Supreme Court decided Department ofTi·a11sportation

v. Associatio11 of American Raj}roads, 135 S. Ct. 1225 (2015), in which the Court
reaffirmed Lebron and held that Amtrak, as a government entity, could
constitutionally be granted regulatory power under the Passenger Rail Investment
and Improvement Act of 2008. Id. at 1229-30, 1233. In so holding, the Court rejected
Congress's pronouncement that Amtrak was a private company, and thus, exempt
from constitutional obligations. Id. at 1231. The Court reiterated that, "[t]o hold
otherwise would allow the Government 'to evade the most solemn obligations imposed
in the Constitution by simply resorting to the corporate form."' Id. at 1233 (quoting

Lcbl'on, 513 U.S. at 397); see also Yeo v. Town ofLexington, 131 F.3d 241, 253 (1st
Cir. 1997) (en bane) (citing Lebron and noting that a "statute cannot be determinative
of the outcome of the federal constitutional question").

The Supremo Court

emphasized that, "Lebron teaches that, for purposes of [an entity's] status as a federal
actor or instrumentality under the Constitution, the practical reality of federal
control and supervision prevails over Congress' disclaimer of [the entity's]
governmental status." Ass]J of Am. R.Rs., 135 S. Ct. at 1233; see also Barrios-

Velc1zquez v. Asociaci6n de Empleades del Estado Libl'e Asociado de P.R., 84 F. 3d 48 7,
492 (1st Cir. 1996) ("The Supreme Court in LebTon focused on the degree of control
that the federal government had over Amtrak").

9

Both Plaintiffs and Defendants agree that Lebron's three·part test controls
\vhether Fannie 1VIae and Freddie :rviac are government entities. The parties do not
dispute that the first two prongs are satisfied, and the Court accepts at this stage of
the litigation the Plaintiffs' factual allegation that FHFA currently has authority to
appoint a majority of the Fannie Mae and Freddie Mac boards. The only disputed
issue is whether the govenunent has retained "permanent authority" to make these
appointments. Lebron, 513 U.S. at 400.
Plaintiffs argue that HERA gave FHFA complete and total control over Fannie
Mae and Freddie :Mac, and that this authority will continue uninterrupted until the
government decides to end conservatorship (if, indeed, it ever does), rendering
government control effectively permanent. The Defendants, however, argue that
HERA gives FHFA indefz1n'te, but not permanent, control over the GSEs, and that

Lebron implies that any form of government control short of a statutory grant of
power is merely temporary.
The no1rcontrolling precedent to date, alluded to above in section III.A, has
followed the Defendants' line of argument. See, e.g:, Herron v. Fannie l.fae (Hm'l'on

I]), 8Gl F.3d lGO, 1G9 (D.C. Cir. 2017); llhk v. Fi·eddie Jlfac, 743 F.3d 149, 168 (Gth
Cir. 2014); Haney v. Fannie llfae, No. 1G·cv·0129G, 2017

vn. 1404103, at *5 (D. Colo.

Iviar. 9, 2017); see also Defs.' Reply at 29-33 (listing decisions of other courts).
Numerous though the decisions may be, all of the opinions share a similar logic-----one
that does not persuade this Court.

10

Nearly every case cited by Defendants relies on Herron v. Fannie 111ae (HeTron
}), 857 F. Supp. 2d 87 (D.D.C. 2012). 5 In finding that government control was not
"permanent," that court relied principally on the statutory purpose for the
conservatorship: "reorganizing, rehabilitating, or winding up" the affairs of the GSEs.

Id. at 95 (citing 12 U.S.C. § 4617(a)(2)). The Hen·on I court concluded based on this
statutory purpose that "the enabling statute expressly allows FHFA temporary but
complete control over Fannie Mae, not permanent control." Id In affirming, the D.C.
Circuit agreed, noting that the statutory language served "an inherently temporary
purpose." Herron II, 861 F.3d at 169 (quoting Rubin v. R'wnie Mae, 587 F. App'x 273,
275 (6th Cir. 2014)). The Defendants urge this Court to follow a similar line of
reasomng.
But the Court cannot defer to a congressional declaration that serves to
disclaim the constitutional obligations of a government-created entity. See Ass'n of

Am. R.Rs., 135 S. Ct. at 1233; Lebron, 513 U.S. at 392; Yeo, 131 F.3cl at 253. To be
sure, § 4617(a)(2) does not explicitly disclaim the GSEs' status as federal entities as
Amtrak's charter does. See Lebron, 513 U.S. at 391. But its language still has the
same effect-under Lebron, "permanent" government control is required, and here

5 All but two cases cited by Defendants rely explicitly on Herron I or cite cases
that rely on HelTon l The two cases that do not cite Herron I at all have other
analytical flaws. See Fannie 111ae v. Lema1i·e, No. 12-11479, 2012 WL 12930829, at
*2 (E.D. Mich. Dec. 20, 2012) (conclusory statement that, under Lebron, Fannie Mae
is "not a government actor for constitutional purposes"); Ljekocevic v. CitDVfortgage,
No. 11-14403, 2012 \'VL 5379571, at *4 (E.D. Mich. Sept. 25, 2012) (relying on two
pre-conservatorship cases to hold that post-conservatorship Freddie Mac is not a
government actor for constitutional purposes).

11

Congress is disclaiming permanent control. Id. at 400. If the Court were to accept
this at face value, it would be dispositive of Lebron's permanency requirement and
would give the government authority to "evade the most solemn obligations imposed
in the Constitution" by taking control of corporations through "temporary"
conservatorships. Id. at 397; see also Ass11 ofAm. R.Rs., 135 S. Ct. at 1234 (Ali to, J .,
concurring) (warning of the danger of government action veiled as private action and
cautioning that "a vital constitutional principle must not be forgotten: Liberty
requires accountability"). For these reasons, the Supreme Court has held that "for
purposes of [an entity's] status as a federal actor or instrumentality under the
Constitution, the practical reali~y of fedel'al control and supervision prevails over
Congress' disclaimer of [the entity's] governmental status." Ass11 ofAm. R.Rs., 135
S. Ct. at 1233 (emphasis added). 6
The practical reality here is that the government effectively controls Fannie
1VIae and Freddie IVIac permanently. The government appoints all of the members of
the GSEs' boards of directors and controls every operational aspect of the entities. It
owns all of the GSEs' senior preferred stock and owns warrants to purchase 79.9% of
their common stock. The government does not allow the GSEs to pay dividends to
shareholders; rather, they must be paid directly into the U.S. Treasury. Indeed, to

Plaintiffs argue that Association ofAmen·can Raj}roads dispensed with the
permanency requirement set forth in Lebron. The Court disagrees. Courts generally
do not overturn precedent by implication. HelTon II, 861 F.3cl at 168. Rather, this
Court reads Association of Amel'ican Railroads as requiring courts to examine the
"practical reality of federal control and supervision" in applying the Lebron test,
including in determining whether government control is permanent. 135 S. Ct. at
1233.
6

12

date the GSEs have paid more into the Treasury than they received in the 2008
bailout.
But perhaps most important is the unchecked control the government has over
the duration of its total takeover of the GSEs.

Absent an act of Congress, the

conservatorship will only end in one of two ways: the director of FHFA can decide to
end the conservatorship, or it can appoint FHFA receiver, whereupon FHFA will
retain control of the GSEs as receiver.

Either way, the decision to end the

conservatorship is left entirely to the discretion of the government. This is "worlds
apart" from other scenarios in which the Supreme Court has found or suggested
government control is only temporary. See Reg'l Rail, 419 U.S. at 152 (provision
automatically terminating government control); Lebron, 513 U.S. at 398 (government
ownership of private corporation's stock where corporation not organized under
federal la\V for public purpose). 7 rl'he practical reality, then, is that the government
can control Fannie !viae and Freddie :rviac in perpetuity, even though Congress
authorized a facially temporary conservatorship.

This renders the government's

Defendants and other courts often cite dicta from Lebron for the proposition
that "a private corporation whose stock comes into federal ownership" is only in the
temporary control of the government. 513 U.S. at 398; see, e.g:, Hen·on II, 861 F. 3d
at 169; Merjdz[w h1vs., h1c. v. Fi·eddie llfc'lc, 855 F.3d 573, 579 (4th Cir. 2017). The
language, in full, reads: "Amtrak is not merely in the temporary control of the
Government (as a private corporation whose stock comes into federal ownership
might be); it is established and organized under federal law for the very purpose of
pursuing federal governmental objectives, under the direction and control of federal
governmental appointees." Lebl'on, 513 U.S. at 398. In context, then, a corporation
whose stock comes into federal ownership, established and organized under federal
law for a public purpose, under the federal direction and control, might be under
permanent government controL That was the case in Lebron, and is the case hero.
7

13

control effectively permanent, and requires Fannie Mae and Freddie Mac to be held
to "the most solemn obligations imposed in the Constitution." Lebron, 513 U.S. at
397.
In light of the foregoing, and accepting the Plaintiffs' allegations as true at this
stage, it is not "beyond doubt" that Plaintiffs cannot prove their claims against Fannie
Mae and Freddie T\1ac. See Curran, 509 F.3d at 43. Thus, those Defendants are not
entitled to juclg·ment on the pleadings.
C.

The Plaintiffs can prove that FHFA·as·conservator is a government
actor for purposes of constitutional claims.

Defendants urge the Court to conclude that FHFA, as conservator of tho GSEs,
is a private entity for constittltional claims. They rely on language in HERA that
states FHFA "shall, as conservator or receiver, and by operation of law, immediately
succeed to all rights, titles, powers, and privileges of the regulated entity, and of any
stockholder, officer, or director of such regulated entity with respect to the regulated
entity and the assets of the regulated entity." 12 U.S.C. § 4617(b)(2)(A)(i). This
language, they argue, was modeled on the Financial Institutions Reform, Recovery,
and Enforcement Act ("FIRREA''), which granted similar powers to the Federal
Deposit Insurance

Corporation

("FDIC").

Compare icl,

with

12

U.S.C.

§ 1821(cl)(2)(A)(i). And, the Defendants point out, the Supreme Court has construed
this language as "inclicat[ing] that the FDIC as receiver 'steps into the shoes' of the
failed [savings and loan]," as a private entity for state law tort claims. O~vfelveny &

J1!fyers v. FDIC, 512 U.S. 79, 86 (1994) (quoting Coit hl(/ep. Joint Venture v. Fed. Sav.
& Loan h1s. Col]J., 489 U.S. 561, 585 (1989)).

14

Plaintiffs, on the other hand, contend that 0111Ielveny has a more limited reach
than Defendants suggest, and that this Court's analysis should be guided by FDIC v.
A£eye1; 510 U.S. 471 (1994). In A1eyer, the Supreme Court addressed whether the

statutory sue·ancl·be·sued clause of the Federal Savings and Loan Insurance
Corporation ("FSLIC"), the statutory predecessor for the FDIC, waived its sovereign
immunity for the purposes of constitutional claims for actions taken as a receiver. I d.
at 481-83. The .lvfeyer Court concluded that the clause had indeed waived FSLIC's
sovereign immunity, and thus, that it was a government entity. Id. at 483; see also
id. at 486 (rejecting Bivens claim against FSLIC because "a damages remedy against

federal agencies would be inappropriate"). The Plaintiffs here argue that, because
the FDIC contains the same sue·ancl·be·sued clause, A1eyer means that the FDIC is
a government actor when acting as a receiver for constitutional claims, as only
government entities can have (and thus waive) sovereign immunity, narrowing the
breadth the Defendants give O'.AI[elven_Jls "steps into the shoes" holding.
There is merit to Plaintiffs' argument. Jl!Jeyerclirectly addressed constitutional
claims; O'A1elveny did not. And the A£eye1' holding makes little sense if O'il;Jelveny
controls when the federal agency is defending a suit alleging constitutional claims.
Accordingly, this Court does not read O'Jl!Ielvenyas requiring the Court to hold FHFA
is a private actor for constitutional claims.
Applying the logic of Meyer to this case reveals that FHFA has waived
sovereign immunity, and thus, can be considered a government actor. As the D.C.
Circuit recently explained:

15

Assuming the FHFA has sovereign immunity when it acts on behalf of
the Companies as conservator, the CongTess has waived the agency's
immunity by consenting to suit. The Congress has granted Freddie .Mac
"power ... to sue and be sued ... in any State, Federal, or other court,"
12 U.S.C. § 1452(c)(7), and has granted Fannie Mae the same "power ...
to sue and to be sued ... in any court of competent jurisdiction, State or
Federal," id. § 1723a(a). The FHFA "by operation of law []immediately
succeed[ed] to ... all ... powers" of the Companies upon its appointment
as conservator-including the Companies' power to sue and be suedunder the so-called Succession Clause of the Recovery Act. Id.
§ 4617(b)(2)(A)(i). Such a statutory grant of power to "sue and be sued"
constitutes an "unequivocally expressed" waiver of sovereign immunity.

PenT Capital LLC v. llfnuchin, 864 F.3cl 591, 622 (D.C. Cir. 2017) (alterations in
original) (citations omitted).

Because only federal entities can waive sovereign

immunity, it logically follows that FHFA·as·conservator is a government actor. 8
Furthermore, even if this Court accepted the Defendants' premise that

Ollfelveny controlled the Court's analysis, it would still reach the same conclusion.
The Oilfelveny Court held that FDIC, when acting as a receiver for a private entity,
steps into the shoes of that private entity for state law claims. This holding makes
sense given the purpose of receivership: "to preserve a company's assets, for the
benefit of creditors, in the face of bankruptcy." Brian Taylor Goldman, 17Je Indefinite

Courts in other contexts have found FHFA to be a government actor, even
when acting as conservator. See h1re Count1ywide Fin. Corp., 900 F. Supp. 2d 1055,
1066 (C.D. Cal. 2012) (in construing ambiguous statute of limitations, holding that
"FHFA is a federal agency even when acting as conservator or receiver"); FHFA v.
Royal Bank of Scot. Grp. PLC, No. 3:11-cv-01383, 2012 WL 3580522, at *4 (D. Conn.
Aug. 17, 2012) (holding that, even if FHFA steps into the shoes of a private plaintiff,
it did not convert FHFA's suit into a "private action" under the Private Securities
Litigation Reform Act); J\Tevada ex rei. Hager v. Count1ywjde Home Loans Serv., LP,
No. 3:10·cv·419, 2011 'WL 484298, at *3 (D. Nev. Feb. 4, 2011) ("[TJhe Court finds that
FHFA, as conservator for Fannie rvlae and as an intervenor in this case, is a federal
agency with the right to remove."); see also Royal Bank, 2012 vVL 3580522, at *4
(collecting cases and noting that "courts have treated federal agencies acting in their
capacities as receivers or conservators differently from private litigants").
8

16

Conservatorship ofFannie A!Iae and Freddie Jlliac is State-Action, 17 J. Bus. & Sec. L.
11, 23 (2016).

When FDIC is appointed receiver, it must dispose of the received

entity's assets, resolving obligations and claims made against the entity. ld. at 24;

see also 12 U.S.C. § 1821(d)(2)(E) (allowing FDIC·as·receiver to liquidate insured
deposit institutions); 12 U.S.C. § 4617(b)(2)(E) (allowing FHFA·as·receiver to place
GSEs in liquidation and sell assets). Notably, "[i]n receivership, the receiver owes
fiduciary duties to the creditors, which the corporation would otherwise owe to
creditors during a period of insolvency." Goldman, supra, at 24; see Golden Pac.

Banco11J v. FDIC, 375 F.3cl 196, 201 (2d Cir. 2004) ("It is undisputed that, as a
receiver, the FDIC owes a fiduciary duty to the Bank's creditors .... "). It logically
follows, then, that the receiver steps into the shoes of the private entity, because it
assumes the fiduciary duties of that entity. See 0111elvenv, 512 U.S. at 86; Goldman,

supra, at 24.
Conservatorship, in contrast, serves a different function. FHFA has described
the purpose of conservatorship is "to establish control and oversight of a company to
put it in a sound and solvent condition." Goldman, supra, at 25; accord 12 U.S.C.
§ 1821(d)(2)(D) (conservator may take action to put entity in "a sound and solvent

condition," as well as carry on entity's business and conserve assets); 12 U.S.C.
§ 4617(b)(2)(D) (same). Conservators, unlike receivers, have a fiduciary duty running

to the corporation itself.!.l Goldman, supl'c'?, at 26.

As Plaintiffs allege, the federal government controls all of the GSEs' senior
preferred stock and holds warrants to purchase up to 79.9% of the common stock.
This suffices to make the government a "dominant shareholder" with a fiduciary duty
9

17

This is "critically distinct" from the fiduciary duties owed as a receiver-the
receiver does indeed "step into the shoes" of the entity by assuming the fiduciary
duties ofthe entity, but the conservator does not: it remains distinct, and rather owes
a duty to the entity. Id. Given the difference in fiduciary duties, O'Melvenys "steps
into the shoes" holding makes sense in the context of receivership, but not in the
context of conservatorship .
To be sure, both HERA and FIRREAprovide for FHFA and FDIC, respectively,
to have the powers of conservatorship and receivership.l 0

See 12 U.S.C.

§ 4617(b)(2)(A)~(E); 12 U.S.C. § 1821(d)(2)(A)-(E). But they are different powers, and

no one disputes in this case that FHFA is indeed conservator, not receiver, of the
GSEs. See also Peny Capital LLC v. Lew, 70 F. Supp. 3d 208, 227-28 (D.D.C. 2014)
(recognizing difference between FHFA conservatorship and receivership of GSEs and
holding that FHFA is not acting as a receiver). Accordingly, then, if 01l!felveny

running to tile co1poration-a far cry from a receiver who steps into the fiduciary
duties of a failing enterprise. Goldman, supra, at 26.
10

Some of HERA's and FIRREA's provisions address conservatorship and
receivership separately, 12 U.S.C. § 4617(b)(2)(D)-(E); 12 U.S.C § 1821(cl)(2)(D)-(E),
while others address both conservatorship and receivership powers in the same
provision, 12 U.S.C. § 4617(b)(2)(A)-(C); 12 U.S.C § 1821(d)(2)(A)-(C). The language
in dispute here comes from the latter category, where the statutes state that the
federal entities "shall, as conservator, or receiver ... succeed to all rights, titles,
powers, and privileges" of the private entity. 12 U.S.C. § 4617(b)(2)(A); 12 U.S.C
§ 1821(d)(2)(A). But just because both conservatorship and receivership are, at times,
addressed in the same section does not mean that the language must be construed
the same in both contexts. This is particularly so given that other provisions give
different powers depending· on whether the federal entity is exercising
conservatorship or receivership powers; that the fiduciary duties are different, as
discussed above; and the fact that the statutes use the disjunctive "or" and not the
conjunctive "and" when addressing the different powers in the same provision.
18

controlled, this Court could not say as a matter of law that FHFA-as-conservator
"steps into the shoes" of the private entity as FDIC-as-receiver did.
In light of the foregoing, the Court cannot conclude at this stage that FHFA is
a private actor for constitutional claims while acting as conservator. Because it is not
"beyond doubt" that Plaintiffs cannot prove their claims against the agency, see

Curran, 509 F.3d at 43, FHFA is not entitled to judgment on the pleadings.
IV.

CONCLUSION
For the foregoing reasons, the Court DENIES the Defendants' motions for

judgment on the pleadings.

John J. McConnell, Jr.
United States District Judge
August 2, 2018

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