FHFA, Is or is not the United States when it acts as Conservator? We all would like to know.
JUDGE MILLETT: Right, but you can’t have it both ways, either, so if we’re going to assume —
MR. HUME: I’m pretty sure if I get it one way I’ll win.
JUDGE MILLETT: Well, that’s what I’m asking you is if you, on an applied —
MR. HUME: I only need one way to win.
JUDGE MILLETT: So —
MR. HUME: They need to have it both ways for me not to win.
See Defendant’s Motion to Dismiss at 13, Fairholme v. United States, No. 13-465 (Federal Claims. December 9, 2013) (“The Court should dismiss the complaint because courts have ruled that a Government regulatory agency – acting as conservator – is not the United States.”
- The Court Should Dismiss The Complaint Because The Complaint Is Against Actions Of The Conservator, And FHFA Is Not The United States When It Acts As Conservator
Plaintiffs allege that actions during the course of FHFA’s administration of Fannie Mae and Freddie Mac in conservatorship have taken, without just compensation, property rights in their junior preferred stock. See, e.g., Compl. ¶¶ 76-88. According to plaintiffs, FHFA’s execution of the Third Amendment, and specifically the “net worth sweep” allegedly depriving plaintiffs of dividends and a theoretical liquidation surplus, constituted a taking of shareholder rights. Id. The Court should reject plaintiffs’ contention that their claim can be pursued in this Court pursuant to the Tucker Act.
Plaintiffs’ allegations focus on FHFA’s actions as conservator and specifically on its decision to enter into the Third Amendment with Treasury. For purposes of this Court’s jurisdiction, FHFA is not the United States, and plaintiffs have no basis to challenge Treasury’s actions alone. Treasury could not have acted without FHFA, and Treasury’s act of entering into a voluntary agreement with FHFA cannot form the basis of a takings claim. Accordingly, plaintiffs’ challenge in this Court must fail.
- For Purposes Of The Tucker Act, FHFA Is Not The United States When Acting As Conservator For Fannie Mae And Freddie Mac
The Court should dismiss the complaint because courts have ruled that a Government regulatory agency – acting as conservator – is not the United States.
In addressing the question of whether FHFA is a Federal actor as a consequence of placing the Enterprises into conservatorship in 2008, the District Court for the District of Columbia recently held that “FHFA as conservator of Fannie Mae is not a government actor.” Herron v. Fannie Mae, 857 F. Supp. 2d 87, 96 (D.D.C. 2012). Other courts have reached the same conclusion in the context of the Federal Deposit Insurance Corporation (FDIC) acting as conservator or receiver of banks. See O’Melveny & Myers v. Fed. Deposit Ins. Corp., 512 U.S. 79, 85 (1994) (FDIC acting as receiver “is not the United States”); Ameristar Fin. Servicing Co. LLC v. United States, 75 Fed. Cl. 807, 812 (2007) (dismissing claim because the FDIC as conservator “was not acting as the United States”).
Here, FHFA, as conservator for two congressionally-chartered, private institutions, stands in the shoes of the Enterprises. Plaintiffs’ claims against FHFA and its actions as conservator are effectively claims against Fannie Mae and Freddie Mac – neither of which are alleged to be Government entity. This Court has jurisdiction only “to hear cases in which a plaintiff seeks just compensation for a taking under the Fifth Amendment as such a claim is ‘against the United States founded . . . upon the Constitution.’” Souders v. S.C. Pub. Serv. Auth., 497 F.3d 1303, 1307-08 (Fed. Cir. 2007). Indeed, the Fifth Amendment applies solely to Government action. “There clearly can be no taking when whatever acts complained of are those of private parties, not the government.” See Alves v. United States, 133 F.3d 1454, 1458 (Fed. Cir. 1998); 767 Third Ave. Assocs. v. United States, 48 F.3d 1575, 1580 (Fed. Cir. 1995). By suing the conservatorships, plaintiffs – the Enterprises’ shareholders – are effectively suing private corporations for the decisions of their management. Accordingly, plaintiffs’ challenge to FHFA’s actions as conservator must fail.
This case is similar to Ameristar, where plaintiff sued the FDIC under the Tucker Act for the FDIC’s actions as conservator for a failed bank. 75 Fed. Cl. at 809. The Court, relying on the Supreme Court’s O’Melveny decision and the FDIC conservatorship statute, held that the FDIC “was not acting as the United States” when it “‘stepped into the shoes’” of a bank in conservatorship. Id. at 812. The Court dismissed the complaint because Ameristar’s claims were between two non-governmental entities and the FDIC was “not the United States” for purposes of the Tucker Act. Id.
This principle applies equally to FHFA, which operates pursuant to a conservatorship statute, patterned after the FDIC statute, that authorizes FHFA to “step into the shoes” of the Enterprises. See Herron, 857 F. Supp. at 94. “Thus, like FDIC when it serves as a conservator or receiver of a private entity, FHFA when it serves as conservator ‘step[s] into the shoes’ of the private corporation.” Id.10 Because FHFA as conservator does not act as the United States, the Court should dismiss plaintiffs’ allegations insofar as the complaint challenges the actions of FHFA as conservator for entering into the Third Amendment. See Ameristar, 75 Fed. Cl. at 812; see also I.M. Frazer v. United States, 288 F.3d 1347, 1354 (Fed. Cir. 2002) (quoting O’Melveny, 512 U.S. at 85); Ambase v. United States, 61 Fed. Cl. 794, 796-97 (2004) (claim that FDIC mismanaged receivership is not a claim against the Government); AG Route Seven P’ship v. United States, 57 Fed. Cl. 521, 534 (2003) (as receiver, “the FDIC’s attendant role herein is tantamount to that of a private party and not the government per se.”).
Because plaintiffs cannot maintain their claims against FHFA, this case must be dismissed. Plaintiffs have no basis to challenge the actions of Treasury alone. FHFA decided, on behalf of the Enterprises, to enter into the Third Amendment. Treasury, acting as the United States, was counterparty to that voluntary agreement. A voluntary agreement is “not a proper basis upon which to premise a takings claim.” See Norman v. United States, 429 F.3d 1081, 1089 (Fed. Cir. 2005). Treasury, alone, could not and did not take anything from the plaintiffs, unilaterally or otherwise. Treasury, alone, could not impose any “net worth sweep” on the Enterprises and plaintiffs do not allege that Treasury coerced or compelled FHFA to enter into the Third Amendment. FHFA acted as a private corporation when it entered into the Third Amendment with Treasury; because there is no jurisdiction over FHFA’s actions, there is no jurisdiction over plaintiffs’ claims.
FDIC’s Amicus Brief. Noted “FDIC expresses NO view on whether FHFA as a conservator is the United States for purposes of sovereign immunity or the FTCA”. Plaintiffs and FHFA filed supplemental briefs arguing that FHFA as conservator is not the United States, which they supported with assertions that FDIC as conservator or receiver is not the United States or not entitled to sovereign immunity.
— Fairholme’s Motion filed on July 29, 2015, asking the D.C. Circuit to take judicial notice of various discovery documents; and
— Fairholme’s Reply in support of that request filed on Aug. 31, 2015.