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It's from Fannie Mae 10k.
Yes, that was good!
This should get you there, but interesting usually the camera has started by now, hmm.
http://www.banking.senate.gov/public/index.cfm?FuseAction=Home.Home
Ackman has certainly presented a win/win case for them. They must be the type of people that are only motivated by either obvious financial gain for their cause, or by being sued and forced to do so by court order. I wish they would respect the constitution and the rule of law, instead of just funneling money to the Treasury.
Yes, I'm glad they hired the best of the best attorneys!
"The senior preferred stock purchase agreement and warrant contain covenants that significantly restrict our business activities and require the prior written consent of Treasury before we can take certain actions. These covenants prohibit us from taking a number of actions, including:
•
paying dividends or other distributions on or repurchasing our equity securities (other than the senior preferred stock or warrant);
•
issuing additional equity securities (except in limited instances);
•
selling, transferring, leasing or otherwise disposing of any assets, except for dispositions for fair market value in limited circumstances including if (a) the transaction is in the ordinary course of business and consistent with past practice or (b) in one transaction or a series of related transactions if the assets have a fair market value individually or in the aggregate of less than $250 million;
•
issuing subordinated debt;
•
entering into any new compensation arrangements or increasing amounts or benefits payable under existing compensation arrangements for any of our executive officers (as defined by SEC rules) without the consent of the Director of FHFA, in consultation with the Secretary of the Treasury; and
•
seeking or permitting the termination of our conservatorship, other than in connection with a receivership."
Senate’s Shelby Signals Fannie-Freddie Fix Unlikely This Year
by Cheyenne HopkinsClea Benson
8:26 AM MDT March 25, 2015
(Bloomberg) -- The leader of the Senate Banking Committee said he’d rather leave Fannie Mae and Freddie Mac in U.S. conservatorship than pass a bill that includes explicit government support for the housing market.
The comments Wednesday from Richard Shelby, an Alabama Republican, were the clearest indication yet that Congress probably will leave the mortgage-finance companies under federal control for at least the next two years as lawmakers struggle to agree on the structure of a new housing-finance system.
Shelby, speaking at a U.S. Chamber of Commerce conference in Washington, said he opposes replacing Fannie Mae and Freddie Mac with a system that includes a government guarantee for mortgages.
“My God, we might as well leave them where they are if we’re going to do that,” he said.
Shelby opposed a bipartisan Senate bill proposed last year that would have replaced Fannie Mae and Freddie Mac with government insurers taking losses behind private investors. That measure never got a vote of the full Senate, and now it’s up to Shelby to come up with an alternative, if any.
Shelby said he has priorities ahead of dealing with Fannie Mae and Freddie Mac, the largest piece of unfinished business remaining from the government response to the financial crisis. Fannie Mae and Freddie Mac, which were bailed out by taxpayers, have since returned to profitability and currently back almost than half of outstanding home loans. The companies buy mortgages from banks and package them into guaranteed securities.
“I don’t know if we would do anything in the area of” Fannie Mae and Freddie Mac,’’ Shelby said. “We’ll see what’s doable. I don’t want to do something to make it worse than it is.”
To contact the reporters on this story: Cheyenne Hopkins in Washington at chopkins19@bloomberg.net; Clea Benson in Washington at cbenson20@bloomberg.net
To contact the editors responsible for this story: Jesse Westbrook at jwestbrook1@bloomberg.net Gregory Mott
http://www.bloomberg.com/news/articles/2015-03-25/senate-s-shelby-signals-fannie-freddie-fix-unlikely-this-year?cmpid=yhoo
The whole thing is illegal anyway. There is a part that says the purchaser (Treasury) may rescind under certain circumstances. I haven't found the same wording in the text for the seller. So, as I understand Treasury can do it. We need to stay focused on Lew and the Treasury and make sure they answer the questions. Is he saying he is required to have congressional approval to end the sweep? Where does it say that Lew? Or is he saying he "needs" it for political or cya reasons. He is very good at evading any question he doesn't want to answer. We need to be specific. Toomey had some great specific questions. IMO
UST Secretary Lew will be meeting with the US Senate Committee on Banking, Housing, and Urban Affairs to discuss FSOC Accountability today, Mar 25th, 2-4pm, EST.
Below is a list of the senators on the committee if you would like to tweet, email, etc.
If you click on the link, then each senator's name, you can find all contact info.
http://www.banking.senate.gov/public/index.cfm?FuseAction=CommitteeInformation.Membership
Republican Democrat
Richard Shelby Chairman (R-AL) Sherrod Brown Ranking Member (D-OH)
Mike Crapo (R-ID) Jack Reed (D-RI)
Bob Corker (R-TN) Charles E. Schumer (D-NY)
David Vitter (R-LA) Robert Menendez (D-NJ)
Patrick J. Toomey (R-PA) Jon Tester (D-MT)
Mark Kirk (R-IL) Mark R. Warner (D-VA)
Dean Heller (R-NV) Jeff Merkley (D-OR)
Tim Scott (R-SC) Elizabeth Warren (D-MA)
Ben Sasse (R-NE) Heidi Heitkamp (D-ND)
Tom Cotton (R-AR) Joe Donnelly (D-IN)
Mike Rounds (R-SD)
Jerry Moran (R-KS)
From Pershing Square Holdings 2014 Annual Report, released 3/24/15
"Fannie Mae and Freddie Mac remain a critical piece of the U.S. mortgage market and we expect will serve as a core driver of the continuing housing recovery. In spite of much rhetoric about the desirability of replacing and shutting down Fannie and Freddie, we believe that there is no credible alternative to replace them. Consumers in the U.S. benefit enormously from the existence of the 30-year, prepayable, fixed-rate mortgage. As a result, we believe that Fannie and Freddie’s role is fundamental to the economy, and that ultimately, a renewed and recapitalized Fannie and Freddie is a far better alternative to any other.
Beginning in 2013, the U.S. Government began stripping all profits from Fannie and Freddie and sending them to the Treasury every quarter, in perpetuity. The Treasury unilaterally amended the 10% dividend rate on its senior preferred stock to a variable dividend equal to 100% of Fannie and Freddie’s future earnings and existing net worth. We view this net worth sweep as an unlawful taking of shareholders’ private property, and brought suit in District Court and in the U.S. Court of Federal Claims on behalf of common and preferred shareholders.
?8 PERSHING SQUARE HOLDINGS, LTD.
Annual Report Year Ended December 31, 2014
?In September of 2014, the U.S. District Court for the District of Columbia dismissed shareholder lawsuits seeking to enjoin the net worth sweep undertaking by the government. We believe that much of the U.S. District Court ruling may ultimately be overturned on appeal.
The adverse court ruling resulted in a large decline in Fannie and Freddie’s respective share prices, which we used as an opportunity to purchase additional shares in both companies. We voluntarily withdrew our case in the U.S. District Court and are devoting our legal resources to reversing the Federal Government’s improper seizure of common shareholders’ property by prosecuting our Constitutional takings claims in the U.S. Court of Federal Claims.
In addition to our belief that the net worth sweep constitutes an unlawful taking under the U.S. Constitution, we believe that it is an untenable economic arrangement. By stripping Fannie and Freddie of the earnings that they could otherwise use to build capital, the Treasury is subjecting the U.S. taxpayer to grave risk during the next economic downturn.
We remain convinced that a reformed Fannie and Freddie is the only credible path to preserving widespread access to the 30-year, prepayable, fixed-rate mortgage at a reasonable cost. It is therefore essential that Fannie and Freddie build a sufficient level of capital through the retention of their earnings so they can continue to perform their vital function in the mortgage markets while limiting risk to the U.S. taxpayer. A reformed and well-capitalized Fannie and Freddie will accomplish the important policy objective of providing widespread and affordable access to mortgage credit for millions of Americans while, at the same time, delivering tremendous economic value to the U.S. taxpayer through Treasury’s ownership of warrants on 79.9% of Fannie and Freddie’s common stock.
While we remain confident in the prospects for Fannie and Freddie and believe our investment in their common shares will ultimately be worth a large multiple of current prices, the litigation is likely to continue for a protracted period before being resolved, unless the Administration, Treasury, Congress and other interested parties forge a consensual resolution. In light of the inherent uncertainty of the situation, our combined investment in the two companies represents about 3% of our capital at current market values."
http://pershingsquareholdings.com/media/2014/09/PSH-Annual-Report.pdf
Hvpatel, are you going to attend?
http://pershingsquareholdings.com/media/2014/09/PSH-Press-Release-Announcing-Annual-General-Meeting-3.24.15.pdf
Letgoofmyfannie,
I saw your tweet to Issa. I'm curious to see what he has to say. I spoke with him real quick last year, but couldn't get a good take on specifically his Fannie, Freddie views. I gave my spiel and then passed on Tim Pagliara's name at Investors Unite for more info since our time was short. Issa told me he highly recommended William Isaac's book, Senseless Panic. I just looked on Isaac's website and I saw this quote from Issa.
"Bill delivered a forceful case that still counters the myth that Washington had only one viable option to address the financial crisis. Bill's book is must reading for all who care about financial and economic reform."
Rep. Darrell Issa
(R-Calif.)
Your welcome DRR27!
The first time I saw that video, I liked his comment about being involved with companies where he could stay close to home, rather than have to fly internationally all the time. Didn't he originally want Fannie, Freddie to even relocate to New York?
Good to have Toomey in there. :) I hope the good ones show up tomorrow.
Great, H!! They are representing us. Most of them receive lifetime benefits paid by the taxpayer. I hope they ask our questions! $fnma$
UST Secretary Lew will be meeting with the US Senate Committee on Banking, Housing, and Urban Affairs to discuss FSOC Accountability tomorrow, Mar 25th, 2-4pm, EST.
Below is a list of the senators on the committee if you would like to tweet, email, etc.
If you click on the link, then each senator's name, you can find all contact info.
http://www.banking.senate.gov/public/index.cfm?FuseAction=CommitteeInformation.Membership
Republican Democrat
Richard Shelby Chairman (R-AL) Sherrod Brown Ranking Member (D-OH)
Mike Crapo (R-ID) Jack Reed (D-RI)
Bob Corker (R-TN) Charles E. Schumer (D-NY)
David Vitter (R-LA) Robert Menendez (D-NJ)
Patrick J. Toomey (R-PA) Jon Tester (D-MT)
Mark Kirk (R-IL) Mark R. Warner (D-VA)
Dean Heller (R-NV) Jeff Merkley (D-OR)
Tim Scott (R-SC) Elizabeth Warren (D-MA)
Ben Sasse (R-NE) Heidi Heitkamp (D-ND)
Tom Cotton (R-AR) Joe Donnelly (D-IN)
Mike Rounds (R-SD)
Jerry Moran (R-KS)
Did she really say at the end, well an upside to conservatorship is gov continuing to keep billions even after the $187 billion has been paid now? :)
Goldman Sachs got a pretty good deal. Then Buffett made a pretty good deal with Goldman, and later Buffett made a pretty good deal on that. :)
What did you think of Nomura and the, "Danger Batman!!" warning? Thought you would like that one :)
http://www.bloomberg.com/news/articles/2015-03-24/nomura-executive-s-danger-batman-warning-emerges-in-court?cmpid=yhoo
Donotunderstand,
If it helps at all, this was the plaintiffs' proposal for their briefing format.
The last update with the appeals case was pretty much Jan 16th. The plaintiffs and defendants each filed their proposals for the briefing formats. Here's part of the plaintiffs' proposal in case anyone is wondering. :)
APPELLANTS’ PROPOSAL ON BRIEFING FORMATS
Pursuant to this Court’s December 17, 2014 Order, Appellants Perry Capital, LLC (“Perry Capital”); Acadia Insurance Company, Admiral Indemnity Company, Admiral Insurance Company, Berkley Insurance Company, Berkley Regional In- surance Company, Carolina Casualty Insurance Company, Fairholme Fund, Fair- holme Funds, Inc., Midwest Employers Casualty Insurance Company, Nautilus In- surance Company and Preferred Employers Insurance Company (collectively, “Fairholme”); and Arrowood Indemnity Company, Arrowood Surplus Lines Insur- ance Company and Financial Structures (collectively, “Arrowood”) (together, the “Institutional Plaintiffs”); and Appellants 111 John Realty Corp., Melvin Bareiss, Joseph Cacciapelle, John Cane, Francis J. Dennis, Marneu Holdings Co., Michelle
??
USCA Case #14-5243 Document #1532685 Filed: 01/16/2015 Page 2 of 10
M. Miller and United Equities Commodities, Co. (collectively, the “Class Plain- tiffs”), hereby present their proposal on briefing formats.
Appellants propose to file two Principal Briefs totaling 28,000 words: one Principal Brief of 17,000 words on behalf of the Institutional Plaintiffs addressing their claims for injunctive relief under the Administrative Procedure Act (“APA”) and the common law; and one Principal Brief of 11,000 words on behalf of the Class Plaintiffs addressing their claims for damages under the common law and the Fifth Amendment’s Takings Clause. Appellants also propose that the Institutional Plaintiffs and the Class Plaintiffs file separate Reply Briefs totaling 8,500 words and 5,500 words, respectively. In the alternative, Appellants propose to file a sin- gle Principal Brief of 28,000 words and a single Reply Brief of 14,000 words.
Background
These consolidated appeals challenge the August 2012 decision by the Fed- eral Housing Finance Agency (“FHFA”), as conservator for Fannie Mae and Fred- die Mac, to amend the Companies’ then-four-year-old stock purchase agreement with the Department of the Treasury (“Treasury”). That 2012 amendment, known as the “Sweep Amendment,” fundamentally altered the structure of how Treasury would be compensated for the financial assistance it provided to the Companies following the financial crisis of 2008. Prior to the Sweep Amendment, if the Companies elected to pay cash dividends to Treasury, Treasury was entitled to re-
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USCA Case #14-5243 Document #1532685 Filed: 01/16/2015 Page 3 of 10
ceive a 10 percent annual dividend, paid quarterly, based on the amount of money that the Companies had received from Treasury; the Sweep Amendment replaced that 10 percent dividend with a “net-worth sweep,” in which Treasury would re- ceive the Companies’ entire net worth (minus a declining capital cushion) every quarter. In 2013 alone, Treasury collected $130 billion from the Companies under the Sweep Amendment.
Appellants—aggrieved investors in the Companies’ preferred stock—sued in the district court under various theories: (1) claims for injunctive relief under the APA brought by Perry Capital, Fairholme, and Arrowood; (2) common law claims seeking damages and injunctive relief for breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of fiduciary duty brought by Fairholme, Arrowood, and the Class Plaintiffs; and (3) takings claims under the Fifth Amendment for damages brought by the Class Plaintiffs. Following exten- sive briefing in which the Institutional Plaintiffs submitted opening briefs totaling 134 pages, and a reply brief totaling 50 pages, while the Class Plaintiffs submitted a single brief totaling 75 pages, the district court dismissed all claims in a 52-page decision. Appellants then brought this appeal from the district court’s order.
Appellants’ Separate Principal Briefs And Reply Briefs
Good cause exists for allowing Appellants to present their respective argu- ments in separate, non-overlapping principal briefs and reply briefs. Given the
?3
USCA Case #14-5243 Document #1532685 Filed: 01/16/2015 Page 4 of 10
unique nature of each set of claims, there is no danger that Appellants’ proposal will present the Court with repetitious submissions.
Under this proposal, the Institutional Plaintiffs would file a Principal Brief addressing their claims for injunctive relief under the APA and common law. The APA section of the Institutional Plaintiffs’ Brief would argue that FHFA violated the APA by exceeding its conservatorship authority under the Housing and Eco- nomic Recovery Act of 2008, Pub. L. No. 110-289 (“HERA”), because, among other things, FHFA’s decision to give all of Fannie Mae’s and Freddie Mac’s net worth to Treasury did not “preserve and conserve” the Companies’ assets, nor did it act to “put the Companies” in a “sound and solvent” condition. See 12 U.S.C. § 4617(b)(2)(D). The APA section also would argue that Treasury’s decision to execute the Sweep Amendment violated the APA because Treasury did so after its authority under HERA to act with respect to the Companies’ securities expired on December 31, 2009, 12 U.S.C. §§ 1455(l)(4), 1719(g)(4), and because Treasury acted arbitrarily and capriciously, 5 U.S.C. § 706(2)(A). The common law claims section of the Institutional Plaintiffs’ Brief would argue that the district court erred by dismissing the claim that, by executing the Sweep Amendment, FHFA breached fiduciary duties to the Companies’ shareholders. Perry Capital, Fairholme, and Ar- rowood would file a Joint Reply Brief limited to rebutting Appellees’ arguments only as they relate to the APA claims and common law claims.
4
USCA Case #14-5243 Document #1532685 Filed: 01/16/2015 Page 5 of 10
The Class Plaintiffs also would submit a separate brief addressing their claim that the Sweep Amendment constituted a taking without just compensation in violation of the Fifth Amendment and their derivative and direct claims for damages under the common law. The Class Plaintiffs would submit a separate Re- ply Brief limited to rebutting Appellees’ arguments only as they relate to the tak- ings claims and common-law damages claims.
This briefing allocation not only avoids overlapping topics, but also supports efficiency and avoids presenting potentially adversarial legal theories in a single submission. First, the Institutional Plaintiffs worked together according to the dis- trict court’s coordinated briefing schedule, and submitted joint APA briefing, while the Class Plaintiffs coordinated briefing amongst themselves. The proposal pre- serves the parties’ working relationships in the district court and likely will result in more efficient briefing. Second, the Government has argued that the APA claims and takings claims rely on potentially adverse legal theories. In particular, the Government has argued that if a plaintiff makes a claim that “necessarily hing- es” on an “allegation that FHFA exceeded its statutory authority,” then “just com- pensation for a taking is not an available remedy.” See Defendant’s Motion to Dismiss at 17-18, Fairholme Funds, Inc. v. United States, No. 13-465C (Fed. Cl. Dec. 9, 2013), ECF No. 20 (quotation marks omitted). Although Appellants do not agree with this argument, if the Government were correct, a ruling in favor of the
5
USCA Case #14-5243 Document #1532685 Filed: 01/16/2015 Page 6 of 10
Institutional Plaintiffs’ claims that Treasury and FHFA acted in excess of their statutory authority could prove harmful to the Class Plaintiffs’ takings claims. Providing the Class Plaintiffs with a separate brief on their takings claims will avoid any arguable tension that would arise within a single brief for all Appellants.
This Court has allowed parties to present separate briefs in appeals involving complex, non-overlapping issues like those presented here. See Order, Verizon v. FCC, No. 11-1355 (D.C. Cir. May 25, 2012) (allowing three different petitioners to each file separate briefs where the parties held conflicting positions); EME Homer City v. EPA, No. 11-1302 (D.C. Cir. Jan. 18, 2012) (allowing two petition- ers to each file separate briefs). Accordingly, Appellants submit that they should be allowed to file separate, non-overlapping Principal Briefs and Reply Briefs.
Word Allotments For Appellants’ Briefs
Treasury and FHFA have informed counsel that they intend to submit a sep- arate proposal in which each agency would submit separate Principal Briefs of 14,000 words each, giving Appellees Principal Briefs totaling 28,000 words.
Appellants propose that they file separate Principal Briefs totaling 28,000 words: the Institutional Plaintiffs would file a Principal brief totaling 17,000 words and a Reply Brief totaling 8,500 words; the Class Plaintiffs would file a Principal Brief totaling 11,000 words and a Reply Brief totaling 5,500 words. If the Court does not adopt Appellants’ proposal to file separate briefs, Appellants respectfully
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USCA Case #14-5243 Document #1532685 Filed: 01/16/2015 Page 7 of 10
propose to file a single Principal Brief of 28,000 words and a single Reply Brief of 14,000 words.
Permitting Appellants to file Principal Briefs totaling 28,000 words is ap- propriate for at least five reasons. First, these consolidated appeals concern sever- al independent issues—violations of the APA; breaches of contract and fiduciary duties; and takings without just compensation—each of which was extensively briefed in the district court. Second, Appellants here have divergent interests, see supra, and therefore may require additional words to articulate their unique posi- tions on particular issues. Third, the issues in this appeal implicate the federal government’s management of two of the most important institutions to the United States’ economy, and questions whether Treasury had, and continues to have, the legal authority to seize hundreds of billions of dollars from Fannie Mae and Fred- die Mac. Fourth, Appellants’ proposal to file two Principal Briefs totaling 28,000 words requests only half of what the Federal Rules of Appellate Procedure would otherwise permit for four separate groups of appellants. See Fed. R. App. P. 32(a)(7)(B)(i); D.C. Cir. R. 32(a). Fifth, Treasury and FHFA are proposing to file Principal Briefs totaling 28,000 words to defend their actions—Appellants are enti- tled to similar treatment.
Ya, you're right! Makes sense now, thanks.
It seems like it should be "ripe" by now. Do you have an idea why there are no updates (that we can see, plenty behind the scenes) on the Perry Capital appeal since Jan 16th?
That should be good!!! Thanks Camacho
Donotunderstand, I wasn't sure if you had seen this before in regards to the two cases. This is a clip midway into an article from 2013, but interesting.
"On Wednesday, junior preferred shareholders filed a class action in the U.S. Court of Federal Claims, asserting that the August 2012 agreement between FHFA and the Treasury amounted to an illegal seizure of their property in violation of the Takings Clause of the Fifth Amendment of the U.S. Constitution. The preferred shareholders, represented by Boies, Schiller & Flexner and Kessler Topaz Meltzer & Check, point to the $66.3 billion dividend Fannie and Freddie paid to the government in the second quarter of 2013, arguing that more than $60 billion of that money was misappropriated from them.
The new shareholder class action follows an injunction suit filed Sunday in federal court in Washington by Perry Capital and its lawyers at Gibson, Dunn & Crutcher. The Perry suit, which claims that the August 2012 agreement between Treasury and FHFA “enriches the federal government through a self-dealing pact, and destroys tens of billions (of dollars) of value in the companies’ preferred stock,” seeks a declaratory judgment that the amended agreement violates the Administrative Procedures Act, as well as an injunction against implementing the new agreement. In addition, the mutual fund Fairholme Funds and several insurance companies that own Fannie Mae and Freddie Mac junior preferred shares filed a Takings Clause case on Tuesday night in the Court of Federal Claims. Cooper & Kirk, which represents the Fairholme plaintiffs, raises allegations that parallel those in the new class action but brought the case only on behalf of the named shareholders.
There’s also a month-old class action for holders of Fannie Mac and Freddie Mac common shares under way in the Court of Federal Claims. As I’ve reported, that case asserts that the government’s 2008 takeover of the mortgage lenders and the FHFA’s subsequent operation of Fannie Mae and Freddie Mac was an illegal taking under the Fifth Amendment. The new class action, which only involves preferred shareholders and focuses on the 2012 amendment rather than the 2008 takeover, does not overlap with the previously filed case.
It’s notable that the new class action was filed by Boies Schiller, which innovated the technique of suing for lost shareholder value under the Takings Clause in litigation for former AIG chief Hank Greenberg, who claims that the government’s 2008 bailout of AIG wrongfully deprived shareholders of tens of billions of dollars in equity. Though the new Fannie Mae and Freddie Mac case involves alleged government overreaching four years after the economic crisis, said Boies partner Hamish Hume, it raises similar allegations that Treasury violated the Fifth Amendment and ran roughshod over shareholders."
http://blogs.reuters.com/alison-frankel/2013/07/10/fannie-freddie-shareholders-demand-lost-dividends-from-u-s-in-new-class-action/
Donotunderstand, each party's response was due 3/23, now closing arguments begin 4/22.
JJ8, I agree. Here are some "cliff notes" from each response (table of contents.)
Plaintiff's Table of Contents
TABLE OF CONTENTS
PRELIMINARY STATEMENT ................................................................................................. 1 STATEMENT OF FACTS........................................................................................................... 5 I. STANDING................................................................................................................................ 8
A. DEFENDANT’S ARGUMENT THAT PLAINTIFFS HAVE NO
LEGALLY COGNIZABLE PROPERTY INTEREST IN THE EQUITY INTEREST AND VOTING CONTROL ASSOCIATED WITH THEIR
STOCK IS CONTRARY TO SETTLED DELAWARE LAW AND FOUR DECISIONS BY THIS COURT. ..................................................................................... 8
1. Plaintiffs Were Specifically Targeted by Defendant. ....................................... 8
2. This Court Has Ruled on Four Separate Occasions that Plaintiffs Have
Standing Based on Cognizable Property Rights (see Starr, 106 Fed. Cl. at
62; Starr, 107 Fed. Cl. at 377; Starr, 111 Fed. Cl. at 481; Starr, 112 Fed.
Cl. at 604)................................................................................................................ 9
3. This Court’s Rulings Are Based on Settled Delaware Law............................ 10
4. In Rearguing That Defendant Had No Duty to Plaintiffs Because
Defendant Was Not Yet a Shareholder When It Exacted/Took Plaintiffs’
Equity and Voting Power, Defendant Ignores Its Fifth Amendment Duties
and Disregards the Admonition of Delaware Courts to Focus on the
Substance – Not the Form – of a Transaction....................................................... 12
a. The Government had a Fifth Amendment duty to Plaintiffs
regardless of duties flowing from control. ................................................ 12
b. In any event, the relevant date is September 22 when the exaction/taking took place (PFOF § 14.0) and Defendant clearly controlled AIG on that date (PFOF §§ 15.0, 19.0). ................................. 13
5. Defendant’s Reliance on the Business Judgment Rule Is Misplaced
Where, As Here, Plaintiffs’ Claim Is Against Defendant and Not the AIG
Board and Defendant Was in a Controlling Position............................................ 15
B. DEFENDANT’SARGUMENTTHATTHISCOURTLACKS
JURISDICTION OVER PLAINTIFFS’ ILLEGAL EXACTION CLAIM
IGNORES CONTROLLING PRECEDENT AND THIS COURT’S PRIOR RULINGS. ....................................................................................................................... 16
II. AUTHORITY ......................................................................................................................... 17
ii
Case 1:11-cv-00779-TCW Document 435 Filed 03/23/15 Page 3 of 121
A. DEFENDANT’S ARGUMENT THAT IT WAS AUTHORIZED TO
DEMAND 79.9% OF PLAINTIFFS’ EQUITY AND VOTING CONTROL
AS CONSIDERATION FOR A 13(3) LOAN IS CONTRARY TO THE
PLAIN LANGUAGE OF THE STATUTE, THIS COURT’S PRIOR
RULINGS, THE STATUTE’S CONTEXT AND LEGISLATIVE HISTORY,
AND DEFENDANT’S OWN PRIOR INTERPRETATION AND IMPLEMENTATION OF 13(3). ................................................................................... 17
1. Defendant’s Papers Ignore the Plain Language of the Federal Reserve
Act Which Limits the Consideration for a 13(3) Loan to an Interest Rate........... 17
2. Defendant’s Papers Ignore This Court’s Prior Ruling That the Only Consideration for a 13(3) Loan is an Interest Rate. .............................................. 18
3. Defendant’s Papers Ignore the Legislative History of the Relevant Statutes.................................................................................................................. 18
4. Defendant’s Papers Misstate Its Prior Interpretation of 13(3) and
Ignore Its Actual Statements Concerning, and Implementations of, 13(3)........... 18
5. Defendant’s Concession in Its Post-Trial Submissions that “FRBNY
Cannot Invest in a Distressed Company by Injecting New Equity Capital
Through the Purchase of Stock” (DFOF ¶ 211) Is Dispositive. ........................... 21
B. DEFENDANT’SCONSTANTLYSHIFTINGARGUMENTSFORTHE AUTHORITY TO DEMAND EQUITY ARE INTERNALLY
INCONSISTENT AND, AGAIN, CONTRARY TO THE STATUTE’S
PLAIN LANGUAGE, THIS COURT’S RULINGS, THE STATUTE’S
CONTEXT AND LEGISLATIVE HISTORY, AND DEFENDANT’S OWN
PRIOR ACTS AND STATEMENTS. ........................................................................... 21
1. Defendant’s Initial Argument Was That Authority to Demand Equity
Was an Incidental Power. ..................................................................................... 21
a. “Incidental” powers cannot add new powers...................................... 22
b. The National Bank Act and precedents under it refute rather
than support Defendant’s incidental powers analysis. .............................. 22
2. In Its August 2012 Motion for Reconsideration, Defendant Argued for
the First Time That the Reference to “Limitations” and “Restrictions” in
13(3) Was an Express Authorization to Demand Equity...................................... 25
a. Defendant’s novel assertion that its demand for 79.9% equity
and voting control was a “limitation” or “restriction” on the
interest rate charged is contrary to the plain language of the statute. ....... 25
iii
Case 1:11-cv-00779-TCW Document 435 Filed 03/23/15 Page 4 of 121
b. Defendant’s “limitations” and “restrictions” argument is also inconsistent with Defendant’s uniform prior interpretation and implementation of 13(3). .......................................................................... 26
c. Defendant’s argument that Plaintiffs’ reading of Section 13(3)
would render the final sentence of Section 13(3) “meaningless”
(DCOL at 80-81) is wrong........................................................................ 26
d. In fact, it is Defendant’s argument that, if accepted, would
render provisions of 13(3) meaningless. ................................................... 27
e. Defendant’s argument requires a rewriting of the statute. .................. 27
3. Defendant Now Argues That a Previously Unknown and Still
Undefined “Congressional Policy” Authorizes It to Demand Equity. That Argument Is Contrary to 13(3)’s Plain Language and Consistent Interpretation......................................................................................................... 29
4. The Harsh Terms of the AIG Loan Were Adopted to Punish AIG and
Its Shareholders (See PFOF § 26.2), Not For Any Other Reason......................... 30
5. There Is No Possible Policy Basis for Imposing Punitive and
Discriminatory Terms Without Any Investigation, Analysis, or Findings........... 31
6. Defendant’s Asserted “Moral Hazard” Policy Is Foreign To The
Statute, Unmentioned In The Board Of Governors Minutes, and Is Simply
a Rephrasing of Defendant’s Punitive Policy. ...................................................... 33
a. Defendant’s claim that it needed to address moral hazard
concerns is contradicted by prior statements of Defendant’s top policymakers. ............................................................................................ 33
b. Moreover, Defendant’s claim that the equity term was
necessary to address moral hazard does not make economic sense.......... 34
c. Singling out AIG for punishment was inconsistent with how Defendant treated other firms and does not reflect a reasoned
policy judgment. ....................................................................................... 35
7. Defendant’s Assertion that the Risk of the Credit Facility Was High Is Irrelevant and Contradicts Defendant’s Contemporaneous Analysis and
Sworn Testimony. ................................................................................................. 37
a. The risk of the AIG loan is irrelevant to the exaction/taking of equity......................................................................................................... 37
iv
Case 1:11-cv-00779-TCW Document 435 Filed 03/23/15 Page 5 of 121
b. Defendant’s Assertion That the Credit Facility Was
“Enormously Risky” (DFOF ¶ 139) Is Contrary to the Testimony
of Its Senior Officials................................................................................ 37
c. Defendant’s Assertion that the Credit Facility Was
“Enormously Risky” (DFOF ¶139) Is Contrary to Its Lending
Authority Under Section 13(3). ................................................................ 37
d. Defendant’s Assertion That AIG’s Collateral Was “Highly
Unusual” Is Contrary to the Testimony of Its Senior Officials. ............... 38
e. Defendant incorrectly asserts that “President Geithner made
clear to Congress, long after FRBNY had extended the AIG loan,
his continuing belief that the Federal Reserve was taking
substantial risk in lending to AIG.” DFOF ¶ 150 (citing PTX 564
at 28, 42, 125). .......................................................................................... 39
f. Defendant incorrectly asserts (DFOF ¶ 143) that a September
16th analysis of the value of AIG’s equity (DX 415) – which was
never pledged as collateral (JX 95 at 1) – has bearing on the risk of
the Credit Facility, which was secured by AIG’s underlying assets......... 39
g. Defendant incorrectly asserts (DFOF ¶ 160) that the valuations
it relied upon “assumed that AIG would not lose significant
business despite AIG’s financial decline.” ............................................... 40
h. Defendant fails to mention that its proffered “market
indicators” (DFOF ¶¶ 167-171) relate to the perceived risk of
AIG’s unsecured debt before AIG received liquidity from
Defendant in the form of secured debt...................................................... 40
8. All of Defendant’s “Policy” Arguments Ignore that Defendant Had No Authority to Demand Any Compensation for a 13(3) Loan Other Than an
Interest Rate, or to Fix That Interest Rate for Any Purpose Other Than “Accommodating Commerce and Business” (12 U.S.C. § 357). ......................... 41
9. Defendant’s Papers Ignore that FRBNY Lacked Authority to Change
the Terms Approved by the Federal Reserve Board of Governors....................... 41
10. Subsequent Acts of Congress Did Not “Ratify” Defendant’s
Interpretation of 13(3)........................................................................................... 43
11. Holding the Shares in a Trust Did Not Cure Defendant’s Lack of
Authority. .............................................................................................................. 43
a. First, Defendant cannot use a trust to accomplish indirectly
what Congress did not authorize it to do directly. .................................... 43
v
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b. Second, regardless of whether the Trust held the preferred
stock for a time, Defendant both initially acquired and ultimately
sold the equity interest. ............................................................................. 44
c. Third, the Trust violated New York law............................................. 44
d. Fourth, the Trust was an instrumentality of the Defendant. ............... 45
III. DEFENDANT’S AGREEMENT DEFENSE..................................................................... 45
A. A PLAINTIFF’S AGREEMENT TO PROVIDE PROPERTY
DEMANDED BY THE GOVERNMENT IS NOT A DEFENSE TO AN
ILLEGAL EXACTION CLAIM. .................................................................................. 45
1. In General a Plaintiff’s Voluntary Agreement Is Not a Defense to an
Illegal Exaction Claim. ......................................................................................... 45
2. As the Court in Alyeska Notes, the Only Cases in Which
“Voluntariness” Has Been Allowed as a Defense Are Certain
Overpayment Cases. ............................................................................................. 47
3. Defendant’s Argument That Plaintiffs’ Illegal Exaction Claim Is
Barred Because 13(3) Was Not “Intended to Benefit” Borrowers Is Wrong
Both as a Matter of Illegal Exaction Law and as an Understanding of 13(3)...................................................................................................................... 47
a. The “intended to benefit” rule is just one way in which a
voluntary agreement defense can be inconsistent with the
Congressional intent underlying a statutory provision. ............................ 48
b. In any event, Section 13(3) was enacted to benefit solvent corporations, partnerships, and individuals who were experiencing liquidity shortfalls during a financial crisis. ............................................. 49
4. Defendant Cannot Distinguish Suwannee and Similar Cases......................... 51
a. Defendant’s argument that Suwannee is distinguishable
because the plaintiff there was already subject to the Government’s regulatory powers (DCOL at 106-07) fails both on the law and the
facts. .......................................................................................................... 51
b. Defendant’s second basis for distinguishing Suwannee, that the
statute at issue provided no discretion to the government officials
as to whether to award the benefit (DCOL at 107) misstates
Suwannee and the underlying statute........................................................ 51
vi
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B. INANYEVENT,PLAINTIFFSDIDNOT“VOLUNTARILY”AGREE
TO THE EXACTION/TAKING OF THEIR EQUITY AND VOTING
CONTROL. ..................................................................................................................... 52
1. Both Edmonston and Rough Diamond Make Clear That Only “Purely Voluntary” Agreement Can Ever Bar Recovery. Edmonston, 181 U.S. at 515......................................................................................................................... 52
2. AIG’s Undisputed Need for the Liquidity with Respect to Which
Defendant Had a Monopoly, by Itself Makes Edmonston and Rough
Diamond Inapplicable........................................................................................... 52
C. PLAINTIFFS DID NOT “VOLUNTARILY” AGREE TO THE
EXACTION OR TAKING OF THEIR EQUITY AND VOTING CONTROL BECAUSE THEY WERE NOT PARTIES TO THE CREDIT
AGREEMENT. ............................................................................................................... 52
D. THERE WAS NO VOLUNTARY AGREEMENT BECAUSE AIG WAS UNDER DURESS. .......................................................................................................... 53
1. The Standard for Duress. ................................................................................ 53
2. AIG Had No Realistic Choice......................................................................... 56
3. Defendant Contributed to AIG’s Distress by Defendant’s Threats and
Change of Position on September 22.................................................................... 56
4. Defendant Contributed to AIG’s Distress by Taking Punitive Action
Without Due Process and Discriminating Against AIG for Political
Purposes. ............................................................................................................... 57
5. Defendant Contributed to AIG’s Distress by Abusing Its Monopoly
Power to Obtain a Benefit to Which It Is Not Entitled. ........................................ 57
6. The A&D Case Supports a Finding of Duress. ............................................... 60 E. THEREWASALSONOVOLUNTARYAGREEMENTBECAUSE
DEFENDANT CONTROLLED THE TRANSACTION. ........................................... 60
1. The Relevant Date Is September 22, the Date of the Credit Agreement. ....... 60
2. The Fact That the September 16 Term Sheet Expressly Provides It Is
Not Legally Binding Is Dispositive That the Taking Did Not Occur Then.......... 61
3. Prior to the Execution of the Credit Agreement, Defendant Loaned
Money to AIG Pursuant to Collateralized Demand Notes, Not a Term Sheet...................................................................................................................... 63
vii
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4. There Was No “Meeting of the Minds” on September 16, 2008 as to
the Material Terms of Defendant’s Loan to AIG.................................................. 63
a. Neither the Board of Governors Nor AIG’s Board Ever Saw or Approved the Version of the Term Sheet Defendant Claims Was Binding...................................................................................................... 64
b. Both Parties Believed The Form of Equity Would Be Warrants
on September 16, 2008. ............................................................................ 65
5. Defendant Contemporaneously Recognized That There Was No
Binding Agreement on September 16................................................................... 66
6. Defendant Was Firmly in Control of AIG on September 22. ......................... 67
IV. DAMAGES............................................................................................................................ 67
A. BOTH PLAINTIFFS’ AND DEFENDANT’S EXPERTS AGREE THAT
THE 79.9% EQUITY INTEREST ACQUIRED BY DEFENDANT HAD A
FAIR MARKET VALUE OF AT LEAST BETWEEN $23 BILLION AND
$58.7 BILLION DEPENDING ON THE DATE SELECTED. .................................. 67
1. Plaintiffs Are Entitled to the Fair Market Value of What Defendant Took/Exacted Measured at the Time of the Taking/Exaction. ............................. 67
2. Defendant’s Experts Testified That AIG’s Market Capitalization on a
Fully Diluted Basis Based on NYSE Prices Represented Its Fair Market Value..................................................................................................................... 67
3. Based on NYSE Prices, the 79.9% Equity Interest Had a Value of
Between $26.7 Billion and $58.7 Billion Depending on the Date Selected Between September 17 and September 24............................................................ 67
4. Defendant, AIG, and Their Advisors Contemporaneously Calculated
the Value of the 79.9% Equity Interest as of September 16 and 17 at
Between $23 Billion and $42 Billion. (See PFOF § 37.2)................................... 68
5. Because of the “Unusual and Exigent” Circumstances During
September 2008, NYSE Prices Actually Understated the Fair Market
Value of AIG......................................................................................................... 69
a. Defendant’s expert admitted that stock market prices only
reflect fair market value in “a fair and efficient market with all information available.” (Saunders: Tr. 8416:14-15; id. 8415:25–
8416:13). ................................................................................................... 69
b. As Dr. Saunders admitted, a “fair market price” of equity is a price that “reflects its underlying fundamental intrinsic value” (Tr.
viii
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8416:8-11). Stock market prices only reflect fair market value in a
“fair and efficient market with all information available” (Tr. 8416:14-15)............................................................................................... 69
c. Defendant’s experts also admitted that they did nothing to
calculate the fair market value of the 79.9% equity interest except
to look at NYSE prices. (Saunders: Tr. 8416:17 – 8417:14; see
also DFOF ¶ 401). .................................................................................... 69
B. THEREISNOLEGALORFACTUALBASISFORDEFENDANT’S ASSERTION THAT PLAINTIFFS ARE NOT ENTITLED TO RECOVER
THE FAIR MARKET VALUE OF WHAT DEFENDANT TOOK/EXACTED.......................................................................................................... 70
1. Defendant’s Damages Argument That It Can Deduct from Plaintiffs’ Damages the Benefits Created by the 13(3) Loan Depends on the False
Legal Premise That It Was Entitled to Demand Equity as Compensation
for the 13(3) Loan. ................................................................................................ 70
2. Nor Is There Any Basis in Determining Just Compensation for an
Actual Taking to Reduce the Value of Property Taken by the Government
(in this Case, the 79.9% Equity Interest) Based on the Benefit to the
Plaintiff of Other Government Actions (in this Case, the 13(3) Loan). ............... 71
a. Regulatory takings cases are irrelevant for this purpose. ................... 71
b. “Hold-up” cases are irrelevant. ........................................................... 72
c. Brown v. Legal Foundation of Washington, 538 U.S. 216
(2003) is similarly irrelevant..................................................................... 73
3. It is Undisputed That Even If Defendant Had Been Authorized to
Exact/Take Equity as Compensation for a 13(3) Loan, Plaintiffs Would
Suffer Direct Economic Loss If The Series C Preferred Was Issued for
Less Than Fair Value............................................................................................ 74
4. Because AIG Already Paid (or Even Overpaid) Fair Value for the
Credit Facility Through Its Secured Promise and Ultimate Repayment of
All Borrowings Plus 14% Interest and Fees (PFOF § 37.7), Plaintiffs Did
Not Receive Compensation for the 79.9% Equity and Voting Interests
Taken by Defendant (PFOF §§ 37.4, 37.6)........................................................... 74
5. Defendant’s Damages Argument Also Improperly Assumes That
AIG’s Opening Stock Price on September 16 Represented Its Intrinsic or
Fair Market Value................................................................................................. 77
ix
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6. Defendant Waived Its Argument for Off-Setting Benefits Because
Such Benefits Are An Affirmative Defense that Must Be Pled in Physical
Takings Cases. ...................................................................................................... 80
7. Even if Defendant Were Legally Entitled to Reduce the Value of the
Equity Exacted/Taken by Off-Setting Benefits, Defendant Has Failed to
Establish These Benefits. ...................................................................................... 80
a. Defendant bears the burden of proving how much Plaintiffs’
property would have been affected in its hypothetical but-for
world. ........................................................................................................ 80
b. Defendant’s off-set hypothetical rests on the incorrect
assumption that AIG would have filed for bankruptcy if Defendant
had not taken Plaintiffs’ property. DFOF ¶ 350. ..................................... 80
c. Defendant also cites no reliable evidence concerning the value
of Plaintiffs’ property in its hypothetical bankruptcy world and
ignores contrary evidence. ........................................................................ 81
C. DEFENDANT’S PLEAS FOR A NEW EXCEPTION TO ILLEGAL EXACTIONS/TAKINGS LIABILITY BASED ON ITS INTENT NOT TO
PAY JUST COMPENSATION SHOULD BE DENIED............................................. 84
1. Defendant’s Contractual Intent Cannot Bind Plaintiffs. ................................. 84
2. Defendant Cites No Authority Supporting Its Position That Its or
AIG’s Intent Can Justify an Illegal Exaction/Taking. .......................................... 84
3. Defendant’s Intent Cannot Permit It To Do What Congress Has Not Authorized............................................................................................................. 84
4. Although Irrelevant to This Proceeding, Any Claim Defendant May
Have Against Non-Party AIG Under Section 8.12 Is Likely to Fail. ................... 85
D. PLAINTIFFS CORRECTLY CALCULATE PREJUDGMENT
INTEREST. ..................................................................................................................... 85
V. REVERSE STOCK SPLIT ................................................................................................... 87
A. THE STOCK SPLIT CLASS HAD A COGNIZABLE PROPERTY
INTEREST IN THE RIGHT TO PREVENT DEFENDANT’S FURTHER DILUTION OF THEIR SHARES OF AIG COMMON STOCK. ............................. 87
1. Both Delaware Law and the Walker Consent Order Establish the Stock
Split Class’s Property Interest in Preventing Dilution of Their Shares. ............... 87
x
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2. The Walker Representations and Consent Order Also Establish
Plaintiffs’ Property Interest in the Right to Prevent Further Dilution. ................. 88
3. Delaware’s Doctrine of Independent Legal Significance Does Not
Undermine Plaintiffs’ Property Interests. ............................................................. 90
B. THERSSCONSTITUTEDATAKINGOFPLAINTIFFS’PROPERTY INTERESTS. ................................................................................................................... 91
1. Defendant Structured the Reverse Stock Split to Monetize Its Preferred
Stock Without A Class Vote of Common Shareholders....................................... 91
2. AIG’s Delisting Threat Cannot Explain The Decision To Structure The Reverse Stock Split To Reduce Only Issued, But Not Authorized, Shares
By A Ratio Of 20:1. .............................................................................................. 93
3. Defendant’s Control Of AIG During 2009-2011 Is Independently
Sufficient To Characterize The RSS As A Government Act Requiring The Payment Of Just Compensation. See PCOL § 14.9. ............................................ 94
C. DEFENDANT’SRSSCONSTITUTEDANILLEGALEXACTION.................96
D. PLAINTIFFS HAVE ESTABLISHED DAMAGES RESULTING FROM
THE REVERSE STOCK SPLIT................................................................................... 97
xi
Cases
Defendant's Table of Contents
TABLE OF CONTENTS
TABLE OF AUTHORITIES .......................................................................................................... v
INTRODUCTION .......................................................................................................................... 1
I. The Federal Reserve Acted Within Its Legal Authority In Conditioning Its
Rescue Loan On AIG’s Agreement To Convey Equity............................................................ 6
A. Section 13(3)’s Language Demonstrates That Interest Is Not The Only
Permissible Form Of Consideration For A Rescue Loan ................................................... 7
B. The Court Should Affirm The Board Of Governors’ Exercise Of Its
Congressionally Authorized Judgment ............................................................................. 11
C. TheChallengedEquityTermAlsoReflectedAValidExerciseOf
FRBNY’s Incidental Powers............................................................................................. 13
D. Congress Ratified The Federal Reserve’s Authority To Condition Lending
On The Conveyance Of Equity......................................................................................... 15
E. In Any Event, Starr’s Illegal Exaction Claim Fails Because Section 13(3)
Is Not Money-Mandating.................................................................................................. 19
II. UnableToEstablishThatTheFederalReserveExceededItsAuthority,Starr
Asserts Irrelevant And Incorrect Arguments To Support Its Illegal Exaction Claim....................................................................................................................................... 20
A. Starr’s Arguments Regarding Authority To Hold Equity And Attacks On
The Trust Are Irrelevant And Incorrect ............................................................................ 21
1. Neither FRBNY Nor Treasury Ever Held The Series C Preferred
Shares, Nor Would Any Law Have Prevented Them From Holding
Equity .......................................................................................................................... 21
2. The Credit Agreement Used An Independent Trust To Address Policy Considerations............................................................................................................. 23
3. The Trust Was A Valid And Appropriate Owner of AIG's Equity ............................ 26
B. Starr’s Claim That The Board Of Governors Did Not “Approve” The
Credit Agreement Misapprehends The Requirements Of Section 13(3) .......................... 27
C. TheAIGLoan’sInterestRateSatisfiedSection13(3).....................................................29
D. Starr’s Arguments Concerning “Punishment” Are Irrelevant And Incorrect
Because The Terms Of The Loan Were Not Punishment For Wrongdoing..................... 31
?
Case 1:11-cv-00779-TCW Document 434 Filed 03/23/15 Page 3 of 112
E. The Loan Terms Were Justified, And The Equity Term Was Not An
Extraneous Demand .......................................................................................................... 33
1. The Challenged Loan Terms Were Directly Related To The Risks And
Policy Implications Of Lending To AIG .................................................................... 33
2. The Evidence Contradicts Starr’s Assertion That The AIG Loan Was
Not Risky .................................................................................................................... 35
F.
........................... 38
III. The Penn Central Analysis Applies To Starr’s Takings Claim.............................................. 39
A. Starr Cannot Claim A Physical Taking Because Starr Has No Property That Was Physically Taken ............................................................................................................... 40
B. Starr Cannot Establish An "Unconstitutional Conditions" Taking ................................... 42
1. The Court Dismissed Starr’s Unconstitutional Conditions Claim.............................. 43
2. Even If The Nollan/Dolan Test Applied Outside Of The Land Use
Context, Starr’s Claim Fails Because The Government’s Actions Did
Not Impose Any Regulatory Or Police Power Restrictions That Would
Affect AIG’s Voluntary Choice.................................................................................. 45
3. Even If The “Unconstitutional Conditions” Doctrine Applied, The
Equity Term Was Not An Unconstitutional Condition............................................... 47
IV. No Taking Or Exaction Occurred Because AIG Acted Voluntarily And
Without Duress ....................................................................................................................... 50
A. AIG’s Board Voluntarily Accepted The Rescue, And The Government
Did Not Act Wrongfully Or Coercively ........................................................................... 50
1. The Unrebutted Testimony Of The Allegedly Coerced Individuals
Refutes Starr’s Argument That AIG’s Board Was Coerced....................................... 51
2. The Government Did Not Act Wrongfully Or Coercively ......................................... 52
3. Starr Offers No Evidence That An “Arm’s Length” Transaction Would
Have Taken Place On Different Terms....................................................................... 54
4. Starr’s Failure To Timely Challenge The AIG’s Board’s Agreement
Precludes A Finding Of Duress .................................................................................. 55
B. AIG Voluntarily Promised Equity Equivalent To Common Stock On
September 16, 2008, And Implemented That Promise Through The Credit Agreement......................................................................................................................... 56
Starr’s Equal Protection Claim Already Has Been Dismissed, And Section
?13(3) Does Not Require Lending On Uniform Terms And Conditions
?ii
Case 1:11-cv-00779-TCW Document 434 Filed 03/23/15 Page 4 of 112
1. On September 16, 2008, FRBNY And AIG's Board Agreed To Equity In A
Form To Be Determined, Not Warrants ....................................................................................... 56
2. The Credit Agreement Implemented The September 16, 2008 Agreement................................................................................................................... 59
C. It Is Contrary To Precedent And Logic For Starr To Argue That The
Government Controlled AIG After AIG’s September 16 Resolution But
That The Resolution Did Not Create An Obligation For Equity ...................................... 59
D. The AIG Shareholders’ Consent To The Equity Term Was Not Required ...................... 62
E. The AIG Board’s Voluntary Agreement Vitiates Starr’s Illegal Exaction Claim................................................................................................................................. 65
V. Starr’s Failure To Demonstrate Economic Loss Is Fatal To Both Its Takings
And Exaction Claims .............................................................................................................. 68
A. Regardless Of How Starr Characterizes Its Takings Claim, Starr Must
Demonstrate That The Class’s Shares Would Have Had Greater Value In
The Absence Of Any Government Rescue....................................................................... 69
B. AIG’sPost-RescueStockPriceDoesNotReflectWhatWasTakenOr
Exacted Because It Does Not Measure Any Loss Experienced By The
Class Members.................................................................................................................. 71
1. Starr Had No Property Interest In A Rescue Without An Equity Term ..................... 72
2. Starr Is Not Entitled To A Recovery Reflecting Value Created By The
Rescue ......................................................................................................................... 73
3. Starr Cannot Recover Value Created By The Government By Arguing
That The Rescue Merely “Restored” AIG’s “Intrinsic Value”................................... 74
4. Starr Cannot Recover The Value Created By The Rescue By Treating
The Provision Of Liquidity That Saved AIG As Distinct From The
Government’s Receipt Of Equity In AIG ................................................................... 77
C. Starr’s Failure To Prove Its Shares Would Have Had Value In The
Absence Of The Government Rescue Defeats Its Exaction Claim As Well .................... 78
D. Starr Cannot Shift Its Burden Of Proving That The Rescue Loan Harmed
The Class........................................................................................................................... 81
VI. Starr Has Failed To Provide The Evidence Identified By The Court As
Necessary To Support Standing To Bring A Direct Claim..................................................... 82
A. Starr Has Failed to Show That Its Claim Is Not Derivative ............................................. 83 iii
Case 1:11-cv-00779-TCW Document 434 Filed 03/23/15 Page 5 of 112
B. EvenIfStarr’sClaimIsBothDerivativeAndDirect,StarrHasFailedTo
Allocate Economic Harm To The Claim’s Direct Aspect ................................................ 85
VII. Starr Has Failed To Establish Its Reverse Stock Split Claim ........................................... 86
A. Neither Delaware Law Nor The Walker Order Granted AIG’s Common
Shareholders The Right To Avoid Dilution Of Their Shares ........................................... 86
1. Section 242(b)(2) Grants The Right To A Class Vote In Limited
Circumstances And Confers No General Right To Avoid Dilution ........................... 86
2. The Walker Order Did Not Grant Common Shareholders The Right To
A Separate Class Vote on Dilutive Transactions........................................................ 88
3. Starr Has Not Presented Any Evidence That The Reverse Stock Split
Was Designed To Evade Common Shareholders’ Rights .......................................... 89
B. Starr’sInvocationOfEntireFairnessReviewUnderDelawareLawIs
Erroneous .......................................................................................................................... 91
C. Starr Has Failed To Prove Its Allegation That The Government
“Engineered” The Reverse Stock Split ............................................................................. 92
D. Starr Failed To Demonstrate Economic Harm From The Reverse Stock
Split ................................................................................................................................... 94
VIII. Starr’s Contentions Regarding Maiden Lane III Are Irrelevant And
Incorrect ............................................................................................................................ 95
IX. Starr Is Not Entitled To Attorney Fees, Expert Witness Fees, And
Disbursements For An Illegal Exaction.................................................................................. 97
Feb New Home Sales
+7.8% to 539k
03/23/2015 STATUS CONFERENCE ORDER: Status Conference set for 3/31/15 at 11:00 a.m. before Judge Margaret M. Sweeney. Signed by Judge Margaret M. Sweeney. (ta) Copy to parties.
DRR27, Here is the beginning of the defendant's response. I can also post this one in its entirety if any one wants it. It's 101 pages :)
DEFENDANT’S POST-TRIAL BRIEF IN RESPONSE TO PLAINTIFF’S POST-TRIAL PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW
Pursuant to this Court’s November 25, 2014 Order, defendant, the United States, respectfully submits the following response to the post-trial briefs of plaintiff, Starr International Company, Inc. (Starr).
INTRODUCTION
At trial, and again in its post-trial briefs, Starr failed to establish that the extraordinary assistance provided to AIG caused either a taking or an illegal exaction. Neither the facts nor the law support Starr’s claimed entitlement to a better deal. The Federal Reserve acted within its authority when it sought equity as part of the compensation for an $85 billion rescue loan. AIG’s board, in turn, represented the company’s shareholders when it voluntarily accepted the proposed offer. The Board of Governors only authorized five such rescue loans, with AIG receiving, by far, the largest package of Government assistance. This assistance saved AIG from failing. In contrast, more than 100,000 businesses filed for bankruptcy because they could not weather the financial storm. AIG’s only entitlement was to this same bankruptcy process, a process the company avoided only because of the discretionary assistance provided by the Government.
No. 11-779C
) (Judge Thomas C. Wheeler)
Case 1:11-cv-00779-TCW Document 434 Filed 03/23/15 Page 16 of 112
This assistance both preserved AIG’s ability to operate as a going concern, and salvaged (indeed, greatly enhanced) the value of Starr’s AIG holdings. Because Starr failed to prove the necessary conduct and harm, the Court should reject each of Starr’s claims.
First, Starr has failed to show that the Federal Reserve Act (FRA) prohibited the rescue loan’s equity term. Congress provided that the Federal Reserve could offer to loan money under section 13(3) subject to such “restrictions” and “limitations” that the Federal Reserve, in its discretion, “may prescribe.” This broad language authorizes the Federal Reserve to prescribe loan conditions such as fees and equity. Further, Section 4(4) provided additional authority by granting reserve banks “such incidental powers as shall be necessary to carry on the business of banking within the limitations prescribed by this Act.”
Starr argues that reserve banks may only seek interest as consideration for a rescue loan. Section 13(3), however, contains no limitation whatsoever against including other consideration for a loan. Moreover, Starr cannot explain why the express power to impose “restrictions” and “limitations” excludes the power to condition a rescue loan on an equity term, or why requiring equity as consideration for a loan is not incidental to section 13(3)’s express lending power.
Starr offers no support for its dubious assumption that Congress intended to foreclose the Federal Reserve from tailoring its lending to the particular circumstances or, indeed, to hamstring the Federal Reserve from making loans that incorporate the same kinds of commercially reasonable provisions that exist in the private marketplace. Indeed, Starr’s reading of section 13(3) conflicts with the Federal Reserve’s practice in every “comparator rescue” that Starr relies upon, as each of these included consideration beyond interest. Finally, Starr’s argument that the Act prohibited equity consideration is further debunked by Congress’s review and acceptance of the equity
???2
Case 1:11-cv-00779-TCW Document 434 Filed 03/23/15 Page 17 of 112
term. In two enactments after the AIG rescue, Congress ratified the Federal Reserve’s conclusion that it could condition a rescue loan on the receipt of equity.
Second, Starr fails to explain why AIG’s entry into the rescue loan – with the equity term – was not voluntary. Under the Fifth Amendment, a plaintiff claiming a taking or illegal exaction in connection with a contract must demonstrate that the subject property was involuntarily included in the transaction. Here, AIG’s board of directors – duly elected by shareholders and independent from the Government – voluntarily accepted FRBNY’s loan offer because it served the shareholders’ best interests and was vastly better than the alternative. Starr’s initial briefing largely ignores this evidence.
Instead, Starr’s economic expert advanced the theory that – contrary to evidence and logic – the Government controlled AIG’s board without the Government owning a single share of AIG stock. Beyond its factual shortcomings, Starr’s theory of effective economic control is legally insufficient to prove duress. Under applicable law, only actual, exercised control could defeat the defense of voluntariness. The AIG board’s independence – both on September 16 and September 21 – defeats any claim by Starr against the United States for a taking or exaction arising out of the rescue.
Starr contends that AIG’s voluntary agreement is not dispositive because AIG’s shareholders did not voluntarily agree to the rescue or its terms. Although Starr’s years-long failure to challenge the loan should be considered acquiescence, the shareholders’ approval was never necessary for the loan. Under Delaware law, AIG’s board had the authority to agree to the rescue loan and to issue the promised equity. Certainly, the Fifth Amendment does not require the Government to obtain the permission of every corporate shareholder before the Government contracts with a corporation, whether to provide emergency lending assistance or otherwise.
?????????????????????3
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Third, Starr’s inability to prove economic harm independently dooms all of its claims. Takings and illegal exaction claims require showing that, but for the Government’s conduct, the plaintiff’s property would have been more valuable. Here, absent any action by the Government, AIG would have entered bankruptcy, and its common stock would have lost all or nearly all its value as a result.
Rather than explain how the rescue injured AIG or its shareholders, Starr seeks to change the subject. Specifically, Starr compares AIG’s rescue to those received by others, and to the rescue Starr would have preferred. These analyses are both legally irrelevant and factually incomplete. Starr fails to compare its rescue to the more than 100,000 businesses that – like AIG – faced bankruptcy in 2008 and 2009, and that – like AIG – had no entitlement to taxpayer assistance, but that – unlike AIG – failed without such extraordinary assistance. Such a comparison highlights the fallacy of Starr’s claims that AIG was “punished” and confirms why AIG’s board was not “coerced” to accept the rescue loan.
In another run at proving harm, Starr demands the return of what was “exacted” by the Government. Starr, however, cannot overcome the fact that no physical shares were taken or “exacted” from anyone – AIG’s shareholders owned the same number of shares before and after the rescue. Indeed, the rescue increased the value of those shares by billions of dollars; again, this fact defeats every effort Starr has made at proving injury.
Even if the Court were to find that the Federal Reserve exceeded its authority, that AIG’s board was coerced into accepting a rescue loan, and that Starr suffered actual harm, the Court still would have to resolve all of the following additional questions in Starr’s favor to hold the United States responsible for an illegal exaction: (1) that Congress enacted Section 13(3), not for the public’s benefit, but to protect borrowers and their shareholders from providing equity as
??????????????????4
Case 1:11-cv-00779-TCW Document 434 Filed 03/23/15 Page 19 of 112
consideration for a rescue loan; (2) that Starr has proved that its claims truly are direct and established separate and independent harm to shareholders; (3) that Starr did not waive its exaction claim by waiting to bring it until after enjoying the benefit of multiple rescues; and (4) that even if the equity term was illegal, the proper remedy is to simply excise it from the transaction even though the evidence clearly established that the Federal Reserve would not have rescued AIG in the absence of that term. Starr’s inability to satisfy any – let alone all – of these preconditions ends its equity claim.
Starr’s Stock Split Claim fares no better. Starr argues that the Government originated, orchestrated, or compelled the stock split transaction but has identified no facts to support this theory. The undisputed evidence shows that AIG’s board proposed the transaction to avoid delisting by the NYSE; AIG’s common shareholders – including Starr – approved the transaction, presumably for the same reason. That should put an end to Starr’s claim. Starr’s efforts to tie the 2009 split (and the 2009 Stock Split Class) to the 2011 recapitalization are meritless. As Starr admits, the stock split had no harmful effect in 2009. Similarly, the 2011 recapitalization did not harm any shareholders, let alone the June 2009 shareholders. Certainly, Starr cannot explain why AIG’s 2009 shareholders should recover for an economic event that allegedly affected AIG’s very different 2011 shareholders.
At bottom, Starr demands that American taxpayers provide an additional $40 billion to AIG’s shareholders, on top of the extraordinary and unprecedented assistance that they have already received, because Starr believes itself entitled to be rescued on even more generous terms. This would impose a multi-billion dollar loss upon taxpayers for having saved AIG and its shareholders from catastrophe. As Starr’s and AIG’s executives acknowledged, AIG’s investments placed the company in a position where it would have failed without unprecedented
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Federal Reserve financing. Starr was not entitled to any rescue, and nothing Starr alleges or argues can convert the rescue it received into a cognizable harm warranting redress. Starr’s claims are erroneous and unjust. The Court should deny Starr’s claims and grant judgment in favor of the United States.
DRR27, Here is the Plaintiff's preliminary statement. If anyone wants the whole thing posted, just lmk!
The whole thing is 121 pages :)
PRELIMINARY STATEMENT
At bottom this case is not about AIG, or even about the 2008-2009 “bailouts”. At bottom this case is about whether an agency may, without any limit or review, use the discretionary power Congress has given it to force citizens dependent on that discretion to surrender property Congress has not given the agency authority to demand.
Despite the many contested issues at trial, the central issue in this case is: was Defendant authorized to demand 79.9% of the AIG shareholders’ equity and voting control as “additional compensation” for a 13(3) loan?1 The answer to that question is critical in itself. It also affects the answer to every important issue in this case.
Defendant’s lack of authorization to demand equity and voting control as “additional compensation” for a 13(3) loan is clear from the plain language of Section 13(3) (PCOL § 4.1), this Court’s prior rulings (PCOL § 4.1.1), and Defendant’s own statements (and consistent actions) prior to this litigation (PCOL §§ 4.2, 4.6; PFOF §§ 23.0, 25.3.2). Moreover, even if it were assumed that Defendant were authorized under some circumstances to acquire equity and voting control as compensation for a 13(3) loan, it was not authorized to do so for a punitive political purpose, or in a discriminatory manner, without any justifying investigation, analysis, or findings (PCOL §§ 6.0-7.0; PFOF §§ 26.0-27.0, 29.0, 31.0-32.0).
Defendant’s unauthorized demand for, and receipt of, Plaintiffs’ equity and voting control as “additional compensation” for a 13(3) loan represents an Illegal Exaction because Defendant has exacted property it was not authorized to demand in return for the doing of an act committed to
1 Defendant asserts that it demanded and received 79.9% of the AIG shareholders’ equity and voting control as “additional compensation” for its loan to AIG. PTX 339 at 7; PTX 449 at 50; PTX 564 at 190-91; PTX 587 at 54 n.1; see also PFOF § 27.7. (As used herein, Plaintiffs’ Proposed Findings of Fact, Plaintiffs’ Proposed Conclusions of Law, Defendant’s Proposed Findings of Fact, and Defendant’s Proposed Conclusions of Law are cited as PFOF, PCOL, DFOF, and DCOL respectively. Cites to “Tr.” are cites to the trial transcript.)
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Defendant’s discretion (PCOL §§ 2.1-2.4), an act which, it is worth noting, the Government had determined was in the public interest (PFOF § 9.0).
Alternatively, Defendant’s acquisition is an uncompensated Taking because Defendant took 79.9% of Plaintiffs’ equity and voting control without just compensation (PCOL §§ 9.0-12.0, 18.0; PFOF § 37.6). Defendant concedes that the $500,000 it paid as the “purchase price” of the preferred was not just compensation. JX 185 at 2; DFOF at 191 n.40. Defendant’s argument that the preferred stock was justified as “additional compensation” for the 13(3) loan fails for three independent reasons: (a) Defendant was not authorized to demand the preferred stock as compensation for a 13(3) loan, (b) Defendant has admitted that the purpose of taking Plaintiffs’ equity was not to compensate Defendant, but simply to deprive Plaintiffs of the value of the equity (PTX 4002), and (c) Defendant was already fully compensated for its “fully secured” (PFOF § 21.1(b)-(m)), “over collateralized” (PFOF § 21.1(a)) loan by its unprecedentedly high interest rate and fees (PTX 3228 at 1; infra § II.B.7).
Defendant’s primary defense is that because AIG agreed to the exaction/taking, the transfer of equity and voting control was “voluntary”, and Plaintiffs cannot recover. Numerous cases provide recoveries for illegal exactions to which the plaintiff agreed in order to secure government agency actions (PCOL § 8.2). Indeed, in every case where a citizen has surrendered property that the Government is not authorized to demand as compensation for Government action the citizen needed, the citizen by definition agreed to do so to obtain the benefit of the Government action. Because by definition the desired government action is more valuable than what the citizen surrenders, any other rule would enable agencies to ignore Congressional limits on their authority and leave citizens without a remedy for illegal conduct (PCOL § 8.4).
Defendant’s voluntary agreement defense fails for three additional independent reasons. 2
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First, the agreement by AIG’s Board does not bind Plaintiffs, particularly where, as here, the exaction/taking was expressly designed to take away Plaintiffs’ rights (PFOF §§ 17.6-17.9, 26.2- 26.3, 28.0; see infra § II.B.4), where AIG was acting to protect the interests of stakeholders other than shareholders (PFOF §§ 20.1.1, 20.2(b)), and where Defendant with the Board’s concurrence intentionally prevented Plaintiffs from having an opportunity to vote on the exaction/taking (PFOF §§ 17.7-17.8, 28.0).
Second, it is now undisputed that the AIG Board had no realistic alternative to agreeing to Defendant’s demand for equity and voting control (PFOF § 20.0). Defendant materially and wrongfully contributed to AIG’s duress, including by using its monopoly power to improperly and discriminatorily demand equity and voting control as a condition of a 13(3) loan (PFOF §§ 22.0- 23.0, 32.0), by discouraging alternative sources of liquidity (PFOF § 11.0), and by initially offering credit in exchange for non-voting warrants and then threatening to call demand notes and force AIG into bankruptcy unless the Board agreed to substitute voting preferred stock (PFOF §§ 12.0, 16.0, 19.0-20.0). Such conduct was “wrongful”, violated “notions of fair dealing”, and constituted the use of “a temporary monopoly power . . . to obtain a benefit to which it is not entitled” (PCOL §§ 12.7, 12.9.4).
Third, as the plain language of the Term Sheet makes clear (PFOF § 14.3), and as the general counsels of both the Board of Governors and FRBNY admitted (PFOF §§ 14.0, 14.0(a)), there was no legal obligation to provide equity or voting control to Defendant until the September 22 Credit Agreement – at which time Defendant was firmly in control of AIG (PFOF § 15.0).
Defendant’s argument that Plaintiffs do not have legally cognizable rights in their equity and voting control or standing to recover for the harm done them is contrary to settled Delaware law (PCOL §§ 10.0), and this Court’s prior rulings (PCOL §§ 10.4.3, 10.6-10.7). Plaintiffs also
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have standing because Defendant’s exaction/taking of the Series C Preferred was directly targeted at Plaintiffs and expressly designed to take from Plaintiffs their voting rights and the ability to benefit from AIG’s recovery (PFOF §§ 17.6-17.9, 26.2, 26.3, 28.0; see also infra §§ I.A.1, II.B.4).
It is now undisputed that the Series C Preferred stock that Defendant exacted/took had a fair market value of at least $23 billion to $58.7 billion depending on when the exaction/taking is found to have occurred (PFOF § 37.4; infra § IV). However, Defendant argues that to the extent the value of the preferred stock was based on the liquidity provided AIG in the Credit Agreement, Defendant was entitled to exact/take such value without Congressional authorization. With respect to Plaintiffs’ Illegal Exaction claim there is no precedential or policy support for such an argument (PCOL § 19.5; infra § IV.B.1), and Defendant provides none. With respect to Plaintiffs’ Takings claim, there is no precedential or policy support (PCOL § 19.1), and the cases Defendant relies on are wholly inapposite (see infra § IV.B.2).
Moreover, since Defendant was not entitled to demand and receive the Series C Preferred as consideration for a 13(3) loan, Defendant cannot take that consideration indirectly by offsetting its value against what the government illegally exacted/took (infra § VI.B.1).
After taking control of AIG in September 2008, Defendant used that control to engineer the reverse stock split of AIG’s common stock in June 2009, thereby taking from Plaintiffs their valuable right to block further dilution of their equity interests (infra § V.B). As a result of the reverse stock split, Defendant was later able to exchange its less valuable preferred stock for more valuable common stock (infra § V.E).
Plaintiffs seek over $40 billion in compensation for the damages they suffered as a result of the two takings/exactions: $35.4 billion for the Credit Agreement Class and $4.67 billion for the Stock Split Class (infra §§ IV.A, V.E). In addition, Plaintiffs seek pre-judgment interest to restore
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them to the position they would have been in if they had been paid on the dates of the takings.
434
03/23/2015 POST TRIAL BRIEF Defendant's Post-Trial Brief in Response to Plaintiff's Post-Trial Proposed Findings of Fact and Conclusions of Law, filed by USA. (Mizoguchi, Brian)
435
03/23/2015 POST TRIAL BRIEF Plaintiffs Post-Trial Brief in Response to Defendants Post-Trial Findings of Fact and Conclusions of Law, filed by STARR INTERNATIONAL COMPANY, INC. (Boies, David)
FNMA
2015 Board of Directors Goals
1.
Sustain and grow partnerships with lenders and other key housing stakeholders.
2.
Serve the market by providing products and services that help people own, rent, or stay in their homes.
3.
Build sustainable financial performance.
4.
Maintain a disciplined risk, control, and compliance environment.
5.
Improve the company’s capabilities, infrastructure, and efficiency to prepare for a more competitive future.
6.
Develop our workforce so that it is ready to meet the business challenges of today and into the future.
It's Lew before the senate. He is chairman of this 10 member extremely powerful committee. He needs to be questioned.
and this was the defendant's proposal for briefing format filed Jan 16th in the appeals case
DEFENDANTS’ BRIEFING FORMAT PROPOSAL
On December 17, 2015, this Court ordered the parties to submit proposed formats for the briefing of these consolidated cases within 30 days of its order. The Department of the Treasury, the Federal Housing Finance Agency (“FHFA”), the Federal National Mortgage Association (“Fannie Mae”), and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (together with FHFA “the FHFA Defendants”), hereby respectfully respond to this Court’s order.
The parties have conferred on a proposed briefing format, but have been unable to reach agreement. Defendants propose that they file two briefs of no more
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than 14,000 words each. One brief would be filed by the Treasury Department and the other brief would be filed by the FHFA Defendants. Defendants take no position on the plaintiffs’ briefing proposal, which we understand will include an over-length brief.
2. In 2008, Fannie Mae and Freddie Mac were placed into the conservatorship of FHFA pursuant to the Housing and Economic Recovery Act of 2008 (HERA). FHFA, acting as the statutory conservator, then entered into agreements on
behalf of Fannie Mae and Freddie Mac with the Treasury Department whereby Treasury committed a massive amount of public funds to Fannie Mae and Freddie Mac—ultimately providing more than $187 billion. Over the following years, FHFA and Treasury entered into a series of amendments to the purchase agreements to address a number of issues. The Third Amendment, which is the subject of this case, was executed in August 2012.
Various plaintiffs filed suit in federal district court and in the Court of Federal Claims seeking to rescind the Third Amendment and obtain billions of dollars in compensation from the federal government. Plaintiffs in four cases filed suit in district court asserting takings claims, common law claims, and claims under the Administrative Procedure Act (“APA”). The district court coordinated the cases and dismissed all the claims in a thorough 52-page opinion on September 30, 2014. The opinion concluded, among other things, that HERA barred plaintiffs’ claims for
injunctive and declaratory relief, that plaintiffs’ common law claims for monetary 2
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damages were not ripe, and in any event were derivative actions also barred under HERA, and that the court lacked jurisdiction over plaintiffs’ takings claims, which it also found to be without substantive merit.
3. Defendants’ proposed briefing format is warranted under the circumstances of these consolidated cases. There are a large number of issues presented, in part because Plaintiffs have brought distinct claims against the FHFA Defendants and the Treasury Department. Treasury and the FHFA Defendants are separate entities with different statutory roles and responsibilities with respect to the financial crisis and the asserted claims in this litigation, and Defendants are represented by separate counsel: Treasury is represented by the Department of Justice, while FHFA, Fannie Mae, and Freddie Mac are represented by private counsel.
Plaintiffs initiated four cases in the district court and asserted takings claims, common law claims, and claims under the APA. FHFA is not a defendant with respect to any of plaintiffs’ takings claims, and Treasury is not a defendant with respect to plaintiffs’ claims for breach of contract or breach of implied duty of good faith. And, although plaintiffs assert APA and breach of fiduciary duty claims against both the FHFA Defendants and the Treasury Department, those claims rest on legally distinct grounds. Plaintiffs’ claims of breach of fiduciary duty against FHFA rely upon its alleged violation of the duties as conservator of Fannie Mae and Freddie Mac, while the claims alleging breach of fiduciary duty by Treasury are based upon state law
fiduciary duties of a dominant shareholder. See, e.g., Complaint, ¶¶ 116-119, 138-141, 3
USCA Case #14-5243 Document #1532623 Filed: 01/16/2015 Page 4 of 6
Case No. 13-cv-1053-RCL, Dkt. # 1 (July 10, 2013). Additionally, Fannie Mae and Freddie Mac are defendants only with respect to plaintiffs’ claims for breach of contract and breach of the implied covenant of good faith and fair dealing.
These consolidated cases pose vast implications for the government’s infusion of taxpayer funds into Fannie Mae and Freddie Mac and FHFA’s continuing conservatorships of Fannie Mae and Freddie Mac. Because of these potential consequences, the complex financial background, and the number of issues presented, Treasury and the FHFA Defendants respectfully propose to file two separate briefs, neither of which will exceed the 14,000 word limit. Doing so will assist Defendants in presenting the facts and issues relevant to each Defendant to the Court in a coherent fashion, thus aiding the Court’s understanding and evaluation of the parties’ arguments. Defendants will coordinate during brief writing to minimize duplication of arguments and efforts by the parties and the Court.
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Defendants-appellees propose exceed the 14,000 word limit.
Dated: January 16, 2015
The last update with the appeals case was pretty much Jan 16th. The plaintiffs and defendants each filed their proposals for the briefing formats. Here's part of the plaintiffs' proposal in case anyone is wondering. :)
APPELLANTS’ PROPOSAL ON BRIEFING FORMATS
Pursuant to this Court’s December 17, 2014 Order, Appellants Perry Capital, LLC (“Perry Capital”); Acadia Insurance Company, Admiral Indemnity Company, Admiral Insurance Company, Berkley Insurance Company, Berkley Regional In- surance Company, Carolina Casualty Insurance Company, Fairholme Fund, Fair- holme Funds, Inc., Midwest Employers Casualty Insurance Company, Nautilus In- surance Company and Preferred Employers Insurance Company (collectively, “Fairholme”); and Arrowood Indemnity Company, Arrowood Surplus Lines Insur- ance Company and Financial Structures (collectively, “Arrowood”) (together, the “Institutional Plaintiffs”); and Appellants 111 John Realty Corp., Melvin Bareiss, Joseph Cacciapelle, John Cane, Francis J. Dennis, Marneu Holdings Co., Michelle
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USCA Case #14-5243 Document #1532685 Filed: 01/16/2015 Page 2 of 10
M. Miller and United Equities Commodities, Co. (collectively, the “Class Plain- tiffs”), hereby present their proposal on briefing formats.
Appellants propose to file two Principal Briefs totaling 28,000 words: one Principal Brief of 17,000 words on behalf of the Institutional Plaintiffs addressing their claims for injunctive relief under the Administrative Procedure Act (“APA”) and the common law; and one Principal Brief of 11,000 words on behalf of the Class Plaintiffs addressing their claims for damages under the common law and the Fifth Amendment’s Takings Clause. Appellants also propose that the Institutional Plaintiffs and the Class Plaintiffs file separate Reply Briefs totaling 8,500 words and 5,500 words, respectively. In the alternative, Appellants propose to file a sin- gle Principal Brief of 28,000 words and a single Reply Brief of 14,000 words.
Background
These consolidated appeals challenge the August 2012 decision by the Fed- eral Housing Finance Agency (“FHFA”), as conservator for Fannie Mae and Fred- die Mac, to amend the Companies’ then-four-year-old stock purchase agreement with the Department of the Treasury (“Treasury”). That 2012 amendment, known as the “Sweep Amendment,” fundamentally altered the structure of how Treasury would be compensated for the financial assistance it provided to the Companies following the financial crisis of 2008. Prior to the Sweep Amendment, if the Companies elected to pay cash dividends to Treasury, Treasury was entitled to re-
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USCA Case #14-5243 Document #1532685 Filed: 01/16/2015 Page 3 of 10
ceive a 10 percent annual dividend, paid quarterly, based on the amount of money that the Companies had received from Treasury; the Sweep Amendment replaced that 10 percent dividend with a “net-worth sweep,” in which Treasury would re- ceive the Companies’ entire net worth (minus a declining capital cushion) every quarter. In 2013 alone, Treasury collected $130 billion from the Companies under the Sweep Amendment.
Appellants—aggrieved investors in the Companies’ preferred stock—sued in the district court under various theories: (1) claims for injunctive relief under the APA brought by Perry Capital, Fairholme, and Arrowood; (2) common law claims seeking damages and injunctive relief for breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of fiduciary duty brought by Fairholme, Arrowood, and the Class Plaintiffs; and (3) takings claims under the Fifth Amendment for damages brought by the Class Plaintiffs. Following exten- sive briefing in which the Institutional Plaintiffs submitted opening briefs totaling 134 pages, and a reply brief totaling 50 pages, while the Class Plaintiffs submitted a single brief totaling 75 pages, the district court dismissed all claims in a 52-page decision. Appellants then brought this appeal from the district court’s order.
Appellants’ Separate Principal Briefs And Reply Briefs
Good cause exists for allowing Appellants to present their respective argu- ments in separate, non-overlapping principal briefs and reply briefs. Given the
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USCA Case #14-5243 Document #1532685 Filed: 01/16/2015 Page 4 of 10
unique nature of each set of claims, there is no danger that Appellants’ proposal will present the Court with repetitious submissions.
Under this proposal, the Institutional Plaintiffs would file a Principal Brief addressing their claims for injunctive relief under the APA and common law. The APA section of the Institutional Plaintiffs’ Brief would argue that FHFA violated the APA by exceeding its conservatorship authority under the Housing and Eco- nomic Recovery Act of 2008, Pub. L. No. 110-289 (“HERA”), because, among other things, FHFA’s decision to give all of Fannie Mae’s and Freddie Mac’s net worth to Treasury did not “preserve and conserve” the Companies’ assets, nor did it act to “put the Companies” in a “sound and solvent” condition. See 12 U.S.C. § 4617(b)(2)(D). The APA section also would argue that Treasury’s decision to execute the Sweep Amendment violated the APA because Treasury did so after its authority under HERA to act with respect to the Companies’ securities expired on December 31, 2009, 12 U.S.C. §§ 1455(l)(4), 1719(g)(4), and because Treasury acted arbitrarily and capriciously, 5 U.S.C. § 706(2)(A). The common law claims section of the Institutional Plaintiffs’ Brief would argue that the district court erred by dismissing the claim that, by executing the Sweep Amendment, FHFA breached fiduciary duties to the Companies’ shareholders. Perry Capital, Fairholme, and Ar- rowood would file a Joint Reply Brief limited to rebutting Appellees’ arguments only as they relate to the APA claims and common law claims.
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USCA Case #14-5243 Document #1532685 Filed: 01/16/2015 Page 5 of 10
The Class Plaintiffs also would submit a separate brief addressing their claim that the Sweep Amendment constituted a taking without just compensation in violation of the Fifth Amendment and their derivative and direct claims for damages under the common law. The Class Plaintiffs would submit a separate Re- ply Brief limited to rebutting Appellees’ arguments only as they relate to the tak- ings claims and common-law damages claims.
This briefing allocation not only avoids overlapping topics, but also supports efficiency and avoids presenting potentially adversarial legal theories in a single submission. First, the Institutional Plaintiffs worked together according to the dis- trict court’s coordinated briefing schedule, and submitted joint APA briefing, while the Class Plaintiffs coordinated briefing amongst themselves. The proposal pre- serves the parties’ working relationships in the district court and likely will result in more efficient briefing. Second, the Government has argued that the APA claims and takings claims rely on potentially adverse legal theories. In particular, the Government has argued that if a plaintiff makes a claim that “necessarily hing- es” on an “allegation that FHFA exceeded its statutory authority,” then “just com- pensation for a taking is not an available remedy.” See Defendant’s Motion to Dismiss at 17-18, Fairholme Funds, Inc. v. United States, No. 13-465C (Fed. Cl. Dec. 9, 2013), ECF No. 20 (quotation marks omitted). Although Appellants do not agree with this argument, if the Government were correct, a ruling in favor of the
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Institutional Plaintiffs’ claims that Treasury and FHFA acted in excess of their statutory authority could prove harmful to the Class Plaintiffs’ takings claims. Providing the Class Plaintiffs with a separate brief on their takings claims will avoid any arguable tension that would arise within a single brief for all Appellants.
This Court has allowed parties to present separate briefs in appeals involving complex, non-overlapping issues like those presented here. See Order, Verizon v. FCC, No. 11-1355 (D.C. Cir. May 25, 2012) (allowing three different petitioners to each file separate briefs where the parties held conflicting positions); EME Homer City v. EPA, No. 11-1302 (D.C. Cir. Jan. 18, 2012) (allowing two petition- ers to each file separate briefs). Accordingly, Appellants submit that they should be allowed to file separate, non-overlapping Principal Briefs and Reply Briefs.
Word Allotments For Appellants’ Briefs
Treasury and FHFA have informed counsel that they intend to submit a sep- arate proposal in which each agency would submit separate Principal Briefs of 14,000 words each, giving Appellees Principal Briefs totaling 28,000 words.
Appellants propose that they file separate Principal Briefs totaling 28,000 words: the Institutional Plaintiffs would file a Principal brief totaling 17,000 words and a Reply Brief totaling 8,500 words; the Class Plaintiffs would file a Principal Brief totaling 11,000 words and a Reply Brief totaling 5,500 words. If the Court does not adopt Appellants’ proposal to file separate briefs, Appellants respectfully
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propose to file a single Principal Brief of 28,000 words and a single Reply Brief of 14,000 words.
Permitting Appellants to file Principal Briefs totaling 28,000 words is ap- propriate for at least five reasons. First, these consolidated appeals concern sever- al independent issues—violations of the APA; breaches of contract and fiduciary duties; and takings without just compensation—each of which was extensively briefed in the district court. Second, Appellants here have divergent interests, see supra, and therefore may require additional words to articulate their unique posi- tions on particular issues. Third, the issues in this appeal implicate the federal government’s management of two of the most important institutions to the United States’ economy, and questions whether Treasury had, and continues to have, the legal authority to seize hundreds of billions of dollars from Fannie Mae and Fred- die Mac. Fourth, Appellants’ proposal to file two Principal Briefs totaling 28,000 words requests only half of what the Federal Rules of Appellate Procedure would otherwise permit for four separate groups of appellants. See Fed. R. App. P. 32(a)(7)(B)(i); D.C. Cir. R. 32(a). Fifth, Treasury and FHFA are proposing to file Principal Briefs totaling 28,000 words to defend their actions—Appellants are enti- tled to similar treatment.
Looking forward to this one.
FSOC ACCOUNTABILITY: NONBANK DESIGNATIONS
Wednesday, March 25, 2015
02:00 PM - 04:00 PM
538 Dirksen Senate Office Building
the COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS will meet in OPEN SESSION to conduct a hearing entitled, “FSOC Accountability: Nonbank Designations.” The witness on Panel I will be The Honorable Jacob J. Lew, Secretary, United States Department of the Treasury. The witnesses on Panel II will be: Dr. Douglas Holtz-Eakin, President of the American Action Forum; Mr. Gary Hughes, Executive Vice President & General Counsel of the American Council of Life Insurers (ACLI); Mr. Dennis M. Kelleher, President and Chief Executive Officer of Better Markets, Inc.; and Mr. Paul Schott Stevens, President and CEO of the Investment Company Institute (ICI).
All hearings are webcast live and will not be available until the hearing starts. Individuals with disabilities who require an auxiliary aid or service, including closed captioning service for webcast hearings, should contact the committee clerk at 202-224-7391 at least three business days in advance of the hearing date.
Add To My Calendar (vCal)
Witnesses
Panel 1
The Honorable Jacob J. Lew
Secretary
United States Department of the Treasury
Panel 2
Mr. Douglas Holtz-Eakin
President
American Action Forum
Mr. Gary Hughes
Executive Vice President and General Counsel
American Council of Life Insurers
Mr. Dennis M. Kelleher
President and Chief Executive Officer
Better Markets, Inc.
Mr. Paul Schott Stevens
President
Investment Company Institute
I remember last year this time, we kept checking to see if it cleared. Really didn't think it was going to, back then!
I'm just a copy and paster. I look to the rest of you for your great analysis! The toast will be fun seeing who's who!