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Nice job Guido! French Hill is one of the very few in the US Congress that understand what the Executive Branch of the federal government has done here AND recognizes it and is voicing his concern.
This entire 14 year conservatorship is so bizarre, I think the biggest unknown piece of this puzzle is what legal rights of the shareholders may or may not have been violated, either Constitutionally or legally.
We'll just have to continue to watch this drama unfold and good luck to all of us beleaguered and hoodwinked shareholders who have had the misfortune of believing that the federal government was not lying when they stated publicly that the CONservatorship was temporary in 2008.
The federal government via the Net Worth Sweep and a myriad of other unsavory anti capitalist/shareholder actions may have seriously put a cold chill on prospective new investor money coming into this public/private partnership.
Stay tuned, we'll see what happens.
POTUS'S couldn't kill them nor the FHFA and the Treasury. This calls for the United States Supreme Court or the Congress to do it and so far that hasn't happened yet. But the $ 308B question is will they?
Penn, the growing proliferation of unelected federal agency officials known as the 4th branch of government have been dominating Americans lives and businesses since the Great Depression.
This group of Justices seems like they are beginning to rein in the 4th branch as these federal agencies become ever increasingly willing to dominate our lives by broadly interpreting Congressional statutes.
Case in point is the Net Worth Sweep. Here, under HERA, the FHFA believed that it had the power to nationalize the GSES and implemented the Net Worth Sweep because HERA allows the FHFA to exercise power "for the FHFA'S interest and/or the public it serves."
In WV v EPA, decided less than 60 days, the Justices in essence ruled that federal agencies cannot decide on Major "National and Economic" Questions through broad interpretations of statutes
Worth a read.
WSJ today on how the federal agencies days of ruling over the citizens and businesses lives with complete impunity and discretion from Unelected Federal Agency Bureaucrats may be numbered: "Administrative law, loosely speaking, is the law that governs the government. It has emerged as a defining interest of the John Roberts court, which is taking a fresh look at issues touching all three branches of government. That includes questioning whether courts should continue to defer to agency interpretations of ambiguous laws, a practice (known as Chevron deference) that some believe lets agencies usurp Congress's power to make policy decisions and judges' authority to declare what the law is.
At the same time, a majority of justices have expressed interest in reinvigorating the nondelegation doctrine. That doctrine is supposed to prevent Congress from sloughing its legislative responsibilities to agencies through statutes granting them open-ended authority. The court hasn't applied the doctrine to strike down a law since 1935. The justices are also interested in guarding against erosions of presidential authority -- and accountability -- through statutes that restrict the president's ability to oversee executive-branch agencies."
Did the US CONGRESS really want the FHFA and the Treasury deciding on Nationalization for the GSES, when it gave the FHFA the power to act, "in the best interests of the FHFA and/or the public it serves."?
My Arlington condo, vacant for 2 days and a prospective tenant with a 718 FICO score just signed a lease to move in August 20th. For some reason I enjoy helping American Families satisfy their housing needs, or is it the high cap rate returns from the monthly cash flow? HeeeHeee ! TALK ABOUT A FULCRUM SECURITY !
The Major problem with hi LTV loans is that any borrower will have a much higher incentive to exercise their put option when housing prices dip, especially for folks with limited income availability and lo fico scores (they are usually lower because they ended up getting into financial difficulties earlier in life).
After an unhealthy 44% run up in US Housing prices over the last 2 years and with 30 yr FRM's doubling in interest rates and given the cyclical nature of real estate markets, these vulnerable borrowers could be in for a rough ride.
Will they have the ability financially to weather a recession and potential drop in the value of their IRAS and home?
I don't think the federal government wants 7T+ added to the liability side of the federal government balance sheet and that is why the GSES were created in 1968 and 1970 as private corporations by the LBJ administration.
I get it that the federal government took $308B and transferred it from the GSES balance sheet into the coffers of the US Treasury for nothing in return, but a never ending 14+ year CONservatorship is something that the US Congress did not envision when they passed HERA.
WSJ today: "The days of bidding wars and homes selling for tens of thousands of dollars over asking are over," said Daryl Fairweather, chief economist at Redfin.
Despite the average rate on a 30-year fixed mortgage dropping back below 5% this week, the increases this year priced many potential buyers out of the market, slowing the pace of sales and causing more inventory to sit, said Lawrence Yun, chief economist at NAR."
I suspect that the SCOTUS is well aware of the horrific fallout from a federal government that chooses to Nationalize a major sector or businesses in a country (look at Venezuela, Mozambique, Argentina, et. al).
We will have a problem here if the SCOTUS threw out the "Nationalization" word during oral argument in Collins as sort of either a head fake and/or to egg Moopan to "dig deep" and give us da Gubmints best argument because maybe we do think they were NATIONALIZED.
The SCOTUS could actually accept the Petition for Writ of Certerrori, hear Oral Arguments and decide that "Salting the Earth with the shareholders CARCASSES" is okay here because just like the FHFA is not a conservator BUT A SUPER GUBMINT CONSERVATOR granted with SPECIAL SUPER POWERS by HERA, the defacto nationalization is okay BECAUSE OF THE GSES UNIQUE ROLE AND GUBMINT CHARTERED STATUS. Or some other goofy reason why it's okay here but normally not okay.
This is the problem with gambling on and/or trying to predict the outcome of court cases, as a certain Judge informed us along time ago during oral arguments.
One of our yuge problems here is that inertia and no immediate need for Sandra and Janet to change the status quo. Coupled with the Major Vested Interests (e.g., MBA, TBTF banks, NHBA, the NAR) seeming perfectly content with the way things are today. It could be a long time before all current and new litigation works it way through the judiciary.
That leaves the US Congress and probably 90% either don't understand what happened here or like the status quo and the MBA, NHBA, NAR, and financial intermediaries can live with the status quo and donate generously.
You're right it's 4 to grant Cert but we'll need 5 to agree in the end! Suing a recalcitrant Uncle Suggy over Billions is a b*tch and we have already been litigating this defacto nationalization for almost a DECADE it seems!
Wouldn't it be nice if the FHFA and the UST could realize that keeping their boots on the shareholders necks is not good policy and "Salting the Earth with the shareholders CARCASSES.", is a bad long term public policy?
No, I get it, that the Remedy in a standard Takings Case doesn't involve any future gains or losses post Taking.
But WHEN EXACTLY did a Taking in violation of our 5th Amendment right take place? Was it when the US Treasurer said to POTUS or Bernake, "The 1st sound they'll here is the sound of their heads hitting the floor"? Was it when Jim Parrot was in a meeting with his fellow UST officials plotting that "they would never go pretend private again"? Was each separate sweep payment a Taking?
I enjoy you and others fortitude and admire the remaining and new Shareholders for continuing to spend their limited resources and time on this defacto nationalization by the United States Treasury and FHFA, BUT multi Billion dollar litigation just takes time and if we end up with a nickel and/or another pyrrhic victory, more legal challenges will follow.
We only need 5, TH thinks we could end up with no wins, thinking it's "Nothing but a D*mn CONSPIRACY" courtesy of the Federalist Society ; -) !
I'm not there yet, but maybe one day !
Since the Gubmint has done a defacto nationalization of the twins, shouldn't Moody's, S&P and Fitch add the $7T+ of MBS to the Gubmints Balance Sheet?
I'm asking for a friend !
Since they already told you No on the Takings Petition, can you see if 5 of 9 agree that the sweep is invalid under the Major Questions Doctrine?
What a costly disaster this program is, HI LTV, LO FICO loans with borrowers having NO SKIN IN THE GAME!
Isn't this type of lending the reason we are here in the first place!
Nationalization is a horrific governmental policy and I am shocked that it is taking place in America WITH THE COMPLICIT CONSENT OF ALL 3 BRANCHES OF THE FEDERAL GOVERNMENT!
Sad days for American Capitalism, BUT HARD WORKING AMERICAN FAMILIES WILL SUFFER THE MOST!
Indeed, THEY ALREADY HAVE! Look at Guaranty Fees NOW compared to when I worked at Fannie Mae between 1988 and 1993. You can verify what I am saying via 10q data.
Average GF 1988 to 1993 was approximately 20 to 25 basis points. TODAY IT'S APPROXIMATELY 60+ basis points!
How much does that damage all residential housing in America?
40 basis points on a $400,000 loan is approximately $1600/yr IN EXTRA MORTGAGE COSTS FOR HARD WORKING AMERICAN FAMILIES, IT ALSO MAKES YOUR RESIDENTIAL REAL ESTATE HOLDINGS LESS VALUABLE AS IT INCREASES EXPENSES OF OWNERSHIP AND MAKES THE ASSET LESS ATTRACTIVE!
What a Cluster f*ck!
"Without this Court’s intervention,
these cases establish a pernicious precedent that the
government may take private property for the public
benefit, and the owners of the property lack any rem-
edy for the taking. Accordingly, this case is a perfect
vehicle for the Court to address the question pre-
sented, which is dispositive, and involves likely the
most extreme nationalization of private companies in
our nation’s history."
"Nevertheless, the Federal Circuit in a two-sentence
footnote suggested (without holding) that Petitioners
do not have a cognizable property interest in their
stock because it had held that the Companies once in
conservatorship had no cognizable property interest
in their net worth. Pet.App.53a n.14.
This off-hand, unbriefed suggestion, going to the
merits rather than the directness of the claim, is friv-
olous and would not present any genuine question."
The Net Worth Sweep prevented the GSES from exiting the conservatorship, but the shareholders have no cognizable property rights until the GSES exit conservatorship, this vicious cycle could continue into perpetuity if the 3 Judge panel decision is allowed to stand.
D. The Federal Circuit’s Decision Is Wrong.
1. The Federal Circuit erred when it found that
Petitioners’ claims are derivative.
First, the Federal Circuit did not grapple with the
property interest that was taken—rights to dividends
and liquidation distributions, which belong to the pri-
vate shareholders and only to the private sharehold-
ers—and which were reduced to “nothing.” Collins,
141 S. Ct. at 1779. Instead, the court recharacterized
Petitioners’ allegations and asserted that the share-
holders were resting their claims on the assertion that
the Companies were overpaying Treasury.
Second, and even more simply, the Federal Circuit
failed utterly to grapple with the rule that claims of
shareholders harmed by reallocations of equity among
shareholders are direct.
Third, the Federal Circuit similarly failed to grap-
ple with Collins on this question. Its only justification
for that disregard was that Collins involved a question
of private shareholders’ Article III standing. That re-
fuses to see the direct applicability of this Court’s rea-
soning, answering an analogous question of law, in the
same terms, on the same government action.
2. There can be no question that Petitioners’
stock constitutes a property interest supporting a tak-
ings claim here. Supra I.A.2. Indeed, the Fifth Circuit
panel in Collins found, and the en banc court agreed,
that “the transfer of the Shareholders’ economic rights
to Treasury” “[d]ivest[ed] the Shareholders’ property
rights [and] caused a direct injury.” 896 F.3d 640, 654–
55 (5th Cir. 2018) (per curiam); see 938 F.3d 553, 574–
75 (5th Cir. 2019) (en banc). And, here, the govern-
ment had not raised any such merits issue on appeal.
Nevertheless, the Federal Circuit in a two-sentence
footnote suggested (without holding) that Petitioners
do not have a cognizable property interest in their
stock because it had held that the Companies once in
conservatorship had no cognizable property interest
in their net worth. Pet.App.53a n.14.
This off-hand, unbriefed suggestion, going to the
merits rather than the directness of the claim, is friv-
olous and would not present any genuine question.
First, even if the Federal Circuit were correct as to the
Companies (which it is not, see, generally Andrew T.
Barrett v. United States, Petition for A Writ of Certio-
rari, No. 22-__ (July 22, 2022)), the suggestion would
not follow. If, for example, the Companies were liqui-
dated, no one would claim they retained any interest
in their property, yet private shareholders would re-
tain their property rights in the liquidation proceeds.
Indeed, the Recovery Act expressly recognizes this
truism. Supra Statement A. Supposing the govern-
ment may with impunity seize the Companies’ assets,
it is a separate question whether it may do the same
to Petitioners.
Second, the mere possibility of something like the
Net Worth Sweep, under the Recovery Act’s general
authorization of a conservatorship, does not vaporize
property rights during the conservatorship. That is so
even under the Federal Circuit’s (overly generous)
view of the malleability of background property rights
in the face of new legislation. The most that inheres
“in the title,” so as to “defeat a property interest,” is
“specific regulation,” not potential regulation. Piszel v.
United States, 833 F.3d 1366, 1374–75 (Fed. Cir. 2016);
A&D Auto Sales, Inc. v. United States, 748 F.3d 1142,
1152 (Fed. Cir. 2014) (same).
The whole point of the
Takings Clause is that the government must compen-
sate property owners for authorized action. E.g., Pre-
seault v. I.C.C., 494 U.S. 1, 17 (1990).
Third, the two cases on which the Federal Circuit
relied are irrelevant on this issue, which is why no
party cited either of them on it in the Federal Circuit.
They merely involved challenges to being placed into
conservatorship or receivership (and consistent with
longstanding background law)—which is not at issue
here—not to action such as here in the course of a con-
servatorship or receivership (and unlike any taken be-
fore). See Golden Pac. Bancorp v. United States, 15
F.3d 1066, 1069, 1073–74 (Fed. Cir. 1994); Cal. Hous.
Sec., Inc. v. United States, 959 F.2d 955, 958–59 (Fed.
Cir. 1992). That is why the same court had no trouble
later recognizing a shareholder’s property interest in
even a contingent surplus from a receivership. First
Hartford, 194 F.3d at 1296; see Cal. Hous, 959 F.2d at
957 n.2 (similar); see also Waterview Mgmt. Co. v.
F.D.I.C., 105 F.3d 696, 701 (D.C. Cir. 1997) (“To read
the statute . . . to permit a federal agency acting as
conservator or receiver to sell assets in disregard of all
pre-receivership rights, raises significant constitu-
tional questions under the takings clause.”).
Fourth, even if one were merely applying a Penn
Central balancing analysis of a regulatory-taking
claim in the context of a regulated industry, the result
would be the same. See Cienega Gardens v. United
States, 331 F.3d 1319, 1350 (Fed. Cir. 2003) (explain-
ing that a party can have reasonable investment
backed expectations even where a business operates
in “a heavily-regulated industry,” because not all reg-
ulatory changes are reasonably foreseeable); cf. Col-
lins, 141 S. Ct. at 1776.
REASONS FOR GRANTING THE PETITION
I. The Federal Circuit’s Decision Conflicts With
Collins On The Same Government Action At
Issue Here, As Well As With Other Decisions
Of This Court And The Courts Of Appeals.
The Federal Circuit’s decision conflicts with deci-
sions of this Court and other courts of appeals.
Longstanding federal law establishes that injury to a
shareholder’s rights, which exists whether or not the
company was harmed, is a direct injury. Courts, in-
cluding this one, have long focused on whether the al-
leged injury to shareholders is based upon rights inci-
dental to stock ownership (a direct claim), or instead
is based on an injury to the corporation, which will in-
directly affect every shareholder (a derivative claim).
In addition, as a specific instance of this black letter
rule, when equity rights are reallocated among share-
holders—which might not harm the company, and
might benefit it—a claim by the harmed shareholders
is direct. Because the Net Worth Sweep harmed the
Private Shareholders’ rights that were incidental to
stock-ownership, regardless of whether it also harmed
the Companies, the private shareholders’ takings
claims are direct. That the government harmed pri-
vate shareholders by reallocating their property to it-
self-as-shareholder confirms this conclusion.
If there were any doubt, this Court laid it to rest in
Collins. There, this Court analyzed the very action at
issue in this case: the Net Worth Sweep. And Collins
concluded that private shareholders suffered an in-
jury-in-fact from the transfer of their rights to Treas-
ury. 141 S. Ct. at 1779;see also Dec. 9, 2021 Hr’g Tr. 71:8–72:14 (Justice Breyer suggesting during Collins
argument that the injury “seems like a takings claim”).
The transfer “left nothing” for them and was thus a
“concrete injury” that “flows directly from” the Net
Worth Sweep. 141 S. Ct. at 1779. The Court corre-
spondingly recognized that the Net Worth Sweep did
not necessarily harm the Companies. Id. It follows
that Petitioners’ takings claims are direct claims.
But the Federal Circuit ignored this Court’s analy-
sis as well as longstanding background federal law,
and mischaracterized the Net Worth Sweep as a
merely an injury to the Companies. It was thus quite
wrong.
A. A Claim For Compensation Of Share-
holders For The Transfer Of Their Rights
To The Government Is Direct Under
Longstanding Federal Law.
B. A Claim Based On Harm To A Subset Of
Shareholders Due To Reallocation Of Eq-
uity Is Direct Under Longstanding Fed-
eral Law.
C. This Court’s Analysis In Collins, Of The
Same Shareholder Injury-In-Fact As
Here, Is Consistent With And Reinforces
Longstanding Federal Law.
First, the Court’s analysis of the injury-in-fact of the
private shareholders in Collins (as well as traceability)
acknowledged the simple, direct nature of the harm
the Net Worth Sweep imposed—“the shareholders
claim that the FHFA transferred the value of their
property rights in [the Companies] to Treasury, and
that sort of pocketbook injury is a prototypical form of
injury in fact.” 141 S. Ct. at 1779 (emphases added).
And in holding that this prototypical injury was trace-
able to the Net Worth Sweep, the Court further ex-
plained that it “swept the companies’ net worth to
Treasury and left nothing for their private sharehold-
ers.” Id. (emphasis added). The private shareholders
therefore alleged a “concrete injury” that “flows di-
rectly from” the Net Worth Sweep. Id. (emphasis
added).
This analysis provides a close analogy for why Peti-
tioners’ takings claims are direct. Petitioners allege
the Agency “transferred to Treasury 100% of their pri-
vate-shareholder rights to receive dividends and dis-
tributions from the Companies, eviscerating the eco-
nomic value of their shares . . . .” Fed. Cir. Jt. Br. 30.
They have detailed the “transfer to the government of
the ownership rights that [they] held,” ownership
rights in which they have a “‘direct personal interest.’”
Id. at 33–35 (quoting Starr, 856 F.3d at 966). And they
have shown how the allegations in their complaints
provided ample factual bases for that “distinct injury.”
Id. at 36. The allegations are the same, and the logic
is the same.
Second, and confirming the first point, Collins rec-
ognized that the private shareholders’ claimed injury
did not depend on whether the Net Worth Sweep also
harmed the Companies. The Court recognized that it
did not halt or apparently even weaken the Compa-
nies’ operations to divert all its surplus capital to
Treasury: “Nothing about the amendment precluded
the companies from operating at full steam in the
marketplace, and all the available evidence suggests
that they did so.” Id. Indeed, the “immense amounts
of wealth” transferred to Treasury—as the Companies
“amassed over $200 billion in net worth” and Treasury
netted “at least $124 billion” compared to the pre-
sweep terms—were generated by this very “full steam”
operation. Id. at 1778; see also id. at 1774. What
changed was that operational companies ceased to be
private companies—which is to say, that the private
shareholders lost their interests.
Petitioners’ claims are therefore independent of,
and distinct from, whatever claims the Companies
may have based on the Net Worth Sweep. That dis-
tinction is a key part of the standard analysis, as far
back as Pittsburgh, as well as American Power and
Tooley, for whether a claim is direct or derivative, and
confirms the claims’ directness here. See supra I.A.
Third, Collins reinforced the private shareholders’
more specific argument for standing based on their di-
rect harm from the “reallocation of equity value”
among existing shareholders, from them to Treasury-
as-shareholder. Strougo, 282 F.3d at 175; see Alle-
ghany, 353 U.S. 151. The Net Worth Sweep, as this
Court recognized, “materially changed the nature of
the [prior] agreements” setting up the conservatorship.
Collins, 141 S. Ct. at 1774; see id. at 1779. By chang-
ing the quarterly dividend payable to Treasury from a
fixed amount to a variable dividend equal to almost
the Companies’ entire net worth, the Sweep Amend-
ment “left nothing for the[] private shareholders.” Id.
at 1779. This reallocating of equity rights from private
shareholders to the government-shareholder, by the
government, directly injured Petitioners. This did not
necessarily injure the Companies as the agreement
merely changed to whom the Companies pay divi-
dends. But it directly injured a subset of the Compa-
nies’ shareholders.
"Indeed, in summer 2012, Fannie Mae’s CFO pre-
dicted “golden years” of earnings, and Treasury antic-
ipated that the next reporting period would show
“very strong earnings,” “in-excess of the 10% dividend
to be paid to Treasury.” Id. ¶ 57. "
"Treasury conceded that, with the Net Worth Sweep,
it intended to benefit itself as shareholder, and thus
taxpayers, at the expense of private shareholders. In
a Treasury document, an official noted that the
amended Treasury SPAs would put the Treasury “in a
better position” because, rather than having “Treas-
ury’s upside . . . capped at the 10% dividend, now the
taxpayer will be the beneficiary of any future earnings
produced by the [Companies].” Fed. Cir. Jt. Br. 18.
Treasury also emphasized that “every dollar of earn-
ings” would go to “taxpayers,” so the Companies would
not “rebuild[ ] capital and return to the market in
their prior form.” Id.
After the Net Worth Sweep, the Companies’ finan-
cial condition continued to improve as expected. As a
result, they “ended up transferring immense amounts
of wealth to Treasury.” Collins, 141 S. Ct. at 1774. Spe-
cifically, in 2013, Treasury received $130 billion in div-
idends; in 2014, over $40 billion; in 2015, almost $16
billion; and in 2016, almost $15 billion. Id. And in
2013, Fannie Mae did announce that it would release
the valuation allowance on its deferred tax assets, re-
sulting in a tax benefit of $50.6 billion and contrib-
uting substantially to the especially large dividends to
Treasury in that first year. Owl Creek Compl. ¶ 90.
Over those four years, Treasury received approxi-
mately $200 billion—“at least $124 billion more than
the [C]ompanies would have had to pay … under the
fixed-rate dividend formula that previously applied.”
Collins, 141 S. Ct. at 1774. If Treasury had instead
exercised its warrants (to purchase nearly 80% of com-
mon stock at a nominal price), it would have had to
share dividends with private shareholders: Holders of
junior preferred would have been entitled to dividends
after Treasury received payments on its senior pre-
ferred (under the pre-Sweep terms), and holders of
common would have received dividends along with
any paid to Treasury on its common."
B. Procedural History
Second, the court concluded that, under back-
ground federal law (informed by Delaware law), Peti-
tioners’ claims pleaded as direct were actually deriva-
tive, belonging to the Companies. Pet.App.222a. That
Petitioners alleged the government exacted economic
value from other shareholders by rearranging the cor-
porate capital structure, transferring to itself Peti-
tioners’ rights, did not matter. Pet.App.219a. Rather,
their claims were supposedly premised on allegations
of overpayment, harming the Companies: that “[t]he
government, via the PSPA Amendments, compelled
the [Companies] to overpay Treasury.” Pet.App.221a.
Finally, the court found that the derivative takings
claim could proceed. Pet.App.152a, 159a. Although
the D.C. District Court had found in a related case
that shareholders’ rights to assert derivative claims
were transferred to the conservator by the Recovery
Act’s “Succession Clause,” 12 U.S.C. § 4617(b)(2)(A)(i),
the court held that shareholders were not collaterally
estopped from re-litigating that issue. Pet.App.146a.
The court then reasoned that shareholders could as-
sert derivative claims despite the Succession Clause,
under First Hartford Corp. Pension Plan & Trust v.
United States, 194 F.3d 1279 (Fed. Cir. 1999), because
the Agency faced a conflict-of-interest in deciding
whether to sue the federal government. Pet.App.146a.
Petitioners appealed to the Federal Circuit, and the
United States cross-appealed.
2. While that appeal was pending, this Court de-
cided Collins. It rejected an APA challenge to the Net
Worth Sweep, as barred by an anti-injunction provi-
sion of the Recovery Act, and granted a constitutional
challenge to the Recovery Act’s removal restriction on
the Director. 141 S. Ct. at 1770.
Before oral argument in this case, the Federal Cir-
cuit received supplemental briefing on the effect of
Collins. Petitioners explained, among other things,
that Collins confirmed in three ways that Petitioners
have direct claims. First, the Court’s analysis of the
injury-in-fact of the private shareholders there (as
well as traceability) acknowledged the simple, direct
nature of the harm the Net Worth Sweep imposed:
“[T]he shareholders claim that the FHFA transferred
the value of their property rights in [the Companies]
to Treasury, and that sort of pocketbook injury is a prototypical form of injury in fact.” Id. at 1779. They
alleged a “concrete injury” that “flows directly from”
the Net Worth Sweep. Id.
Second, Collins recognized that the private share-
holders’ injury did not depend on whether the Net
Worth Sweep also harmed the Companies. Third, Collins reinforced Petitioners’ more specific
argument for standing: They suffered a direct harm
because the Net Worth Sweep reallocated equity
among existing shareholders, from them to Treasury-
as-shareholder.
Next, the court accepted the Court of Federal
Claims’ recharacterization of the private shareholders’
direct claims as derivative. Pet.App.22a. The Federal
Circuit agreed that the shareholders’ claims were ac-
tually for overpayment, supposedly essentially assert-
ing that “in exchange for [the Agency’s] conserva-
torship, both the [Companies] and shareholders were
forced to pay Treasury at a loss.” Id. (This statement,
although seemingly central for the court, appeared to
conflate the events of 2008, in which the conserva-
torship began, with the Net Worth Sweep, imposed in
2012. Petitioners here challenged only the latter.) The
court dismissed the shareholders’ arguments based on
Collins simply by distinguishing Article III standing
considerations as irrelevant to the existence of a direct
claim. Pet.App.27a–28a. The Federal Circuit similarly
rejected Petitioners’ reliance on such authority as Al-
leghany, 353 U.S. 151, without much discussion.
Pet.App.26a–27a.
On the merits of the derivative takings claim
brought by one of the Fairholme parties, the Federal
Circuit disagreed with the Court of Federal Claims.
The panel explained that the Companies could not
state a derivative takings claim, because “the right to
exclude is an essential element of property ownership”
and “regulated financial entities lack the fundamental
right to exclude the government from their property
when the government could place the entities into con-
servatorship or receivership.” Pet.App.51a. In 2008,
when the Recovery Act was passed, the Companies “lost the right to complain if and when the [Agency]
chose to elevate its interests, and the interests of the
public, above the interests of the [Companies].”
Pet.App.52a. Therefore, the court reasoned, the Com-
panies had no protectable property interest in their
earnings. Id.
The Federal Circuit thus dismissed all of Petition-
ers’ claims, as well as related claims of other private
shareholders. Under Collins, the government is
shielded from any challenge to its authority to impose
the Net Worth Sweep. And under the Federal Circuit’s
decision, the government is shielded from having to
compensate the private property owners at whose ex-
pense it imposed the Net Worth Sweep in the pur-
ported public interest.
END OF PROCEDURAL HISTORY
From the Owl Creek Petition from Jones Day (thanks for the link yesterday Navy!): "The question presented is: If the United States
causes a company to transfer to the United States for
the public benefit private shareholders’ rights inci-
dent to their ownership of shares in the company, do
the private shareholders have a direct, personal inter-
est in a cause of action challenging that taking?"
REASONS FOR GRANTING THE PETITION ...... 13
I. The Federal Circuit’s Decision Conflicts
With Collins On The Same Government
Action At Issue Here, As Well As With
Other Decisions Of This Court And The
Courts Of Appeals ............................................ 13
A. A Claim For Compensation Of
Shareholders For The Transfer
Of Their Rights To The
Government Is Direct Under
Longstanding Federal Law ...................... 14
B. A Claim Based On Harm To A
Subset Of Shareholders Due To
Reallocation Of Equity Is Direct
Under Longstanding Federal Law .......... 20
C. This Court’s Analysis In Collins,
Of The Same Shareholder Injury-
In-Fact As Here, Is Consistent
With And Reinforces
Longstanding Federal Law ...................... 23
D. The Federal Circuit’s Decision
Is Wrong ................................................... 26
II. Review Of The Federal Circuit’s
Decision Is Important, For Its Own
Sake (Particularly In Light Of Collins)
And Because Of Its Implications, And
This Case Is An Ideal Vehicle .......................... 31
"Petitioners sued for the taking of their shareholder
rights. But the courts below ruled that their suits for
money damages for themselves, for the loss of their
dividend and liquidation rights, were somehow deriv-
ative claims of overpayment belonging to the Compa-
nies. That is plainly wrong."
"First, under
longstanding federal law, the transfer of shareholder
rights results in a direct injury to the shareholder.
Second,
as a corollary, if a company reallocates its equity,
shareholders harmed by that reallocation have a di-
rect claim.
Third, this Court’s reasoning
in Collins that private shareholders stated an injury-
in-fact directly resulting from the Net Worth Sweep is
consistent with, and reinforces these federal rules in
this very circumstance. These rules all establish that
Petitioners were directly harmed by the Net Worth
Sweep.
The lower courts’ decisions conflict with this law by
mischaracterizing Petitioners’ claims as derivatively
asserting merely that the Companies overpaid for
something. And the question presented is important
and recurring as it bears on the fundamental integrity
of the Takings Clause and, if left undisturbed, the rul-
ing below would serve as a blueprint for government
evisceration of private property rights. This Court
should grant review."
Shame on da Gubmint for arguing that the GSES were in a Death Spiral when they were informed that the golden years were just ahead!
As I recall Susan McFarland even informed them that after all those years of booking INFLATED LOSS RESERVES, THEY WOULD NEED TO BE PUT BACK INTO EARNINGS AND COUPLED WITH THE DTA SHOULD BE MORE THAN ENOUGH TO MAKE THE 10% DIVIDEND PAYMENT TO TREASURY!
Power corrupts absolutely!
So is da Gubmint finished with all their pretrial motions to dismiss on the Lamberth case?
"The Golden Years are just ahead", is exactly what the CFO of Fannie Mae informed both Treasury and FHFA officials pre 3rd Amendment.
The 3rd Amendment or Net Worth Sweep, if allowed to stand by the federal judiciary will be THE BLUEPRINT for future federal government Takings and Nationalizations.
A sad day for American Capitalism and ultimately the prosperity of the American People.
The Government's Death Spiral argument is TOTAL BULLSH*T:
"Officials have claimed that they took this action because they feared the GSEs would start losing money again, and that taxpayers would end up on the hook again. In the months immediately following the momentous switch, however, the GSEs actually booked record profits. As of last November, by which time thousands of Fannie and Freddie investors—led by hedge fund Perry Capital and the Fairholme Group of mutual funds—had filed numerous suits in numerous courts, the GSEs had paid the government about $240 billion in exchange for the $189.5 billion bailout, or nearly $130 billion more than they would have paid under the original 10% coupon agreements.
Though the investor suits have been based on a wide range of legal theories, they fall into two main categories: those alleging that the momentous 2012 revision in bailout terms was beyond federal officials’ statutory powers and those alleging that it was an unconstitutional “taking” of shareholder property without just compensation—i.e., a violation of the Fifth Amendment."
I added the Bold: "After dismissing the direct Takings claims of
shareholders as “substantively derivative,” the Federal
Circuit addressed plaintiff Andrew Barrett’s derivative
Takings claim. It by-passed the question of whether
HERA’s Succession Clause, while generally transferring
derivative claims to the FHFA, must have a conflict-of-
interest exception in circumstances where FHFA would be
called upon to sue itself. Instead, it reached out to decide
an issue not briefed before it: it held the GSEs’ lacked
any cognizable property interest in their net worth, and
therefore the derivative Takings claim had to be dismissed
on the merits. App.50a–53a.
The defendant should not be permitted to defend
the dismissal of petitioners’ multi-billion dollar Takings
claim based upon a partially reasoned footnote attached
to text that dramatically shrinks the protections of the
Takings Clause. It is one thing to hold, as Golden Pacific
and California Housing Securities both did, that it is not
a taking under the Fifth Amendment to place a financial
institution into conservatorship or receivership that is
justified based on facts and circumstances that actually
exist and that are set forth in a statute reasonably designed to protect the public from failing financial institutions. It
is quite another to hold, as the Federal Circuit did, that
because the former is not a taking, nothing that the
government does with respect to a regulated financial
institution can ever be a taking. The former proposition
is necessary to allow reasonable regulation and oversight
of financial institutions. The latter is a “Get out Jail Free”
card to the government that allows it to take anything
it wants from regulated financial institutions and their
shareholders without paying just compensation."
"For example: government regulators have the power
to put Bank of America, Wells Fargo, and Citibank into
conservatorship or receivership. According to the Federal
Circuit, that means that, no matter what the facts and
circumstances are, those regulators have the power to
take 100% of all dividends those regulated banks may pay
in the future – no matter what.
This cannot be squared with the Takings Clause. This
Court must therefore grant certiorari to ensure that the
Takings Clause still exists for shareholders in regulated
financial institutions."
"By preventing shareholders from challenging the taking of
their property without examination of the merits of their
claim, the Federal Circuit effectively opens the door to
all manner of government abuses.
Taking property on such a scale should not be
permitted without review by this Court. Moreover, as
discussed in Section II, below, the drastic nature of the
Federal Circuit’s decision is compounded by its holding
that the derivative Takings claim also had to be dismissed.
According to the Federal Circuit, once the Government
has regulatory authority to put an enterprise into
conservatorship, it has the power to take 100% of its net
worth for the financial benefit of the Government without
triggering the Takings Clause. App.52a–53a. No prior
case supports that holding, and this Court should not
allow it to stand.
But the
Federal Circuit decision holds that the Takings Clause
would have no application to any one of them.
And while perhaps marginally less extreme, the facts
here are similar in kind: this Court itself recognized
during oral argument in Collins that the Net Worth Sweep
was effectively a “nationalization” of the GSEs. Transcript
of Oral Argument at 13–14, Collins, 141 S. Ct. 1761 (No.
19-422). And the Net Worth Sweep has caused Treasury
to receive hundreds of billions of dollars in dividends
that would otherwise have been shared with private
shareholders, who themselves invested over $30 billion
into the GSEs, including $20 billion in the distressed years
of 2007 and 2008. In Collins, this Court held it was lawful for the
government to take this action. Now it should decide if
just compensation should be paid for the private property
that was taken."
Nice! Shareholders have been waiting for close to a decade to have their day in court and it will be important to shine a bright light on the governments behavior here!
Plus, it's fun to come visit here and there's a lot to do especially after the Summer time tourist season is over.
I hope you get a chance to visit.
"Petitioners claim that the property rights they (and they alone) own have been taken. Whether they are right or wrong is
the relevant question, not whether the claim is “direct”
or “derivative.” Petitioners rely on their own, direct
ownership of the right to receive future dividends on their
preferred stock under certain contingent circumstances,
and allege that this right was taken from them and given
to Treasury. Petitioners do not rely upon the property
rights of the GSEs, but upon their own property rights as
owners of preferred stock in the GSEs. For that reason,
petitioners have a “direct, personal interest” in their cause
of action, and readily satisfy the standard for bringing
direct claims as described in Franchise Tax Board.
Second, given the nature of the Taking, it is not the
case that petitioners’ injuries are “entirely derivative
of their ownership interests” in the GSEs. By giving
Treasury 100% of all right to all future dividends, the Net
Worth Sweep took away any and all economic interests
that the shareholders had in perpetuity. At that point,
the shareholders’ interest was not just diluted, but
destroyed.
Third, this Court’s description of the shareholder
standing rule in Franchise Tax Board recognized “an
exception to this rule allowing a shareholder with a direct,
personal interest in a cause of action to bring suit even
if the corporation’s rights are also implicated.” 422
U.S. at 336 (emphasis added). By contrast, the Federal
Circuit effectively adopted a 2021 Delaware Supreme
Court ruling in a fiduciary breach case that “abolished”
this “dual nature” concept, proclaiming the absolute
rule that “claims are derivative in nature whenever the
shareholders’ claims are not completely independent
from the claims of harm to the corporation.” App.19a
n.6 (citing Brookfield, 261 A.3d at 1267). The Federal
Circuit thus used a Delaware Supreme Court case to
overrule this Court’s description of the shareholder
standing rule in Franchise Tax Board. Under the Federal
Circuit’s absolute rule, “if the corporation’s rights are
also implicated,” then the claim must be derivative. That
directly contradicts the exception identified by this Court
in Franchise Tax Board.
Fourth, this Court’s discussion of the issue in
Franchise Tax Board was made in the context of a case
involving a Foreign Commerce Clause challenge to a state
tax regime. It did not involve a claim by U.S. citizens
raising claims that a fundamental right had been infringed.
Here, petitioners claim that their right not to have their
private property taken without just compensation has
been violated. That invokes a fundamental individual right protected by the Fifth Amendment. It deserves
greater scrutiny than was given by the Federal Circuit,
and warrants revisitation of the shareholder standing
discussion in Franchise Tax Board."
Tim Rood quoting RR: "Nothing lasts longer than a temporary government program". So true, so true!