Fannie Mae-No Politics (FNMA)

[Dollars1]

DEFENDANT’S NOTICE OF SUPPLEMENTAL AUTHORITY The United States respectfully submits this notice of supplemental authority to alert the Court to the recent opinion and pending appeal in Piszel v. United States, No. 14-691C, 2015 WL 3654399 (Fed. Cl. June 12, 2015), No. 15-5100 (Fed. Cir.). Ex. A. As described below, Piszel is persuasive authority that supports arguments raised in our pending motion to dismiss. Should the Federal Circuit affirm the court’s decision in Piszel, that decision would become binding precedent bearing upon this Court’s disposition of Fairholme and the other lawsuits brought by shareholders of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively, the Enterprises) who allege that actions taken by the Federal Housing Finance Agency (FHFA) effected an illegal exaction or Fifth Amendment taking of their shareholder rights. In Piszel, the court dismissed illegal exaction and takings claims arising out of the conservatorship of Freddie Mac. The plaintiff, Anthony Piszel, served as the Chief Financial Officer of the company from 2006 until September 2008. A few weeks after FHFA placed the Enterprises into conservatorship, the Director of FHFA instructed Freddie Mac to terminate Mr. Piszel without cause and to withhold the “golden parachute” severance compensation promised to him under his employment contract with the company. In his complaint, Mr. Piszel alleged that FHFA’s actions constituted either an illegal exaction or a Fifth Amendment taking of his contract right under his employment agreement. The court disagreed, holding that Mr. Piszel failed to state a plausible claim under either theory. With respect to the illegal exaction claim, the court held that he could not show that any money “was improperly paid, exacted, or taken from [him]” and turned over to the Government either directly or “in effect.” Piszel, at 8-10. (“What distinguishes an illegal exaction from a . . . breach of contract claim is that in an illegal exaction case the claimant has paid money over to the government that he once had in his pocket, and in a . . . breach of contract claim the claimant is seeking payment of money the claimant has never received.” Id. at 10. With respect to the takings claim, the court held on two independent grounds that Mr. Piszel failed to state a plausible claim. First, relying upon the Federal Circuit’s “instructive” holdings in Golden Pac. Bancorp v. United States, 15 F.3d 1066, 1073-74 (Fed. Cir. 1994), and Cal. Hous. Sec., Inc. v. United States, 959 F.2d 955, 957 (Fed. Cir. 1992), cert. denied, 113 S. Ct. 324 (1992), the court held that Mr. Piszel did not have a cognizable property interest in his severance compensation package because Freddie Mac was subject to pervasive government supervision and regulation, including the possibility of conservatorship, at the time Mr. Piszel entered into his employment contract in 2006. The court read those Federal Circuit decisions as holding that “the shareholders of statutorily regulated financial institutions lack[] the requisite property interests to support a takings claim.” Piszel, at 13. The court emphasized that FHFA (and its predecessor, the Office of Federal Housing Enterprise Oversight (OFHEO)) had at all relevant times (that is, both before and after the enactment of the Housing and Economic Recovery Act (HERA)) possessed extensive statutory authority to regulate, among other things, executive compensation. Piszel, at 13-15 (citing 12 U.S.C. § 4620(a) (1992); 12 U.S.C. § 4518(a) (1992); 12 U.S.C. § 4617(b)(2)(A)(i) (2008)). That broad authority included, the court explained, the power to place the Enterprises into “conservatorship under which the regulatory agency succeeds to ‘all the powers of the shareholders, directors, and officers of the enterprise.’” Id. at 13-14 (citing 12 U.S.C. § 4620(a) (1992). Second, the court held that, even if Mr. Piszel could allege a cognizable property interest, his regulatory takings claim failed as a matter of law under the standard regulatory takings analysis established by the Supreme Court in Penn Central Transp. Co. v. City of New York, 438 U.S. 104, 124-25 (1978). Piszel, at 16-17. Specifically, the court held that, given the pervasive and long-standing Government regulation of the Enterprises, Mr. Piszel could not have possessed a reasonable, investment-backed expectation to receive his severance compensation in the event that FHFA placed Freddie Mac in conservatorship. Id. at 16. Importantly, the court stated that no amount of discovery could alter this result. Id. at 18. If affirmed on appeal, Piszel will become binding precedent bearing upon Fairholme’s takings claim in this case. First, like Mr. Piszel, Fairholme challenges an action by FHFA taken pursuant to the broad grant of regulatory authority in HERA. See Compl. ¶¶ 76-79, 84-85. In our motion to dismiss, we demonstrated, among other things, that Fairholme cannot state a plausible Fifth Amendment takings claim because shareholders in the Enterprises do not possess a legally-cognizable property interest. Def. Mot. to Dismiss at 28-32, Dec. 9, 2013, ECF No. 20. This is because shareholders in the Enterprises – like executives at the Enterprises, such as Mr. Piszel – voluntarily enter into a highly-regulated industry subject to Government control. Id. at 31. Second, we demonstrated in our motion to dismiss that Fairholme cannot allege a plausible regulatory taking because shareholders lack a reasonable, investment-backed expectation of compensation for any loss of shareholder rights. Id. at 33-37. Although Piszel does not involve a shareholder claim, its reasoning is applicable in that context. Indeed, in Golden Pacific and California Housing, upon which the Piszel court extensively relied, the Federal Circuit rejected claims alleging a taking of shareholder interests. Both Mr. Piszel and shareholders in the Enterprises voluntarily entered a heavily-regulated industry subject to Government control. Given the likelihood that the Federal Circuit’s disposition of the appeal will result in binding precedent of importance to this case, the appeal in Piszel is an additional reason that all proceedings in this action should be stayed.1 Respectfully submitted, BENJAMIN C. MIZER Principal Deputy Assistant Attorney General s/ Robert E. Kirschman, Jr. ROBERT E. KIRSCHMAN, JR. Director s/ Kenneth M. Dintzer KENNETH M. DINTZER Deputy Director Commercial Litigation Branch Civil Division U.S. Department of Justice P.O. Box 480, Ben Franklin Station Washington, DC 20044 Telephone: [phone] Facsimile: [phone] Email: [e-mail] June 24, 2015 Attorneys for Defendant 1 We acknowledge the Court’s oral statement, made during the January 28, 2015 status conference, that it intends to deny our motion to stay proceedings in this case pending the resolution of the District of Columbia Circuit appeals in Perry Capital LLC v. Lew. Unlike Perry Capital, however, Piszel is pending in the Federal Circuit and will be binding precedent on this Court. 4