Fannie Mae (FNMA)

[navycmdr]

ROP v. FHFA – In Appeals Court

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In September 2020, a judge dismissed all the claims. The judge sidestepped the appointments clause claim by categorizing it as a political question and saying therefore it is not justiciable. Plaintiffs appealed to the Sixth Circuit Court of Appeals and filed their opening brief in December 2021. The case was argued orally June 9th for plaintiffs by Pete Patterson in front of Justices Gibbons, Cook and Thapar. Pete Patterson, before going to work for Cooper and Kirk, where he is representing shareholder plaintiffs in this case, served as a law clerk for Judge Jeffrey Sutton in the Sixth Circuit Court of Appeals. This legal ruling is expected to be announced sometime in the next 90 days as it was orally argued in front of the appeals panel over two months ago.

Ed DeMarco went to work at FHFA from Treasury and became Acting Director in September 2009. There, he helped solve Treasury’s 2012 budget issue by implementing the net worth sweep in 2012 as acting director three years after becoming acting director. The argument could be made that the Senate would have never confirmed a director who would have used housing funds to fund Treasury’s general obligations to offset increased executive spending on Obamacare. Congress is supposed to oversee approving the government’s budget. In this case, the president appears to have gone around the intention of Congress using an acting director that Congress would have not confirmed to take funding action that Congress would not have approved.

Therefore, the appointment’s clause argument that ROP plaintiffs are making is interesting because it is designed to safeguard from this very sort of thing, whereby the president would just choose people to run Federal agencies that are not confirmable to do whatever he wants them to do while he nominates people who he knowingly could not get confirmed anyway because they’re too controversial to get through the Senate confirmation process. The appeals court seems to understand that the government’s argument promotes a rogue run around the intention of Congress.

The Judges Seem To Favor Plaintiffs
All three of the judges in the panel seem to disagree with the lower court’s ruling that the Appointments Clause challenges have no merit because there is no time frame after which an acting director is no different than a senate confirmed director. The 3-judge panel seemed to argue that the lower court ruling does not reconcile with their interpretation of the law.

Does The Appointments Clause Mean Anything?
Judge Thapar said to the government lawyer:

But then what does Ryder mean when they say we want to encourage people to bring appointments clause challenges? What would be the point if we always applied de facto officer doctrine. The court would say ‘bring something you can never win.’

On top of seeming to agree with shareholder plaintiffs' interpretation of the law, the judges seem to think that the government lawyer’s desired oral arguments are without merit, as analyzed below.

Is The Government Just Making Excuses?
At 24 minutes into oral arguments Judges Cook and Gibbons start questioning what the government’s defense is “It’s like these two arguments look for excuses to not consider the core issue, sort of fringe things… are you conceding?”

The defense’s lawyer Gerard Sinzdak goes on to saying that “if your honors are interested in avoiding that question…” to which the judge interrupts “well what if we are?” The Treasury lawyer then replies saying, “Well then we would urge your honours to hold …” to which the judge interrupts again, “well why don’t you make that argument.” The government’s lawyer goes on to argue that there is no limit to the tenure on an officer.

Trouble With The Government’s Argument
Judge Thapar points out the trouble with the government’s argument:

What really troubles me about your position is the theory is the president can have actings forever and we never need to go through the Senate confirmation process and that can’t be what the Appointments clause means.

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For this office they (congress) have not placed a limit, for this office from now until the end of time: can presidents appoint people through the acting process and they can fulfill the roles, the functions of a principal officer without ever having Senate confirmation?

The government lawyer answers that “Yes is the answer to your question.” So you have a Judge saying that his interpretation of the Appointments clause appears to necessitate that directors go through Senate confirmation and that if he should agree with the government’s defense he would be supporting a process that undermines this process to infinity and this poses a significant theoretical problem.

The government’s lawyer continues, “It is a theoretical issue, but it is one that has not happened in reality.” Judge Thapar replies, “Well, DeMarco served over three years… presidents nominate people they know they can never get confirmed, you could keep your person in office in theory. You could keep someone politically unacceptable, politically unaccountable by doing it this way and avoid Senate confirmation.”

And that’s the problem with the government’s argument and for that reason the ROP v. FHFA Appeals court decision is worth paying attention to and it can be expected in the next 90 days and could very well reverse the net worth sweep because it was done by an acting director (Ed DeMarco) over two years after he became director.

For the judges to side with the government’s defense here, it would largely render the appointment’s clause meaningless and devalue the long standing Senate Confirmation process. For this reason, I am optimistic about plaintiffs’ chances with this pending appeals court ruling.