Replies to post #585653 on Fannie Mae-No Politics (FNMA)

[obiterdictum]

You misunderstood the implied-in-fact contract issue

Please specify the misunderstanding.

the BOD could not have agreed with MUTUAL consent, there was consent but not MUTUAL, the facts surrounding conservatorship don’t show any reason why FnF should voluntary give up the company, so it was forced (and claimed by Fairholme), Sweeney is looking at the initial consent to the reasons of why FnF should have agreed to let the FHFA enter, this is the early beginning of the procedure, all split second later issues as remedy, only can be ruled on after the initial MUTUAL consent is proven or coercion was used, otherwise Sweeney will set precedents to duress/coercion problems,

There are two issues raised here: There are:

1. Establishment of the conservatorships and "mutual consent" or "coercion."

2. Implied-in-fact contract and "mutuality of intent to contract."

1. Judge Sweeney account of establishment of the conservatorships is clearly stated in the Opinion and Order and it follows directly from the Plaintiffs' Second Amended Complaint. It is stated that "the Enterprises were not in financial distress or otherwise at risk of insolvency. Id. ¶¶ 45, 64." Yet, the FHFA and Treasury told each Enterprise’s board that the FHFA would seize the Enterprises if the board did not consent to the conservatorship, that FHFA made an offer to the GSE Boards of Directors and that the each GSE accepted the offer and consented to the conservatorship:

After Congress enacted HERA, Treasury “urg[ed]” the FHFA to place each Enterprise into conservatorship. 2d Am. Compl. ¶ 4. The FHFA and Treasury subsequently sought to persuade each Enterprise’s board of directors to consent to conservatorship. Id. ¶ 64. The FHFA and Treasury told each Enterprise’s board that the FHFA would seize the Enterprises if the board did not consent to the conservatorship. Id. Around the same time, the FHFA made an offer to each board: consent to a conservatorship in exchange for the FHFA-C aiming to preserve and conserve the Enterprises’ assets, attempting to restore the Enterprises to sound and solvent condition, and terminating the conservatorships when those goals were achieved. Id. ¶ 260. Each Enterprise’s board accepted that offer and consented to a conservatorship on September 6, 2008, with an understanding that the FHFA-C would operate in the aforementioned limited ways. Id. ¶¶ 64, 67; see also id. ¶¶ 259-63 (discussing the purported offer and acceptance). The FHFA, soon thereafter, issued statements echoing each board’s understanding. Id. ¶¶ 66, 261. The conservatorships became effective on September 6, 2008, upon each Enterprise’s board’s consent. See id. ¶¶ 64 (discussing the timing of the Enterprises’ consent), 259 (alleging that, prior to becoming conservator, the FHFA had not made any of the findings under 12 U.S.C. § 4617(a)(3) that would permit conservatorships without the Enterprises’ consent); see also 12 U.S.C. § 4617(a)(3)(I) (permitting the FHFA Director to appoint a conservator when “[t]he [Enterprise], by resolution of its board of directors or its shareholders or members, consents to the appointment”). p. 4 - https://www.courtlistener.com/recap/gov.uscourts.uscfc.28224/gov.uscourts.uscfc.28224.449.0.pdf

Judge Sweeney accepted the Plaintiffs' Second Amended Complaint account of the establishment of the conservatorships. The Plaintiffs alleged that there was a threat of seizure by the FHFA and Treasury followed by an FHFA offer that was accepted by the GSE Boards along with the Boards' consent to the conservatorships. There is no legal issue present in the case around "coercion" since Plaintiffs argued that the Defendants "persuaded" the Boards to accept the offer made and to consent to the conservatorships.

64. On September 6, 2008, FHFA and Treasury persuaded the Companies’ boards to consent to conservatorship. As Former Secretary Paulson has explained, Treasury was the driving force behind the imposition of the conservatorships: “FHFA had been balky all along [about the imposition of a conservatorship] . . . We had to convince its people that [conservatorship] was the right thing to do, while making sure to let them feel they were still in charge.” HENRY M. PAULSON, JR., ON THE BRINK 6 (2010). Given that the Companies were not in financial distress and were in no danger of defaulting on their debts, the Companies’ directors were confronted with a Hobson’s choice: agree to conservatorship, or they would face “nasty lawsuits” and Treasury would refuse to provide the Companies with any capital if they needed it. THE FINANCIAL CRISIS INQUIRY COMMISSION REPORT 320 (Jan. 2011). The Agencies ultimately obtained the Companies’ consent by threatening to seize them if they did not acquiesce and by informing them that the Agencies had already selected new CEOs and had teams ready to move in and take control. In agreeing to the FHFA takeover, both Companies’ boards understood that the “conservatorship” FHFA and Treasury proposed would be like all other federal conservatorships in American history and that the Companies would be operated by their regulator acting in a fiduciary capacity for the benefit of all stakeholders, including private shareholders. See: p. 26 - http://www.glenbradford.com/wp-content/uploads/2018/10/13-465-0422.pdf

An allegation of "coercion" instead of persuasion could have been raised by the Plaintiffs. However, no allegation of that kind appeared, probably, on the account that a non-federal actor "is not coerced when it can choose to go against the wishes of the United States, even if doing so will cause significant hardships." In other words, coercion implies the forcible effort to make a party commit a single involuntary act where there are no other choices possible. Since there is no coercion allegation made by the Plaintiffs against the Defendants, the use of coercion by the FHFA and Treasury against the Plaintiffs, therefore, is not litigated or relevant in this case.

An outside commentator may raise the issue of coercion of the Boards' entry into the conservatorships but in this case, for the Plaintiffs, it is not raised or relevant to the Plaintiffs' specific derivative claims made or relevant to the future adjudication of the case. Coercion as a Plaintiffs' issue is raised only as an allegation that Treasury coerced certain FHFA actions.

2. Regarding the existence of implied-in-fact contracts between FHFA and the GSEs Boards, the legal concern is not about "mutual consent" or "coercion."

The legal matter for Judge Sweeney was to determine whether or not there was "mutuality of intent to contract" between the FHFA and the GSE Boards in order to dismiss or accept the Plaintiffs 'derivative claims of implicit-in-fact contracts between FHFA and the GSE Boards: Counts XI (Fannie Mae) and XII (Freddie Mac).

For an implied-in-fact contract to exist four elements must be established:

A party alleging an implied-in-fact contract with the government must plead four elements:
“(1) ‘mutuality of intent to contract,’ (2) ‘consideration,’ (3) ‘lack of ambiguity in offer and acceptance,’ and (4) ‘actual authority’ of the government representative whose conduct is relied upon to bind the government.” p.47 - https://www.courtlistener.com/recap/gov.uscourts.uscfc.28224/gov.uscourts.uscfc.28224.449.0.pdf

In the Second Amended Complaint, the Plaintiffs' clearly delineated all four elements:

COUNT XI (Count XII has the same wording with the exception that it refers to Freddie Mac)
Breach of Implied-in-Fact Contract Between the United States and the Companies
(Derivative Claim on Behalf of Fannie Mae by Plaintiff Barrett)

268. Barrett incorporates by reference and realleges each allegation set forth above, as though fully set forth herein.

269. Before Fannie was placed into conservatorship on September 6, 2008, FHFA and Treasury unambiguously offered to place Fannie into conservatorship by consent, under Section 4617(a)(3)(I), with certain conditions described below, and the board of directors accepted this offer. FHFA made no finding of insolvency, undercapitalization, or any other ground to impose conservatorship under Section 4617(a)(3)(A)-(H) or (J)-(L) without Fannie’s consent.

270. FHFA and Treasury offered, and the board of Fannie accepted, a conservatorship that would aim to “preserve and conserve [Freddie’s] assets and property” and restore Freddie to a “sound and solvent condition.” See 12 U.S.C. § 4617(b)(2)(D). The offer was also of a
conservatorship that would end when that goal was achieved. Neither of these conditions was ambiguous.

271. Underlying the Agencies’ offer was their promise that FHFA would not, as conservator, wind down or liquidate Fannie. When it publicly announced the conservatorship, FHFA stated that it could not, as conservator, place Fannie into liquidation. It also stated at the time, and for several years into the conservatorship, that its goal was instead to “restore [Fannie’s] assets and property to a sound and solvent condition,” which continued course of performance constitutes evidence of the offer’s original terms. Fannie’s board shared this understanding of conservatorship when it consented.

272. When consenting to the conservatorship, the board of Fannie furnished good and valuable consideration to the Agencies by agreeing to forbear from a judicial or legislative challenge that the United States feared. See id. § 4617(a)(5). This forbearance was unambiguously furnished in exchange for promises that FHFA would act to restore Fannie to a safe and solvent condition.

273. The United States and Fannie, through the acts described above, entered into an implied-in-fact contract. The terms of that contract, as relevant here, were that FHFA if made conservator would “preserve and conserve [Fannie’s] assets and property,” that its conservatorship would continue only until Fannie was placed in a safe and solvent condition, and that, in exchange, the board of Fannie would consent to, and not challenge or litigate, such a course of action. Both the Government and Fannie intended that an implied contract would exist. That contract required FHFA to preserve Fannie’s assets and property, and forbade the Government from diminishing or expropriating Fannie’s assets and property. This intent was demonstrated through the offer and acceptance detailed above. The Government’s offer was not ambiguous in its terms, and the board’s acceptance was manifested in FHFA’s subsequent imposition of conservatorship based on the board’s consent.

274. FHFA and Treasury had actual authority, as agencies of the Government, to bind the United States.

275. The imposition of the Net Worth Sweep breached the contract by rendering it impossible for Fannie to build and retain the capital necessary to exit conservatorship and return to normal business operations.

276. The Net Worth Sweep, thus, directly harmed Fannie by preventing the
termination of the conservatorship; stripping Fannie of its ability to generate and retain capital. Fannie is accordingly entitled to damages.

277. FHFA has a manifest conflict of interest with respect to the Net Worth Sweep. FHFA was a signatory to the Net Worth Sweep, it benefits from it as an agency of the Government, and it has steadfastly defended it in court. p. 94-98 - http://www.glenbradford.com/wp-content/uploads/2018/10/13-465-0422.pdf

The Defendants could not defend against three of the elements required for an implied-in-fact contract since these are undeniable facts that were present:

(2) ‘consideration,’
(3) ‘lack of ambiguity in offer and acceptance,’ and
(4) ‘actual authority’ of the government representative whose conduct is relied upon to bind the government.”

So, the Defendants attempted to undermine the element “(1) ‘mutuality of intent to contract.’ However, as noted in the previous message, the Defendants arguments against the mutuality of intent to contract between the FHFA and the GSE Boards were not persuasive to Judge Sweeney and so the derivative claims - Counts XI and XII - survived and were not dismissed. See: https://investorshub.advfn.com/boards/read_msg.aspx?message_id=153138765

So according to the Plaintiffs and now Judge Sweeney, the GSE Boards of Directors entered into implied-in-fact contracts when the FHFA and The GSE Boards 1) shared the same understanding of the offers, consideration and conservatorship as the FHFA and Treasury, 2) unambiguously accepted their unambiguous offer and unambiguously gave their consent to the Conservatorships for 3) the agreed to consideration to unambiguously "forbear from a judicial or legislative challenge that the United States feared" in exchange for promises that FHFA would act to restore Fannie to a safe and solvent condition that was offered unambiguously to the agencies that 4) had actual authority to bind the US.

3. The facts surrounding the conservatorship in this case before Judge Sweeney were provided by the Plaintiffs. The Plaintiffs' also provided the arguments and the reasons of how the GSEs voluntarily accepted the offer made and consented to the conservatorships.

4. Judge Sweeney has allowed the Plaintiffs' implicit-in-fact contract derivative claims to continue since the Defendants could not persuasively argue to the contrary.

5. Counts XI and XII survived dismissal because there is no argument for coercion or a lack of shared understanding and intent. An implicit-in-fact contract cannot exist if there is coercion or lack of shared understanding and intent. The existence of an implied-in-fact contract is officially recognized by the behavior of the parties rather than through express oral or written agreements or contracts.

6. Judge Sweeney has opined and ruled according to her understanding of the law in relation to the facts and arguments presented in the US Court of Federal Claims. Now it is on to examine the merits in a bench trial or settlement. The Defendants are on crutches regarding the derivative claims.

Each question or contention raised in the opening statement that was made regarding the misunderstanding of the implicit-in-fact contract issue was addressed. If there are objections to any of the specific points made, please address the specific point and any related factual matter in the response.

Thanks.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

THE COURT: Oh, am I mistaken that members of
22 the board were not told that you either agree to the
23 conservatorship or you’ll be fired? Am I mistaken?
24 MR. LAUFGRABEN: I would have to go back and
25 look at what the complaints allege, but what’s important
THE COURT: Mr. Dintzer, you know, I understand…………..
22 It seems from the beginning when you have FHFA
23 coming -- and Treasury coming to the board of directors
24 of the enterprises and saying you either agree to the
25 conservatorship or you’re out, it seems as though there
1 as a death grip placed on the enterprises by Treasury and
2 FHFA

THE COURT: And again -- and the other point,
7 I’m very concerned that Treasury approaches the board of
8 directors of the enterprises and says, you either agree
9 to the conservatorship or you’re out. That’s -- that
10 sounds like undue influence, if not a death grip.
THE COURT: And I’m really not so much
1 concerned -- I’m really not concerned about what’s going
2 on today, I’m just saying at that time. At the critical
3 time period, you have directors of the enterprises or the
4 board of directors of the enterprises being told you
5 either play ball with Treasury or you’re out.

THE COURT: And that is a Hobson’s choice. I
8 can’t speak for those directors, but one could imagine
9 that they -- they cared about the institution that they
10 served and they would rather stay on board to see that
11 they could help direct it and protect it from these
12 outsiders that were going to come in, even though those
13 outsiders are Treasury and FHFA, and they’re concerned
14 that their organization is going to be raided. And
15 that’s -- financially. And it seems to me that that’s
16 what happened.

THE COURT: It’s as though it was somebody --
3 they were used as like a piggy bank that they could -- or
4 it was this funding stream. And I’m a taxpayer so, I
5 mean, it’s great that the Government can generate tax
6 revenues, that’s fine. But it should be fair and
7 equitable if taxes are --

There is no misinterpretation of what she is saying, and basically she stretched out the government overstepped their authority, and the contract is installed with coercion and there was no MUTUAL consent, then the implied-in-fact contract is voidable and can be voided by FnF, but since FHFA installed a new BOD that only listens to their new matra “for profit of taxpayers” the new board members have no duty of candor toward the shareholders and only listen to FHFA, but the FHFA cannot change a “for profit company” to a “for taxpayer company”, nobody authorized that, their statue does not allow that.

COUNT XI
Breach of Implied-in-Fact Contract Between the United States and the Companies
(Derivative Claim on Behalf of Fannie Mae by Plaintiff Barrett)

COUNT XII
Breach of Implied-in-Fact Contract Between the United States and the Companies
(Derivative Claim on Behalf of Freddie Mac by Plaintiff Barrett)