332 F. Supp. 3d 1206
D. Me.2018Background
- Fannie Mae and Freddie Mac are federally chartered, shareholder-owned mortgage companies placed into FHFA conservatorship in Sept. 2008; FHFA then (as conservator) and Treasury entered into preferred stock purchase agreements (PSPAs).
- Treasury provided large capital commitments in exchange for senior preferred stock and warrants; the PSPAs were amended several times, including the August 2012 "Third Amendment" (the "Net Worth Sweep") requiring quarterly cash dividends to Treasury equal to net worth above zero.
- Plaintiffs (shareholders) sued, challenging FHFA’s structure and powers to indirectly attack the Third Amendment. Their amended complaint asserted: (1) single‑director removal protection violates separation of powers; (2) combination of features (funding, review limits) further violates separation of powers; (3) acting director DeMarco served unconstitutionally long (Appointments Clause); (4) HERA’s conservatorship grant violates the non‑delegation doctrine; (5) alternatively, FHFA acting as a private conservator violates the private non‑delegation rule.
- Defendants (FHFA, Director Watt, Treasury) moved to dismiss; plaintiffs moved for summary judgment. The Court considered the PSPAs and dismissed the case.
- Rulings: Counts I–II (separation of powers) dismissed without prejudice for lack of jurisdiction (standing); Counts III–V dismissed with prejudice on the merits (Appointments, de facto officer/doctrine, and non‑delegation issues); plaintiffs’ summary judgment denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Separation of powers: single‑director removable only for cause (Count I) | FHFA's single‑director with for‑cause protection unlawfully limits presidential control | Precedent permits for‑cause tenure for certain executive officers; increased presidential control would not redress plaintiffs' injury | No standing; even on merits, structure constitutional under Humphrey's/Morrison; claim fails |
| Separation of powers: combined features (funding, judicial‑review limits) (Count II) | Combination makes FHFA immune from meaningful oversight and violates separation of powers | Funding and review features do not alter removal‑power analysis; congressional funding choices do not substitute executive control | No standing; merits rejected — features insufficient to show unconstitutional aggrandizement of other branches |
| Appointments Clause: DeMarco's prolonged acting service (Count III) | DeMarco served >4 years as acting director; acting tenure was unreasonably long and violated Appointments Clause | Length/reasonableness of acting service is political, non‑justiciable; statutory succession complied with §4512(f) | Non‑justiciable political question re: retrospective reasonableness; even if reviewable, two‑year cap not required; statutory appointment valid; claim fails |
| Non‑delegation / private non‑delegation (Counts IV–V) | Congress unlawfully delegated excessive conservatorship powers to FHFA; alternately, private‑nondelegation implicated if FHFA acted privately | FHFA acted as conservator "in the shoes" of the companies (private capacity); HERA supplies an intelligible principle and oversight via reporting | FHFA’s actions as conservator are not governmental in nature; non‑delegation challenge fails; intelligible principle and oversight adequate |
Key Cases Cited
- Humphrey's Executor v. United States, 295 U.S. 602 (constitutional permissibility of tenure protections for independent agency commissioners)
- Morrison v. Olson, 487 U.S. 654 (upholding for‑cause removal for independent counsel)
- Free Enterprise Fund v. Public Company Accounting Oversight Bd., 561 U.S. 477 (standing and separation‑of‑powers context)
- PHH Corp. v. CFPB (en banc), 881 F.3d 75 (D.C. Cir. 2018) (upholding constitutionality of single‑director independent agency structure)
- Perry Capital LLC v. Mnuchin, 864 F.3d 591 (D.C. Cir. 2017) (conservatorship/contractual context concerning FHFA actions)
- Ryder v. United States, 515 U.S. 177 (de facto officer doctrine and limits on retroactive relief)
- Buckley v. Valeo, 424 U.S. 1 (recognizing de facto validity of agency actions despite Appointments Clause defects)
- United States v. Eaton, 169 U.S. 331 (temporary service by subordinate as consul/principal officer duties)
- Whitman v. American Trucking Ass'ns, 531 U.S. 457 (intelligible‑principle standard for non‑delegation)
- Touby v. United States, 500 U.S. 160 (delegation doctrine and permissible legislative delegation)