Collins v. Federal Housing Finance Agency
254 F. Supp. 3d 841
S.D. Tex.2017Background
- In 2008 FHFA placed Fannie Mae and Freddie Mac into conservatorship under HERA; Treasury entered into Preferred Stock Purchase Agreements (PSPAs) to recapitalize them.
- The PSPAs gave Treasury senior preferred stock, liquidation preference, warrants, and a dividend formula; Trinity of amendments increased funding caps and changed dividend mechanics.
- The Third Amendment (Aug. 17, 2012) replaced a 10% quarterly dividend with a net-worth sweep: dividends equal to any quarterly net worth above a modest buffer, effectively channeling most profits to Treasury.
- Plaintiffs (shareholders of Fannie/Freddie) sued in 2016 alleging: (1) FHFA exceeded its authority under the APA by adopting the Third Amendment; (2) Treasury acted arbitrarily and capriciously; and (3) the FHFA Director’s for-cause removal protection violates Article II.
- Defendants moved to dismiss under HERA’s §4617(f) (limiting judicial relief that would restrain or affect FHFA’s conservatorship actions); both sides cross-moved on the removal-clause constitutional issue.
- The district court, relying heavily on the D.C. Circuit’s decision in Perry Capital, granted defendants’ motions to dismiss the APA claims as barred by §4617(f) and upheld the constitutionality of the FHFA Director’s for-cause removal protection.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FHFA exceeded statutory conservator authority by adopting the Third Amendment (APA Count 1) | FHFA violated duties to rehabilitate and preserve assets and acted to benefit taxpayers rather than the entities | §4617(f) bars equitable relief that would restrain or affect FHFA’s conservatorship actions; Third Amendment is within FHFA’s broad conservatorship powers | Dismissed: §4617(f) precludes review — FHFA acted within conservatorship authority (motion granted) |
| Whether Treasury’s adoption of the Third Amendment was arbitrary/capricious or beyond its HERA authority (APA Counts 2–3) | Treasury exceeded statutory authority and acted arbitrarily in agreeing to the Third Amendment | Any relief against Treasury would directly affect FHFA’s conservatorship powers and thus is barred by §4617(f) | Dismissed: §4617(f) bars relief because injunctive/declaratory relief against Treasury would have same effect as enjoining FHFA (motion granted) |
| Whether the FHFA Director’s for-cause removal protection violates Article II separation of powers (Count 4) | For-cause protection for a single, powerful Director unconstitutionally impedes President’s removal power (relying on PHH panel) | FHFA is not a purely executive agency; Humphrey’s/Morrison/Free Enterprise framework allows for-cause removal for such independent agencies; single-director is not a ‘‘second layer’’ like Free Enterprise | Denied for plaintiffs / granted for defendants: the for-cause removal provision is constitutional as applied to FHFA (summary judgment for defendants) |
Key Cases Cited
- Perry Capital, LLC v. Mnuchin, 848 F.3d 1072 (D.C. Cir. 2017) (HERA §4617(f) bars judicial relief that would restrain or affect FHFA conservatorship actions)
- Free Enterprise Fund v. Public Co. Accounting Oversight Bd., 561 U.S. 477 (2010) (two layers of for-cause protection can be unconstitutional)
- Humphrey’s Executor v. United States, 295 U.S. 602 (1935) (for-cause removal permissible for independent agencies performing non‑purely executive functions)
- Myers v. United States, 272 U.S. 52 (1926) (Congress cannot unduly restrict President’s removal power)
- Morrison v. Olson, 487 U.S. 654 (1988) (upheld certain removal restrictions where presidential control retained via supervising official)