83 F. Supp. 3d 828
S.D. Iowa2015Background
- Continental Western, a wholly owned subsidiary of Berkley, owns preferred stock in Fannie Mae and Freddie Mac (the GSEs) and sued FHFA and Treasury challenging the "Net Worth Sweep" and related transactions implemented after FHFA placed the GSEs in conservatorship in 2008.
- Treasury and FHFA entered and amended a Preferred Stock Purchase Agreement (PSPA) that gave Treasury senior preferred stock, dividend rights (initially 10%), and warrants; later the Third Amendment replaced the dividend with quarterly payments equal to GSE net worth (the Net Worth Sweep).
- Continental Western’s complaint alleges FHFA and Treasury exceeded HERA authority, violated the APA, and asserts contract, implied-covenant, and fiduciary-duty claims; it seeks vacatur of the Net Worth Sweep and money relief.
- Berkley (Continental Western’s parent) and affiliated plaintiffs previously litigated identical claims in Perry Capital v. Lew in D.C., where the court dismissed those claims for lack of subject-matter jurisdiction; that decision is on appeal.
- Defendants moved to dismiss here based on HERA’s anti‑injunction bar and related statutory defenses; they later filed a supplemental motion arguing issue preclusion because Perry Capital already resolved the same issues.
- The district court concluded nonparty preclusion applied (via adequate‑representation and proxy/agent exceptions to Taylor v. Sturgell), and granted dismissal on issue‑preclusion grounds; other motions were denied as moot.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Continental Western’s claims are barred by issue preclusion from Perry Capital | Continental Western: not bound because it was not a party to Perry Capital and raises at least two novel legal arguments | Defendants: Continental Western is in privity with Berkley (parent) and thus precluded under nonparty preclusion exceptions | Held: Preclusion applies; Continental Western is bound by Perry Capital under adequate‑representation and proxy/agent exceptions |
| Adequate‑representation exception (privity) | Continental Western: no explicit evidence Berkley sued as representative; due‑process concerns | Defendants: Berkley and Continental Western had identical interests, same counsel, contemporaneous stock transfer, and shared litigation strategy | Held: Interests aligned, constructive notice existed, and facts support that Berkley acted in representative capacity; exception satisfied |
| Proxy/agent (control) exception | Continental Western: parent‑subsidiary status alone insufficient; no evidence of Berkley’s control over litigation | Defendants: Berkley’s 100% ownership, shared counsel, contemporaneous stock sale, and coordinated litigation show control | Held: Court found sufficient evidence of control to apply the proxy/agent exception (carefully limited to these facts) |
| Whether Continental Western’s two allegedly new issues defeat preclusion (post‑2009 investments/sunset and circular draws) | Continental Western: these legal theories were not litigated in Perry Capital and are distinct | Defendants: They are alternative bases for the same ultimate question—whether FHFA/Treasury exceeded HERA authority—and could have been raised previously | Held: These are not new issues for preclusion purposes; they merely present different grounds for the same issue and are precluded |
Key Cases Cited
- Taylor v. Sturgell, 553 U.S. 880 (nonparty preclusion standards and exceptions)
- New Hampshire v. Maine, 532 U.S. 742 (issue preclusion principle)
- Montana v. United States, 440 U.S. 147 (nonparty preclusion/control analysis)
- Richards v. Jefferson County, Ala., 517 U.S. 793 (adequate‑representation limits and notice concerns)
- South Central Bell Telephone Co. v. Alabama, 526 U.S. 160 (limits on preclusion among different plaintiffs)
- Perry Capital v. Lew, 70 F. Supp. 3d 208 (D.D.C.) (prior decision dismissing identical GSE claims; relied upon for preclusion and merits reasoning)