David Jacobs v. Federal Housing Finance Agency
908 F.3d 884
3rd Cir.2018Background
- In 2008 FHFA placed Fannie Mae and Freddie Mac into conservatorship under the Housing and Economic Recovery Act (Recovery Act) and the Treasury entered into funding agreements that provided capital in exchange for senior preferred stock and dividends.
- The 2012 Third Amendment replaced a fixed 10% annual dividend with a quarterly variable dividend equal to each enterprise’s positive net worth above a declining capital buffer (the “Net Worth Sweep”), sending essentially all future net profits to Treasury.
- Class-action plaintiffs (shareholders) sued FHFA, Treasury, Fannie, and Freddie challenging the Third Amendment under Delaware and Virginia corporate law and asserting unjust enrichment, seeking declaratory, injunctive, and monetary relief.
- The District Court dismissed under 12 U.S.C. § 4617(f), which bars courts from taking action that would restrain or affect FHFA’s exercise of its conservator powers; plaintiffs appealed.
- The Third Circuit affirmed, holding (1) the Recovery Act empowered FHFA to enter the Third Amendment, (2) the Amendment complies with Delaware and Virginia law and Recovery Act limits, and (3) § 4617(f) bars the requested relief (including monetary relief) because it would unwind or affect the conservatorship action.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FHFA had statutory authority to adopt the Third Amendment | FHFA exceeded its conservator powers and acted ultra vires | Recovery Act grants FHFA broad conservatorship powers (operate, preserve, restructure) including renegotiating financing | Held: FHFA had authority; Third Amendment is within conservatorship powers |
| Whether the Third Amendment violates state corporate law (Delaware/Virginia) | Amendment unlawfully sets an unspecified or impermissive dividend preference that wipes out junior shareholders | Amendment specifies a 100% dividend preference and complies with state statutes permitting preferred classes and preferences | Held: Complies with Delaware and Virginia law |
| Whether Recovery Act liquidation-priority provisions or succession/repudiation clauses invalidate the Amendment | Plaintiffs say Act incorporates state law and liquidation rules that the Amendment breaches | Defendants say liquidation priorities apply only in liquidation; Amendment does not rely on stock certificates to create liquidation rights | Held: Liquidation provisions inapplicable; claims based on succession/repudiation fail |
| Whether § 4617(f) bars plaintiffs’ requested relief, including monetary damages | Plaintiffs: § 4617(f) is an anti-injunction clause and does not bar damages | Defendants: § 4617(f) bars any court action (including monetary relief) that would restrain or affect FHFA’s conservatorship powers | Held: § 4617(f) bars the requested relief (monetary or equitable) because it would unwind/affect the Third Amendment |
Key Cases Cited
- Perry Capital LLC v. Mnuchin, 864 F.3d 591 (D.C. Cir.) (discusses FHFA conservatorship powers and limits under Recovery Act)
- Saxton v. FHFA, 901 F.3d 954 (8th Cir.) (analyzes scope of conservatorship authority and § 4617(f))
- Collins v. Mnuchin, 896 F.3d 640 (5th Cir.) (conservatorship authority and § 4617(f) application)
- Roberts v. FHFA, 889 F.3d 397 (7th Cir.) (upholding Third Amendment as within FHFA powers)
- Robinson v. FHFA, 876 F.3d 220 (6th Cir.) (interpretation of § 4617(f) and conservatorship powers)
- Rosa v. Resolution Trust Corp., 938 F.2d 383 (3d Cir.) (FIRREA precedent: § 1821(j) can bar monetary relief that would affect conservator powers)
- Hindes v. FDIC, 137 F.3d 148 (3d Cir.) (permitting judicial remedies for damages that do not restrain conservator powers)
- Smith v. City of Jackson, 544 U.S. 228 (2005) (canon: same statutory language in related statutes treated similarly)