Perry Capital LLC v. Mnuchin
2017 U.S. App. LEXIS 18497
| D.C. Cir. | 2017Background
- In 2008 FHFA placed Fannie Mae and Freddie Mac into conservatorship and Treasury entered Senior Preferred Stock Purchase Agreements to provide capital in exchange for preferred shares, liquidation preference, warrants, and a 10% quarterly dividend (or an alternate in-kind increase).
- Fannie/Freddie repeatedly could not pay the 10% dividend without drawing more from Treasury, creating a debt-dividend spiral that increased Treasury’s liquidation preference.
- In August 2012 FHFA and Treasury adopted the Third Amendment (the “Net Worth Sweep”), replacing the fixed 10% coupon with a formula that required Fannie/Freddie to pay Treasury essentially their quarterly net worth above a declining capital buffer.
- Institutional and class stockholders sued, asserting (inter alia) that the Third Amendment exceeded statutory authority under the Recovery Act, violated the APA (arbitrary and capricious), breached state-law fiduciary duties, and breached contractual and implied-covenant rights in stock certificates.
- The district court dismissed plaintiffs’ statutory and APA claims as barred by the Recovery Act’s anti‑injunction provision (12 U.S.C. § 4617(f)), and dismissed many common‑law claims; the D.C. Circuit largely affirms with limited remand for certain contract-based damage claims (liquidation preferences and implied‑covenant/dividend‑rights damages).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 4617(f) bars plaintiffs’ Recovery Act and APA challenges to the Third Amendment | § 4617(f) should not preclude review because FHFA exceeded conservatorship authority (acted as de facto receiver/liquidator) | § 4617(f) prohibits courts from restraining or affecting FHFA’s exercise of powers as conservator; Third Amendment is within conservatorship authority | § 4617(f) bars plaintiffs’ claims for equitable relief under the Recovery Act and APA because the Third Amendment falls within FHFA’s conservatorship functions |
| Whether § 4617(f) also bars equivalent injunctive/declaratory claims against Treasury | Treasury’s participation is independently unlawful and reviewable | Enjoining Treasury would effectively restrain FHFA’s conservatorship powers because the contract is bilateral and invalidating Treasury’s role would affect FHFA | Section 4617(f) bars equitable relief against Treasury too when the relief would affect FHFA’s conservatorship exercise |
| Whether the FHFA Succession Clause (12 U.S.C. § 4617(b)(2)(A)) precludes stockholders’ derivative and direct common‑law claims | Succession clause should not bar shareholder derivative suits when FHFA has a conflict; some claims are direct and survive | Succession clause transfers shareholders’ derivative rights to FHFA, barring derivative suits; FHFA succeeded to companies’ rights to sue and be sued | Succession clause bars derivative fiduciary‑duty claims (those belong to the Companies/FHFA) but does not bar direct contract claims by stockholders |
| Whether contract‑based claims (voting, dividend, liquidation preference, implied covenant) survive pleading and ripeness challenges | Stock certificates guarantee dividend/priority/ratable rights and implied covenant prevents FHFA from nullifying them; some breaches are ripe (anticipatory repudiation) | Stock certificates give board discretion on dividends; many claims are unripe or fail to state a claim; equitable relief barred by § 4617(f) | Most contract claims dismissed except remand for damages on claims related to liquidation preferences and breach of implied covenant regarding dividend rights (anticipatory‑breach theory); voting‑rights, many dividend claims fail |
Key Cases Cited
- Steel Co. v. Citizens for a Better Environment, 523 U.S. 83 (1998) (jurisdictional threshold obligations and requirement to assure subject‑matter jurisdiction)
- National Trust for Historic Preservation v. FDIC, 995 F.2d 238 (D.C. Cir. 1993) (FIRREA anti‑injunction clause bars equitable relief when the agency acts within conservator/receiver powers)
- Freeman v. FDIC, 56 F.3d 1394 (D.C. Cir. 1995) (same principle: FIRREA bars injunctions even if result is drastic when agency acts within statutory conservatorship authority)
- O’Melveny & Myers v. FDIC, 512 U.S. 79 (1994) (agency in receivership succeeds to entity’s claims and is placed in the shoes of the failed institution)
- Franconia Associates v. United States, 536 U.S. 129 (2002) (anticipatory breach doctrine allows recovery for repudiation before performance date)
- Cohen v. United States, 650 F.3d 717 (D.C. Cir. 2011) (APA waiver and final‑action/adequate‑remedy principles informing availability of relief)
- Trudeau v. FTC, 456 F.3d 178 (D.C. Cir. 2006) (APA’s § 702 waiver of sovereign immunity applies broadly and can support non‑statutory claims for non‑monetary relief)
- Megapulse, Inc. v. Lewis, 672 F.2d 959 (D.C. Cir. 1982) (test for whether a suit is essentially contractual for Tucker Act and waiver purposes)