485 F.Supp.3d 900
W.D. Mich.2020Background
- In 2008 FHFA placed Fannie Mae and Freddie Mac into conservatorship; Treasury entered into Senior Preferred Stock Purchase Agreements to support them.
- Treasury and FHFA later amended those agreements (notably the 2012 "Third Amendment") so that Fannie/Freddie paid nearly all quarterly net worth as dividends to Treasury, effectively eliminating shareholder value.
- Plaintiffs are individual shareholders who sued FHFA, its Director (in official capacity), and Treasury alleging constitutional defects (separation-of-powers, Appointments Clause, nondelegation, private-nondelegation) and seeking to void the Third Amendment and recover payments.
- Key statutory context: HERA created FHFA as an "independent" agency headed by a single Director serving a 5-year term and removable only for cause; HERA also gives FHFA broad conservator powers and contains a succession clause assigning shareholder rights to FHFA.
- Court held Plaintiffs have Article III standing and prudential standing to proceed with derivative claims, but dismissed all counts for failure to state a claim—finding (inter alia) no actionable Article II violation tied to Plaintiffs’ injury because the Third Amendment was approved by an acting Director not shielded by HERA’s removal restriction.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1) Article II / removal-protection challenge to FHFA structure (Counts I & II) | FHFA’s single-director, for-cause removal protection violates President’s removal power; that defect caused Plaintiffs’ loss | FHFA is required to be independent; moreover, DeMarco was an acting Director not protected by HERA’s removal restriction; even if protected, outcome would be same | Court: While FHFA’s tenure protection likely conflicts with Seila Law, Plaintiffs cannot show causal link because DeMarco (who approved the Third Amendment) was not removal-protected; Counts I & II dismissed |
| 2) Appointments Clause challenge to DeMarco’s service as acting Director (Count III) | DeMarco served as acting Director for years—too long without Senate confirmation—violating Appointments Clause | Tenure of acting officers is nonjusticiable political question or complies with HERA; DeMarco was properly designated | Court: Claim non-justiciable (political question) and statutory challenge fails; DeMarco’s appointment was lawful under HERA |
| 3) Nondelegation (Count IV) | HERA grants FHFA open-ended conservator discretion without an intelligible principle—impermissible legislative delegation | HERA supplies guiding purposes (put regulated entity in sound/solvent condition; preserve assets), so intelligible principle exists | Court: HERA provides adequate intelligible principle; nondelegation claim fails |
| 4) Private nondelegation & Treasury liability (Count V; Treasury dismissal) | If FHFA acted as a private actor when adopting Third Amendment, delegation to private interests is unconstitutional; Treasury joined as party to the Amendment | FHFA acted as a governmental actor; Treasury had no independent constitutional violation | Court: FHFA exercised governmental power (private-nondelegation not implicated); no plausible constitutional claim against Treasury—Treasury dismissed |
Key Cases Cited
- Seila Law LLC v. Consumer Fin. Prot. Bureau, 140 S. Ct. 2183 (2020) (single‑director independent agency removal protection unconstitutional)
- Free Enterprise Fund v. Public Company Accounting Oversight Bd., 561 U.S. 477 (2010) (severability and limits on removal protections for multi‑layered protections)
- Perry Capital LLC v. Mnuchin, 864 F.3d 591 (D.C. Cir. 2017) (background on Third Amendment; discussion of HERA succession clause and shareholder claims)
- Collins v. Mnuchin, 938 F.3d 553 (5th Cir. 2019) (en banc) (shareholders held to have standing and argued direct constitutional claim; court addressed acting‑director removal protection issues)
- Humphrey’s Executor v. United States, 295 U.S. 602 (1935) (permitting for‑cause removal protections for multimember expert agencies)
- Morrison v. Olson, 487 U.S. 654 (1988) (upholding limited for‑cause protections for certain inferior officers based on limited duties)
- Bond v. United States, 564 U.S. 211 (2011) (structural separation‑of‑powers principles may be invoked by individuals suffering concrete injury)
- Tooley v. Donaldson, Lufkin & Jenrette, 845 A.2d 1031 (Del. 2004) (test to distinguish direct vs. derivative shareholder claims)
- Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90 (1991) (state law governs derivative/direct distinctions; shareholder standing principles)
- Webster v. Doe, 486 U.S. 592 (1988) (courts avoid statutory constructions that bar all judicial forum for colorable constitutional claims)