Sisti v. Fed. Hous. Fin. Agency
324 F. Supp. 3d 273
D.R.I.2018Background
- In 2008 Congress created FHFA and authorized it to place Fannie Mae and Freddie Mac (the GSEs) into conservatorship; FHFA did so and controls their boards and operations.
- The U.S. Treasury owns senior preferred stock and warrants in the GSEs and has provided substantial bailout funding; GSEs remit dividends to the Treasury and cannot act without Treasury approval.
- FHFA directed the GSEs' servicers (via the Servicer Alignment Initiative) to use non-judicial foreclosure procedures in Rhode Island.
- Two homeowners (Sisti and Boss) lost property in non-judicial foreclosures by Freddie Mac and Fannie Mae and sued FHFA and the respective GSE, alleging due-process violations because the defendants are government actors.
- Defendants moved for judgment on the pleadings; the court treats plaintiffs' factual allegations as true at this stage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are Fannie Mae and Freddie Mac "government actors" for constitutional claims under Lebron? | GSEs are government actors because HERA/FHFA give the government permanent, effective control (board appointments, stock, operational limits, and indefinite conservatorship). | FHFA's control is indefinite but not "permanent" under Lebron because conservatorship is statutorily for a temporary purpose (reorganize/rehabilitate/wind up). | Court: Plaintiffs may prove GSEs are government actors; permanency is satisfied in practical reality; deny judgment on the pleadings. |
| Is FHFA-as-conservator a government actor for constitutional claims? | FHFA waived sovereign immunity by succeeding to GSEs' powers (including "sue and be sued"), so FHFA is a federal actor when acting as conservator. | FHFA-as-conservator should be treated like FDIC-as-receiver (O'Melveny): it "steps into the shoes" of the private entity and is a private actor for purposes of constitutional claims. | Court: FHFA-as-conservator may be a government actor; Meyer and waiver logic support government-actor status; O'Melveny does not control here. Deny judgment on the pleadings. |
| Does Lebron permit Congress to insulate entities from constitutional obligations by labeling them private? | Plaintiffs: Lebron forbids Congress from controlling the constitutional status; courts must look to practical reality of control. | Defendants: Statutory language and purpose demonstrating conservatorship's temporary nature show non-permanency. | Court: Lebron controls; practical reality of indefinite government control prevails over statutory labels; Congress cannot cloak government action by corporate form. |
| Should precedent holding GSEs private control outcome? | Plaintiffs: Prior decisions are persuasive but not binding; here facts plausibly show permanent control. | Defendants: Multiple courts and circuits have held GSEs not government actors; this court should follow them. | Court: Not persuaded by contrary precedent; conducts independent inquiry and denies judgment on the pleadings. |
Key Cases Cited
- Lebron v. Nat'l R.R. Passenger Corp., 513 U.S. 374 (government-created corporation is a federal actor when created for governmental objectives and government retains permanent appointment power)
- Dep't of Transp. v. Ass'n of Am. R.Rs., 135 S. Ct. 1225 (practical reality of federal control prevails over congressional disclaimer)
- O'Melveny & Myers v. FDIC, 512 U.S. 79 (FDIC as receiver "steps into the shoes" of failed institution for certain claims)
- FDIC v. Meyer, 510 U.S. 471 (analysis of federal entity status and sovereign immunity waiver relevant to constitutional claims)
- Curran v. Cousins, 509 F.3d 36 (12(c) standard: judgment on the pleadings inappropriate unless plaintiff can prove no set of facts)
- Reg'l Rail Reorganization Act Cases, 419 U.S. 102 (distinguishing government instrumentality status where control terminates by statute)
- Herron v. Fannie Mae, 861 F.3d 160 (D.C. Cir. decision treating GSE conservatorship as temporary for Lebron analysis)
- Perry Capital LLC v. Mnuchin, 864 F.3d 591 (D.C. Cir. analysis that FHFA succeeded to companies' "sue and be sued" power and sovereign immunity waiver)