Plaintiffs are shareholders in the Federal National Mortgage Association (commonly known as "Fannie Mae" or "Fannie") and the Federal Home Loan Mortgage Corporation (commonly known as "Freddie Mac" or "Freddie"). Fannie and Freddie (collectively, "the Companies") are federally chartered, for-profit, publicly traded corporations that are in the business of purchasing and guaranteeing mortgages and bundling them into securities. Both companies are regulated by defendant Federal Housing Finance Agency ("FHFA").
In 2008, in the midst of the Great Recession, FHFA placed Fannie and Freddie into conservatorship-and then, acting in its capacity as conservator on behalf of the Companies, FHFA entered into preferred stock purchase agreements ("PSPAs") with the United States Department of the Treasury ("Treasury"). Under the PSPAs, Treasury made billions of dollars available to Fannie and Freddie in exchange for shares of the Companies' stock. Over the years, the parties amended the PSPAs from time to time. In August 2012, FHFA and Treasury amended the PSPAs for the third time in order to restructure the calculation of dividends to be paid to Treasury. Under this Third Amendment (which is still in effect), Fannie and Freddie pay a quarterly dividend to Treasury that is roughly equal to the amount by which their net worth exceeds zero.
The Third Amendment is deeply unpopular among some of the Companies' shareholders, and they have launched at least two waves of lawsuits in an attempt to undo it. The first wave of litigation attacked the Third Amendment directly. When that wave largely failed, shareholders launched a second wave of litigation
This matter is before the Court on defendants' motions to dismiss and plaintiffs' motion for summary judgment. For the reasons that follow, defendants' motions are granted, and plaintiffs' motion is denied.
I. BACKGROUND
A. Regulatory Structure
Fannie and Freddie are for-profit, stockholder-owned corporations whose activities include purchasing, guaranteeing, and securitizing mortgages originated by private lenders. Am. Compl. ¶ 10. From 1992 until 2008, the Companies were regulated by the Office of Federal Housing Enterprise Oversight ("OFHEO"). Am. Compl. ¶ 13.
In July 2008, after the subprime mortgage crisis triggered the Great Recession, Congress passed the Housing and Economic Recovery Act ("HERA"), Pub. L. 110-289,
FHFA is headed by a single director nominated by the President and confirmed by the Senate.
HERA gives FHFA the authority to place Fannie and Freddie into a conservatorship or receivership under certain circumstances "for the purpose of reorganizing, rehabilitating, or winding up the affairs" of the Companies.
FHFA is independently funded from annual assessments imposed on Fannie and Freddie-assessments that are "not ... construed to be Government or public funds or appropriated money."
B. FHFA Directors
Pursuant to statute, FHFA's first director was James Lockhart, who at the time of the enactment of HERA was serving as director of OFHEO. Am. Compl. ¶ 42; see also
C. The Conservatorship and the PSPAs
As noted, FHFA placed Fannie and Freddie into conservatorship on September 6, 2008. Am. Compl. ¶ 28. The next day, Fannie and Freddie (acting through their conservator, FHFA) entered into the PSPAs with Treasury. Am. Compl. ¶ 31. Under the original PSPAs, Treasury committed to provide up to $100 billion to each Company to ensure that it maintained a positive net worth. Am. Compl. ¶ 32. For any quarter in which a Company's liabilities exceeded its assets, the PSPAs authorized the Company to draw on Treasury's commitment up to the amount of the shortfall. Am. Compl. ¶ 32. In return, Treasury received a million shares of senior preferred stock in the Companies and warrants entitling it to purchase up to 79.9 percent of the Companies' common stock at a nominal price. Am. Compl. ¶¶ 34-35. By operation of law, Treasury's right to purchase common stock in the Companies expired on December 31, 2009. Am. Compl. ¶ 30.
Treasury's preferred stock has a liquidation preference of $1 billion, which increases by one dollar for every dollar the Companies draw on Treasury's funding commitment. Am. Compl. ¶ 35. In the event of liquidation, Treasury will be entitled to recover the full amount of its preference before any other stockholder receives payment. Am. Compl. ¶ 35. Treasury is also entitled to receive dividends, which, under the original PSPAs, the Companies could elect to pay by increasing the amount of the liquidation preference. Am. Compl. ¶¶ 36-37.
The PSPAs have been amended several times. In May 2009, the parties doubled Treasury's funding commitment from $100 billion to $200 billion. Am. Compl. ¶ 41. In December 2009, the parties increased the funding commitment even more, establishing a formula that permits Treasury's funding commitment to exceed $200 billion. Am. Compl. ¶ 41. Finally, in August 2012, the parties entered into the Third Amendment, which is the focus of this litigation. Am. Compl. ¶ 55.
The Third Amendment replaced the fixed-rate annual dividend to which Treasury was entitled-and which could be paid by increasing Treasury's liquidation preference rather than with cash-with a quarterly cash dividend equal to the amount by which the Companies' net worth exceeds zero, less a capital buffer that decreases over time (and reaches zero in 2018). Am. Compl. ¶ 55. Plaintiffs refer to this dividend requirement as the "Net Worth Sweep." Am. Compl. ¶ 55.
Plaintiffs filed this action in June 2017 against FHFA, its director Melvin Watt, and Treasury.
II. ANALYSIS
A. Standard of Review
FHFA moves to dismiss Counts I and II of plaintiffs' first amended complaint for lack of jurisdiction and, alternatively, for failure to state a claim. FHFA also moves to dismiss Counts III, IV, and V for failure to state a claim. Treasury moves to dismiss all counts for failure to state a claim.
In reviewing a motion to dismiss for lack of jurisdiction under Fed. R. Civ. P. 12(b)(1), a court must first determine whether the movant is making a "facial" attack or a "factual" attack. Branson Label, Inc. v. City of Branson, Mo. ,
In reviewing a motion to dismiss for failure to state a claim under Fed. R. Civ. P. 12(b)(6), a court must accept as true all of the factual allegations in the complaint and draw all reasonable inferences in the plaintiff's favor. Aten v. Scottsdale Ins. Co. ,
Ordinarily, if the parties present, and the court considers, matters outside of the pleadings, a Rule 12(b)(6) motion must be treated as a motion for summary judgment. Fed. R. Civ. P. 12(d). But the court may consider materials that are necessarily embraced by the complaint as well as any exhibits attached to the complaint without converting the motion into one for summary judgment. Mattes v. ABC Plastics, Inc. ,
B. Counts I and II: Separation of Powers
In Count I, plaintiffs allege that the structure of FHFA-that is, an independent agency with a single director removable only for cause-violates the President's constitutional removal authority. In Count II, plaintiffs allege that, even if the single-director structure is itself constitutional, that structure in combination with other features of FHFA violates the principle of separation of powers. Plaintiffs argue that the appropriate remedy for these violations is to vacate the Third Amendment and invalidate those provisions of HERA that make FHFA independent from the President (and, with respect to Count II, independent from the legislative and judicial branches as well). Defendants respond that (1) plaintiffs lack standing to bring these claims and (2) even if plaintiffs had standing, these claims fail on the merits.
1. Standing
Standing is a jurisdictional requirement "rooted in the traditional understanding of a case or controversy." Spokeo, Inc. v. Robins , --- U.S. ----,
At the heart of the claims made by plaintiffs in Counts I and II is their contention that the President lacks sufficient control over FHFA and, as a result, the agency is too independent. The injury that plaintiffs allege is the Third Amendment, which purportedly harms their interests as shareholders in the Companies by being too favorable to Treasury. To remedy this injury, plaintiffs ask the Court to vacate the Third Amendment and strike down the director's tenure protection-and, if necessary, any other provisions that unconstitutionally insulate FHFA from oversight- so that a less independent FHFA (that is, an FHFA under more presidential control) may reconsider its decision to enter into the Third Amendment.
The problem with plaintiffs' claims is glaring: There is no causal connection between their injury-a Third Amendment that (in plaintiffs' view) is too favorable to the Executive Branch-and the lack of Executive Branch influence over FHFA. Nor is there any reason to believe that increasing Executive Branch influence over FHFA will somehow result in a "revised"
The Third Amendment is part of a contract between FHFA and Treasury. Treasury is an executive department that is fully under the President's control. Thus, in a very real sense, the President has already approved the Third Amendment. Plaintiffs have no coherent theory for how their injury-a Third Amendment that, in plaintiffs' view, is unduly favorable to the President-could have resulted from the President having too little control over FHFA. Nor do plaintiffs have a coherent theory as to why giving the President more control of FHFA will lead to him renegotiating the Third Amendment so that it is less favorable to himself. It simply makes no sense to argue that the Third Amendment is "fairly traceable" to the lack of presidential control or that increasing presidential control will cause FHFA to reject the Third Amendment.
Plaintiffs respond by arguing that mere speculation about what decision the government might have reached in the absence of the alleged constitutional violation cannot defeat standing. see, e.g., Free Enter. Fund v. Pub. Co. Accounting Oversight Bd. ,
This case is distinguishable. Unlike cases such as Free Enterprise Fund and Landry in which it was simply impossible to know whether an alleged constitutional error caused any injury, here there is no doubt that the alleged constitutional violation (too little presidential control over FHFA) did not cause the alleged injury (an FHFA action that was too favorable to the President). Plaintiffs therefore lack standing to pursue their separation-of-powers claims.
Even if plaintiffs had standing to assert these claims, the Court would reject the claims on the merits. The Supreme Court long ago held that it is constitutionally permissible for at least some officials in the Executive Branch to be protected from termination except for cause. See Humphrey's Ex'r v. United States ,
Plaintiffs do not dispute that the directorship of FHFA is the type of executive office that may constitutionally carry tenure protections under Humphrey's Executor and Morrison .
Plaintiffs rely heavily on PHH Corp. v. CFPB ,
The Court agrees with the en banc D.C. Circuit's thorough opinion and finds the panel's opinion unpersuasive. The core of the panel's reasoning can be summarized as follows: The purpose of separation of powers is to protect individual liberty; good decisions protect individual liberty more than bad decisions; multimember commissions are more likely to make good decisions than single agency heads; therefore, multimember commissions are constitutionally permissible, but single agency heads are not. The panel opinion also relies heavily on the notion that the individual members of a multimember body are accountable to each other-which, according to the panel, more-or-less substitutes for their lack of accountability to the President.
One problem with this reasoning is that it is based on a series of debatable assumptions about the advantages and disadvantages of various organizational structures. See PHH II ,
The Court is also not persuaded that multimember commissions are constitutionally permissible because the members' accountability to each other somehow substitutes for accountability to the President. Putting aside the question of whether commission members are truly accountable to each other, courts are not called upon to reason from first principles to determine which institutional structures will best protect individual liberty. The Framers have already made that choice: the constitutional principle of separation of powers and, within that framework, accountability to the President through the removal power. Cf. Crawford v. Washington ,
Under this standard, longstanding precedent makes clear that the FHFA director is not unconstitutionally insulated from the President. The director can be removed by the President "for cause,"
True, the FHFA director is appointed for a term of five years, which means that a President who serves only one term could theoretically be deprived of the opportunity to appoint a director. But that fact does not distinguish this case from PHH II -or, for that matter, from Morrison , a case involving a single independent counsel appointed to exercise core executive power for an indefinite amount of time. See PHH II ,
More fundamentally, an individual President's ability to control the agency through the appointment power is not what is critical.
Plaintiffs also point to the fact that FHFA is funded outside of the normal appropriations process, thus insulating the agency from congressional oversight. To the extent that plaintiffs contend that congressional oversight is necessary to correct what they view as an unconstitutional limit on the President's removal power, their argument is misplaced. Again, the question is whether the President retains sufficient oversight; congressional oversight cannot substitute for executive oversight and indeed can itself impermissibly intrude on the Executive Branch. See Bowsher v. Synar ,
Finally, plaintiffs point out that HERA limits judicial review of FHFA's actions. In the Court's view, this too is not a particularly relevant consideration in the context of a separation-of-powers challenge. Even if it were, judicial review of FHFA decisionmaking is not so limited as to create a constitutional problem. The most severe restrictions cited by plaintiffs all relate to actions taken by FHFA when acting as a conservator or receiver. See Am. Compl. ¶ 86 (citing statutes). Outside of that context, the regulatory actions of FHFA, like the regulatory actions of most agencies, are generally reviewable under the Administrative Procedure Act. See
For all of these reasons, the Court concludes that, even if plaintiffs had standing to pursue the claims made in Counts I and II of their amended complaint, those claims would fail on the merits.
C. Count III: Appointments Clause
The parties agree that the FHFA director is a principal officer of the United States who must be nominated by the President and confirmed by the Senate. See U.S. Const. art. II, § 2, cl. 2 ;
Plaintiffs do not dispute that subordinate officers who have not been confirmed by the Senate may discharge the duties of a principal officer for a limited
1. Justiciability
The Court agrees with FHFA that determining whether an otherwise validly appointed acting officer has served for "too long" is a non-justiciable political question. The Supreme Court has identified several circumstances in which a dispute will be found non-justiciable, including where there is "a lack of judicially discoverable and manageable standards for resolving it" and where it is not possible to resolve the dispute "without an initial policy determination of a kind clearly for nonjudicial discretion[.]" Baker v. Carr ,
Again, the premise of plaintiffs' challenge is that a judge should determine whether an acting director has served for an unreasonably long time. Plaintiffs compare their challenge to challenges to the validity of an officer's appointment, which courts are capable of adjudicating. But challenges to the validity of an officer's appointment are ripe at the moment of appointment-before the officer has taken any official action. Plaintiffs' claim is quite different. The logic of their constitutional claim is that DeMarco's initial appointment was valid, and that the actions that he took early in his term were valid.
The OLC opinions on which plaintiffs rely illustrate why the "reasonable under the circumstances" test is not a judicially discoverable or manageable standard. Applying that standard would require a judge to assess the functioning of the entire Executive Branch and the changing state of the nation (actually, the world) throughout the length of the acting officer's tenure to determine at what point, if ever, the length of the officer's service became unreasonable. These assessments are far outside the competency of the judiciary and would require delving into areas-such as "the President's ability to devote attention to the matter" and his "desire to appraise the work of an Acting Director"-that are not normally the subject of judicial inquiry.
Critically, these assessments can only be done retrospectively, which would throw the functioning of the government into intolerable uncertainty. Because the conditions under which an acting officer serves are continually changing, it would be impossible to know, in advance, how long those conditions would justify an acting officer's continued service. Nor would it even be possible-as conditions fluctuate from day to day, week to week, month to month-to contemporaneously identify the moment at which the acting officer's tenure became too long. The passage of yet more time would be necessary to put those changes in perspective.
As a result, none of those who had business before or were being affected by the agency-not private individuals, not businesses, not other governmental agencies, not members of Congress, not even the President himself-would have any way of knowing whether the acting officer who was heading the agency had lost his or her authority to act on the agency's behalf. Instead, they would have to order their affairs with the knowledge that, at some point years later, a judge acting with the benefit of hindsight might pronounce the length of the tenure unreasonable and pick an essentially arbitrary point beyond which the officer's actions will be deemed invalid. This is no way to run a government. Cf. Vieth v. Jubelirer ,
The facts of this case illustrate the problem. As described above, the first FHFA director resigned in August 2009, thereby triggering the designation of DeMarco as acting director. At that point, Fannie and Freddie had been under conservatorship for nearly a year and Treasury's funding commitment had recently doubled from $100 billion to $200 billion. Just over a year after DeMarco's appointment, President Obama sent a nomination to the Senate, but the Senate failed to act and the nomination was returned to the President on December 22, 2010. Am. Compl. ¶ 44. In May 2013, President Obama made another nomination, which stalled in the Senate for more than seven months until the Senate finally voted to confirm on December 10, 2013. Am. Compl. ¶ 44.
Plaintiffs allege that, by the time that the Third Amendment was adopted in August 2012, DeMarco's tenure had become unreasonable. But consider the circumstances facing FHFA in August 2012: The agency was charged with administering "the largest conservatorships in U.S. history," Am. Compl. ¶ 19, over two companies that dominated the housing market-the recent collapse of which had triggered the most serious economic crisis since the Great Depression. Those companies were also the beneficiaries of hundreds of billions of dollars in governmental financing. Whether at that point no acting director was needed is the type of judgment call that the judiciary is not equipped to make. Nor is the judiciary equipped to litigate the question whether the President had the ability to devote attention to the matter between December 2010 and May 2013. Indeed, it is difficult to imagine what such litigation would look like or how the normal tools of discovery would operate. ("Mr. President, I see that you spent two hours meeting with the ambassador from Aruba on March 23. Wasn't it more important for
Plaintiffs point to other timing-based constitutional challenges, contending that such challenges are capable of adjudication. But the cases to which they point are distinguishable. For example, in NLRB v. Noel Canning , the Court held that a break of less than ten days is presumptively too short to fall within the meaning of "recess" in the Recess Appointments Clause. --- U.S. ----,
Plaintiffs also cite Morrison and Edmond v. United States ,
It is true that, in Eaton , the Supreme Court explained that the vice consul could constitutionally exercise the duties of the consul in part because the vice counsel was "charged with the performance ... for a limited time, and under special and temporary conditions ...." Eaton ,
Plaintiffs seek to get around the justiciability problem by proposing a ceiling of two years on any acting officer's tenure. They point out that this is the maximum possible term for an officer appointed under the Recess Appointments Clause and argue that it would be anomalous for the President to be able to evade this limit through the appointment of acting officers.
The problem for plaintiffs is that recess appointees are not analogous to acting officers. When making a recess appointment, the President has unlimited authority; he can appoint anyone of his choosing with no oversight whatsoever. This power extends even beyond the Executive Branch to include Article III judgeships. See Evans v. Stephens ,
The same cannot be said of acting officers. Congress has the power to control the President's choice of acting officers-which, by their very nature, are limited to the Executive Branch. See, e.g. ,
Importantly, if Congress perceives that the President is abusing his limited power to appoint acting officers, Congress has the ability to address the problem through legislation. But Congress cannot limit the President's constitutionally granted power under the Recess Appointments Clause. The unlimited constitutional power to make recess appointments is therefore unlike the limited statutory power to designate acting officers. And given the vastly different types, functions, and tenures of executive officers, the Court could not possibly say that a two-year limit on acting officers' tenure is mandated in each and every case-which is what the Court would have to say in order to avoid the justiciability problem discussed above.
Because plaintiffs' proposed "reasonableness" standard is not capable of judicial application-and because plaintiffs' two-year cap finds no support in the Constitution-the Court rejects plaintiffs' claim that the length of DeMarco's tenure was constitutionally invalid.
2. Other Appointments Clause Challenges
In addition to their challenge to the length of DeMarco's term, plaintiffs make two other arguments regarding the validity of his tenure. First, they argue that, although it is permissible for the duties of a principal officer to temporarily devolve upon a subordinate by operation of law, the President may not be given the power to select the officer who will perform those duties (unless his choice is confirmed by the Senate). As a result, plaintiffs contend, the procedure under § 4512(f) is unconstitutional, as it gives the President the ability to choose an acting director from one of three deputy directors. Plaintiffs base their argument on the fact that the Constitution identifies
Plaintiffs' argument suffers from a logical flaw, however. As explained in Eaton , a subordinate who takes on the duties of a principal officer does not thereby become a principal officer who requires Senate confirmation. Eaton ,
Second, plaintiffs contend that, setting aside any constitutional problems with DeMarco's appointment and tenure, his appointment did not comply with § 4512(f). Their argument is as follows: DeMarco's predecessor, James Lockhart, served as FHFA director pursuant to § 4512(b)(5). That provision designated the then-current director of OFHEO (FHFA's predecessor) to "act" as the first FHFA director. As a result, plaintiffs argue, Lockhart merely served as an acting director , and his resignation therefore did not trigger § 4512(f) -which applies only "[i]n the event of the death, resignation, sickness, or absence of the Director ...." (Emphasis added.)
Plaintiffs did not assert this claim in their amended complaint, and therefore it is not properly before the Court.
In any event, the Court disagrees with plaintiffs' reading of the statute. Although the language of § 4512(b)(5) can be read to suggest a distinction between Lockhart's role and the role of a director appointed under § 4512(b)(1), the Court believes that the better reading is that Lockhart was a director whose resignation triggered the power to appoint an acting director under § 4512(f).
Section 4512(b)(5) is the fifth paragraph of subsection (b), which is generally concerned with the appointment of the director. The first four paragraphs of subsection (b) describe the process for appointing a director and govern the length of his tenure. The fifth paragraph, under which Lockhart became the director, begins with the phrase "[n]otwithstanding paragraphs (1) and (2)"-thus indicating that the person designated under (b)(5) would be subject to those provisions if not for the excepting language. The structure and language of subsection (b) thus connect the "director" appointed under (b)(5) to the "director" appointed under (b)(1). For that reason, the better reading of the statute is that (b)(5) is not describing some unique official, but rather a director like those described in (b)(1) (albeit appointed under a special method and with a special tenure not applicable to later directors).
Finally, the Court finds it unlikely that Congress intended to leave the office of FHFA director vacant in the event of Lockhart's resignation. The manifest purpose of § 4512(b)(5) was to enable FHFA to hit the ground running in response to a serious economic crisis. Any resignation by the agency's first director would likely occur relatively early in the life of the agency. Congress cannot have intended to leave FHFA rudderless in the midst of the emergency that prompted the agency's creation. For these reasons, the Court rejects plaintiffs' argument that DeMarco's appointment was not in conformity with § 4512(f).
3. De Facto Officer Doctrine
Even if the Court were to agree with plaintiffs that DeMarco's service as acting director was invalid at the time that FHFA entered into the Third Amendment, the de facto officer doctrine would bar the relief that plaintiffs are seeking.
"The de facto officer doctrine confers validity upon acts performed by a person acting under the color of official title even though it is later discovered that the legality of that person's appointment or election to office is deficient." Ryder v. United States ,
Plaintiffs argue that the de facto officer doctrine only applies to technical defects in the appointment process, not to alleged violations of the Appointments Clause. Several Supreme Court cases contain language supporting this view. See Nguyen v. United States ,
Second, the litigants in these cases raised their challenges to the authority of the judicial officers during the course of litigation, which suggests that there was a natural end point beyond which their challenges would no longer have been entertained-namely, after the judgments became final.
In other contexts, the Supreme Court has been willing to employ the de facto officer doctrine to avoid invalidating the actions of officials, even when the officials' authority is challenged on constitutional grounds.
Plaintiffs also contend that Buckley did not really apply the de facto officer doctrine, but instead applied the later-discredited non-retroactivity doctrine of Chevron Oil Co. v. Huson ,
The Court therefore sees no barrier to the application of the de facto officer doctrine in this case, which stands on a completely different footing from Ryder and Nguyen . Here, plaintiffs are attempting to unwind the actions of an executive agency going back more than five years-actions of national (indeed, international) significance that have been the basis of trillions of dollars' worth of economic activity. There is simply no way to put the parties back into the positions they occupied in August 2012. And plaintiffs' particular challenge to the validity of the Third Amendment-first brought in June 2017-can by no stretch be considered "timely." See Ryder ,
Plaintiffs argue that they brought their claim within the applicable statute of limitations. See
D. Counts IV and V: Non-Delegation Doctrine
Finally, plaintiffs allege that Congress's grant of conservatorship powers to FHFA violates the non-delegation doctrine.
The Court agrees with FHFA that the non-delegation doctrine is not implicated in this case, because FHFA was not exercising governmental power when it agreed to the Third Amendment. See Herron v. Fannie Mae ,
The Third Amendment is simply a contractual arrangement that FHFA entered into on behalf of two private entities-Fannie and Freddie-in its capacity as their conservator. As other courts have noted, "[r]enegotiating dividend agreements, managing heavy debt and other financial obligations, and ensuring ongoing access to vital yet hard-to-come-by capital are quintessential conservatorship tasks ...." Perry Capital LLC v. Mnuchin ,
Plaintiffs argue that the Third Amendment was nevertheless an exercise of governmental power because, according to plaintiffs, no private conservator or corporate officer could have entered into it without violating fiduciary and other duties normally imposed under state law. It may well be true that FHFA's actions would not be allowed under traditional principles of corporate or conservatorship law,
Plaintiffs also argue that entering into the Third Amendment altered the legal rights and obligations of third parties, which, according to plaintiffs, is the very essence of governmental power. This is simply not true; corporate contracts commonly alter shareholders' rights and obligations. Plaintiffs contend that it is significant that FHFA is charged with acting in the public interest. But Fannie and Freddie were themselves "created ... to accomplish a number of governmental objectives for the national housing market," Herron ,
Plaintiffs compare this case to Slattery v. United States , in which the Federal Circuit held that the FDIC, acting as the receiver for a failed bank, was the "United States" for purposes of the Tucker Act.
Finally, citing Perry Capital , plaintiffs contend that FHFA has the "power ... to suspend the application of provisions of the APA and HERA that would have otherwise restricted Treasury's legal authority to invest in the Companies." Pls.' Mem. in Resp. at 24-25 [ECF No. 43]. This is a mischaracterization of Perry Capital , which simply held that the plaintiffs could not circumvent FHFA's statutory protection from judicial review by seeking declaratory and injunctive relief against FHFA's contractual counterparty. Perry Capital ,
Anticipating that the Court might find that FHFA acts as a private entity when it acts as conservator of Fannie and Freddie, plaintiffs argue in the alternative that FHFA's actions violate the private non-delegation doctrine. Generally speaking, that doctrine limits the government's ability to delegate regulatory and other governmental authority to private parties. See Pittston Co. v. United States ,
Finally, even if FHFA is exercising governmental authority when it acts as conservator, there is no non-delegation problem. "Congress may not constitutionally delegate its legislative power to another branch of Government." Touby v. United States ,
HERA provides the requisite "intelligible principle." It authorizes the appointment
take such action as may be-
(i) necessary to put [the Companies] in a sound and solvent condition; and
(ii) appropriate to carry on the business of [the Companies] and preserve and conserve the assets and property of [the Companies].
Plaintiffs argue that the lack of judicial oversight of FHFA's actions as conservator results in FHFA having too much power. See United States v. Garfinkel ,
E. Conclusion
Having found no viable claims against FHFA, the Court grants FHFA's motion to dismiss. Because there are no viable claims against FHFA, there are likewise no viable claims against Treasury. Indeed, plaintiffs have failed to explain the basis of any of their claims against Treasury, and thus have necessarily failed to identify any claim that could survive the dismissal of the claims against FHFA. The Court therefore also grants Treasury's motion to dismiss (without needing to address the additional arguments that Treasury makes in support of its motion).
ORDER
Based on the foregoing, and on all of the files, records, and proceedings herein, IT IS HEREBY ORDERED THAT:
1. Defendants' motions to dismiss [ECF Nos. 29, 34] are GRANTED.
2. Counts I and II of plaintiffs' first amended complaint [ECF No. 27] are DISMISSED WITHOUT PREJUDICE for lack of jurisdiction.
3. All of plaintiffs' other claims are DISMISSED WITH PREJUDICE.
4. Plaintiffs' motion for summary judgment [ECF No. 41] is DENIED.
LET JUDGMENT BE ENTERED ACCORDINGLY.
Notes
Plaintiffs bring only official-capacity claims against Watt. Where applicable, the Court's references to FHFA should be understood to include Watt.
Even this scenario assumes that vacatur of the Third Amendment is an appropriate remedy, which, as discussed below, is an extremely problematic assumption.
Defendants also argue that plaintiffs cannot show causation because the Third Amendment was approved by FHFA during the time that the agency was headed by DeMarco-who, as acting director, allegedly did not enjoy tenure protection. Because the Court concludes that plaintiffs lack standing and that plaintiffs would lose on the merits even if DeMarco was protected from termination without cause, the Court need not address this issue.
To preserve their rights, plaintiffs raise the argument that Humphrey's Executor and Morrison should be overruled. Recognizing that this Court does not have the power to overrule those decisions, however, they do not seek a ruling on that basis.
In their briefing, plaintiffs attempt to raise a new, statutory challenge to DeMarco's appointment, which the Court discusses below.
It is true that the Supreme Court "[left] open the possibility that some very unusual circumstance-a national catastrophe, for instance, that renders the Senate unavailable but calls for an urgent response-could demand the exercise of the recess-appointment power during a shorter break." Noel Canning ,
As DeMarco was appointed in 2009, it is also likely that any challenge to the validity of that appointment would be time-barred. See
Compare, for example, United States v. Booker , in which the Supreme Court held that the mandatory Sentencing Guidelines violated the Sixth Amendment right to a jury trial.
It is true that courts will in some cases invalidate the actions of executive officials whose appointments violated the Appointments Clause. see, e.g., Lucia v. S.E.C. , --- U.S. ----,
The Eighth Circuit, like all other circuits to have addressed the question, has held that Fannie, Freddie, and FHFA are governmental instrumentalities that Congress may exempt from state and local taxation. Hennepin Cty. v. Fed. Nat'l Mortg. Ass'n ,
But see Roberts v. FHFA ,