Memorandum Opinion and Order
Christopher Roberts and Thomas Fischer are shareholders of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). See R. 22, Am. Compl. ¶40,
This case arises from FHFA’s involvement, as the companies’ conservator, with the Treasury Department. In 2008, FHFA entered into stock purchase agreements with Treasury on Fannie’s and Freddie’s behalf. Am. Compl. ¶ 56. Under these аgreements, Treasury made hundreds of billions of dollars in capital available to the companies in exchange for shares of their preferred stock, which had a variable liquidation preference. See id. ¶¶ 56, 58, 61-62. The agreements obligated both Fannie and Freddie to pay Treasury a quarterly dividend equal to a fixed percentage of Treasury’s liquidation preference. Id. ¶ 65. FHFA and Treasury later modified this dividend formula—in the Third Amendment to the stock purchase agreements— to require Fannie and Freddie to pay the quarterly dividend in an amount roughly equal to their net worth. See id. ¶ 113.
The Plaintiffs filed this lawsuit against FHFA and the Treasury Department,
I. Background
A. Fannie Mae and Freddie Mac
Fannie Mаe and Freddie Mac are government-sponsored enterprises bom from statutory charters issued by Congress. See 12 U.S.C. §§ 1716-1723 (Fannie Mae); id. §§ 1451-1459 (Freddie Mac); Am. Compl. ¶ 39. Congress created the companies to, among other things, “provide stability in the secondary market for residential mortgages” and “promote access to mortgage credit throughout the Nation ... by increasing the liquidity of mortgage investments and improving the distribution of investment capital available for residential mortgage financing.” 12 U.S.C. § 1716(1), (3). Today, Fannie and Freddie are for-profit, stockholder-owned corporations.
B. The Housing and Economic Recovery Act of 2008
In the midst of the subprime mortgage crisis, Congress enacted the Recovery Act. See Am. Compl. ¶¶4, 45. The Recovery Act created FHFA, an independent agency with the power to supervise and regulate Fannie and Freddie. 12 U.S.C, § 4511. FHFA was authorized to place Fannie and Freddie into conservatorship or receivership “for the purpose of reorganizing, rehabilitating, or winding up the[ir] affairs.” See id. § 4617(a)(2). The Recovery Act also granted Treasury “[tjemporary” authority to “purchase any obligations and other securities issued by” Fannie and Freddie “on such terms and conditions as the Secretary [of Treasury] may determine and in such аmounts as the Secretary may determine.” Id. § 1455(Z )(1)(A) (Freddie Mac); id. § 1719(g)(1)(A) (Fannie Mae). Treasury’s temporary purchasing authority expired on December 31, 2009. 12 U.S.C. § 1455©(4) (Freddie Mac); id. § 1719(g)(4) (Fannie Mae). But the Act empowers Treasury to, “at any time, exercise any rights received
The Recovery Act grants FHFA expansive general powers when acting as conservator or receiver:
The Agency may, as conservator or receiver—
(i) take over the assets of and operate the regulated entity with all the powers of the shareholders, the directors, and the officers of the regulated entity and conduct all business of the regulated entity;
(ii) collect all obligations and money due the regulated entity;
(iii) perform all functions of the regulated entity in the name of the regulated entity which are consistent with the appointment as conservator or receiver;
(iv) preserve and conserve the assets and property of the regulated entity; and
(v) provide by contract for assistance in fulfilling any function, activity, action, or duty of the Agency as conservator or receiver.
12 U.S.C. § 4617(b)(2)(B). In addition, FHFA is empowered to “transfer or sell any asset or liability of the regulated entity in default, and may do so without any approval, assignment, or consent with respect to such transfer or sale.” Id. § 4617(b)(2)(G). Specific to the conservator role, FHFA “may ... take such action as may be ... (i) necessary to put the regulated entity in a sound and solvent condition; and (ii) appropriate to carry on the business of the regulated entity and preserve and conserve the assets and property of the regulated entity.” Id. § 4617(b)(2)(D). (As receiver, by contrast, “the Agency shall place the regulated entity in liquidation and proceed to release upon the assets of the regulated entity in such a manner as the Agency deems appropriate.” Id. § 4617(b)(2)(E).) With respect to either role, FHFA “may” exercise any “incidental powers” necessary to carry out its enumerated рowers, as well as “take any action authorized by [Section 4617],■ which the Agency determines is in the best interests of the regulated entity or the Agency.” Id. § 4617(b)(2)(J). And, upon becoming either conservator or receiver, FHFA “immediately succeed[s] to ... all rights, titles, powers, and privileges of the regulated entity, and of any stockholder, officer, or director of such regulated entity with respect to the regulated entity and the assets of the regulated entity.” Id. § 4617(b)(2)(A).
In addition to giving FHFA those broad powers, the Act limits external interference with FHFA’s actions as conservator or receiver. For example, the statute specifies that when acting in either role, “the Agency shall not be subject to the direction or supervision of any other agency of the United States or any State in the exercise of the rights, powers, and privileges of the Agency.” 12 U.S.C. § 4617(a)(7). And “no court may take any action to restrain or affect the exercise of powers or functions of the Agency as a conservator or a receiver.” Id. § 4617(f).
C. Factual Background
On September 6, 2008—despite statements made by government officials suggesting that the companies were financially healthy, Am. Compl. ¶ 42—FHFA placed Fannie and Freddie into conserva-torship. Id. ¶¶7, 62. The Plaintiffs claim that, at that point in time, neither Fannie nor Freddie were in financial distress or in danger of defaulting on their debts. Id. ¶¶ 52, 55.
The next day, Treasury exercised its statutory purchasing authority by entering into stock purchasing agreements with FHFA, which was acting in its role as Fannie’s and Freddie’s conservator. Am.
In May 2009, FHFA and Treasury executed the.First Amendment to the stock purchasing agreеments, which increased Treasury’s total funding commitment from $100 billion per company to $200 billion-per company. Am. Compl. ¶77. Then, in December 2009, FHFA and Treasury entered into the Second Amendment, which “established a formula to allow Treasury’s total commitment to each Company to exceed (but not fall below) $200 billion depending upon any deficiencies experienced in 2010, 2011, and 2012, and any surplus existing as of December 31, 2012.” Id. ¶ 79.
From the outset of the conservatorships, FHFA made assumptions about Fannie’s and Freddie’s future -financial prospects that required the companies to write down the value of significant tax assets and establish large loan reserves. Am. Compl. ¶¶ 81-83. As a result, both Fannie and Freddie reported non-cash losses which decreased their reported net worth by hundreds of billions of dollars. Id. ¶81. According to the Plaintiffs, these losses forced the companies to draw on Treasury’s funding commitment, which thereby increased Treasury’s liquidation preference. See id. ¶ 85. The companies also drew, -additional funds to pay cash dividends to Treasury (even though they could have elected to pay 'the dividends by increasing Treasury’s liquidation preference). See id. ¶¶ 14, 85. To date, Fannie and Freddie have drawn a total of $187 billion from Treasury; around $26 billion of the total was used to- pay the cash dividends. Id. ¶ 85.
Despite the establishment of the largе loan reserves and the tax-assets write-down, by 2012 Fannie and Freddie had returned to profitability (and FHFA and Treasury were aware of this).
- The Third Amendment replaced the previous dividend formula with the requirement that Fannie and Freddie pay quarterly dividends in the amount of their
D. Procedural History
The Plaintiffs brought this suit under the Administrative Procedure Act (the APA), claiming that FHFA exceeded its conservatorship authority under the Recovery Act by entering into certain provisions of the stock purchase agreements, as well as by agreeing to the new dividend formula under the Third Amendment. See Am. Compl. ¶¶ 158-69 (Count One). They also claim—only with regard to the Third Amendment’s new dividend formular—that Treasury exceeded its temporary purchasing authority under the Recovery Act (Count Two) and acted arbitrarily and capriciously (Count Three). See id. ¶¶170-91. The Plaintiffs request declaratory and injunctive relief, but no monetary damages. See id. ¶ 192.
The Defendants have filed a motion to dismiss under Rule 12(b)(1) for lack of subject matter jurisdiction. See Joint Mot. to Dismiss. They assert a variety of grounds against the amended complaint, including a threshold issue, specifically, that judicial review of the Plaintiffs’ claims is barred by 12 U.S.C. § 4617(f), as well as by 12 U.S.C. § 4623(d). The agencies also argue that the Plaintiffs lack standing in light of a provision in the Recovery Act, 12 U.S.C. §-4617(b)(2)(A)(i); that the Plaintiffs’ claims are time barred; and that the Plaintiffs’ claims are barred by the doctrine of issue preclusion. See R. 39-1, Joint Defs.’ Br.; R. 40, Treasury Defs.’ Br.; R. 41, FHFA Defs.’ Br.
II. Standard of Review
In invoking 12 U.S.C. § 4617(f), which says that “no court may take any action to restrain or affect the exercise of powers or functions of [FHFA] as a conservator or a receiver,” the Defendants contend that subject matter jurisdiction has been withdrawn over the claims in this case. Joint Defs.’ Br. at 17-19. But it is not clear that this provision is a jmisdiction-stripping statute,. rather than a merits-based limit on the usual claims that a party might assert against a government agency. The Supreme Court has emphasized the need to draw- the line 'carefully between lack of jurisdiction (which truly goes to thе power of a court to hear a case) versus lack of merit (that is, a failure to state a claim for which relief can be granted). Practically speaking, however, it makes no difference here because the key point is that the allegations in the amended complaint must be accepted as true .either way. Either the government is making a facial challenge to subject matter jurisdiction, in which case the allegations must be accepted as true (plus the Plaintiffs get the benefit of reasonable inferences), see Silha v. ACT, Inc.,
Ill, Analysis
The Defendants contend that 12 U.S.C. § 4617(f) prohibits the court from providing relief for Plaintiffs’ claims. See Joint Defs.’ Br. at 17-27; Treasury Defs.’ Br. at 13-20; FHFA Defs.’ Br. at 6-9. The Court agrees.
The Plaintiffs have brought all three counts of their amended complaint under the Administrative Procedure Act—which generally authorizes judicial review of agency action—but the APA provisions on which the Plaintiffs rely do not apply where a substantive “statute[ ] precluded] judicial review.” 5 U.S.C.- § 701(a)(1); see Heckler v. Chaney,
Although the Seventh Circuit has yet to comment on the scope of § 4617(f), that court has interpreted the nearly identical anti-injunction bar contained in the Financial Institutions Reform Recovery and Enforcement Act. See 12 U.S.C. § 1821(j) (“[N]o court may take any action ... to restrain or affect the exercise of powers or functions of the [FDIC] as a conservator or a receiver.”); see also Veluchamy,
Although the Seventh Circuit has not yet interpreted § 4617(f), federal courts in other circuits have. See, e.g., Cty. of Sonoma v. Fed. Hous. Fin. Agency,
Because the Plaintiffs in this case seek only equitablе relief, their claims must be dismissed unless FHFA acted beyond the scope of its powers as conservator. And whether FHFA acted beyond the scope of its powers depends, in part, on whether Treasury acted within the scope of its statutory purchase authority. For if Treasury entered into the Third Amendment in contravention of the Recovery Act, “then FHFA is functionally complicit in its counterparty’s misconduct,” and Treasury’s ultra vires conduct is imputed to FHFA. See Perry Capital (D.D.C.),
The Plaintiffs аrgue that § 4617(f) only bars claims for equitable relief against FHFA—so it cannot be used in this case to dismiss the claims against Treasury. It is true that, in limiting court action, the specific government agency referred to in § 4617(f) is FHFA. But the breadth of the ban is not so cramped as the Plaintiffs allege. Instead of disabling courts from entering orders directed at FHFA and only FHFA, the statutory text goes further: courts can take no “action” that would “restrain”—or even “affect”—“the exercise of powers or functions of’ FHFA as a conservator. 12 U.S.C. § 4617(f) (emphasis added). So it is not just FHFA that is off limits, but also any court order that would affect the exercise of FHFA’s powers or functions.
Here, the Plaintiffs’ prayer for relief seeks, among other things, a declaration that the new dividend formula from the Third Amendment is invalid; an injunсtion returning dividend payments made according to the new formula to Fannie and
One final point before turning to whether the Plaintiffs have sufficiently alleged that either FHFA or Treasury acted outside the scope of its authority. When considering whether FHFA or Treasury has acted ultra vires, the agencies’ motives are irrelevant,
With the parameters of § 4617(f) in place, the Court now addresses whether
A. FHFA
The Plaintiffs allege that FHFA exceeded its statutory authority in a variety of ways when it entered into the Third Amendment, see Am. Compl. ¶¶ 158-68, but their allegations can be distilled into two sets of arguments. First, they сlaim that FHFA entered into the Third Amendment “at the insistence and under the direction and supervision of Treasury” and have “eede[d] substantial control over the operation of Fannie and Freddie in conser-vatorship to Treasury,” in violation of 12 U.S.C. § 4617(a)(7). Id. ¶¶ 163, 167; see also R. 46, Pls.) Resp. Br. at 24-26. Second, they assert that entering into the Third Amendment was “inimical” to FHFA’s core mandates as conservator, in particular its statutory obligations to “put the [companies] in a sound and solvent condition,” 12 U.S.C. § 4617(b)(2)(D)(i), and to “preserve and conserve [their] assets and property,” id. § 4617(b)(2)(D)(ii). Am. Compl. ¶¶ 160-62, 165-66, 168; Pls.’ Resp. Br. at 27-35. Neither of these arguments has merit.
1. Section 4617(a)(7): Other-Agency Direction
The Plaintiffs first argue that FHFA’s interactions with Treasury run afoul of 12 U.S.C. § 4617(a)(7). Section 4617(a)(7) says that FHFA, “[w]hen acting as conservator or receiver ... shall not be subject to the direction or supervision of any other agency of the United States or any State in the exercise of the rights, powers, and privileges of the agency.” The Plaintiffs believe that FHFA violated this provision in two ways: (1) FHFA “subjected] itself to Treasury’s will” when it entered into the Third Amendment, and (2) FHFA ceded “extraordinary control” over the companies’ operation when it entered into the stock purchase agreements (a fact that was exacerbated by the Third Amendment). Pis.’ Resp. Br. at 24-25. But other than making the conclusory allegation that Treasury had a long-term plan to “seize” Fannie аnd Freddie for the “exclusive benefit” of the federal government, see Am. Compl. ¶ 133, the Plaintiffs have alleged no facts from which it can be 'reasonably inferred that something like that actually happened. At most, on the facts alleged, Treasury came up with the idea for the new dividend formula in the Third Amendment and proposed it to FHFA. Formulating "a plan and proposing it to FHFA does not mean that Treasury was subjecting FHFA to its “direction” or “supervision.” As the district court pointed out in Perry Capital (D.D.C.), “[Undoubtedly, many negotiations arise from one party conjuring up an idea, arid then bringing their proposal to the other party.”
Nor did it violate § 4617(a)(7) by entering into the stock purchase agreements. The Plaintiffs point out that the agreement's contain covenants prohibiting FHFA from taking certain actions with respect to the companies without the pri- or written consent of Treasury.' See Am. Compl. ¶ 74. This might be problematic— except that Treasury’s actions were contemplated by the Recovery Act itself. At the same time that Congress enacted § 4617(a)(7), it authorized Treasury to purchase securities from Fánnie and Freddie “on such terms and conditions as the Secretary [of Treasury] may determine.” 12 U.S.C. §§ 1455(1 )(1)(A), 1719(g)(1)(A). In doing so, it made clear that Fannie and Freddie could not be forced to issue securitiеs “without mutual agreement” between the companies and Treasury. Id. (“Nothing in this subsection requires the corporation to issue obli
2. Conservator Duties
Contrary .to the Plaintiffs’ arguments, Pis.’ Resp. Br. at 16, FHFA did not violate any “core statutory mandates” as conservator—largely because these mandates do not exist, at least not as the Plaintiffs have alleged. The Plaintiffs say that, by using the term “conservatorship,” Congress injected longstanding, preexisting conservatorship principles into the Recovery Act. See id. at 27. It is true that courts presume that where a well-established term has been used in a statute, Congress intended that term to have its customary meaning. McDermott Int’l, Inc. v. Wilander,
Section 4617(b)(2)(D) says that FHFA “may, as conservator, take such action as may be—(i) necessary to put the regulated entity in a sound and solvent condition; and (ii) appropriate to carry on the business of the regulated entity and preserve and conserve the assets and property of the regulated entity.” 12 U.S.C. § 4617(b)(2)(D) (emphasis added). The Plaintiffs maintain that these are “obligations” that FHFA contravened by entering into the Third Amendment. See Pis.’ Resp. Br. at 30. But § 4617(b)(2)(D) uses the permissive term “may,” not the compulsory term “shall,” which makes the actions listed discretionary rather than obligatory. The structure of the statute supports this interpretation. Section 4617(b)(2)(D) is entitled “Powers as conservator,” and it is nestled under the heading “General powers.” 12 U.S.C. § 4617(b)(2). Both of these headings fall under the subsection setting forth “Powers and duties of the Agency as conservator or receiver.” Id. § 4617(b). The differences between the three provision headings suggests that (1) “powers” are different than “duties,” and (2) § 4617(b)(2)(D) grants power in lieu of creating a duty. Ultimately, FHFA cannot be said to have violated a duty that did not exist.
Even if § 4617(b)(2)(D) required FHFA to take action to put Fannie and Freddie in a “sound and solvent condition” and to “preserve and conserve” their assets and
B. Treasury Department
Lastly, the Plaintiffs allege that Treasury exceeded its statutory purchase authority when it entered into the Third Amendment because (1) its purchase authority had expired; and (2) it disregarded its fiduciary duties to the companies’ minority shareholders. See Pis.’ Resp. Br. at 46-53. Neither of these arguments have merit. There is zero hint in the Recovery Act, or anywhere else, that Congress intended for state-law-type fiduciary duties to apply to Treasury in the exercise of its Recovery Act purchase authority. See Robinson,
In sum, under the facts alleged, neither FHFA nor Treasury acted outside the scope of its authority under the Recovery Act.
IV. Conclusion
For the reasons discussed, the Plaintiffs’ amended complaint is dismissed. The dismissal is with prejudice because the Plaintiffs’ have already amended the complaint and they offer no additiоnal possible amendments to get around the bar of Section 4617(f). A separate judgment shall be entered, and the status hearing of April 4, 2017 is vacated.
Notes
. Citations to the record are noted as "R.” followed by the docket number and, if necessary, the page or paragraph number.
. The complaint also names the heads of FHFA and the Treasury Department in their official capacities, which is no different than suing the agencies themselves.
. The Defendants have asked the Court to consider two categories of documents that were not attached to the Plaintiffs’ amended complaint: (1) documents incorporated in the amended comрlaint by reference and (2) Securities and Exchange Commission filings. See R. 39-1, Joint Defs,’ Br. at 10 n.1; R. 40, Treasury Defs.’ Br. at 10 n.2. As a general matter, a court may not consider documents other than the complaint and documents attached to the complaint when deciding a motion to dismiss. See Fed. R. Civ. P. 12(d). There is, however, an exception for documents that have been referred to in a complaint, if they are central to the plaintiff's claims. See Rosenblum v. Travelbyus.com Ltd.,
. Before entering conservatorship, Fannie and Freddiе had both issued common stock and several series of preferred stock. Am. Compl. ¶ 40. Fischer owns Fannie and Freddie common stock, while Roberts owns Fannie and Freddie preferred stock. Id.
. Treasury repeatedly exercised its option under the stock purchase agreements to waive the commitment fee. Am. Compl. ¶ 72.
. In the first two quarters of 2012, the companies posted profits totaling more than $11 billion. Am. Compl, ¶ 92.
. Fannie and Freddie have elected to pay these dividends in cash, even though their net worth includes cash and non-cash assets. Am. Compl. ¶ 147. They have funded payment through the issuance of debt securities. Id.
. Because the argument for dismissal under 12 U.S.C. § 4617(f) is independent of the other arguments that the Defendants have offered in support of their motion to dismiss, the Court need not address their remaining arguments.
. As out-of-circuit (and, for two of the three, district court) decisions, Perry Capital (D.C. Cir.), Perry Capital (D.D.C.), and Robinson are not binding on this Court. But they are well-reasoned and persuasive in interpreting § 4617(f).
. The Plaintiffs cite Leon County v. Federal Housing Finance Agency,
. For the same reasons that FHFA did not violate any core mandates as conservator when it entered into the Third Amendment, FHFA did not act ultra vires with respect to those aspects of the stock purchase agreements that the Plaintiffs say were exacerbated by the Third Amendment.
. The Defendants also argue that subsequent legislation by Congress has impliedly endorsed the Third Amendment. See Treasury Defs.' Br. at 18-20; FHFA Defs.’ Br. 6-9. In light of the Court’s holding, there is no need to investigate this post-enactment legislative history, nor offer a conclusion on the value (if any) of appropriations bills as evidence of congressional approval of agency action.