Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB: FNMA)  and Federal Home Loan Mortgage Corp (OTCBB:FMCC) / Freddie Mac latest court update, this time a document from Bruce Berkowitz’s Fairholme Capital. Todd Sullivan of ValuePlays has an excellent summary (as usual), which can be found here. The latest filing from the court document can be found below.

Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB: FNMA)  and Federal Home Loan Mortgage Corp (OTCBB:FMCC) / Freddie Mac INTRODUCTION

 

If a single theme runs throughout the Government’s motion, it is the suggestion that the Court should reverse or substantially narrow its earlier ruling authorizing discovery. Thus, the Government rehashes its arguments that discovery should not go forward because Plaintiffs’ claims fail as a matter of law and would impermissibly interfere with FHFA’s operation of the Companies. The Court has rejected those same arguments before, and it should do so once again.

The Government seeks to all but foreclose discovery into the Companies’ future profita-bility and the questions of whether, when, and how the conservatorships will end through its as-sertion of two categorical objections to producing any documents related to those topics created after August 17, 2012. The Government first suggests that public disclosure of such documents “can be anticipated to have a destabilizing effect on the Nation’s housing market and economy.” Defs.’ Mot. for Protective Order 7 (May 30, 2104) (Doc. 49) (hereinafter “U.S. Mot.”) (quoting Watt Decl. ¶ 7). Whatever the merit of the Government’s claims about the potential effect of any public disclosure—and there are reasons for serious doubt on that score—any such concerns can be fully addressed through a standard protective order prohibiting public dissemination of any truly sensitive information the Government produces. With that solution readily available, it would be manifestly unfair for the Court to nevertheless prejudice Plaintiffs by denying them access to information that the Court has determined, correctly, is needed for Plaintiffs to respond fully to the Government’s omnibus motion to dismiss.

 

The Government also argues that all documents created after August 17, 2012, relating to the future of the Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB: FNMA)  and Federal Home Loan Mortgage Corp (OTCBB:FMCC) / Freddie Mac conservatorships and of the Companies’ profitability are categorically protected by the deliberative process privilege. Having not even reviewed all of the documents it seeks to

withhold, much less produced a privilege log explaining why those documents qualify for the privilege, the Government’s assertion of the privilege is premature. In any event, there can be little doubt that a host of documents drafted after the Government’s proposed cutoff date are not privileged because they (1) contain factual material, (2) have been shared with Congress or other third parties, (3) announce or relate to final policy decisions, or (4) are relevant to the Govern-ment’s subjective motivations. The deliberative process privilege does not protect any such doc-uments. Nor does it protect documents created after a final policy decision is made, and both FHFA and Treasury documents show that both agencies have had clear policies on the future of Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB: FNMA)  and Federal Home Loan Mortgage Corp (OTCBB:FMCC) / Freddie Mac for some time.

The Court should also decline the Government’s invitation to limit its prior discovery or-der through a cramped interpretation of that order that is divorced from the reasons the Court au-thorized discovery in the first place. The Court should deny the Government’s motion.

 

Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB: FNMA)  and Federal Home Loan Mortgage Corp (OTCBB:FMCC) / Freddie Mac ARGUMENT

 

  1. THE COURT SHOULD REJECT THE GOVERNMENT’S EFFORT TO RE-LITIGATE THE FEBRUARY 26 DISCOVERY ORDER

 

The Government begins its presentation with several arguments that the Court quite properly refused to credit when it authorized discovery and when it denied the Government’s motion for reconsideration. The third time is not the charm.

The Government first reargues that Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB: FNMA)  and Federal Home Loan Mortgage Corp (OTCBB:FMCC) / Freddie Mac discovery is unnecessary because FHFA succeeded to Plaintiffs’ claims as shareholders when it placed the Companies in conservatorship. U.S. Mot. 6; see also U.S. Mot. for Recons. 13-14 (Mar. 17, 2014) (Doc. 33); U.S. Disc. Opp. 9 (Feb. 12,2014) (Doc. 30). The Court has properly refused to pluck arguments from the Government’s omnibus motion to dismiss and resolve them in the piecemeal fashion the Government proposes, and it should do so again now. In any event, the Government’s legal argument is facially merit-

…………………………….

 

Also for the third time with regards to Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB: FNMA)  and Federal Home Loan Mortgage Corp (OTCBB:FMCC) / Freddie Mac, the Government argues that the Court should not allow discovery because Plaintiffs’ claims are contingent on how the Companies will perform in the future. U.S. Mot. 6-7; see also U.S. Mot. for Recons. 11-12; U.S. Disc. Opp. 6-8. But as Plaintiffs previously argued, Pls.’ Mot. for a Continuance to Permit Disc. 9-12 (Dec. 20, 2013) (Doc. 22); Plaintiffs’ Disc. Reply 3-5, and the Court previously ruled, the Government’s contention depends on a dis-puted factual claim: “[D]iscovery [will] reveal information relevant to resolving the factual dis-pute between plaintiffs and defendant regarding each party’s assessment of future profitability.” Disc. Order 3 (Feb. 26, 2014) (Doc. 32).2

1In the Winstar cases, this Court rejected the FDIC-receiver’s attempt to substitute itself for the seized financial institutions’ shareholders on the theory that it has succeeded to all share-holder claims. Plaintiffs in All Winstar-Related Cases at Court v. United States, 44 Fed. Cl. 3, 7-

12  (1999). FHFA has not even attempted that maneuver here.

 

2The Government does manage to introduce a new—albeit meritless—argument when it claims that HERA “limit[s] the shareholders’ recovery to what they would have received had the Enterprises gone into immediate liquidation at the time FHFA placed Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB: FNMA)  and Federal Home Loan Mortgage Corp (OTCBB:FMCC) / Freddie Mac in conservatorship.” U.S. Mot. 6-7 (citing 12 U.S.C. § 4617(e)(2)). Again, the Court should await the conclusion of discovery rather than resolving the Government’s omnibus motion to dismiss in the piecemeal fashion the Government proposes. In any event, Section 4617(e) limits FHFA’s liability only if it opts to set up a “limited-life regulated entity” under 12 U.S.C. §

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