Earlier this month Bill Ackman’s Pershing Square Capital Management dropped one of its lawsuit against the government regarding Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA), and a recent development in the Fairholme case seems to confirm that it was a tactical decision meant to limit some of the government’s options.

Yesterday, Judge Sweeney at the Court of Federal Claims approved Pershing Square’s request to file an amicus brief in the Fairholme case, and the reason for the decision is revealing.

Fannie Mae: Pershing Square agreed to wait until Fairholme’s discovery finishes

In case you’ve been wondering, the reason all of the focus in the Court of Federal Claims has been on the Fairholme case is because Pershing agreed to a government request to delay its case to avoid going through the same exact discovery process multiple times. The idea was that Fairholme would go through jurisdictional discovery first and whatever was found would likely apply to both cases since they are making essentially the same claim (that the full income sweeping violates the takings clause).

But when Judge Royce Lamberth threw Fairholme’s case in the DC District Court (which claimed a violation of the Administrative Procedures Act, not the takings clause), the government filed for an indefinite stay on the Fairholme’s other case currently in front of Judge Sweeney. Fairholme is appealing the Lamberth decision, as is Perry Capital, but putting discovery on hold in the Sweeney court would still be a blow to Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) shareholders because it would extend an already lengthy legal process even more.

Fannie Mae: Pershing Square provides cover for Fairholme in Sweeney court

We speculated at the time that Pershing Square dropped its DC District Court case because it expected the same result and preferred to focus on what now looks like the stronger claim, but the amicus brief adds another layer to that strategy.

“The Government seeks an indefinite stay of all proceedings in Fairholme—and, by extension, Amici’s case—based on a preclusion argument against the Fairholme Plaintiffs that, even if correct, would not apply to Amici. The Government’s motion thus affects Amici’s interests while ignoring the broader context of these related cases. Amici’s proposed amicus brief brings this context into proper focus,” says Pershing Square’s motion.

In other words, dropping the DC District Court case not only strengthened Pershing Square’s other lawsuit, it may have strengthened Fairholme’s case as well because it shows that the stay, if granted, would have a broader impact.

See both rulings here 112114-motion-for-leave-to-file-amicus-brief-regarding-defendant_s-motion-to-stay-2

1124-order-granting-amicus-brief-2

Judge Sweeney Approves Ackman's Amicus Brief In Fannie Mae Case