>Opinion and order in Fairholme lawsuit regarding Fannie Mae (OTCB:FNMA) and Freddie Mac (OTCB:FMCC),analysis to follow! PDF attached.
UPDATE: 11:38PM EST commentary from TimHoward717.com
“Hold no merit,” “contrary to law.” Once again Judge Sweeney reminds the government attorneys that the rule of law still is alive in the USA contrary to what they may believe. I think its pretty obvious that there have been numerous discussions between the FHFA, Treasury department and the administration about the potential for reforming and releasing Fannie and Freddie. More will be revealed. Part of me was hoping that this order would not be made public till after midnight so I could post it on 7/17. Seriously though its been a long day but I wanted to post a few key passages from today’s order. I think they stand pretty well on their own. Keep the Faith!
“the “FHFA cannot evade judicial review. . . simply by invoking its authority as conservator.” County of Sonoma v. Fed. Hous. Fin. Agency, 710 F.3d 987, 994 (9th Cir. 2013); Leon County v. Fed. Hous. Fin. Agency, 700 F.3d 1273, 1278 (11th Cir. 2012) (“The FHFA cannot evade judicial scrutiny by merely labeling its actions with a conservator stamp.”).”
“there is no request by plaintiffs that would potentially restrain or affect the exercise of powers or functions of the FHFA as conservator. Consequently, blanket assertions concerning the court’s ability to conduct these proceedings, especially as they pertain to a discovery matter related to the question of jurisdiction, hold no merit”.
“Overall, defendant advances general claims concerning the sensitive nature of the documents, and the adverse consequences that would result from divulging them. Without more detail regarding the content of the documents, or the opportunity to review them, the court cannot make a finding that they fall under the privilege. Id. (“[A] blanket approach to asserting the privilege is unacceptable and is itself grounds for denying invocation of the privilege.”) (citation omitted). In essence, defendant asserts that the court should merely take its word that the documents—some of which defendant, itself, has not reviewed—are privileged. This suggestion is contrary to law.”
UPDATE 8:57 PM EST June 16th 2014 Todd Sullivan of ValuePlays states:
Judge Sweeney entered her decision today on discovery. Bottom line is a big win for $FAIRX. Sweeney acquiesced on the dates for the govt but in a large swing granted discovery from the dates of June 2011 to Aug 2012. The FHFA has requested Jan 2012 to Aug 2012. She also granted discovery from the dates of April 2008 to Dec 2000 vs the Sept-Dec 2008 the government requested. That is a very big difference and will capture much more of the pre-decision deliberations.
This is a big win…..
OPINION & ORDER
Plaintiffs seek just compensation under the Fifth Amendment of the United States Constitution, contending that defendant engaged in a taking of their property without just compensation. According to plaintiffs, the Federal Housing Finance Administration (“FHFA”) placed the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (collectively “the enterprises”) into conservatorship in 2008. Plaintiffs state that the United States Department of the Treasury then provided the enterprises with capital, and entered into agreements to purchase securities from them (“government stock”). While serving as conservator, plaintiffs contend, defendant issued the so-called the Third Amendment or “Net Worth Sweep” to government stock documents, which changed the dividend due on the government stock from 10% to 100% of all current and future profits. So long as the Third Amendment remains in effect, the rate of dividends on plaintiffs’ stock is zero. Plaintiffs claim that the elimination of their dividends constitutes a taking of dividends owed to Fannie Mae and Freddie Mac shareholders. This case is related to or coordinated with other cases with similar claims.
Defendant has filed a motion to dismiss, contending that the court lacks jurisdiction to hear this case, that plaintiffs’ claims are not ripe, and that plaintiffs have failed to state a claim for a regulatory taking. Plaintiffs respond that defendant’s motion relies upon factual assertions
that go well beyond, and in many respects, conflict with, their complaint. The court thus entered an order on February 26, 2014, allowing the parties to engage in jurisdictional discovery.
On May 30, 2014, defendant filed a motion for a protective order regarding jurisdictional discovery. As an initial matter, defendant claims that Section 4617(f) of the Housing and Economic Recovery Act (“HERA”) of 2008 bars the court from taking “any action to restrain or affect the exercise of powers or functions” of the FHFA as conservator. 12 U.S.C. § 4617(f). Further, defendant contends that disclosing documents in response to many of plaintiffs’ production requests would “interfere with the functioning of the conservatorships of Fannie Mae and Freddie Mac, impair ongoing deliberations about the future of the [e]nterprises,” Def.’s Reply at 1, and have a “destabilizing effect on the nation’s housing market and economy,” Def.’s Mot. at 7. Defendant also asserts that such documents are protected from production by the deliberative process privilege.1 Id. In response, plaintiffs argue that defendant’s concerns can be addressed with a protective order prohibiting public dissemination of sensitive information. Pls.’s Mot. at 1. Plaintiffs also state that defendant’s invocation of the privilege is premature because it has not reviewed all of the documents that it seeks to withhold, nor produced a privilege log explaining why they are privileged. Id. at 1-2.
With respect to defendant’s claim that the court lacks the authority to affect the exercise of the FHFA’s powers or functions, the court agrees with the case law of the United States Court of Appeals for the Ninth Circuit, which states that the “FHFA cannot evade judicial review
. . . simply by invoking its authority as conservator.” County of Sonoma v. Fed. Hous. Fin. Agency, 710 F.3d 987, 994 (9th Cir. 2013); Leon County v. Fed. Hous. Fin . Agency, 700 F.3d 1273, 1278 (11th Cir. 2012) (“The FHFA cannot evade judicial scrutiny by merely labeling its actions with a conservator stamp.”). Thus, rather than turning a blind eye to a case and immediately dismissing it from its docket merely because the case concerns the FHFA, the proper approach is for a court to examine the factual underpinnings and legal contentions presented by the complaint, in order to determine whether the exercise of its jurisdiction is proper. County of Sonoma, 710 F.3d at 994 (“Analysis of any challenged action is necessary to determine whether the action falls within the broad, but not infinite, conservator authority.”). Indeed, “Congress did not intend that the nature of the FHFA’s actions would be determined based upon the FHFA’s self-declarations . . . .” Leon County, 700 F.3d at 1278. For purposes of the instant motion, there is no request by plaintiffs that would potentially restrain or affect the exercise of powers or functions of the FHFA as conservator. Consequently, blanket assertions concerning the court’s ability to conduct these proceedings, especially as they pertain to a discovery matter related to the question of jurisdiction, hold no merit.
The court next turns to defendant’s arguments regarding the deliberative process privilege, a subset of the executive privilege, which protects “documents reflecting advisory opinions, recommendations and deliberations comprising part of a process by which governmental decisions and policies are formulated.” NLRB v. Sears, Roebuck & Co., 421 U.S.
1 Defendant’s motion puts forward additional arguments that largely pertain to whether the court retains jurisdiction in this matter, and that have no bearing on the discovery issues at hand. The court will thus refrain from discussing these arguments here, and will instead address them when resolving defendant’s motion to dismiss.
Full PDF here 61614-opinion-order-fairholme-case-2