Fannie, Freddie: Mix up reported on Continental Western “Iowa” Ruling (Updated 4:36pm) by TimHoward717
Apparently Todd’s article was removed so we are posting it for reference purposes.)
Todd Sullivan published an article ( http://www.valueplays.net/2014/09/04/continental-western-ruling-immaterial-fairholme-case/ in it he states, “This is classic Wall St. Without understanding or taking the time to delineate between the two cases, they simply draw a straight line from one case to another and then assume a ruling in one directly applies to the other. They don’t…. This has caused Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) to sell off the last few days..”
Fannie Mae, Freddie Mac: Sweeney says will have their day in court
He also states “Sweeney, (Fairholme case Judge) has repeatedly said Fairholme (plaintiff) “will have their day in court”. I see no reason why she will reverse her previous orders for discovery due to a ruling based on facts and circumstances not even present in the case before her. Further, the ruling in Continental was issued in a District Court while Sweeney sits in the DC Court of Claims. The two courts has different procedures and jurisdictional issues that preclude a ruling in one from being automatically applicable to the other. If anything, I see this attempt from the government pissing her off (as they already have a several occasions).”
I want to clarify a few key points. First of all the notice of supplemental authority and the reply he references were filed case; 1: 13-cv-01053-RCL FAIRHOLME FUNDS, INC. et al v. FEDERAL HOUSING FINANCE AGENCY, et al with Royce C. Lamberth, presiding at the U.S. District Court District of Columbia. This case is grouped together (Associated) with what we reference here as the “Perry Injunction”.Fairholme funds as we have explained also has an injunction filed.
This was not filed in the “Fairholme” lawsuit being presided over by Judge Sweeney in the Court of claims.
As I have stated this whole situation is very complicated, especially the legal issues. Unfortunately, Todd has basically done exactly what he considers “classic Wall St.In Todd’s rush to attach a reason for the price slide the last two days he himself did not take the time to delineate correctly between the multiple courts and legal actions being taken.By mistakenly assuming that the documents were related to the Fairholme lawsuit in Judge Sweeney’s court, it appeared to make sense. I highly doubt that the notice of supplemental authority that was filed on 8/26 has anything to do with the price slide of 9/3 and 9/4. On the contrary if anyone was concerned about the supplemental filed on 8/26 it sure wasn’t reflected on 8/27 when our price shot up. Also, if anyone was concerned about the supplemental filed on 8/26 they would have been relieved to see Fairholme reply filed on 9/3 in which they shred the governments argument.
I wish I had the time to follow every case associated with our cause, but I would need a staff to do so. I am considering options that would allow us to expand our coverage and reach.
Meanwhile, our light of truth campaign has been in full gear. We are not waiting for the government to hand over documents in discovery we are getting them on our own. Stay tuned and keep the faith!
We have posted the article in it entirety for reference purposes.
Fannei Mae, Freddie Mac: Continental Western Ruling Immaterial to Fairholme case
Posted by ToddSullivan on September 4th, 2014
This is classic Wall St. Without understanding or taking the time to delineate between the two cases, they simply draw a straight line from one case to another and then assume a ruling in one directly applies to the other. They don’t…. This has cause $FNMA $FNMAS to sell off the last few days..
FHFA filed a brief 8/26 following the Continental Ruling (filing here):
Defendants the Federal Housing Finance Agency (“FHFA” or the “Conservator”), as Conservator of the Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), FHFA Director Melvin L. Watt, Fannie Mae, and Freddie Mac hereby notify the Court of a recent ruling (attached as Exhibit A)—issued in a related litigation—in further opposition to Plaintiffs’ Motion for Supplementation of the Administrative Records, for Limited Discovery, for Suspension of Briefing on Defendants’ Dispositive Motions, and for a Status Conference, Fairholme Funds, Inc. v. FHFA, No. 1:13cv01053 (Feb. 12, 2012) (Doc. # 31) (the “Motion for Supplementation”). In this recent decision, another federal district court denied essentially the same relief Plaintiffs seek here—to conduct discovery and expand the administrative record before resolving threshold legal issues.
On February 5, 2014, Continental Western Insurance Company, initiated an action in the U.S. District Court for the Southern District of Iowa against FHFA, its director, and the Department of the Treasury (“Treasury”). See Continental Western Ins. Co. v. FHFA, et al., No. 4:14cv0042 (S.D. Iowa) (the “Iowa Action”); see also Doc. # 49 (1:13cv1053) (identifying the Iowa Action as a related action). The Iowa Action is directly related to the actions pending in this Court. The plaintiff in the Iowa Action is a corporate subsidiary of one of the Plaintiffs in the Fairholme action (Berkeley Regional Insurance Company) and is represented by the same counsel as the Fairholme plaintiffs (Cooper & Kirk, PLLC). The Iowa Action presents the same controversy as the present actions—whether the FHFA as Conservator and Treasury acted unlawfully by executing the Third Amendment to the Senior Preferred Stock Purchase Agreements (“PSPAs”)—and the same claims as the present actions. Defendants filed their motions to dismiss in the present actions on January 17, 2014. Fairholme’s subsidiary commenced the Iowa Action less than three weeks later.
Fannie Mae, Freddie Mac: FHFA and Treasury filed motions to dismiss the Iowa Action
FHFA and Treasury filed motions to dismiss the Iowa Action. In response, the plaintiff filed a Motion to Compel Production of the Administrative Record and for Suspension of the Briefing Schedule (the “Iowa Motion to Compel”). In that motion, the plaintiff sought to compel Defendants to produce “complete” administrative records—that is, beyond the administrative record and document compilation already produced in the actions pending before this Court— and to suspend briefing on the motions to dismiss until such production. The plaintiff argued that this relief was mandated because Defendants’ briefs in support of the motions to dismiss allegedly raised factual issues “about the necessity and purpose of the net worth sweep [that were] inconsistent with the Complaint’s allegations on the same subjects.” Ex. A at 4.
On August 5, 2014, the court denied the Iowa Motion to Compel. See Ex. A at 6-7. The court held that no discovery was warranted because Defendants’ motions to dismiss presented only facial challenges to the court’s jurisdiction that can be resolved purely as a matter of law. Id. at 6. The court explained:
As noted, defendants contend that they make only a facial challenge to the Complaint. It is true that in their briefing they describe the net worth sweep in positive terms as a means to save the Companies from the insolvency they were facing under the dividend structure in effect prior to the Third Amendment. It is natural they would explain the sweep from their perspective in view of the allegations in the Complaint about the invalidity of the sweep, but that does not mean defendants make a factual challenge to jurisdiction. At bottom the motions to dismiss do appear to advance purely legal arguments. Defendants having disclaimed a factual challenge, the Court must take Continental Western’s factual assertions bearing on its jurisdictional theory — that the net worth sweep was unnecessary and improperly motivated — as true. There is no need to adjudicate the truth of the matter in order to determine the motions to dismiss.
Id. (emphases added). The court also observed that there were other, potentially dispositive issues raised by the motions concerning the plaintiff’s standing to pursue its claims that “clearly present purely legal issues which may be decided without resort to an administrative record.” Id. Finally, the court identified various practical problems with granting the relief requested:
Fannie Mae, Freddie Mac: Continental Western hints at additional discovery
The Court is also concerned with the practical consequences to the progression of the case if Continental Western’s motion is granted. The time necessary to put together an administrative record, the inevitable disputes about its adequacy, requests for additional discovery at which Continental Western hints, and the time required to digest and incorporate the administrative record in what promises to be extensive briefing, all portend months of delay in resolving the motions to dismiss to no obvious benefit or purpose.
Id. at 6-7 (emphasis added). Accordingly, the court denied the Motion to Compel and ordered the plaintiff to file its brief in response to the motions to dismiss by August 29, 2014. Id. at 7.
The Iowa Order is directly relevant here because Plaintiffs in this action are pursuing substantially the same strategy as is the plaintiff in Iowa. Here, Plaintiffs accuse Defendants of “rely[ing] on disputed material facts to support their motion to dismiss.” See Memo in Supp. of Motion for Suppl. at 4 (Doc. # 32); see also id. at 29 (arguing that Defendants “responded to Plaintiffs’ well-pled factual allegations by disputing them on the merits.”). As in Iowa, Plaintiffs argue that the Defendants have made “factual contentions regarding the purposes underlying” the Third Amendment that are “in direct conflict with those allegations [in the complaint],” and thus warrant discovery. Id. at 30. Further, as in Iowa, Plaintiffs argue that the discovery issues they raise should be addressed before the Court resolves the (now fully-briefed) motions to dismiss. Id. at 34-37.
This Court also should reject each of these arguments, deny the Motion for Supplementation, and resolve the motions to dismiss on the basis of the briefing already completed.
Now, one its face it looks like a legitimate request. But there are several slights of hand here that obfuscate reality. First, while the Continental complaint is indeed similar to Fairholme’s, it is not identical. That matters…….a lot. Second, and most importantly, the FHFA/Treasury response to the two complaints and the way they have been argued in court are wholly different than they were in Continental and that matters even more.
Profit sweep was an attempt to nationalize Fannie Mae and Freddie Mac
Yesterday Fairholme lawyers countered (filing here):
FHFA brings to the Court’s attention an order entered in what it calls the “Iowa Action,” Continental Western Insurance Co. v. FHFA, No. 4:14-cv-00042-RP-RAW (S.D. Iowa). The “Iowa Order,” FHFA claims, “is directly relevant” to this Court’s disposition of Plaintiffs’ Motion for Supplementation of the Administrative Records, for Limited Discovery, for Suspension of Briefing on Defendants’ Dispositive Motions, and for a Status Conference, Doc. 31 (“the Motion for Supplementation”). FHFA Defendants’ Notice of Supplemental Authority at 3, Doc. 53. To the extent the Iowa Order is relevant at all, however, it demonstrates that in deciding FHFA’s motion to dismiss this Court should either grant Plaintiffs the discovery they have requested or ignore Defendants’ factual claims that the Net Worth Sweep was something other than a naked attempt to nationalize Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) and expropriate the value of Plaintiffs’ stock for the benefit of the federal government.
Continental Western, the plaintiff in the Iowa Action, is a subsidiary of Berkley Regional Insurance Company (“Berkley”), one of the plaintiffs in the Fairholme action. True, as FHFA notes, Continental Western challenges the Net Worth Sweep on many of the same grounds advanced by Berkley and the other plaintiffs in this action. But Continental Western’s claims are not, as FHFA asserts, identical to Berkley’s in this case. To the contrary, Continental Western challenges not only the Net Worth Sweep but also, among other things, the very circular dividend practice that FHFA and Treasury assert as the justification for the Net Worth Sweep. See, e.g., Iowa Complaint ¶¶ 103, 112, 159-64, Continental Western (Feb. 5, 2014), ECF No. 1.
FHFA and Treasury have pursued a starkly different strategy in responding to Continental Western’s claims than they have to the claims brought in this Court. Here, the agencies combined their motions to dismiss with alternative motions for summary judgment with respect to Plaintiffs’ APA claims. In the Iowa Action, by contrast, they have carefully omitted any request for summary judgment, moving exclusively to dismiss the complaint on jurisdictional grounds. As FHFA’s counsel insisted in the Iowa Action, this is a “significant difference between the status of” the cases, July 10 Hearing Transcript at 18 (“Tr.”), Continental Western (attached as Exhibit A), and as a result neither FHFA nor Treasury has produced an administrative record (or a “document compilation,” in FHFA’s preferred formulation) in the Iowa Action. The Iowa Order thus has no bearing on Plaintiffs’ requests for supplementation of the administrative record or for discovery regarding its completeness because no record has even been produced in that case. Indeed, FHFA itself insisted that the materials in the administrative record “produced in D.D.C.” were “utterly irrelevant” to the issues before the court in the Iowa Action. Tr. at 19.
Of course, FHFA and Treasury purport to move exclusively to dismiss