The Perry court sought to buttress its conclusion by reasoning that a conservator may undertake “a fluid progression from conservatorship to receivership without violating HERA, and that progression could very well involve a conservator that acknowledges an ultimate goal of liquidation.” Op. 25 n.20. But this interpretation of HERA contradicts the long-settled difference between conservatorship and receivership. As discussed above, the Eighth Circuit has explained in the closely related context of FIRREA that “[t]he conservator’s mission is to conduct an institution as an ongoing business” and that this mission “stands apart from the strategy of a receiver, whose interest, by definition, is shutting the business down.” CedarMinn Bldg., 956 F.2d at 1454. To be sure, an unsuccessful conservatorship may ultimately end in receivership and liquidation, but that does not give the pessimistic conservator license to begin winding down the institution before the appointment of a receiver. The Perry court’s contrary reading of HERA would lead to the absurd, and lawless, result that FHFA could evade HERA’s strict procedural requirements and order of priorities during receivership by winding down the Companies as their conservator. But HERA specifically instructs FHFA as to how it must go about liquidating the Companies during receivership, and Congress could not have intended for those instructions to be so easily circumvented. See MTD Opp. 46-47. ”
9- “The Perry court was also wrong to conclude that it lacked jurisdiction under Section 4617(f) to set aside as arbitrary and capricious FHFA’s decision to enter into the Net Worth Sweep. Op. 13-15. That court’s reasoning turned on “a distinction between acting beyond the scope of the constitution or a statute, and acting within the scope of a statute, but doing so arbitrarily and capriciously.” Op. 14 (citation omitted). But the Supreme Court recognized two Terms ago that no coherent distinction can be drawn between an agency acting unlawfully and an agency acting beyond the scope of its powers. City of Arlington v. FCC, 133 S. Ct. 1863, 1869-70 (2013). Furthermore, neither HERA nor any other statute authorizes FHFA to act arbitrarily so long as it does so as a conservator, and if such a statute existed it would raise serious constitutional concerns where, as here, an arbitrary conservatorship decision results in a deprivation of property. See Nordlinger v. Hahn, 505 U.S. 1, 11 (1992). Courts are bound to read statutes to avoid such constitutional problems where the statutory text readily admits of another interpretation. ”
10- “Further compounding the troubling implications of the Perry court’s ruling that virtually all of FHFA’s acts, no matter how inconsistent with its express statutory mission, are immune from suits for equitable relief when FHFA purports to act as conservator for an institution operating profitably, the Perry court also held that FHFA effectively can extend that immunity to the lawless acts of any federal agency—or anyone else—merely by signing a contract. Op. 15- 16. Plaintiff has found no other case that has adopted such a broad understanding of what it means for judicial relief to “restrain or affect” FHFA’s exercise of its conservatorship powers, and the Perry court did not cite any. To be sure, courts have rebuffed efforts “to use the technical wording of [a] complaint . . . as an end-run around” the jurisdictional bars found in HERA and FIRREA. Op. 15-16; see, e.g., Dittmer Props., LP v. FDIC, 708 F.3d 1011, 1017-18 (8th Cir. 2013); Telematics Int’l, Inc. v. NEMLC Leasing Corp., 967 F.2d 703, 707 (1st Cir. 1992); Hindes v. FDIC, 137 F.3d 148, 160 (3d Cir. 1998). ‘
11- The Perry court’s contrary reading of HERA would confer on FHFA as conservator the power to suspend by contract the application of virtually any law to any person. Congress could not have possibly intended to immunize patently unlawful contractual arrangements, yet the Perry opinion would bless them on the basis of little more than a penumbra surrounding the word “affect.” ”
12- Regarding the “new security”
“In the Perry court’s view, so long as Treasury continued to own 1,000 shares of preferred stock in each Company, it was free to agree to fundamentally alter the economic substance of those shares and to invest tens of billions of additional dollars in the Companies after its authority to purchase new securities had expired. Op. 18-19. Some changes to a stock are so fundamental as to convert it into a new security for purposes of the securities and tax laws. See, e.g., Gelles v. TDA Indus., Inc., 44 F.3d 102, 104 (2d Cir. 1994) (new security is created where amendment is “such significant change in the nature of the investment or in the investment risks as to amount to a new investment”); Rev. Rul. 56-654, 1956 WL 10781, at *1 (IRS 1956) (concluding that amendment to preferred stock was “in substance, an exchange of the preferred stock” for new stock where amendment entitled preferred shareholders to dividend payment equal to corporation’s entire net worth in the event of redemption); see also 26 C.F.R. § 1.1001-3(b) (treating any “significant modification” to a debt security as a sale of the old security). If HERA’s sunset provision is to have any meaning at all, the same must be true here. “
13- “The Perry court candidly acknowledged that its reading of HERA conflicts with decisions of the Ninth and Federal Circuits that interpret a materially identical provision of FIRREA—12 U.S.C. § 1821(d)(2)(A)—to allow shareholders to assert derivative claims when the federal receiver has a “manifest conflict of interest.”
14- “Regardless of whether one believes that First Hartford and similar cases interpreting 12 U.S.C. § 1821(d)(2)(A) were rightly decided in the first instance, it is beyond cavil that they represented the federal courts’ settled and uniform view when Congress used materially identical language in HERA in 2008. The Perry opinion overlooked that fact, but it is enormously significant because Congress is presumed to adopt the accepted judicial interpretation of a statute when it enacts the same language a second time. Lorillard v. Pons, 434 U.S. 575, 581 (1978); Redd v. Federal Land Bank of St. Louis, 851 F.2d 219, 222 (8th Cir. 1988). That presumption deserves extra weight here because Congress so extensively borrowed from FIRREA when it enacted HERA, reenacting not only Section 1821(d)(2)(A) but most of FIRREA’s statutory scheme. Congress thus made clear that it expected the two statutes to be interpreted in pari materia, and in doing so it embraced the existing FIRREA caselaw.
The Perry court expressly rejected the uniform body of precedent because it thought the cases inconsistent with the statutory text, which says that as conservator or receiver FHFA “succeed[s] to . . . all rights, titles, powers, and privileges of the [Companies], and of any stockholder.” 12 U.S.C. § 4617(b)(2)(A)(i); see Op. 28-29. As a textual matter, however, it is not possible for a conservator to “succeed” to a “right”—here, a cause of action—that did not exist before the conservatorship was created and exists now only because of the conservator’s post-appointment wrongdoing. Rather, in this case the shareholders’ authority to sue on behalf of the corporation because the conservator has a manifest conflict of interest originates with the conservatorship itself, springing into existence after the conservator succeeds to the shareholder’s former rights. “
15- “The Perry court was also wrong to conclude, as a factual matter, that there is no conflict of interest here. On the one hand, FHFA has a plain and indisputable conflict of interest with respect to Plaintiff’s allegations that FHFA itself violated HERA, as well as its contractual and fiduciary duties, in acquiescing to the Net Worth Sweep. And even with respect to Plaintiff’s allegations that Treasury acted unlawfully, FHFA has a manifest conflict of interest—not only because its entering into the Net Worth Sweep “was the product of a Treasury directive,” MTC Order 4, but also because Treasury’s unlawful conduct took the form of an illegal agreement with FHFA. Indeed, FHFA could not bring Plaintiff’s claims against Treasury without at least tacitly acknowledging its own unlawful actions and attempting to undo a contract it entered into and has vigorously defended. And regardless of whether “the harsh economic realities facing Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC)
. . . when FHFA and Treasury executed the PSPAs in 2008” could somehow justify suspending the usual application of the First Hartford rule, Op. 32, this case concerns events that took place in 2012—more than four years after the financial crisis, at a time when the Companies were about to report the largest profits in their history. ”
16- On, “ripeness”
“The Perry court erred yet again in holding that contract claims based on the Net Worth Sweep’s breach of contract claims flowing from FHFA’s nullification of the plaintiffs’ liquidation preference will not be ripe for judicial review until the Companies are actually liquidated. Op. 33-37. Under both Supreme Court and Eighth Circuit precedent, a court deciding whether a claim is ripe must consider two factors: (1) “the ‘fitness of the issues for judicial decision’ ”; and (2) “ ‘the hardship to the parties of withholding court consideration.’ ” Parrish v. Dayton, 761 F.3d 873, 875 (8th Cir. 2014) (quoting Abbott Labs v. Gardner, 387 U.S. 136, 149 (1967)). The Perry opinion misapplies both prongs of that test.
As to the first prong, the Perry court thought the dispute over the plaintiffs’ liquidation preference was currently unfit for judicial resolution because Defendants might someday decide to give back the contractual rights that the Net Worth Sweep took away. Op. 35 (“[J]ust as there was a Third Amendment, the Court cannot definitively say there will be no Fourth or Fifth Amendment . . . .”). But government bodies and officials can always change their minds, and speculation that federal officials might reverse themselves after taking final agency action has never been thought sufficient to render a dispute unripe for judicial review—if it were, pre- enforcement suits would never be ripe. “
17-”The Perry court also erred in its application of the second Abbott Labs factor: whether the party seeking judicial review would suffer any hardship from delay. In considering that factor, the court simply assumed away the injury the plaintiffs suffered in the present from the lost opportunity to receive a liquidation preference in the future. Op. 34-35. But binding Eighth Circuit precedent squarely holds that exactly that sort of injury—the loss of a contingent future use of property that precipitates “a reduction in [its] value” in the present—can render a case ripe for review. Bob’s Home Serv., Inc. v. Warren Cnty., 755 F.2d 625, 627-28 (8th Cir. 1985). In Vogel v. Foth & Van Dyke Associates, 266 F.3d 838 (8th Cir. 2001), for example, the plaintiffs sued a landfill operator for announcing that it was considering locating a new landfill next to property the plaintiffs planned to develop. The Eighth Circuit held that the plaintiffs’ claims were ripe despite the defendant’s argument that any injury was contingent on a final decision about where to locate the landfill. The court of appeals explained that the defendant’s ripeness argument “misconstrue[d] the nature of the [plaintiffs’] alleged harm,” and that a reduction in the present value of the property is a concrete injury for purposes of the ripeness analysis:
The [plaintiffs] do not assert a contingent harm, but rather a current injury. That is, they do not allege that the landfill, if sited next to their property, might produce harm; they claim the announcement of the neighboring land as a potential site has directly and immediately harmed them by making their property less valuable for development and by driving away potential purchasers. . . . [W]hile the selection of the neighboring property as the final landfill site might increase the [plaintiffs’] alleged damages, it could not further ripen their claim.
Id. at 840. So too here. The Net Worth Sweep diminished the value of Plaintiff’s investment by nullifying its right to a liquidation preference, and Plaintiff should not be required to wait until the Companies are actually liquidated to vindicate its contractual rights.7
