Judicial Panel Ruling Empowers Fannie Mae Shareholders to Fight On by Investors Unite
Fannie and Freddie shareholders will continue to pursue their rights in courtrooms around the country thanks to a federal judicial panel ruling late last week.
The U.S. Judicial Panel on Multidistrict Litigation rejected a motion by the Federal Housing Finance Agency to consolidate suits that shareholders have brought against the government over the 2012 Net Worth Sweep of Fannie and Freddie’s revenues. Essentially, the panel said it was important to get all the facts on the table. The ruling is a significant victory for shareholders and, more broadly, an affirmation of the importance of transparency and the rule of law.
FHFA filed a motion to consolidate the cases in March. It argued that the cases were almost identical in legal claims and it would “serve the convenience of the parties and witnesses as well as promote the just and efficient conduct of the actions.”
Shareholders immediately recognized that it was primarily in the government’s interest to move with such efficiency. Clearly, government attorneys wanted fewer the opportunities for shareholders to make their case. In addition, by transferring the cases to the U.S. District Court for the District of Columbia, a court well known for its predisposition to side with the government, they saw their best chance to prevail in several pending suits and effectively shut down progress on other cases at the early stages in the litigation. However, the federal panel decided that justice would be better served if shareholders had their day in court, literally.
The panel acknowledged that the shareholders’ allegations that the government violated the Housing and Economic Recovery Act and the Administrative Procedures Act composed the glue that connected the various suits. But each case involved a myriad of distinct facts and the panel said law tilts toward the right of plaintiffs to bring those facts to light. In addition, the panel noted that two pending cases have been brought against the auditors of Fannie Mae and Freddie Mac, and not the agencies themselves as is the case in most of the other suits. Still other suits are “books and records” actions, which are distinct in legal terms, and could be unfairly impeded by centralizing the proceedings.
It was worth noting that ruling alluded to recent orders by U.S. Court of Federal Claims Judge Margaret Sweeney to unseal a number of documents that shareholders have sought to make their case that the government trampled on their property rights in violation of the Constitution. As we have noted on FannieFreddieSecrets.org, these documents represent the tip of the iceberg of evidence that the government has long sought to conceal. The panel said these new facts make, “further discovery in these actions potentially unnecessary.”
When U.S. District Court Judge Royce Lamberth dismissed Fairholme Funds Inc.’s suit over the Net Worth Sweep in October 2014, the government had a path to victory. However, that path has been obstructed as shareholders have maintained their principled and intrepid pursuit of the facts and federal jurists have opted to shine a light on the government’s actions so that justice can prevail.