Fannie Mae: Sweeny Denies Government “Privilege” Claims

Fannie Mae: Sweeny Denies Government “Privilege” Claims

Fannie Mae: Sweeny Denies Government “Privilege” Claims Including White House Communications by Todd Sullivan, ValuePlays

Another huge win before Sweeney. The government sought to hide documents from discovery by plaintiffs. They claimed: 1- Presidential privilege 2-  Deliberative process privilege 3- Bank examination privilege

In total Sweeney reviewed 56 documents. She order the government to produce all 56 to plaintiffs. The documents in question ential pre-conservatorship projections for Fannie Mae and Freddie Mac, housing reform discussions with the White House, preliminary net worth sweep projections between FHFA, Treasury and the White House,  a “Memorandum reflecting confidential communication from senior White House advisors to the President regarding housing policy ideas and initiatives”.

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One potentially important note dated December, 2008: ““FHFA presentation containing predecisional deliberations in relation to its regulatory supervision regarding accounting for deferred tax assets”. These were the tax assets that defendants claimed they had “not considered” when the net worth sweep was enacted in 2012.

Finally, Blackrock did an analysis from Treasury/FHFA in Sept 2008 regarding Fannie Mae and Freddie Mac capital loss projections…… the  government had been hiding this and now must turn over.  One can only assume Blackrock’s projection don’t match with the story the government told us on Fannie Mae and Freddie Mac?

Not only did plaintiffs win, but Sweeney seems determined to make the government pay for the dog and pony show.

This keeps getting better….


For the foregoing reasons, the court GRANTS plaintiffs’ motion to compel in its entirety. Furthermore, pursuant to RCFC 37(a)(5), defendant, by no later than October 14, 2016, shall file a memorandum with the court explaining why the court should not require defendant “to pay [plaintiffs’] reasonable expenses incurred in making the motion, including attorney’s fees.”

Fannie Mae: Sweeney Privilege Order

I. Background

A. Nature of Plaintiffs’ Case

In 2008, in response to the financial crisis, Congress enacted the Housing and Economic Recovery Act of 2008 (“HERA”). Thereafter, acting pursuant to its authority under the HERA, the Federal Housing Finance Agency (“FHFA”) placed the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (collectively, the “Enterprises”) into conservatorship. In addition, the United States Department of the Treasury (“Treasury Department”), also acting pursuant to the HERA, entered into agreements to purchase securities (“government stock”) from the Enterprises. On August 17, 2012, the FHFA and the Treasury Department announced the “Net Worth Sweep,” implemented by a “Third Amendment” to the government stock documents. As a result of the Net Worth Sweep, the dividend due on the government stock rose from 10% to 100% of all current and future profits. According to plaintiffs, holders of noncumulative preferred stock issued by the Enterprises, this decision effected a total usurpation of their dividends and eliminated their right to receive a liquidation preference upon the dissolution, liquidation, or winding up of the

Enterprises. Plaintiffs therefore claim that their property was taken without just compensation in violation of the Fifth Amendment to the United States Constitution.

B. Procedural History

Plaintiffs filed their complaint on July 9, 2013. One month later, on August 9, 2013, defendant filed a motion to stay all proceedings pending the resolution of various other cases—to include another case before this court, a case pending before the United States Court of Appeals for the Federal Circuit (“Federal Circuit”), and related cases pending in the United States District Court for the District of Columbia (“district court”). Alternatively, defendant sought an extension of time within which to file its answer. The court denied defendant’s motion for a stay and ordered defendant to file its answer by December 9, 2013.

On October 29, 2013, the court entered an order of consolidation, coordination, and appointment. First, the court consolidated Cacciapelle v. United States, No. 13-466C, American European Insurance Co. v. United States, No. 13-496C, and Dennis v. United States, No. 13-542C, under the Cacciapelle caption and docket number (the “Cacciapelle Consolidated Action”), and ordered that any class action hereafter filed in or transferred to this court on behalf of common or preferred shareholders of the Enterprises relating to the August 2012 Third Amendment or related government actions be consolidated with the Cacciapelle Consolidated Action. Second, the court ordered that any class action hereafter filed in or transferred to this court on behalf of common or preferred shareholders of the Enterprises relating to the September 2008 conservatorship or related government actions be consolidated with Washington Federal v. United States, No. 13-385C. Third, the court ordered the parties to coordinate discovery, motion practice, case management and scheduling, and other pretrial proceedings, as appropriate, in the Cacciapelle Consolidated Action, Fisher v. United States, No. 13-608C, Shipmon v. United States, No. 13-672C, and Washington Federal (collectively, the “Representative Actions”). Fourth, the court ordered the parties to coordinate discovery, motion practice, case management and scheduling, and other pretrial proceedings, as appropriate, in Fairholme Funds, Inc. v. United States, No. 13-465C, and Arrowood Indemnity Co. v. United States, No. 13-698C (collectively, the “Individual Actions”). Together, the Representative Actions and the Individual Actions were to be referred to as “the Coordinated Actions.” Finally, the court appointed interim co-lead class counsel for both the Cacciapelle Consolidated Action and Washington Federal.

On December 9, 2013, in lieu of an answer, defendant filed a motion to dismiss pursuant to Rules 12(b)(1) and (6) of the Rules of the United States Court of Federal Claims (“RCFC”). Shortly thereafter, on December 20, 2013, plaintiffs filed a motion for a continuance to permit jurisdictional discovery under RCFC 56(d). According to plaintiffs, defendant, in its motion to dismiss, challenged various jurisdictional facts asserted by plaintiffs in their complaint, thereby necessitating jurisdictional discovery. Alternatively, plaintiffs argued that if the court were to consider matters outside the pleadings, defendant’s motion to dismiss would be converted into one for summary judgment, thus necessitating discovery on factual issues beyond those related to the court’s jurisdiction.

Read the full order letter below.

Updated on

Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.
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