Fannie Mae – what is the Government hiding?

New York University Law Professor Richard Epstein wrote this week in Forbes called the government’s latest effort to keep documents related to the Net Worth Sweep “a shameless piece of legal sophistry.”

Last month, U.S. Court of Federal Claims Judge Margaret Sweeney agreed to Fairholme Funds’ motion to compel the government to turn over 56 documents Fairholme identified as central to its effort to prove the government engaged in the taking of property, barred by the Fifth Amendment to the U.S. Constitution. On October 27, government lawyers filed a motion in the Court of Appeals for the Federal Circuit to issue a writ of mandamus, seeking to vacate Judge Margaret Sweeney’s order.

 

Fannie Mae Common Securitization Platform Fannie Mae Mortgage Insurance

Fannie Mae

Photo by NCinDC

Epstein goes to great length to detail Judge Sweeney’s painstaking consideration of the government’s assertion of executive privilege to shield the documents from review and evaluates with equally careful consideration the merits of the government’s writ of mandamus and concludes the following:

In dealing with this issue, Judge Sweeney bent over backwards to help the government when she held across the board that she would assume for the purposes of argument that the materials in question qualified as deliberative documents, although that claim looks exceptionally weak in connection with the asserted privilege for all actions of lower-level staff, and all solicitation and receipt of information from outside sources…Judge Sweeney was right to view this claim with considerable skepticism for, unlike the two cases above in which mandamus was issued, the government here is an interested party to the litigation, with potentially much politically embarrassing information of wrongful government conduct to conceal.

Epstein’s statements reinforce our view that the government will go to any length to stonewall and “run out clock” on this litigation. Sweeney was correct in asserting that the 56 documents are not outside the scope of relevance, but are in fact targeted documents containing information that helps to defend claims made against the Treasury’s push to implement the Net Worth Sweep back in 2012. Courts have always put the burden on the government to justify concealing information plaintiffs need to make their case. Epstein hits home on this point, drilling in on the issue of scope of privilege:

The government does not come close to discharging its heavy burden in cases of this sort. The first point to note is that the government frames the scope of the privilege in an exceptional way so that it covers all materials that were “authored or solicited and received by an immediate presidential advisor or his staff who had broad and significant responsibility for investigating and formulating advice to be given to the President with respect to decision making on the subject of housing reform policy.”

There are two obvious problems with this position. The phrase “authored or solicited and received” means that the privilege is said to extend to materials that were not part of any deliberations at all.  These documents are clearly relevant to the inquiries at hand because they offer the only reliable evidence of the information that was available to the various members of the inner circle who did the preparation for the NWS.  The government’s suggestion that there is published information that indicates the thinking of the group is completely unresponsive to the basic concern, which is whether the public statements on the NWS accurately reflected the decision making process in this case.

The government has claimed privilege over not only the communications of senior level staff, but of all White House employees active during the deliberations of the Net Worth Sweep. Epstein disregards these claims, noting that Judge Sweeney expertly weighed the government’s interests in withholding. Epstein hails Judge Sweeney as correct in her determination of how critical these documents are during this stage of the case. Epstein goes on to explain:

Once it is conceded that the government’s knowledge base is relevant to a decision on the merits in this case, it is very hard to claim that the plaintiffs should not receive evidence pertaining to either the solicitation or authorship of documents that relate to the NWS.  It would surely be probative if the government solicited information to bolster its case of a pending insolvency of Fannie and Freddie, and devastating if those communications revealed that it was seeking out favorable evidence from parties that had a certain degree of plausible independence from the government. 

The government overstepped its authority in implementing the Net Worth Sweep and probably realizes this. This is the only explanation for its audacious “sophistry” in concealing its deeds.