Yesterday a Federal appeals court ruled that the government must produce an enormous treasure trove of documents to plaintiffs representing GSE shareholders. As you probably know, the plaintiffs in this case, Fairholme Funds, are suing the government over its net-worth-sweep seizures of Fannie Mae’s and Freddie Mac’s profits since 2012. During the suit, the government has withheld more than 11,000 documents, claiming executive privilege. Judge Sweeney of the Court of Federal Claims in Washington disagreed with the government and the court of appeals has backed her up.

 

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This is a major victory for shareholder rights, for the rule of law and for transparency in government! Please visit the Investors Unite website or read the article below for more. 

Court Affirms Burden on Government to Hand Over Most Documents in Fairholme Suite

Shareholders can welcome a Federal Appeals Court ruling today that largely backed U.S. Court of Federal Claims Judge Margaret Sweeney’s refusal to sanction the government’s insistence on secrecy over a trove of documents related to the Net Worth Sweep.

The U.S. Court of Appeals for the Federal Circuit ruled Monday, January, 30, that the government has to turn over 50 documents that lawyers for shareholders have sought in the ongoing litigation aimed at getting to the bottom of why the government decided to lay claim to the revenues of Fannie Mae and Freddie Mac, and thereby initiate a “taking” of property without compensation, which is barred under the U.S. Constitution.

Of the 58 documents at the center of Judge Sweeney’s ruling last fall in favor of shareholders’ motion to compel, the Appeals Court declared that the government can keep only four under “presidential privilege” and four under “deliberative process privilege” away from shareholders’ lawyers. But 50 documents merit no privileged treatment at all, so Sweeney’s ruling stands. Therefore, today’s ruling confirms once again that the government continues to tilt in favor of secrecy over transparency, impulsively seeking to hide its deliberations and hoping its stance will be approved if challenged in court.

The Appeals Court ruling stems from a writ of mandamus the government filed in October after Sweeney issued a sharp rebuke of the government’s efforts to claim the documents sought were “privileged” information. In this and other rulings, she has methodically chipped away at claims of executive privilege. She has questioned how internal deliberations by agency officials from five years ago could credibly have an adverse effect on markets, which, by their very nature are forward looking. Sweeney has suggested the government’s claims of that privilege seem more intended to shield public officials from embarassment, which is certainly not the legal basis for the doctrine of executive privilege.

Attorneys for Fairholme Funds Inc. have long insisted that that government documents relating to Fannie and Freddie’s future profitability are elemental to proving the Net Worth Sweep amounted to an illegal property “taking.” Judge Sweeney, noting that the burden for proving why such documents need to be sealed off from view must rest with the government, reviewed 58 specific documents in camera — that is, in the confidentiality of her chambers — and rejected the government’s claim of privilege on all them.

In today’s order, the Appeals Court makes clear it took up the writ of mandamus only because the government asserted that the ruling threatens to intrude upon and interfere with the decision-making process of the President and executive agencies. However, the Court of Appeals limited its analysis to just 16 of the documents involved and of those it gave the government more latitude to justify its use of privilege on only eight of them.

The Appeals Court said a certain draft memorandum concerning proposed legislation, a draft policy memoranda and a Federal Housing Finance Agency presentation on deferred tax assets, could be shielded from public disclosure. The Appeals Court concluded the same with regard to documents over which the government asserted “presidential communications privilege.”

Until the 50 documents cleared for review by Fairholme’s attorneys are made public we can only speculate as to their exact content, but the fact that the Appeals Court stood with Sweeney on 86 percent of the documents is a positive sign for shareholders seeking justice. We could learn more should Judge Sweeney request the government to revise its privilege claims.

However important the struggle over these documents is, we need to keep in mind that there are still 11,000 documents on the “untested” privilege logs. The fine points of Constitutional law concerning executive privilege notwithstanding, the more straightforward question that must be asked repeatedly is this: Why would the government be trying so hard to keep so many documents so secret five years after the Sweep, especially if there was no national security matters at stake? Each procedural development moves us close to an answer on that.

It’s been a long fight and we’ve never given up. The New York Times yesterday called this this ruling a “ray of sunlight on a case that has been shrouded in secrecy.” It also very well could be the proverbial light at the end of the tunnel.

Tim Pagliara