Fannie Mae, Freddie Mac: Fairholme Vs United States

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We have been posting some of the court documents in the Fannie Mae saga. Below is a new one we found in one of the cases between Fairholme and FHFA/Treasury.

Our motion for protective order and supporting declarations demonstrate that the discovery sought by plaintiffs would interfere with the functioning of the conservatorships of Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), impair ongoing deliberations about the future of the Enterprises, and go far beyond the limited discovery contemplated by the Court’s February 26 order.

Granting the relief that we request – a cutoff date of August 17, 2012 for one discovery category and reasonable limitations on the other two categories – will allow for the production of documents pertaining to the issues contemplated by the Court while addressing the very serious concerns implicated by plaintiffs’ requests.

With respect to plaintiffs’ discovery requests that probe into the Government’s internal views as to the future of the Enterprises (Requests 1 and 6-10), we seek a protective order that provides a cutoff date of August 17, 2012. Our motion explains that compelled disclosure of these documents with no cutoff date would adversely “affect the exercise of powers or functions” of the Federal Housing Finance Agency (FHFA) as conservator in direct contravention of 12 S.C. § 4617(f), and would threaten the integrity of the Government’s ongoing internal deliberations. See Decl. of Melvin Watt, ¶ 3 (Watt Decl.) (A1-7).

Plaintiffs’ response is to claim that whether disclosure would have a significant adverse effect on the conservator’s exercise of its powers and functions is irrelevant because plaintiffs seek only damages in this case. However, they offer no reason why the bar in 12 U.S.C. § 4617(f) applies only to suits seeking injunctions and not to suits seeking damages. The statute contains no such limitation and its purpose would be undermined if litigants could impair the operations of the conservatorships by filing a damages action and making discovery demands into processes at the core of the conservator’s responsibilities. Congress provided a comprehensive bar against such action because of the extreme circumstances contemplated by the imposition of the conservatorships. The FDIC cases on which plaintiffs rely do not involve conservatorships of open and operating financial institutions and therefore implicate none of the concerns raised by their own demands.

Plaintiffs offer no basis for their assertion that a court order compelling the discovery sought by plaintiffs would not “have extraordinarily deleterious consequences on the Conservator’s conduct of the ongoing and future operations of the conservatorships.” Watt Decl. ¶ 3 (A2). Their response disregards the nature of their requests, which target the ongoing assessments of the Enterprises’ future profitability and potential courses of action available to the conservator.

Plaintiffs do not seriously dispute that the requests also implicate the deliberative process, but ignore the extraordinary nature of their demands. Instead, they seek the production of documents relating to present and future assessments of the Enterprises’ profitability and the ongoing thinking as to the future of the Enterprises without citing any precedent for such demands.

Our motion further asks for a protective order that sets appropriate limits with respect to plaintiffs’ requests that exceed the scope of this Court’s February 26 order. In its order, the Court authorized discovery with respect to the solvency of Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) at the time of the 2008 conservatorship decision. The Government has agreed to produce nonprivileged financial projections of Fannie Mae and Freddie Mac in connection with the conservatorship decision (Request 1(a)), and documents related to the decision to leave the Enterprises’ capital structure in place during the conservatorships (Request 4). The remainder of Request 1 (Requests 1(b) through 1(k)), along with Requests 2, 3, and 5, go well beyond the discovery permitted by the Court by seeking over six years of comprehensive financial information with no limitations.

The Court also authorized discovery regarding whether “FHFA was an agent and arm of the Treasury” when it entered into the Third Amendment, such that FHFA may be treated as the United States for purposes of Tucker Act jurisdiction. Requests 11, 14, and 16, in part, bear on this question, and the Government has agreed to produce responsive, non-privileged documents. However, by their plain terms, the requests plaintiffs group under the subtitle “Requests Relating To Whether FHFA Is The United States” (Requests 11-19) far exceed the scope of the issue as described by plaintiffs in their motion and by the Court in its order.

See full Fannie Mae, Freddie Mac’s Reply In Support Of Motion For Protective Order in PDF format here.

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