October 1, 2014
Big Decision in GSE Litigation
Regular readers of this blog know that I have written a lot about the shareholder suits arising from the conservatorships of Fannie and Freddie. One of the main cases is being presided over by Judge Lamberth in the District Court for the District of Columbia. This case raises a range of challenges to the government’s action: violations of the Administrative Procedures Act, violations of the Housing and Economic Recovery Act of 2008 and more. Judge Lamberth has issued an opinion that dismissed all of the plaintiffs’ claims, dealing a severe (but not fatal) blow to their cause. His conclusion captures the tenor of the whole opinion:
It is understandable for the Third Amendment, which sweeps nearly all GSE profits to Treasury, to raise eyebrows, or even engender a feeling of discomfort. But any sense of unease over the defendants’ conduct is not enough to overcome the plain meaning of HERA’s text. Here, the plaintiffs’ true gripe is with the language of a statute that enabled FHFA and, consequently, Treasury, to take unprecedented steps to salvage the largest players in the mortgage finance industry before their looming collapse triggered a systemic panic. Indeed, the plaintiffs’ grievance is really with Congress itself. It was Congress, after all, that parted the legal seas so that FHFA and Treasury could effectively do whatever they thought was needed to stabilize and, if necessary, liquidate, the GSEs. Recognizing its role in the constitutional system, this Court does not seek to evaluate the merits of whether the Third Amendment is sound financial — or even moral — policy. The Court does, however, find that HERA’s unambiguous statutory provisions, coupled with the unequivocal language of the plaintiffs’ original GSE stock certificates, compels the dismissal of all of the plaintiffs’ claims. (52)
Not one to typically say “I told you so” (or at least not on the blog), I will say that I had predicted that deference to the Executive during a time of national crisis was going to be hard for the plaintiffs to overcome. That being said, this is an extraordinarily complex cases both legally and factually so we can expect appeals up to the Supreme Court (and perhaps a return to the District Court), so it is premature to say that the plaintiffs’ claims are DOA just yet.
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