Perry Capital LLC v. Mnuchin

• Citation: 864 F.3d 591
• Decision Date: 21 February 2017
• Docket Number: No. 14-5243,C/w 14-5254, 14-5260, 14-5262,14-5243
• Parties: PERRY CAPITAL LLC, for and on behalf of investment funds for which it acts as investment manager, Appellant v. Steven T. MNUCHIN, in his official capacity as the Secretary of the Department of the Treasury, et al., Appellees
• Court: U.S. Court of Appeals — District of Columbia Circuit

864 F.3d 591

PERRY CAPITAL LLC, for and on behalf of investment funds for which it acts as investment manager, Appellant

v.Steven T. MNUCHIN, in his official capacity as the Secretary of the Department of the Treasury, et al., Appellees

No. 14-5243

C/w 14-5254, 14-5260, 14-5262

United States Court of Appeals, District of Columbia Circuit.

Argued April 15, 2016

Decided February 21, 2017

Reissued July 17, 2017

Theodore B. Olson, Washington, DC, argued the cause for Perry Capital LLC, et al. With him on the briefs were Douglas R. Cox, Matthew D. McGill, Charles J. Cooper, David H. Thompson, Washington, DC, Peter A. Patterson, Ada, MI, Brian W. Barnes, Drew W. Marrocco, Washington, DC, Michael H. Barr, Richard M. Zuckerman, Sandra Hauser, and Janet M. Weiss, New York, NY.

Hamish P.M. Hume, Washington, DC, argued the cause for American European Insurance Company, et al. With him on the briefs were Matthew A. Goldstein, Washington, DC, David R. Kaplan, Amherst, MA, and Geoffrey C. Jarvis, Radnor, PA.

Thomas P. Vartanian, Steven G. Bradbury, Robert L. Ledig, and Robert J. Rhatigan, Washington, DC, were on the brief for amici curiae the Independent Community Bankers of America, the Association of Mortgage Investors, Mr. William M. Isaac, and Mr. Robert H. Hartheimer in support of appellants.

Thomas F. Cullen, Jr., Michael A. Carvin, James E. Gauch, Lawrence D. Rosenberg, and Paul V. Lettow, Washington, DC, were on the brief for amici curiae Louise Rafter, Josephine and Stephen Rattien, and Pershing Square Capital Management, L.P. in support of appellants and reversal.

Jerrold J. Ganzfried, Washington, DC, and Bruce S. Ross, Los Angeles, CA, were on the brief for amici curiae 60 Plus Association, Inc. in support of reversal.

Eric Grant, Houston, TX, was on the brief for amicus curiae Jonathan R. Macey in support of appellants and reversal.

Thomas R. McCarthy, Arlington, VA, was on the brief for amici curiae Timothy Howard and The Coalition for Mortgage Security in support of appellants.

Myron T. Steele, Dover, DE, was on the brief for amicus curiae Center for Individual Freedom in support of appellants.

Michael H. Krimminger, Washington, DC, was on the brief for amicus curiae Investors Unite in support of appellants for reversal.

Howard N. Cayne, Washington, DC, argued the cause for appellees Federal Housing Finance Agency, et al. With him on the brief were Paul D. Clement, D. Zachary Hudson, Michael J. Ciatti, Graciela Maria Rodriguez, David B. Bergman, Michael A.F. Johnson, Dirk C. Phillips, and Ian S. Hoffman, Washington, DC.

Mark B. Stern, Attorney, U.S. Department of Justice, argued the cause for appellee Steven T. Mnuchin. With him on the brief were Benjamin C. Mizer, Principal Deputy Assistant Attorney General, Beth S. Brinkmann, Deputy Assistant Attorney General, Alisa B. Klein, Abby C. Wright, and Gerard Sinzdak, Attorneys.

Dennis M. Kelleher was on the brief for amicus curiae Better Markets, Inc. in support of appellees and affirmance.

Pierre H. Bergeron, Cincinnati, OH, was on the brief for amicus curiae Black Chamber of Commerce in support of neither party.

Colleen J. Boles, Assistant General Counsel, Kathryn R. Norcross, Senior Counsel, and Jerome A. Madden, Counsel, were on the brief for amicus curiae The Federal Deposit Insurance Corporation in support of FHFA and affirmance.

Before: Brown and Millett, Circuit Judges, and Ginsburg, Senior Circuit Judge.

Dissenting opinion filed by Circuit Judge Brown.

Millett, Circuit Judge, and Ginsburg, Senior Circuit Judge:

In 2007–2008, the national economy went into a severe recession due in significant part to a dramatic decline in the housing market. That downturn pushed two central players in the United States' housing mortgage market—the Federal National Mortgage Association ("Fannie Mae" or "Fannie") and the Federal Home Loan Mortgage Corporation ("Freddie Mac" or "Freddie")—to the brink of collapse. Congress concluded that resuscitating Fannie Mae and Freddie Mac was vital for the Nation's economic health, and to that end passed the Housing and Economic Recovery Act of 2008 ("Recovery Act"), Pub. L. No. 110-289, 122 Stat. 2654 (codified, as relevant here, in various sections of 12 U.S.C.). Under the Recovery Act, the Federal Housing Finance Agency ("FHFA") became the conservator of Fannie Mae and Freddie Mac.

In an effort to keep Fannie Mae and Freddie Mac afloat, FHFA promptly concluded on their behalf a stock purchase agreement with the Treasury Department, under which Treasury made billions of dollars in emergency capital available to Fannie Mae and Freddie Mac (collectively, "the Companies") in exchange for preferred shares of their stock. In return, Fannie and Freddie agreed to pay Treasury a quarterly dividend in the amount of 10% of the total amount of funds drawn from Treasury. Fannie's and Freddie's frequent inability to make those dividend payments, however, meant that they often borrowed more cash from Treasury just to pay the dividends, which in turn increased the dividends that Fannie and Freddie were obligated to pay in future quarters. In 2012, FHFA and Treasury adopted the Third Amendment to their stock purchase agreement, which replaced the fixed 10% dividend with a formula by which Fannie and Freddie just paid to Treasury an amount (roughly) equal to their quarterly net worth, however much or little that may be.

A number of Fannie Mae and Freddie Mac stockholders filed suit alleging that FHFA's and Treasury's alteration of the dividend formula through the Third Amendment exceeded their statutory authority under the Recovery Act, and constituted arbitrary and capricious agency action in violation of the Administrative Procedure Act, 5 U.S.C. § 706(2)(A). They also claimed that FHFA, Treasury, and the Companies committed various common-law torts and breaches of contract by restructuring the dividend formula.

We hold that the stockholders' statutory claims are barred by the Recovery Act's strict limitation on judicial review. See 12 U.S.C. § 4617(f). We also reject most of the stockholders' common-law claims. Insofar as we have subject matter jurisdiction over the stockholders' common-law claims against Treasury, and Congress has waived the agency's immunity from suit, those claims, too, are barred by the Recovery Act's limitation on judicial review. Id. As for the claims against FHFA and the Companies, some are barred because FHFA succeeded to all rights, powers, and privileges of the stockholders under the Recovery Act, id. § 4617(b)(2)(A) ; others fail to state a claim upon which relief can be granted. The remaining claims, which are contract-based claims regarding liquidation preferences and dividend rights, are remanded to the district court for further proceedings.

I. Background

A. Statutory Framework

1. The Origins of Fannie Mae and Freddie Mac

Created by federal statute in 1938, Fannie Mae originated as a government-owned entity designed to "provide stability in the secondary market for residential mortgages," to "increas[e] the liquidity of mortgage investments," and to "promote access to mortgage credit throughout the Nation." 12 U.S.C. § 1716 ; see id . § 1717. To accomplish those goals, Fannie Mae (i) purchases mortgage loans from commercial banks, which frees up those lenders to make additional loans, (ii) finances those purchases by packaging the mortgage loans into mortgage-backed securities, and (iii) then sells those securities to investors. In 1968, Congress made Fannie Mae a publicly traded, stockholder-owned corporation. See Housing and Urban Development Act, Pub. L. No. 90-448, § 801, 82 Stat. 476, 536 (1968) (codified at 12 U.S.C. § 1716b ).

Congress created Freddie Mac in 1970 to "increase the availability of mortgage credit for the financing of urgently needed housing." Federal Home Loan Mortgage Corporation Act, Pub. L. No. 91-351, preamble, 84 Stat. 450 (1970). Much like Fannie Mae, Freddie Mac buys mortgage loans from a broad variety of lenders, bundles them together into mortgage-backed securities, and then sells those mortgage-backed securities to investors. In 1989, Freddie Mac became a publicly traded, stockholder-owned corporation. See Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Pub. L. No. 101-73, § 731, 103 Stat. 183, 429–436.

Fannie Mae and Freddie Mac became major players in the United States' housing market. Indeed, in the lead up to 2008, Fannie Mae's and Freddie Mac's mortgage portfolios had a combined value of $5 trillion and accounted for nearly half of the United States mortgage market. But in 2008, the United States economy fell into a severe recession, in large part due to a sharp decline in the national housing market. Fannie Mae and Freddie Mac suffered a precipitous drop in the value of their mortgage portfolios, pushing the Companies to the brink of default.

2. The 2008 Housing and Economic Recovery Act

Concerned that a default by Fannie and Freddie would imperil the already fragile national economy, Congress enacted the Recovery Act, which established FHFA and authorized it to undertake extraordinary economic measures to resuscitate the Companies. To begin with, the Recovery Act denominated Fannie and Freddie "regulated entit[ies]" subject to the direct "supervision" of FHFA, 12 U.S.C. § 4511(b)(1), and the "general regulatory authority" of FHFA's Director, id. § 4511(b)(1), (2). The Recovery Act charged FHFA's Director with "oversee[ing] the prudential operations" of Fannie Mae and Freddie Mac and "ensur[ing] that" they "operate[ ] in a safe and sound manner," "consistent with the public interest." Id. § 4513(a)(1)(A), (B)(i), (B)(v).

The Recovery Act further authorized the Director of FHFA to appoint FHFA as either conservator or receiver for Fannie Mae and Freddie Mac "for the purpose of reorganizing, rehabilitating, or winding up the[ir] affairs." 12 U.S.C. § 4617(a)(2). The Recovery Act invests FHFA as conservator with broad authority and discretion over the operation of Fannie Mae and Freddie...