Natural Res. Def. Council, Inc. v. Fed. Hous. Finance Agency
| Decision Date | 17 June 2011 |
| Docket Number | No. 10 Civ. 7647(SAS).,10 Civ. 7647(SAS). |
| Citation | 815 F.Supp.2d 630 |
| Parties | NATURAL RESOURCES DEFENSE COUNCIL, INC., Plaintiff, v. FEDERAL HOUSING FINANCE AGENCY, Edward DeMarco, Acting Director, Federal Housing Finance Authority, Office of the Comptroller of the Currency, a component of the United States Department of the Treasury, and John G. Walsh, Acting Comptroller of the Currency, Defendants. |
| Court | U.S. District Court — Southern District of New York |
OPINION TEXT STARTS HERE
Joshua Aries Berman, Esq., Natural Resource Defense Council, Inc., Washington, DC, Katherine Kennedy, Esq., Mitchell S. Bernard, Esq., Natural Resources Defense Council, Inc., New York, NY, for Plaintiff.
Asim Varma, Esq., Howard Neil Cayne, Esq., Scott Michael Border, Esq., Arnold & Porter, Stephen E. Hart, Esq., Federal Housing Finance Agency, Washington, DC, for Defendants (Federal Housing Finance Agency and Edward DeMarco).
Bertrand Rolf Madsen, Assistant U.S. Attorney, U.S. Attorney's Office, Southern District of New York, New York, NY, for Defendants (Office of the Comptroller of the Currency and John G. Walsh).
The Natural Resources Defense Council (“NRDC”) brings this suit against the Office of the Comptroller of the Currency and John G. Walsh, Acting Comptroller of the Currency (collectively “OCC”), and the Federal Housing Finance Agency and Edward DeMarco, Acting Director of the Federal Housing Finance Agency (collectively “FHFA”). The NRDC alleges that the OCC's issuance of a July 6, 2010 advisory bulletin (“Bulletin”) and the FHFA's issuance of a July 6, 2010 statement (“Statement”) violated the Administrative Procedure Act (“APA”) and the National Environmental Policy Act (“NEPA”). Specifically, the NRDC alleges that the Bulletin and the Statement had the immediate effect of halting the development of Property Assessed Clean Energy (“PACE”) programs and preventing localities and states from moving forward with adoption or implementation of new PACE programs.
The OCC now moves to dismiss the case for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1) claiming lack of constitutional standing as well as for failure to state a claim pursuant to Rule 12(b)(6) claiming the Bulletin does not amount to a “final agency action” subject to the Court's review.1 Similarly, the FHFA moves to dismiss pursuant to Rule 12(b)(1) for lack of subject matter jurisdiction claiming that certain statutory provisions preclude the exercise of jurisdiction over the NRDC's claims and pursuant to Rule 12(b)(6) claiming that the NRDC is not in the “zone of interest” protected by the Housing and Economic Recovery Act (“HERA”) and that the Statement does not amount to a “final agency action.” 2
II. BACKGROUNDA. The NRDC and the PACE Programs
The NRDC is a national, not-for-profit environmental advocacy group with its principal place of business in New York City.3 The NRDC has more than 447,000 members nationwide, with more than 317,000 living in jurisdictions that have enacted PACE-enabling legislation.4 The NRDC supports PACE programs, which allow local governments to offer financing to commercial and residential property owners to fund the upfront costs of energy efficiency and on-site renewable energy projects, using the proceeds of municipal or special revenue bonds, government grants, or other funding sources that may be available.5 In exchange for upfront financing, property owners who participate in a PACE program agree to an incremental increase on their property taxes over a period of up to twenty years but not to exceed the useful life of the financial improvements.6 Twenty-three states (and the District of Columbia) have passed legislation authorizing PACE programs. 7 Often, PACE liens “run” with the property and the PACE lender “steps ahead” of the mortgage holder in the priority of its claim against the collateral.8 Although subordination of existing mortgages is not inherent in PACE financing, in New York and many jurisdictions, the liens that result from PACE program loans have priority over mortgages, including preexisting first mortgages.9 Because first lien status is critical to the success of PACE programs, eliminating the priority lien status would make PACE programs effectively impossible to finance through the capital markets. 10
B. The OCC
The OCC is a bureau of the Treasury Department and functions as the primary supervisor of federally-chartered national banks.11 The OCC administers statutory provisions governing virtually every aspect of the national banking system.12 Under various statutes, including the National Bank Act and the Federal Deposit Insurance Act (“FDIA”), the OCC is charged with assuring the “safety and soundness” of national banks. 13 Pursuant to the FDIA, the OCC has prescribed guidelines governing the banks' “credit underwriting.” 14 The guidelines provide that banks are to establish and maintain “prudent credit underwriting practices” that consider the nature of the markets in which loans are made, and provide for consideration of “the nature and value of any underlying collateral.” 15
On July 6, 2010, the OCC posted a Bulletin on its website discussing the PACE programs and included as an attachment the FHFA's July 6 Statement.16 The Bulletin was labeled “Supervisory Guidance” and stated that its purpose was to “alert national banks to concerns and regulatory expectations” regarding PACE programs.17 The Bulletin stated that the PACE programs' “lien infringement raises significant safety and soundness concerns that mortgage lenders and investors must consider.” 18 The Bulletin goes on to state that “National Bank lenders should take steps to mitigate exposures and protect collateral positions,” and suggests examples of mitigating steps.19 The Bulletin was issued without notice or opportunity for public comment and without any environmental review.20
C. The FHFA and the Enterprises
The FHFA is an independent agency that supervises and regulates the financial safety and soundness of Fannie Mae and Freddie Mac (the “Enterprises”) and the Federal Home Loan Banks.21 Together, these government-sponsored enterprises provide more than $5.9 trillion in funding for U.S. mortgage markets and financial institutions.22 The Enterprises facilitate the secondary market in residential mortgages and free up capital for additional mortgage lending by purchasing mortgages from mortgage lenders.23
In the wake of the subprime mortgage crisis, Congress passed HERA in July 2008.24 HERA created the FHFA and enumerates the agency's powers as conservator.25 Under HERA, those powers include “preserv[ing] and conserv[ing] the assets and property of the regulated entity” 26 and “tak[ing] such action as may be necessary to put the regulated entity in a sound and solvent condition.” 27 Furthermore, section 4617(f) of HERA states that “no court may take any action to restrain or affect the exercise of powers or functions of [FHFA] as a conservator.” 28
In 2008, the FHFA placed the Enterprises into conservatorship pursuant to section 4617(a)(2).29 Consequently, the FHFA “by operation of law, immediately succeed[ed] to all rights, titles, powers, and privileges of the regulated entity.” 30
On May 5, 2010, the Enterprises issued advisories (“Advisories”) to lenders and servicers of mortgages owned or guaranteed by the Enterprises. 31 The Advisories stated that the terms of the Fannie Mae/Freddie Mac Uniform Security Instruments prohibit loans that create senior lien status to a mortgage.32 The Advisories also stated that the Enterprises would provide additional guidance on PACE programs as needed.33 On July 6, 2010, the FHFA issued the Statement expressing “significant safety and soundness concerns” with certain PACE programs.34 The Statement directed that the Advisories remain in effect and directed the Enterprises “to undertake [certain] prudential actions.” 35 The actions included adjusting loan-to-value ratios; ensuring that loan covenants require approval/consent for any PACE loans; tightening borrower debt-to-income ratios; and ensuring that mortgages on properties with PACE liens satisfy all applicable federal and state lending regulations.36 The Statement was issued without notice or opportunity for public comment and without any environmental review.37
On August 31, 2010, the Enterprises announced that they would not purchase mortgages secured by properties subject to a first-lien PACE obligation. 38 The Enterprises also provided guidelines for refinancing mortgages subject to PACE obligations originating before July 6, 2010.39
On February 28, 2011, the FHFA issued a letter (“Letter”) to the Enterprises “reaffirm[ing] that PACE programs that provide for first-lien priority over mortgage loans present significant risks to certain assets and property of the Enterprises.” 40 The Letter stated that pursuant to section 4617(f) and the FHFA's conservator duty to preserve the assets of the Enterprises, the FHFA is directing the Enterprises to “continue to refrain from purchasing mortgage loans secured by properties with outstanding first-lien PACE obligations” and “undertake other steps as may be necessary to protect their safe and sound operations from these first-lien PACE programs.” 41 The FHFA now asserts that the Letter moots the NRDC's claims against the FHFA. 42
III. LEGAL STANDARDA. Rule 12(b)(1)
Rule 12(b)(1) provides for the dismissal of a claim when the federal court “lack[s] ... jurisdiction over the subject matter.” Plaintiff bears the burden of establishing subject matter jurisdiction by a preponderance of the evidence.43
In considering a motion to dismiss for lack of subject matter jurisdiction, “[t]he court must take all facts alleged in the complaint as true and draw all reasonable inferences in favor of the plaintiff, but jurisdiction must be shown affirmatively, and that showing is not made by drawing from the pleadings inferences favorable to the...
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