Town of Babylon v. Fed. Hous. Fin. Agency

• Decision Date: 24 October 2012
• Docket Number: Docket No. 11-3285-cv,Docket No. 11-3408-cv
• Parties: TOWN OF BABYLON, Plaintiff-Appellant, v. FEDERAL HOUSING FINANCE AGENCY, EDWARD DEMARCO, in his capacity as Acting Director of Federal Housing Finance Agency, OFFICE OF THE COMPTROLLER OF THE CURRENCY, a component of the United States Department of the Treasury, JOHN G. WALSH, Acting Comptroller of the Currency, Defendants-Appellees, CHARLES E. HALDEMAN, JR., in his capacity as Chief Executive Officer of the Federal Home Loan Mortgage Corporation, MICHAEL J. WILLIAMS, in his capacity as Chief Executive Officer of the Federal National Mortgage Association, Defendants. NATURAL RESOURCES DEFENSE COUNCIL, INC., Plaintiff-Appellant, v. FEDERAL HOUSING FINANCE AGENCY, EDWARD DEMARCO, Acting Director, FEDERAL HOUSING FINANCE AGENCY, OFFICE OF THE COMPTROLLER OF THE CURRENCY, a component of the United States Department of the Treasury, JOHN G. WALSH, Acting Comptroller of the Currency, Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

TOWN OF BABYLON, Plaintiff-Appellant,

v.FEDERAL HOUSING FINANCE AGENCY, EDWARD DEMARCO, in his capacity

as Acting Director of Federal Housing Finance Agency, OFFICE OF THE COMPTROLLER

OF THE CURRENCY, a component of the United States Department of the Treasury,

JOHN G. WALSH, Acting Comptroller of the Currency, Defendants-Appellees,

CHARLES E. HALDEMAN, JR., in his capacity as Chief Executive Officer

of the Federal Home Loan Mortgage Corporation, MICHAEL J. WILLIAMS,

in his capacity as Chief Executive Officer of the Federal National Mortgage Association, Defendants.

NATURAL RESOURCES DEFENSE COUNCIL, INC., Plaintiff-Appellant,

v.FEDERAL HOUSING FINANCE AGENCY, EDWARD DEMARCO, Acting Director,

FEDERAL HOUSING FINANCE AGENCY, OFFICE OF THE

COMPTROLLER OF THE CURRENCY, a component of the United States Department

of the Treasury, JOHN G. WALSH, Acting Comptroller of the Currency, Defendants-Appellees.

Docket No. 11-3408-cv

Docket No. 11-3285-cv

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

August Term, 2012

Argued: September 14, 2012

Decided: October 24, 2012

Before: WINTER, CABRANES, and CARNEY, Circuit Judges.

This opinion disposes of two separate appeals from two district courts heard in tandem. Plaintiffs-appellants Town of Babylon and the National Resources Defense Council appeal from grants of motions to dismiss in favor of appellees Federal Housing Finance Agency and the Office of the Comptroller of the Currency in the Eastern District of New York (Leonard D. Wexler, Judge) and Southern District of New York (Shira A. Scheindlin, Judge), respectively. Appellants argue that the district courts erred in concluding that 12 U.S.C. § 4617 precludes judicial review of a Directive issued by the FHFA to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks and also that they lacked standing to pursue their claims against the Office of the Comptroller of the Currency. We affirm.

ERIK A. ORTMANN (William J.

Tinsley Jr., Christopher K.

Smith, on the brief), Goldberg &

Connolly, Rockville Centre, New

York, forPlaintiff-Appellant

Town of Babylon.

HOWARD N. CAYNE (Lisa S. Blatt,

Asim Varma, on the brief), Arnold

& Porter LLP, Washington, D.C.,

for Stephen E. Hart, Federal

Housing Finance Agency, for

Defendant-Appellees Federal

Housing Finance Agency and Edward

DeMarco.

THOMAS A. MCFARLAND (Varuni

Nelson, Assistant United States

Attorney, Julie L. Williams,

Daniel P. Stipano, Horace G.

Sneed, Douglas B. Jordan, Office

of the Comptroller of the

Currency, on the brief),

Assistant United States Attorney

forLoretta E. Lynch, United

States Attorney for the Eastern

District of New York, for

Defendant-Appellees Office of the

Comptroller of the Currency and

John G. Walsh.

KATHERINE KENNEDY (Benjamin H.

Longstreth, on the brief),

Natural Resources Defense

Council, New York, New York, for

Plaintiff-Appellant Natural

Resources Defense Council.

BERTRAND MADSEN (Benjamin H.

Torrance, on the brief),

Assistant United States

Attorneys, for Preet Bharara,

United States Attorney for the

Southern District of New York,

forDefendant-Appellees Office of

the Comptroller of the Currency

and John G. Walsh.

WINTER, Circuit Judge:

This opinion disposes of separate appeals from two different district courts. We heard the appeals in tandem because of the similarity of the issues raised.

The Town of Babylon and the Natural Resources Defense Council, Inc. ("NRDC") appeal from orders entered by Judge Wexler in the Eastern District of New York and Judge Scheindlin in theSouthern District of New York, respectively. The district courts dismissed appellants' complaints against the Federal Housing Financing Agency ("FHFA")¹ and the Office of the Comptroller of the Currency ("OCC").² Appellants claimed that a Directive of the FHFA and a Bulletin of the OCC adversely impacted the operation of first-lien Property Assessed Clean Energy ("PACE") programs. The district courts dismissed the actions on the grounds that: (i) the claims against the FHFA were precluded by 12 U.S.C. § 4617(f), and (ii) appellants lacked Article III standing to pursue claims against the OCC. We affirm.

BACKGROUND

PACE programs are operated by local governments. They encourage property owners to make home improvements that reduce energy consumption, promote clean energy, create local jobs, and reduce greenhouse gas emissions, thereby mitigating the effect of global climate change. The local governments offer financing to commercial and residential property owners to fund the cost of the property improvements. Typically, the owners repay the particular local government, which calls the financing advances"assessments," on a scheduled periodic basis. If a scheduled payment is not made, in many PACE programs, the delinquent amount attaches to the real property as a "tax lien." Such a lien has priority over any other lien attached to the property, including new and preexisting mortgage liens, and stays with the property in the event of sale. However, some PACE programs do not carry such priority and are not affected by this litigation. The Town of Babylon operates a PACE financing program styled the Long Island Green Homes program ("LIGH"). It includes a lien-priority provision.

NRDC alleges that "first lien status is critical to the success of PACE programs" because junior lienholders typically lose the entire value at stake in a foreclosure. In contrast, it alleges, "PACE lien seniority is immaterial to holders of the underlying mortgages," because the assessments are relatively small, the risk of default is lessened by the improvement in the owner's financial status due to energy cost savings, and the value of the collateral is increased.

The Federal National Mortgage Association, commonly known as Fannie Mae, and the Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, are federally chartered corporations of a type commonly referred to as Government-Sponsored Enterprises. The entities together own or guarantee close to half of the home loans in the United States, and the value of the combined debt and mortgage-related assets of the twoentities along with the Federal Home Loan Banks ("FHLB") exceeds $5.9 trillion. As noted by Judge Wexler in the Town of Babylon matter, "The position held in the home mortgage business by Fannie Mae and Freddie Mac make them the dominant force in that market. . . . [I]t is not a stretch to assume that lenders in the home financing market are guided in their decisions by Fannie Mae and Freddie Mac requirements." Town of Babylon v. Fed. Hous. Fin. Agency, 790 F. Supp. 2d 47, 49-50 (E.D.N.Y. 2011). In September 2008, as discussed in more detail infra, FHFA appointed itself conservator over Fannie Mae and Freddie Mac.

On July 6, 2010, the FHFA issued a Directive ("FHFA Directive" or "Directive") directing Fannie Mae and Freddie Mac to take "prudential actions," "not limited to" certain enumerated suggestions not pertinent here,³ to protect themselves against safety and soundness concerns -- risks -- raised by PACE programsthat impose priority or first-liens on participating properties like LIGH. Fed. Hous. Fin. Agency, Statement on Certain Energy Retrofit Loan Programs 2 (2010). The Directive also directed the FHLBs "to review their collateral policies in order to assure that pledged collateral is not adversely affected by energy retrofit programs that include first liens." Id.

The concerns expressed were related only to the subordination of mortgage liens to PACE-related first-lien priorities. Nothing in the Directive or other associated publications of the FHFA suggests any concern over PACE programs that do not impose first-lien priorities. Indeed, FHFA expressly disclaimed any such concern in its Directive Id. ("Nothing in this Statement affects the normal underwriting programs of the regulated entities or their dealings with PACE programs that do not have a senior lien priority.").

The same day, the OCC issued "Supervisory Guidance" in the form of a Bulletin ("Bulletin" or "OCC Bulletin") stating that national banks "need to be aware of the FHFA's directives" and "should take steps to mitigate exposures and protect collateral positions," as well as "consider the impact of tax-assessed energy advances on . . . asset valuations" when investing in mortgage-backed securities. Office of the Comptroller of the Currency, OCC Bull. No. 2010-25, Property Assessed Clean Energy (PACE) Programs 1-2 (2010).

Subsequent to the actions of the FHFA and the OCC, FannieMae and Freddie Mac each issued statements declaring that they would no longer purchase mortgages secured by properties subject to first-lien PACE obligations. See Freddie Mac, Bull. No. 2010-20, Mortgages Secured by Properties with an Outstanding Property Assessed Clean Energy (PACE) Obligation 1 (2010); Fannie Mae, Announcement SEL-2010-12, Options for Borrowers with a PACE Loan 2 (2010). On February 28, 2011, the FHFA, by letter, directed Fannie Mae and Freddie Mac 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." Letter from Alfred M. Pollard, General Counsel, FHFA, to Timothy J. Mayopoulos, General Counsel, Fannie Mae, and Robert E. Bostrom, General Counsel, Freddie Mac (February 28, 2011).

The alleged result of these various statements has been reduced participation in, and diminished viability of, LIGH and other first-lien PACE programs. The Town of Babylon and the NRDC then brought the present actions asserting a host of legal theories, including, as relevant to this appeal, violation of the Administrative Procedure Act ("APA"), 5 U.S.C. § 706, for acting in an arbitrary and capricious manner; violation of the APA, 5 U.S.C. § 553(b),(c), and the Housing and Economic Recovery Act ("HERA"), 12 U.S.C. § 4526(b), for failure to solicit notice and comment; and violation of the National...