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Saxton v. Federal Housing Finance Agency

United States District Court, N.D. Iowa, Cedar Rapids Division

March 27, 2017

THOMAS SAXTON et al., Plaintiffs,
v.
THE FEDERAL HOUSING FINANCE AGENCY et al., Defendants.

          ORDER

          LINDA R. READE JUDGE

         TABLE OF CONTENTS

         I. INTRODUCTION ....................................... 2

         II. RELEVANT PROCEDURAL HISTORY ........................ 2

         III. FACTUAL BACKGROUND ................................ 3

A. Parties .......................................... 3
B. Placement Into Conservatorship ......................... 4
C. Preferred Stock Purchase Agreements ..................... 4
D. Post-Conservatorship Financial Performance ................ 6
E. Third Amendment to PSPAs ........................... 7
F. Motivation for Third Amendment ........................ 7

         IV. LEGAL STANDARD ..................................... 8

         V. ANALYSIS ........................................... 9

         A. Nature of Plaintiffs' Claims ........................... 10

         B. Issue Preclusion .................................. 13

         C. § 4617(f) Bar to Suit ............................... .16

1. Conservator's power to adopt Third Amendment .........18
2. Adoption of Third Amendment at Treasury's direction .....19
3. Application of § 4617(f) to Treasury .................21

         D. § 4617(b)(2)(A) Bar to Suit ...........................23

         VI. CONCLUSION ....................................... 25

         I. INTRODUCTION

         The matters before the court are Defendants Federal Housing Finance Agency (“FHFA”) and Melvin L. Watt's “Motion to Dismiss” (“FHFA Motion”) (docket no. 76) and Defendant United States Department of the Treasury's (“Treasury”) “Motion to Dismiss the Amended Complaint” (“Treasury Motion”) (docket no. 77) (collectively, “Motions”).

         II. RELEVANT PROCEDURAL HISTORY

         On February 9, 2016, Plaintiffs Thomas Saxton, Ida Saxton and Bradley Paynter (collectively, “Plaintiffs”) filed an Amended Complaint (docket no. 61). In the Amended Complaint, Plaintiffs seek declaratory and injunctive relief and damages based on five claims against FHFA and Treasury: (1) actions taken by FHFA exceeded its statutory authority; (2) actions taken by Treasury exceeded its statutory authority; (3) actions taken by Treasury were arbitrary and capricious; (4) breach of contract by FHFA; and (5) breach of the implied covenant of good faith and fair dealing by FHFA. See Amended Complaint ¶¶ 134-81. Counts I-III are raised under the Administrative Procedures Act (“APA”), 5 U.S.C. § 706, and Counts IV-V are raised under state common law. Plaintiffs' claims arise from FHFA's exercise of its role as conservator of the Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”) and Treasury's exercise of its authority to purchase Fannie Mae and Freddie Mac securities.

         On March 18, 2016, FHFA and Watts filed the FHFA Motion and Treasury filed the Treasury Motion. On April 4, 2016, the proceedings in the instant case were stayed pending decision by the Judicial Panel on Multidistrict Litigation as to whether the case would be transferred with several similar cases for consolidation and coordination in another district. See April 4, 2016 Order (docket no. 79). On June 2, 2016, the Judicial Panel on Multidistrict Litigation denied transfer. See docket no. 80. On June 16, 2016, FHFA and Watts filed a “Supplemental Brief in Further Support of Their Motion to Dismiss” (“FHFA Supplemental Brief”) (docket no. 83). On June 30, 2016, Plaintiffs filed a Response (docket no. 86) to the FHFA and Treasury Motions. On August 1, 2016, FHFA and Watt filed a Reply (docket no. 87) to the Response. That same date, Treasury also filed a Reply (docket no. 88) to the Response. On March 23, 2017, the court heard oral argument from the parties regarding the issues raised in the Motions and the Response. See Mar. 23, 2017 Minute Entry (docket no. 104). The matters are fully submitted and ready for decision.

         III. FACTUAL BACKGROUND

         Accepting all factual allegations in the Amended Complaint as true and drawing all reasonable inferences in favor of Plaintiffs, the facts are as follows.

         A. Parties

         Fannie Mae and Freddie Mac (collectively, “GSEs”) are government-sponsored enterprises that purchase and guarantee mortgages issued by private banks and bundle the mortgages into securities that are then sold to investors. Amended Complaint ¶ 34. The GSEs issue common stock and various series of preferred stock, such that owners of preferred stock receive dividend and liquidation preferences over owners of common stock. Id. ¶ 36.

         Plaintiffs Thomas and Ida Saxton are individuals residing in Cedar Rapids, Iowa. Id. ¶ 29. Thomas Saxton owns shares of Freddie Mac preferred stock, and Thomas and Ida Saxton own shares of Freddie Mac common stock both jointly and individually. Id. ¶ 37. The Saxtons acquired their Freddie Mac common stock in 2008. Id. Plaintiff Bradley Paynter is an individual residing in the State of Washington. Id. ¶ 30. Paynter owns shares of Fannie Mae common stock, which he acquired in 1996. Id. ¶ 38.

         FHFA is an independent agency created by the Housing and Economic Recovery Act of 2008 (“HERA”) and is empowered by HERA to regulate the GSEs. Id. ¶¶ 31, 42; see also 12 U.S.C. ยง 4511. Treasury is an executive agency temporarily authorized by HERA to purchase stock issued by the GSEs, with such purchase authority ...


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