Cacciapalle v. United States

In the United States Court of Federal Claims
No. 13-466C
(Filed: June 26, 2020)

*************************************
JOSEPH CACCIAPALLE et al., *
* Motion to Dismiss; RCFC 12(b)(1); RCFC
Plaintiffs, * 12(b)(6); Jurisdiction; Standing; Direct
* Claims; Instrumentalities; Coercion; Agent;
v. * Conservators; Conflict of Interest; Stock;
* Shareholders; Judicial Taking; Privity of
THE UNITED STATES, * Contract; Fannie; Freddie; FHFA
*
Defendant. *
*************************************

Hamish P.M. Hume, Washington, DC, and Eric L. Zagar, Radnor, PA, for plaintiffs.

Kenneth M. Dintzer, United States Department of Justice, Washington, DC, for defendant.

OPINION AND ORDER

SWEENEY, Chief Judge

Plaintiffs in this case challenge the actions of the United States during the
conservatorships of the Federal National Mortgage Association (“Fannie”) and the Federal Home
Loan Mortgage Corporation (“Freddie”). Specifically, plaintiffs take issue with the conservator
for Fannie and Freddie (collectively, the “Enterprises”) amending a funding agreement between
the Enterprises and the United States Department of the Treasury (“Treasury”). Based on the
revisions to that agreement, plaintiffs seek the return of money illegally exacted; damages for
breach of contract, breach of the covenant of good faith and fair dealing, and breach of fiduciary
duty; and compensation for two types of takings claims pursuant to the Fifth Amendment to the
United States Constitution (“Constitution”). Defendant moves to dismiss plaintiffs’ complaint,
arguing that the court lacks subject-matter jurisdiction over plaintiffs’ claims, plaintiffs lack
standing to pursue their claims, and plaintiffs fail to state a claim upon which relief may be
granted. For the reasons stated below, the court grants defendant’s motion to dismiss.

I. BACKGROUND

A. The Enterprises are private companies that are under the control of a conservator.

1. The Enterprises operated independently before the financial crisis.

Congress created the Enterprises to help the housing market; the Enterprises purchase and
guarantee mortgages originated by private banks before bundling those mortgages into securities
that are sold to investors. 1 1st Am. Consol. Class Action Compl. (“1st Am. Compl.”) ¶ 19.
Congress chartered Fannie in 1938 and established Freddie in 1970. Id. Both Enterprises were
initially part of the federal government before Congress reorganized them into for-profit
companies owned by private shareholders. Id. Freddie is organized under Virginia law, and
Fannie is organized under Delaware law. Id. ¶ 106. The Enterprises, consistent with the
applicable state laws, issued their own common and preferred stock. Id. ¶¶ 102-106; Fairholme
II, 147 Fed. Cl. at 15. Common shareholders obtained the right to receive dividends, collect any
residual value, and vote on various corporate matters. Fairholme II, 147 Fed. Cl. at 15. Those
owning preferred stock acquired the right to receive dividends and a liquidation preference. 1st
Am. Compl. ¶¶ 104-105.

The Enterprises, up until the financial crisis in the late 2000s, were consistently
profitable; Fannie had not reported a full-year loss since 1985, and Freddie had not reported such
a loss since becoming privately owned. Id. ¶ 22. Although the Enterprises recorded losses in
2007 and the first two quarters of 2008, the Enterprises continued to generate sufficient cash to
pay their debts and retained sufficient capital to operate. Fairholme II, 147 Fed. Cl. at 15.
Otherwise stated, the Enterprises were not in any apparent financial distress or otherwise at risk
of insolvency. 1st Am. Compl. ¶¶ 24, 26.

2. Congress created the Federal Housing Finance Agency to regulate the Enterprises and
authorized the agency to serve as a conservator for each Enterprise.

In the midst of the financial crisis during the summer of 2008, Congress enacted the
Housing and Economic Recovery Act of 2008 (“HERA”), Pub. L. No. 110-289, 122 Stat. 2654
(codified as amended in scattered sections of 12 U.S.C.). In that statute, Congress created the
Federal Housing Finance Agency (“FHFA”) and provided it with supervisory and regulatory
authority over the Enterprises. See 12 U.S.C. § 4511(a)-(b) (2018). 2 Congress further
authorized the FHFA Director to, in limited circumstances, appoint the FHFA as the conservator
(“FHFA-C”) for each Enterprise to reorganize, rehabilitate, or wind up its affairs. 3 Id.
§ 4617(a)(2). Specifically, the Director is authorized to appoint a conservator if, among other
things, an Enterprise consents, is undercapitalized, or lacks sufficient assets to pay its

1
This background section is a less comprehensive version of the court’s recitation of
facts in a related case, Fairholme Funds, Inc. v. United States, 147 Fed. Cl. 1 (2019) (“Fairholme
II”), interlocutory appeals docketed, Nos. 20-121, 20-122 (Fed. Cir. June 18, 2020).
2
Congress has not amended the relevant portions of HERA since enacting the law in
2008. The court, therefore, refers to the most recent version of the United States Code.
3
To avoid any ambiguity, the court reiterates that it is using “FHFA” to refer to the
agency acting in its regulatory role and “FHFA-C” when discussing the agency acting as a
conservator.

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obligations. Id. § 4617(a)(3). 4 The conservator, once appointed, functions independently; it is
not “subject to the direction or supervision of any other agency of the United States or any State
in the exercise of [its] rights, powers, and privileges . . . .” Id. § 4617(a)(7).

Congress also delineated the scope of the FHFA-C’s powers in HERA. See generally id.
§ 4617. As soon as it is appointed, the FHFA-C “immediately succeed[s] to . . . all rights, titles,
powers, and privileges of the [Enterprise], and of any stockholder, officer, or director of such
[Enterprise] with respect to the [Enterprise] and the assets of the [Enterprise] . . . .” Id.
§ 4617(b)(2)(A). Congress also conferred the conservator with the power to “[o]perate the
[Enterprise].” Id. § 4617(b)(2)(B). Pursuant to that power, the conservator “may,” among other
things, “perform all functions of the [Enterprise],” “preserve and conserve the assets and
property of the [Enterprise],” and “provide by contract for assistance in fulfilling any
function . . . of the [conservator].” Id. The conservator “may” also “take such action as may be
. . . necessary to put the [Enterprise] in a sound and solvent condition; . . . and appropriate to
carry on the business of the [Enterprise] and preserve and conserve the assets and property of the
[Enterprise].” Id. § 4617(b)(2)(D). Rounding out the panoply of powers, Congress also
provided that the conservator “may . . . exercise . . . such incidental powers as shall be necessary
to carry out [its enumerated powers]” and “take any action authorized by [12 U.S.C. § 4617(b)],
which [it] determines is in the best interest of the [Enterprise] or the [FHFA].” Id.
§ 4617(b)(2)(J). By describing the FHFA-C’s role primarily in terms of what powers it “may”
exercise, see generally id. § 4617, Congress provided the FHFA-C with significant discretion on
when or how it uses its powers, see United States v. Rodgers, 461 U.S. 677, 706 (1983) (“The
word ‘may,’ when used in a statute, usually implies some degree of discretion.”). Simply stated,
the FHFA has “extraordinarily broad flexibility to carry out its role as conservator.” Perry
Capital LLC v. Mnuchin, 864 F.3d 591, 606 (D.C. Cir. 2017) (“Perry II”), cert. denied, 138 S.
Ct. 978 (2018).

3. Congress authorized Treasury to purchase securities issued by the Enterprises.

At the same time that it established the FHFA, Congress authorized the Treasury
Secretary to buy securities issued by the Enterprises in limited circumstances. 12 U.S.C.
§§ 1455(l) (Freddie), 1719(g) (Fannie). Congress included a sunset clause on this power; the
Secretary could not purchase securities after December 31, 2009. Id. §§ 1455(l)(4), 1719(g)(4).
Until that date, the Secretary was permitted to purchase the securities if he determined that doing
so was necessary to provide stability to the financial markets, prevent disruptions in the
availability of mortgage finance, and protect taxpayers. Id. §§ 1455(l)(1)(B), 1719(g)(1)(B). As
part of his obligation to protect taxpayers, the Secretary could only purchase securities after
considering:

(i) The need for preferences or priorities regarding payments to the Government.

(ii) Limits on maturity or disposition of obligations or securities to be purchased.

4
Congress enticed the Enterprises to consent to a conservatorship by insulating their
board members from any liability to shareholders or creditors for agreeing in good faith to the
FHFA’s appointment of a conservator. 12 U.S.C. § 4617(a)(6).

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 (iii) The [Enterprise’s] plan for the orderly resumption of private market funding
or capital market access.

(iv) The probability of the [Enterprise] fulfilling the terms of any such obligation
or other security, including repayment.

(v) The need to maintain the [Enterprise’s] status as a private shareholder-owned
company.

(vi) Restrictions on the use of [Enterprise] resources, including limitations on the
payment of dividends and executive compensation and any such other terms and
conditions as appropriate for those purposes.

Id. §§ 1455(l)(1)(C), 1719(g)(1)(C).

4. The FHFA became the conservator for each Enterprise.

After Congress enacted HERA, Treasury decided that the FHFA should place each
Enterprise into conservatorship. 1st Am. Compl. ¶ 30. The conservatorships became effective
on September 6, 2008. Id. ¶ 27. The conservatorships were permissible under HERA once
consent had been obtained from the boards of directors of the Enterprises. See 12 U.S.C.
§ 4617(a)(3)(I) (permitting the FHFA Director to appoint a conservator when “[t]he [Enterprise],
by resolution of its board of directors or its shareholders or members, consents to the
appointment”).

5. The FHFA-C contracted with Treasury to obtain funding for the Enterprises.

On September 7, 2008, the FHFA-C entered into a Preferred Stock Purchase Agreement
(“PSPA”) with Treasury for each Enterprise. 1st Am. Compl. ¶¶ 5, 38; Fairholme II, 147 Fed.
Cl. at 17. Treasury entered into the agreements pursuant to its authority under HERA to buy the
Enterprises’ securities. 1st Am. Compl. ¶ 40. The PSPA for each Enterprise is materially
identical. Id. ¶ 38. Under the PSPAs, Treasury committed to provide up to $100 billion to each
Enterprise to ensure that the Enterprises maintained a positive net worth. Fairholme II, 147 Fed.
Cl. at 17. If an Enterprise’s liabilities exceeded its assets, then the Enterprise could draw on
Treasury’s funding commitment in an amount equal to the difference between the Enterprise’s
liabilities and assets. Id.

In return for Treasury’s funding commitment, the Enterprises surrendered stock,
dividends, commitment fees, and control. First, with respect to the stock, Treasury acquired one-
million shares of preferred stock in each Enterprise and warrants to purchase 79.9% of their
respective common stock at a nominal price. Id.; 1st Am. Compl. ¶ 38. Treasury’s preferred
stock had an initial liquidation preference of $1 billion, but the amount increased dollar-for-
dollar when an Enterprise drew on Treasury’s funding commitment. 1st Am. Compl. ¶ 38;
Fairholme II, 147 Fed. Cl. at 17. In the event of a liquidation, Treasury was entitled to recover
the full liquidation value of its shares before any other shareholder would receive compensation.

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1st Am. Compl. ¶ 38. Second, Treasury bargained for the right to a quarterly cash dividend
equal to 10% of its liquidation preference. Id. An Enterprise that decided against paying a cash
dividend in a specific quarter could make an in-kind payment: the value of the dividend would
be added to the liquidation preference, and the dividend rate would increase to 12%. Id. Those
in-kind payments, however, did not count as a draw from Treasury’s funding commitment.
Fairholme II, 147 Fed. Cl. at 18. Third, Treasury received the right to a quarterly commitment
fee from each Enterprise, but Treasury could waive the fee each year. 1st Am. Compl. ¶ 38. If
Treasury did not waive the fee, the Enterprise could elect to pay the amount in cash or make an
in-kind payment by increasing the liquidation preference. Fairholme II, 147 Fed. Cl. at 18.
Fourth, Treasury obtained de facto control over various aspects of each Enterprise; the
Enterprises needed to obtain Treasury’s consent before awarding dividends, issuing stock,
transferring assets, incurring certain types of debt, and making certain organizational changes.
Id.

The FHFA-C and Treasury amended each Enterprise’s PSPA in May 2009, to increase
Treasury’s funding commitment to each Enterprise from $100 billion to $200 billion. 1st Am.
Compl. ¶ 45. On December 24, 2009, the FHFA-C and Treasury executed another amendment
to the PSPAs; they abolished the specific dollar cap and replaced it with a formula to allow
Treasury’s total commitment to each Enterprise to exceed $200 billion. Id.; Fairholme II, 147
Fed. Cl. at 18.

6. The Enterprises’ finances improved during their conservatorships.

In the early stages of the conservatorships, each Enterprise’s net worth decreased as it
reported losses. Fairholme II, 147 Fed. Cl. at 18. The bulk of the losses resulted from the
FHFA-C writing down the value of deferred tax assets and designating large loan loss reserves. 5
1st Am. Compl. ¶ 42. Notwithstanding those on-paper losses, the Enterprises’ cash receipts
consistently exceeded their expenses; they maintained net operating revenue in excess of their
net operating expenses from the onset of the conservatorships under the PSPAs and through the
first two amendments to the agreements. Fairholme II, 147 Fed. Cl. at 18.

By 2012, the Enterprises’ financial outlooks were promising. In addition to an
improvement in the housing market, the Enterprises began generating consistent profits and
anticipated losing less money on their newer mortgages. Id. They were positioned to further
improve their financial condition by settling lawsuits brought by each Enterprise and revising
their valuations of (1) deferred tax assets because of growing profits and (2) loan loss reserves
because losses were less than expected. Id. The FHFA-C and Treasury were aware of those
forthcoming changes and the Enterprises’ improving outlooks. 1st Am. Compl. ¶ 54. By August
2012, the Enterprises were expected to experience record profitability. Id. ¶ 55. The Enterprises
received projections reflecting that they would have positive comprehensive income between

5
A loan loss reserve is an entry on a company’s balance sheet that reduces its net worth
to reflect anticipated losses on mortgages that it owns. 1st Am. Compl. ¶ 42. A deferred tax
asset is an asset that may be used to offset future tax liability. Id. A company must write down
the value of that deferred asset if it is unlikely to be used to offset future taxable profits. Id. This
write down occurs, for example, if a company predicts it will not be profitable in the future. Id.

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2012 and 2022. Id. ¶ 52. The FHFA-C had similar information; in July 2012, it circulated,
within the FHFA, comparable projections and a prediction that the next eight years were likely to
be the “golden years of [the Enterprises’] earnings.” Id. (quoting the document) (emphasis
omitted). Otherwise stated, the FHFA-C and Treasury knew, by the summer of 2012, that the
Enterprises were poised to generate profits in excess of their respective dividend obligations to
Treasury. Id. ¶ 54.

7. Treasury and the FHFA-C agreed to a third amendment to the PSPAs.

At an unspecified time prior to August 2012, the Treasury and the FHFA-C began
considering a third amendment to each PSPA. Treasury wanted to reap all of the benefits of the
Enterprises’ return to profitability; Treasury’s goal was the driving force behind the third
amendment. Id. ¶ 12. Treasury and the FHFA-C decided to announce the changed terms in mid-
August 2012 because, according to Treasury, the Enterprises would be reporting earnings
exceeding their dividend obligation at the beginning of that month. Fairholme II, 147 Fed. Cl. at
19.

On August 17, 2012, Treasury and the FHFA-C executed the third amendment to each
PSPA (“PSPA Amendment”). 1st Am. Compl. ¶ 56. A key component of the amended PSPAs
is the requirement—referred to as the “Net Worth Sweep”—that each Enterprise pay Treasury a
quarterly dividend equal to 100% of each Enterprise’s net worth (except for a small capital
reserve amount) rather than a dividend based on a set percentage of the liquidation preference. 6
Id. ¶¶ 56, 59. Additionally, under the amended PSPAs, the Enterprises are not obligated to pay a
periodic commitment fee. Fairholme II, 147 Fed. Cl. at 19.

a. Treasury wanted to ensure that it benefited from the new terms.

With the PSPAs, Treasury sought to secure a more beneficial arrangement for itself, as a
representative for taxpayers. During the lead-up to the PSPA Amendments, a Treasury official
acknowledged in a December 2010 memorandum to the Treasury Secretary that the government
was “committ[ed] to ensur[ing] existing common equity holders will not have access to any
positive earnings from the [Enterprises] in the future.” 1st Am. Compl. ¶ 61 (quoting the
memorandum). Treasury recognized its goal of obtaining all of the Enterprises’ profits by
executing the PSPA Amendments; when the changes were announced, it noted that the Net
Worth Sweep would “make sure that every dollar of earnings [each Enterprise] generates is used
to benefit taxpayers.” Id. ¶ 65 (quoting a Treasury press release).

b. The FHFA-C agreed to changes that benefit Treasury.

For its part, the FHFA-C was operating under the belief that Treasury would benefit from
the PSPA Amendments. Treasury anticipated that its receipts under the PSPA Amendments

6
The capital reserve for each Enterprise started at $3 billion and was set to decrease to
$0 by January 2018, but the Enterprises and Treasury agreed in December 2017 to reset the
capital reserve amount to $3 billion in the first quarter of 2018. Fairholme II, 147 Fed. Cl. at 19
n.5.

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would exceed those under the prior scheme and would lead to a better outcome for taxpayers.
Fairholme II, 147 Fed. Cl. at 19. Moreover, Mel Watt—a former FHFA Director—confirmed
that he was concerned with how decisions affect the taxpayers. Id.

c. Treasury and the FHFA understood that the PSPA Amendments would not facilitate the
Enterprises exiting conservatorship.

Treasury was aware that the new terms of the PSPAs were not conducive to the
Enterprises exiting conservatorship. When announcing the PSPA Amendments, Treasury openly
acknowledged that the new terms would expedite the winding down of Fannie and Freddie. 1st
Am. Compl. ¶ 65. Treasury further explained that the new deal would ensure that the Enterprises
“will be wound down and will not be allowed to retain profits, rebuild capital, and return to the
market in their prior form.” Id. (quoting a press release). Indeed, a White House official sent a
message to a Treasury official when the deal was announced noting that Treasury was “clos[ing]
off [the] possibility that [Fannie and Freddie] ever[] go (pretend) private again.” Id. ¶ 69
(alterations in original) (quoting the message).

The FHFA shared the goal of winding down the Enterprises. Id. ¶ 63. Numerous
statements of FHFA officials confirm that Fannie and Freddie were not intended to return to
private corporate status. Fairholme II, 147 Fed. Cl. at 20. Indeed, the FHFA did not expect the
Enterprises to exit conservatorship, or that they would survive to continue to play a role in the
housing finance market. Id.

d. Treasury has benefited from the PSPA Amendments at the expense of the Enterprises
and other shareholders.

There are four significant effects that flowed from the PSPA Amendments. First,
plaintiffs lost their economic interests in the Enterprises because, under the new terms, private
shareholders can never receive dividends or liquidation distributions. 1st Am. Compl. ¶¶ 56, 58,
73. Second, Treasury acquired plaintiffs’ economic interests in the Enterprises because Treasury
has now transferred all of those economic interests to itself. Id. ¶¶ 82-87. Third, Treasury
reaped a windfall of $125.5 billion in comparison to what it would have received absent changes
to the PSPAs. Id. ¶ 70. Fourth, the Enterprises can never be rehabilitated to a sound and solvent
condition because, by transferring their profits to Treasury, they will perpetually operate on the
brink of insolvency. Id. ¶ 97.

8. Treasury and the FHFA are committed to ending the conservatorships.

On March 27, 2019, President Donald J. Trump issued a memorandum in which he
directed the Treasury Secretary to develop, “as soon as practicable,” a plan for “[e]nding the
conservatorships of the [Enterprises] upon the completion of specified reforms . . . .” 7

7
The court takes judicial notice of the presidential memorandum because it is a
government record published in a reliable source, the Federal Register. See Murakami v. United
States, 46 Fed. Cl. 731, 739 (2000) (noting that the court may take judicial notice of government
documents), aff’d, 398 F.3d 1342, 1354-55 (Fed. Cir. 2005); see also Democracy Forward
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Memorandum on Federal Housing Finance Reform, 84 Fed. Reg. 12,479, 12,479 (Mar. 27,
2019). The President explained that the plan must include proposals for “[s]etting the conditions
necessary for the termination of the conservatorships” and outlined some of those conditions. Id.
at 12,480. Subsequently, Treasury issued a plan in which it advocated for “begin[ning] the
process of ending the [Enterprises’] conservatorships.” 8 U.S. Dep’t of the Treasury, Housing
Reform Plan Pursuant to the Presidential Memorandum Issued March 27, 2019, at 3 (2019),
https://home.treasury.gov/system/files/136/Treasury-Housing-Finance-Reform-Plan.pdf
[https://perma.cc/RGH8-N385]; accord id. at 26 (“It is, after 11 years, time to bring the
conservatorships to an end.”). As part of the plan to end the conservatorships, Treasury proposed
that it and the FHFA consider revising the Net Worth Sweep to allow the Enterprises to retain
more of their earnings. Id. at 26-27.

The FHFA shares Treasury’s goals with respect to the conservatorships. Mark Calabria,
the current FHFA Director, testified during his confirmation hearing that he wanted to end the
conservatorships. 9 165 Cong. Rec. S2246 (daily ed. Apr. 4, 2019) (statement of Sen. Crapo)
(summarizing testimony). See generally Nominations of Bimal Patel, Todd M. Harper, Rodney
Hood, and Mark Anthony Calabria: Hearing Before the S. Comm. on Banking, Hous., and
Urban Affairs, 116th Cong. 10-40, 74-75, 148-85 (2019) [hereinafter Calabria Testimony]
(documenting Mr. Calabria’s testimony, statement, and responses to written questions during and
after his confirmation hearing). He also stated that, as FHFA Director, he would seek to increase
the amount of capital that each Enterprise retains. Calabria Testimony, supra, at 150; see also id.
at 25 (“I support the idea of having significantly more capital at the [Enterprises].”).

B. Plaintiffs own Fannie and/or Freddie stock.

There are two categories of plaintiffs in this litigation brought as a class action. One
putative class of plaintiffs consists of holders of Fannie preferred stock, except the United States,
and the other putative class is composed of holders of Freddie preferred stock, except the United
States. 1st Am. Compl. ¶¶ 15-16, 115. The class members purchased their stock before the Net
Worth Sweep. Id. Class members may hold stock in just one of the Enterprises, or both. Id.

Found. v. White House Office of Am. Innovation, 356 F. Supp. 3d 61, 62 n.2 (D.D.C. 2019)
(“[J]udicial notice may be taken of government documents available from reliable sources, such
as this 2017 Presidential Memorandum.”). See generally Fed. R. Evid. 201 (discussing judicial
notice). Although a motion to dismiss is normally limited to the allegations in a complaint, the
court may consider facts derived from sources subject to judicial notice without converting the
motion into one for summary judgment. Sebastian v. United States, 185 F.3d 1368, 1374 (Fed.
Cir. 1999).
8
The court takes judicial notice of Treasury’s reform plan because it is a government
record available from a reliable source, Treasury’s website. See supra note 7.
9
The court takes judicial notice of the relevant testimony because the statements are
recorded in government documents. See supra note 7.

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 II. PROCEDURAL HISTORY

Plaintiffs filed their complaint on July 10, 2013. 10 After jurisdictional discovery
proceeded in Fairholme, a related case, see supra note 1, plaintiffs filed their first amended
consolidated class action complaint in this case on March 8, 2018. 11 In their amended complaint,
plaintiffs plead six direct claims brought in their individual capacities as shareholders.

Plaintiffs first assert that the Net Worth Sweep constitutes a Fifth Amendment taking of
their economic interests in their stock (count I). Next, plaintiffs assert a different takings claim
based on any judicial interpretation of HERA that precludes them from recovering just
compensation for their property interest in certain causes of action, inluding derivative claims on
behalf of the Enterprises (count II). Plaintiffs further assert that the Net Worth Sweep constitutes
an illegal exaction (count III) of their economic interests in their stock because (1) the FHFA-C
was operating against its statutory mandate to preserve the Enterprises’ assets; (2) the FHFA-C
repudiated the Enterprises’ contractual obligations to their shareholders outside of the
permissible statutory time-frame; and (3) Treasury entered into the PSPA Amendments after the
statutory time frame for entering into such contracts had expired.

Plaintiffs also plead two breach-of-contract claims. In the first, they allege that their
stock certificates bind the Enterprises in contract, and that these contracts were breached by the
FHFA-C when it entered into the PSPA Amendments, depriving plaintiffs of the benefits of
those contracts (count IV). In the second breach-of-contract claim, founded again on plaintiffs’
stock certificates, they allege that the FHFA-C breached the Enterprises’ implied covenant of
good faith and fair dealing vis-à-vis plaintiffs (count V). Lastly, plaintiffs allege that the FHFA-
C, as a conservator pursuant to HERA, owes a fiduciary duty to plaintiffs. The breach-of-
fiduciary-duty claim (“fiduciary duty claim”) is premised on the Net Worth Sweep being unfair;
constituting waste, self-dealing, gross overreach, and gross abuse of discretion; and failing to
further a valid business purpose or reflect a good faith business judgment (count VI).

On October 1, 2018, defendant moved to dismiss—in a single, omnibus motion—the
claims in this case and eleven related cases before the undersigned. 12 The plaintiffs in each of

10
This is a consolidated case composed of three putative class actions (Cacciapalle v.
United States, No. 13-466C; American European Insurance Co. v. United States, No. 13-496C;
and Dennis v. United States, No. 13-542C) with two designated class representative plaintiffs
(Joseph Cacciapalle and the American European Insurance Company). Cacciapalle is the lead
case and the original Cacciapalle complaint was designated as the operative complaint for the
consolidated case.
11
A fuller recitation of the procedural history of this case and related cases is provided in
Fairholme II, 147 Fed. Cl. at 21-23.
12
The eleven related cases are Washington Federal v. United States, No. 13-385C;
Fairholme Funds, Inc. v. United States, No. 13-465C; Fisher v. United States, No. 13-608C;
Arrowood Indemnity Company v. United States, No. 13-698C; Reid v. United States, No. 14-
152C; Rafter v. United States, No. 14-740C; Owl Creek Asia I, L.P. v. United States, No. 18-
281C; Akanthos Opportunity Master Fund, L.P. v. United States, No. 18-369C; Appaloosa
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the twelve cases filed a response brief on their respective dockets; some of the plaintiffs relied on
a joint brief, while others, as is the case here, filed a joint brief and a supplemental response
brief. 13 Defendant filed its omnibus reply brief in each of the cases on May 6, 2019. The parties
have fully briefed defendant’s motion, and the court held a single oral argument on November
19, 2019, involving the plaintiffs from each of the twelve cases that defendant moved to dismiss.
The plaintiffs in those cases collaborated during argument; each plaintiff argued some of the
issues. Thus, the court infers that the plaintiffs in this case have adopted the favorable arguments
made by the plaintiffs in the related cases to the extent that such arguments are relevant. 14
Defendant’s motion to dismiss is now ripe for adjudication.

III. STANDARD OF REVIEW

In ruling on a motion to dismiss a complaint pursuant to Rules 12(b)(1) and 12(b)(6) of
the Rules of the United States Court of Federal Claims (“RCFC”), the court generally assumes
that the allegations in the complaint are true and construes those allegations in the plaintiff’s
favor. Trusted Integration, Inc. v. United States, 659 F.3d 1159, 1163 (Fed. Cir. 2011). With
respect to RCFC 12(b)(1), the plaintiff bears the burden of proving, by a preponderance of the
evidence, that the court possesses subject-matter jurisdiction. Id. The allegations in the
complaint must include “the facts essential to show jurisdiction.” McNutt v. Gen. Motors
Acceptance Corp., 298 U.S. 178, 189 (1936). And, if such jurisdictional facts are challenged in a
motion to dismiss, the plaintiff “must support them by competent proof.” Id.; accord Land v.
Dollar, 330 U.S. 731, 735 & n.4 (1947) (“[W]hen a question of the District Court’s jurisdiction is
raised, . . . the court may inquire by affidavits or otherwise, into the facts as they exist.” (citations
omitted)). If the court finds that it lacks subject-matter jurisdiction, it must, pursuant to RCFC
12(h)(3), dismiss the complaint.

A claim that survives a jurisdictional challenge remains subject to dismissal under RCFC
12(b)(6) if it does not provide a basis for the court to grant relief. Lindsay v. United States, 295
F.3d 1252, 1257 (Fed. Cir. 2002) (“A motion to dismiss . . . for failure to state a claim upon
which relief can be granted is appropriate when the facts asserted by the claimant do not entitle
him to a legal remedy.”). To survive a motion to dismiss under RCFC 12(b)(6), a plaintiff must
include in the complaint “enough facts to state a claim to relief that is plausible on its face.” Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Indeed, “[t]he issue is not whether a plaintiff
will ultimately prevail but whether the claimant is entitled to offer evidence to support the

Investment Limited Partnership I v. United States, No. 18-370C; CSS, LLC v. United States, No.
18-371C; and Mason Capital L.P. v. United States, No. 18-529C.
13
The court addresses in this opinion some arguments that were made primarily by the
plaintiffs in the related cases to provide context for the resolution of defendant’s motion to
dismiss. In addition, to the extent that any of plaintiffs’ less-developed arguments are not
discussed in this opinion, the court found such arguments to be unpersuasive.
14
Given that plaintiffs here allege six direct claims, the court does not infer that they
adopted the Reid and Fisher plaintiffs’ argument that shareholder claims regarding the PSPA
Amendments are derivative claims brought on behalf of the Enterprises.

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claims.” Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds by Harlow v.
Fitzgerald, 457 U.S. 800, 814-19 (1982).

IV. SUBJECT-MATTER JURISDICTION

The court begins with jurisdiction because it is a “threshold matter.” Steel Co. v. Citizens
for a Better Env’t, 523 U.S. 83, 94-95 (1998). Subject-matter jurisdiction cannot be waived or
forfeited because it “involves a court’s power to hear a case.” Arbaugh v. Y & H Corp., 546
U.S. 500, 514 (2006) (quoting United States v. Cotton, 535 U.S. 625, 630 (2002)). “Without
jurisdiction the court cannot proceed at all in any cause. Jurisdiction is power to declare the law,
and when it ceases to exist, the only function remaining to the court is that of announcing the fact
and dismissing the cause.” Ex parte McCardle, 74 U.S. (7 Wall) 506, 514 (1868). Therefore, it
is “an inflexible matter that must be considered before proceeding to evaluate the merits of a
case.” Matthews v. United States, 72 Fed. Cl. 274, 278 (2006); accord K-Con Bldg. Sys., Inc. v.
United States, 778 F.3d 1000, 1004-05 (Fed. Cir. 2015). Either party, or the court sua sponte,
may challenge the court’s subject-matter jurisdiction at any time. Arbaugh, 546 U.S. at 506; see
also Jeun v. United States, 128 Fed. Cl. 203, 209-10 (2016) (collecting cases).

The ability of the United States Court of Federal Claims (“Court of Federal Claims”) to
entertain suits against the United States is limited. “The United States, as sovereign, is immune
from suit save as it consents to be sued.” United States v. Sherwood, 312 U.S. 584, 586 (1941).
The waiver of immunity “may not be inferred, but must be unequivocally expressed.” United
States v. White Mountain Apache Tribe, 537 U.S. 465, 472 (2003). Any such waiver must be
narrowly construed. Smith v. Orr, 855 F.2d 1544, 1552 (Fed. Cir. 1988). The Tucker Act, the
principal statute governing the jurisdiction of this court, waives sovereign immunity for claims
against the United States, not sounding in tort, that are founded upon the Constitution, a federal
statute or regulation, or an express or implied contract with the United States. 28 U.S.C.
§ 1491(a)(1) (2018); White Mountain, 537 U.S. at 472. However, the Tucker Act is merely a
jurisdictional statute and “does not create any substantive right enforceable against the United
States for money damages.” United States v. Testan, 424 U.S. 392, 298 (1976). Instead, the
substantive right must appear in another source of law, such as a “money-mandating
constitutional provision, statute or regulation that has been violated, or an express or implied
contract with the United States.” Loveladies Harbor, Inc. v. United States, 27 F.3d 1545, 1554
(Fed. Cir. 1994) (en banc).

Defendant challenges the court’s jurisdiction to entertain plaintiffs’ claims on a number
of bases. Specifically, defendant argues that 28 U.S.C. § 1500 bars plaintiffs’ claims, that
plaintiffs have not asserted claims against the United States, and that the court lacks jurisdiction
over the subject matter of certain claims. The court addresses each of these bases in turn. 15

15
In Fairholme II, the court addressed an additional jurisdictional concern that was not
raised in this case. See generally 147 Fed. Cl. at 34-37 (rejecting the contention of a putative
intervenor that the Court of Federal Claims lacks jurisdiction to entertain Fifth Amendment
takings claims).
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 A. Plaintiffs are not barred by 28 U.S.C. § 1500 from litigating their claims in this court.

The court first addresses defendant’s argument that the court lacks jurisdiction to
consider plaintiffs’ claims because plaintiffs initiated lawsuits in other courts after filing their
complaint in this court. Specifically, defendant asserts that the claims are barred by 28 U.S.C.
§ 1500, which provides:

The United States Court of Federal Claims shall not have jurisdiction of any claim
for or in respect to which the plaintiff or his assignee has pending in any other
court any suit or process against the United States or any person who, at the time
when the cause of action alleged in such suit or process arose, was, in respect
thereto, acting or professing to act, directly or indirectly under the authority of the
United States.

Defendant acknowledges that, under binding precedent, § 1500 is not a bar in this case because
the limitation only applies “when the suit shall have been commenced in the other court before
the claim was filed in [the Court of Federal Claims].” Tecon Eng’rs, Inc. v. United States, 343
F.2d 943, 949 (Ct. Cl. 1965). Nonetheless, defendant asserts that the court should reinterpret
§ 1500 as creating a jurisdictional bar regardless of the timing of the filings. Plaintiffs counter
that the court cannot disregard the binding precedent.

As defendant acknowledges, its argument is foreclosed by binding precedent: The
jurisdictional limitation in § 1500 does not apply in this case because plaintiffs filed their
complaint in this court before seeking redress in other jurisdictions. See Tecon, 343 F.2d at 949;
see also Res. Invs., Inc. v. United States, 785 F.3d 660, 670 (Fed. Cir. 2015) (noting that Tecon
remains good law in this circuit). Compare Class Action Compl. (filed July 10, 2013), with
Class Action Compl., Cacciapelle v. Fed. Nat’l Mortg. Ass’n, No. 13-1149 (D.D.C. July 29,
2013). Although defendant urges the court to reconsider the rule set forth in Tecon, the court
cannot do so because it is bound by that precedent. See Coltec Indus., Inc. v. United States, 454
F.3d 1340, 1353 (Fed. Cir. 2006) (“There can be no question that the Court of Federal Claims is
required to follow the precedent of . . . our court, and our predecessor court, the Court of
Claims.”). Plaintiffs’ claims, therefore, are not barred by § 1500.

B. Plaintiffs have asserted claims against the United States.

The court next considers whether plaintiffs have asserted claims against the United
States, a necessary element of jurisdiction in the Court of Federal Claims. As set forth in their
amended complaint, plaintiffs premise two of their claims on actions taken by the FHFA-C and
Treasury. Specifically, the Fifth Amendment takings claim in count I and the illegal-exaction
claim in count III both reference the FHFA-C and Treasury. 16 1st Am. Compl. ¶¶ 129, 145.

16
Although plaintiffs use “FHFA” in counts I and III of their amended complaint, 1st
Am. Compl. ¶¶ 129, 145, the basis of those counts—the Net Worth Sweep—was executed by the
FHFA in its role as conservator, see supra Section I.A.7 (describing the genesis and execution of
the Net Worth Sweep); see also Pls.’ Omnibus Resp. to Def.’s Mot. to Dismiss 10-13, 19-21
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Plaintiffs’ breach-of-contract and fiduciary duty claims (counts IV, V, and VI) rely on the duties
and responsibilities allegedly assumed by the FHFA-C. Id. ¶¶ 153, 161, 167. Finally, the
judicial takings claim in count II is premised on actions taken by any court, and in particular the
United States Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”), which
would impede plaintiffs from pursuing derivative claims on behalf of the Enterprises, or from
pursuing injunctive or declaratory relief, in response to the Net Worth Sweep. Id. ¶¶ 136-137.
Because the judicial takings claim does not concern the actions of Treasury or the FHFA-C, it
will be addressed separately in Section IV.C, infra.

Defendant argues that the court lacks jurisdiction to consider any claims premised on
the FHFA-C’s or Treasury’s conduct. In response, plaintiffs contend that they have asserted
claims against the government because (1) Treasury was involved in the challenged conduct,
(2) the FHFA-C exercised nontraditional conservator powers such that its actions must be
deemed those of the government, (3) the FHFA-C was coerced by the government, (4) the
FHFA-C was the government’s agent, and (5) the FHFA-C is a government actor. The court
addresses each contention in turn. 17

1. The court cannot exercise jurisdiction based on allegations of Treasury’s involvement.

Plaintiffs initially argue that the court has jurisdiction over their Fifth Amendment
takings and illegal-exaction claims because they have alleged the involvement of Treasury—
indisputably a part of the federal government—in the action underlying these claims, i.e., the Net
Worth Sweep. Defendant counters that Treasury alone could not have implemented the PSPA
Amendments, and Treasury’s role as a counterparty to the voluntary agreement with the
Enterprises is not sufficient to establish jurisdiction over plaintiffs’ takings claims. Defendant
further asserts that the court’s order allowing jurisdictional discovery reflects that plaintiffs’
allegations concerning Treasury alone are insufficient to confer jurisdiction.

The parties’ dispute on the import of allegations concerning Treasury is ultimately
immaterial in light of the court’s determination, explained below, that the FHFA-C—the other
party involved in the PSPA Amendments—is the United States. Nonetheless, the court notes, as
defendant asserts, that it implicitly acknowledged in its February 26, 2014 discovery order,
issued in Fairholme and related cases, that the allegations concerning Treasury alone were
insufficient to support jurisdiction. In that order, the court permitted the plaintiffs in those
related cases to conduct fact discovery on whether the FHFA-C was “the ‘United States’ for
purposes of the Tucker Act.” Fairholme Funds, Inc. v. United States, 114 Fed. Cl. 718, 721
(2014). The aforementioned discovery would have been unnecessary (and unwarranted) if, as
plaintiffs assert, the court has jurisdiction over plaintiffs’ claims based on their allegations
concerning Treasury.

(arguing that actions taken by Treasury and the FHFA-C were actions taken by the United
States).
17
The remainder of this section, Section IV.B, is almost identical to the corresponding
jurisdictional analysis section of Fairholme II. 147 Fed. Cl. at 25-34.
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2. The FHFA-C exercised its statutory conservatorship powers when it approved the PSPA
Amendments for each Enterprise.

Plaintiffs next argue that the FHFA-C must be considered the United States because the
FHFA-C acted beyond its authority when it expropriated the Enterprises’ assets for the
government’s benefit. Defendant counters that, irrespective of the “expropriation” label assigned
by plaintiffs, the FHFA-C’s execution of the PSPA Amendments was consistent with its
statutory authority and purpose.

The FHFA-C is the United States for any claims challenging the conservator’s conduct
that exceeded the applicable statutory authority. Cf. Slattery v. United States, 583 F.3d 800,
827-28 (Fed. Cir. 2009) (noting that the Federal Deposit Insurance Corporation (“FDIC”) as
receiver is the United States for claims premised on allegations that the receiver failed to
distribute funds as required by statute), modified, 635 F.3d 1298 (Fed. Cir. 2011) (en banc).
Thus, resolving the parties’ dispute requires determining whether the FHFA-C had statutory
authority to enter into the PSPA Amendments. The answer depends on HERA. Under HERA,
the FHFA-C has exceptionally broad powers. See Jacobs v. Fed. Hous. Fin. Agency, 908 F.3d
884, 889 (3d Cir. 2018) (noting that the FHFA-C’s “powers are many and mostly
discretionary”); see also Saxton v. Fed. Hous. Fin. Agency, 901 F.3d 954, 960 (8th Cir. 2018)
(Stras, J., concurring) (“Congress came close to handing a blank check to the FHFA.”). The
FHFA-C wields complete control over the Enterprises; it succeeds to the rights and powers of the
Enterprises as well as their shareholders, directors, and officers. 12 U.S.C. § 4617(b)(2)(A)(i).
The FHFA-C may (but is not required to) use that power to, among other things, further the
FHFA’s interests, carry on the Enterprises’ business, preserve and conserve the Enterprises’
assets, and place the Enterprises in sound and solvent condition. 18 Id. § 4617(b)(2)(B), (D), (J)
(noting actions that the FHFA-C “may” undertake); see also Roberts v. Fed. Hous. Fin. Agency,
889 F.3d 397, 403 (7th Cir. 2018) (explaining that Congress’s use of “may” reflects that the
FHFA-C has discretionary authority).

Congress’s broad grant of power to the FHFA-C colors the analysis of whether the
FHFA-C became the United States by approving the PSPA Amendments. As an initial matter,
plaintiffs’ contention that the FHFA-C exceeded its statutory authority by expropriating the
Enterprises’ assets for the government is unavailing because the FHFA-C is authorized to act in
its own interest without regard for the effects on the Enterprises. Moreover, the FHFA-C’s
approval of the PSPA Amendments is in accordance with its authority to operate the Enterprises
and preserve their assets. As operating businesses, the Enterprises needed to “secure ongoing

18
The conclusion that the FHFA-C has some discretionary powers is buttressed by the
fact that Congress stated the conservator “may” do certain things but “shall” do others. See
Huston v. United States, 956 F.2d 259, 262 (Fed. Cir. 1992) (“When, within the same statute,
Congress uses both ‘shall’ and ‘may,’ it is differentiating between mandatory and discretionary
tasks.”). Compare 12 U.S.C. § 4617(b)(2)(D) (“The [FHFA] may, as conservator, take such
action as may be . . . necessary to put the regulated entity in sound and solvent condition . . . .”
(emphasis added)), with id. § 4617(b)(14)(A) (“The [FHFA] as conservator or receiver shall
. . . maintain a full accounting of each conservatorship and receivership or other disposition of
a[n Enterprise] in default.” (emphasis added)).

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access to capital, manage debt loads, control cash flow, and decide whether and how to pay
dividends.” Jacobs, 908 F.3d at 890. The FHFA-C achieved those goals with the PSPA
Amendments, which are, “in essence[,] a renegotiation of an existing lending agreement.” Id.
By agreeing to the PSPA Amendments, the FHFA-C eliminated the risk of the Enterprises
consuming all of their financial lifeline (Treasury’s funding commitment) through cash-dividend
payments or entering a cycle of an ever-increasing liquidation preference. 19 Roberts, 889 F.3d at
404-05; see also Jacobs, 908 F.3d at 890 (noting that the Enterprises increased their future
obligations and reduced their available funds by drawing funds from Treasury to pay the
dividend); Saxton, 901 F.3d at 962 (Callas, J., concurring) (“Crushing dividend payments could
have led the entities toward insolvency.”). The FHFA-C, with the amendments, also protected
the Enterprises against future financial downturns. 20 See Jacobs, 908 F.3d at 890 (“The [PSPA
Amendments] insured the [Enterprises] against downturns and ‘death spirals,’ preventing
unpayable dividends from ratcheting up their debt loads to unsustainable levels.”); see also
Roberts, 889 F.3d at 405 (noting that the Enterprises fared better in some years and worse in
other years under the terms of the PSPA Amendments as compared to the previous agreements).

In light of the above, the FHFA-C’s execution of the PSPA Amendment for each
Enterprise was a “quintessential conservatorship task[]” that is appropriate under HERA. Perry
II, 864 F.3d at 607. Although “stockholders no doubt disagree about the necessity and fiscal
wisdom of the [PSPA Amendments] . . . , Congress could not have been clearer about leaving
those hard operational calls to the FHFA’s managerial judgment.” Id. In sum, the court joins the
growing consensus that the FHFA-C acted within its statutory authority when it entered into the
PSPA Amendments. See Jacobs, 908 F.3d at 894; Saxton, 901 F.3d at 963; Roberts, 889 F.3d at
403; Robinson v. Fed. Hous. Fin. Agency, 876 F.3d 220, 231 (6th Cir. 2017); Perry II, 864 F.3d
at 606. But see Collins v. Mnuchin, 938 F.3d 553, 582 (5th Cir. 2019) (en banc) (holding, over
the dissent of seven judges, that the plaintiffs stated a plausible claim that the FHFA-C exceeded
its statutory authority), petitions for cert. filed, 88 U.S.L.W. 3114 (U.S. Sept. 25, 2019) (No.
19-422), 88 U.S.L.W. 3146 (U.S. Oct. 25, 2019) (No. 19-563). Thus, plaintiffs’ theory that the
FHFA-C is the United States because the FHFA-C exceeded its statutory authority is not
persuasive.

3. The FHFA-C was not coerced into approving the PSPA Amendments.

19
If, under the terms of the PSPAs before the PSPA Amendments, the Enterprises chose
to make their dividend payment by increasing Treasury’s liquidation preference, the future
dividends would be more expensive because the dividends were a set percentage of the
liquidation preference. Making future dividends more expensive would, in turn, increase the
likelihood that the Enterprises would again need to rely on increasing Treasury’s liquidation
preference rather than making a cash payment. The end result is a cycle in which the Enterprises
continue to increase Treasury’s liquidation preference.
20
Although the FHFA-C anticipated continued profitability for the Enterprises in the near
term, this fact does not undermine the propriety of the PSPA Amendments because ensuring the
continued functioning of a company includes guarding against long-term risks. These long-term
outlooks are especially important given the indefinite nature of the FHFA-C’s role.

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 Plaintiffs also argue that the FHFA-C is the United States because the FHFA-C was
coerced into approving the PSPA Amendments by Treasury. Plaintiffs assert that Treasury
coerced the FHFA-C into approving the PSPA Amendments because (1) Treasury drove the
amendment process, (2) Treasury did not plan for the possibility that the FHFA-C would reject
the amendments, and (3) the FHFA-C did not propose any alternatives to the amendments. In
the alternative, plaintiffs contend that the FHFA, in its role as regulator, coerced the FHFA-C to
approve the amendments because the two entities were not acting independently. Specifically,
plaintiffs aver that the lines between the FHFA and the FHFA-C were blurred because (1) the
FHFA’s consent was required for any dividend payment and (2) the FHFA-C approved the
amendments to achieve governmental objectives.

Defendant counters that the FHFA-C was not coerced by Treasury because the FHFA-C
had a choice of whether to accept or reject the PSPA Amendments. Defendant asserts that there
is no coercion if a party has a choice, regardless of however difficult refusal of a particular
option may be. With respect to Treasury’s involvement, defendant contends that plaintiffs fail to
proffer any allegations that Treasury required the FHFA-C to enter into the agreements against
its will. Defendant further asserts that other courts have declined to conclude that the FHFA-C
felt compelled to follow Treasury based on allegations that Treasury invented the amendment
concept or led the process. Defendant also argues that the FHFA-C was not coerced by the
FHFA in the latter’s role as regulator because there were clear statutory lines delineating the
FHFA’s authority in each role. 21

a. The court has jurisdiction over claims based on actions that resulted from government
coercion.

The court has jurisdiction over claims premised on the FHFA-C’s actions if Treasury’s
“influence over the” FHFA-C “was coercive rather than merely persuasive.” A & D Auto Sales,
Inc. v. United States, 748 F.3d 1142, 1154 (Fed. Cir. 2014). The line between coercion and
persuasion “is highly fact-specific.” Id. Precedent from the United States Court of Appeals for
the Federal Circuit (“Federal Circuit”) frames the contours of the inquiry. In Langenegger v.
United States, the plaintiffs pleaded that the United States coerced El Salvador by threatening to
withhold financial and military assistance unless El Salvador passed legislation expropriating
private property. 756 F.2d 1565, 1567 (Fed. Cir. 1985). The Federal Circuit disagreed with the
plaintiffs’ characterization of the threats because “[d]iplomatic persuasion among allies is a
common occurrence, and as a matter of law, cannot be deemed sufficiently irresistible to warrant
a finding of [coercion], however difficult refusal may be as a practical matter.” Id. at 1572.
Similarly, the Federal Circuit concluded in B & G Enterprises, Ltd. v. United States that
California was not coerced into enacting restrictions on smoking, notwithstanding the federal
government conditioning grants on states enacting such limits. 220 F.3d 1318, 1321, 1325 (Fed.
Cir. 2000); see also A & D Auto, 748 F.3d at 1155 (explaining that “coercion was not
established” in B & G). The court explained that “it was California’s decision to create [the]
restrictions[;] . . . Congress may have provided the bait, but California decided to bite.” B & G,

21
Defendant frames its argument as addressing whether the FHFA-C acted as an agent
for the FHFA in its role as regulator, but defendant is responding to plaintiffs’ coercion
argument.

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220 F.3d at 1325. In A & D Auto, the Federal Circuit addressed coercion in the context of the
government allegedly conditioning vital financial assistance to bankrupt automobile companies
on those companies terminating some of their franchise agreements. 748 F.3d at 1145. Unable
to resolve the issue due to gaps in the record, the court noted in dicta that a relevant
consideration was “whether the government financing was essential to the companies.” Id.

A common thread runs through the Federal Circuit’s decisions: the importance of choice.
A nonfederal actor is not coerced when it can choose to go against the wishes of the United
States, even if doing so will cause significant hardships, Langenegger, 756 F.2d at 1567, or result
in a loss of prospective benefits, id.; B & G, 220 F.3d at 1325. But there is no choice, in any
meaningful sense, when there is only one realistic option. A & D Auto, 748 F.3d at 1145 (noting
the importance of considering whether the companies could survive without accepting the
government’s offer); cf. Nevada v. Skinner, 884 F.2d 445, 448 (9th Cir. 1989) (noting that, with
respect to Congress’s spending powers, “the federal government may not, at least in certain
circumstances, condition the receipt of funds in such a way as to leave the state with no practical
alternative but to comply with federal restrictions”). Put differently, the nonfederal actor must
make a voluntary decision, which it cannot do if there is only one realistic option. See BMR
Gold Corp. v. United States, 41 Fed. Cl. 277, 282 (1998) (finding that the “the necessary element
of coerciveness” for a taking was missing because the plaintiff granted the military permission to
cross his land); accord Henn v. Nat’l Geographic Soc., 819 F.2d 824, 826 (7th Cir. 1987) (noting
that hard choices remain voluntary when they are not akin to “Don Corleone’s ‘[m]ake him an
offer he can’t refuse’”). In sum, the FHFA-C was not coerced if it voluntarily chose to enter into
the PSPA Amendments.

b. Plaintiffs have not established that Treasury coerced the FHFA-C into approving the
PSPA Amendments.

In support of their contention that Treasury coerced the FHFA-C into approving the
PSPA Amendments, plaintiffs allege that Treasury proposed the terms of the amendments, and
the FHFA-C did not make a counteroffer. Those allegations are not enough to establish
coercion. First, given the Enterprises’ improving financial condition and Treasury’s existing
funding commitment, the FHFA-C’s decision to execute the PSPA Amendments was voluntary
because it could reject the deals without imperiling the Enterprises. The facts here, therefore, are
diametrically opposed to the circumstances in A & D Auto that the Federal Circuit suggested
may support coercion because the automobile dealers faced insolvency if they did not accede to
the financing terms. See 748 F.3d at 1145. Second, the FHFA-C’s lack of protestation is
informative. “[T]he very fact that FHFA[-C] itself [did] not br[ing] suit to enjoin the Treasury
from the alleged coercion it was subjected to suggest[s] that FHFA[-C] was an independent,
willing participant in its negotiations with the Treasury.” Robinson v. Fed. Hous. Fin. Agency,
223 F. Supp. 3d 659, 668 (E.D. Ky. 2016), aff’d, 876 F.3d at 220. The court’s conclusion is
bolstered by the fact that another court has held that materially similar allegations to those at
issue here did not “come close to a reasonable inference that [the] FHFA[-C] considered itself
bound to do whatever Treasury ordered.” Perry Capital LLC v. Lew, 70 F. Supp. 3d 208, 226
(D.D.C. 2014) (“Perry I”), aff’d in part, rev’d in part sub nom. Perry II, 864 F.3d at 591. This
court agrees with the reasoning in Perry I: the PSPA Amendments were executed by

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sophisticated parties, and many agreements arise from a party’s proposal being accepted by the
other party. Id.

c. Plaintiffs have not established that the FHFA coerced the FHFA-C into approving the
PSPA Amendments.

Plaintiffs also have not alleged facts reflecting that the FHFA coerced the FHFA-C into
agreeing to the PSPA Amendments. As an initial matter, plaintiffs have not alleged that the
FHFA unduly influenced the FHFA-C’s decision-making process with respect to the proposed
agreements. They merely allege that the FHFA did not silo its regulatory and conservator roles.
The lack of a firewall (without more), however, does not indicate that the FHFA deprived the
FHFA-C of meaningful choice. Moreover, plaintiffs’ focus on the FHFA-C allegedly pursuing
government objectives when it approved the PSPA Amendments is a red herring. The purported
pursuit of government objectives is not germane to the coercion inquiry because it does not
suggest that the FHFA-C lacked any choice in the matter. Even if it was relevant to coercion (or
to some other theory for jurisdiction), plaintiffs would not prevail because Congress permitted
the FHFA-C to act in the interests of the government. See 12 U.S.C. § 4617(b)(2)(J) (allowing
the FHFA-C to “take any action” that “is in the interests of the [Enterprises] or the [FHFA]”).
The mere pursuit of government objectives, therefore, would not reflect a blending of any roles
but rather the FHFA-C using powers afforded to it by Congress.

In conclusion, plaintiffs have not established that the FHFA-C was coerced into
approving the PSPA Amendments by Treasury or the FHFA.

4. The FHFA-C is not Treasury’s agent.

Plaintiffs further argue that the FHFA-C’s actions are attributable to the United States
because the FHFA-C is Treasury’s agent. Plaintiffs assert that the FHFA-C is a government
agent because (1) Treasury, by virtue of the PSPAs, had a major role in conservator decisions;
(2) the FHFA-C approved the PSPA Amendments for the taxpayers’ benefit; and (3) the FHFA-
C could not have approved the amendments absent statutory authority. Defendant counters that
plaintiffs have not pleaded an agency relationship because Treasury does not control the FHFA-
C’s operations and is statutorily barred from exercising such control.

The United States is subject to claims in this court for the actions of a third party “if [that]
party is acting as the government’s agent . . . .” A & D Auto, 748 F.3d at 1154. “An essential
element of agency is the principal’s right to control the agent’s actions.” Hollingsworth v. Perry,
570 U.S. 693, 713 (2013) (quoting Restatement (Third) of Agency § 1.01 cmt. f (Am. Law. Inst.
2005)); accord O’Neill v. Dep’t of Hous. & Urban Dev., 220 F.3d 1354, 1360 (Fed. Cir. 2000)
(acknowledging that the common-law meaning of agency requires, among other things, that the
principal has the right to control the agent’s conduct); see also Preseault v. United States, 100
F.3d 1525, 1537 (Fed. Cir. 1996) (concluding that a state’s actions were attributable to the
United States when the state acted pursuant to the Interstate Commerce Commission’s order);
Hendler v. United States, 952 F.2d 1364, 1378-79 (Fed. Cir. 1991) (attributing a state’s actions
to the United States when the state acted under authority flowing from an Environmental
Protection Agency order). The facts, as alleged, do not reflect that Treasury controlled the

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FHFA-C’s actions because Congress explicitly precluded the FHFA-C from being subservient to
another agency, 12 U.S.C. § 4617(a)(7) (providing that the FHFA-C cannot be subject to the
“direction or supervision” of any other agency), and plaintiffs have not alleged facts indicating
that Treasury exercised such control notwithstanding the statutory bar. Although the FHFA-C
was required by the PSPAs to obtain Treasury’s approval for certain actions (e.g., issuing
dividends), the PSPAs did not provide Treasury with the right to unilaterally order amendments.
Moreover, plaintiffs describe an FHFA-C that made decisions independently, even though it
shared Treasury’s goals: Treasury and the FHFA-C “act[ed] in concert”; the FHFA-C, like
Treasury, “also determined to ‘wind down’” the Enterprises; and Treasury and the FHFA-C
agreed on specific terms of the PSPS Amendments. 1st Am. Compl. ¶¶ 56, 62, 76. Simply
stated, plaintiffs have not alleged facts establishing that Treasury exercised the control over the
FHFA-C that is necessary for an agency relationship.

5. The FHFA-C is the United States because the FHFA-C retains the FHFA’s
governmental character.

Finally, plaintiffs contend that the FHFA-C is itself a government actor. Defendant
disagrees. First, relying on O’Melveny & Myers v. FDIC, 412 U.S. 79 (1994), defendant argues
that the FHFA-C is not the United States because the FHFA-C stands in the Enterprises’ shoes.
Specifically, defendant asserts that Congress’s decision to have the FHFA-C succeed to the
Enterprises’ rights reflects that Congress intended that the FHFA-C step into the Enterprises’
private shoes and shed its government character. Second, defendant argues that the FHFA-C’s
exercise of nontraditional conservatorship powers is immaterial because Congress can expand
the conservator’s role without transforming it into a government actor. Third, defendant argues
that the Enterprises are not government instrumentalities—which means that the FHFA did not
step into the shoes of a government actor when it became the Enterprises’ conservator—because
the government does not retain permanent authority to appoint the Enterprises’ directors.
Defendant contends that the government only has temporary, albeit indefinite, control over the
Enterprises because the conservatorships are not permanent.

In response, plaintiffs dispute the premise of defendant’s argument that, pursuant to
O’Melveny, the FHFA becomes the Enterprises when acting as conservator. Plaintiffs assert that
O’Melveny does not concern whether an entity is the United States or, if the decision can be read
as addressing that issue, is distinguishable because it concerns receivers or is limited to
conservators exercising traditional conservator powers. Second, plaintiffs argue that the FHFA
has not shed its government status, even if it has stepped into the Enterprises’ shoes, when it acts
as conservator. Specifically, plaintiffs assert that the FHFA-C retains the FHFA’s government
status because (1) the FHFA-C has acted beyond the traditional conservator powers and
(2) Congress expressed its intention for that result by precluding the conservator from being
subject to the supervision of “any other agency.” 12 U.S.C. § 4617 (emphasis added). Third,
plaintiffs argue that their claims are against the United States, even if the FHFA-C steps into the
shoes of the Enterprises, because the Enterprises are government instrumentalities.

In short, the parties disagree over the government status of the FHFA-C. The FHFA is
indisputably the United States, see id. § 4511(a) (establishing the FHFA as an “independent
agency of the Federal Government”), and so the only question is whether the FHFA sheds that

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status when it acts as conservator. In other jurisdictions, courts have held (with near unanimity)
that the FHFA loses its government status pursuant to O’Melveny. In O’Melveny, the United
States Supreme Court (“Supreme Court”) explained that the FDIC “steps into [the] shoes” of a
private company when acting as receiver and sheds its government character because the FDIC
“succeed[s] to . . . all rights, titles, powers, and privileges of the [entity in receivership] . . . .”
512 U.S. at 86 (quoting 12 U.S.C. § 1821(d)(2)(A)(i)); see also AG Route Seven P’ship v.
United States, 57 Fed. Cl. 521, 534 (2003) (citing O’Melveny for the proposition that the FDIC
as receiver is a “private party, and not the government per se” because it “is merely standing in
the shoes . . . of the defunct thrift”). The courts drawing from O’Melveny have concluded that
the FHFA steps into the shoes of the Enterprises and sheds its government character when acting
as conservator because Congress provided that the FHFA-C exercises the same rights with
respect to the Enterprises as Congress granted to the FDIC as receiver. See, e.g., Herron v.
Fannie Mae, 861 F.3d 160, 169 (D.C. Cir. 2017); cf. Ameristar Fin. Servicing Co. v. United
States, 75 Fed. Cl. 807, 811 (2007) (concluding, with respect to the FDIC, that the step-into-the-
shoes principle set forth in O’Melveny also applies in the conservator context).

a. The FHFA-C is not the United States if the FHFA steps into the Enterprises’ shoes when
acting as conservator.

Plaintiffs initially contend that defendant’s reliance on O’Melveny is a red herring
because, assuming that O’Melveny applies, the FHFA-C is the United States even though it steps
into the Enterprises’ shoes. Specifically, plaintiffs assert that the FHFA-C is the United States
under the facts alleged because (1) the FHFA-C exercises nontraditional conservator powers,
(2) Congress intended that the FHFA-C retain the FHFA’s government status, and (3) the
FHFA-C steps into the shoes of a government instrumentality. The court addresses each
assertion in turn.

First, the FHFA-C did not become a government actor by exercising powers beyond
those traditionally afforded to a conservator. As a threshold matter, plaintiffs have not alleged
facts reflecting that the FHFA-C used such powers; the execution of the PSPA Amendments was
a “quintessential conservatorship” function. Perry II, 864 F.3d at 607; see also supra Section
IV.B.2 (discussing the FHFA-C’s exercise of its powers). More importantly, however, plaintiffs
would not prevail even if the FHFA-C exercised nontraditional conservatorship powers in
agreeing to the PSPA Amendments. When this argument was pressed in other jurisdictions, it
was rejected:

It may well be true that FHFA’s actions would not be allowed under traditional
principles of corporate or conservatorship law, but it does not follow that those
actions are therefore governmental. Legislatures can expand conservatorship and
similar powers without transforming conservators into agents of the
government. Cf. Pegram v. Herdrich, 530 U.S. 211, 225-26 (2000) (explaining
that the Employee Retirement Income Security Act altered the common law of
trusts to permit certain actions that would otherwise violate the trustee’s fiduciary
duties).

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Bhatti v. Fed. Hous. Fin. Agency, 332 F. Supp. 3d 1206, 1226 (D. Minn. 2018) (footnote
omitted). The court agrees with that reasoning, and plaintiffs provide no authority that supports
a contrary result. Although plaintiffs state that the D.C. Circuit’s decision in Waterview
Management Co. v. FDIC, 105 F.3d 696 (D.C. Cir. 1997), supports their position, they are
mistaken. Waterview is not on point because the D.C. Circuit did not hold that a conservator
is per se the United States when acting pursuant to a congressional grant of broad powers.
Rather, it held that, as a matter of statutory interpretation, the existence of a receivership did not
preempt a prereceivership contract. Id. at 699-702.

Second, Congress’s instruction that the FHFA-C is not subject to the supervision of any
other agency does not reflect congressional intent for the FHFA to retain its government status
when acting as conservator even if it steps into the shoes of the Enterprises. Because the court
only reaches this issue by assuming that O’Melveny is instructive, the statutory language
concerning supervision of the FHFA-C does not support a finding of jurisdiction because the
same language is present in the statute that the Supreme Court addressed in O’Melveny. See 512
U.S. at 85-86 (discussing 12 U.S.C. § 1821). Compare 12 U.S.C. § 1821(c)(3)(C) (“When acting
as conservator or receiver . . . , [the FDIC] shall not be subject to the direction or supervision of
any other agency or department of the United States or any State in the exercise of the [FDIC’s]
rights, powers, and privileges.”), with id. § 4617(a)(7) (“When acting as conservator or receiver,
the [FHFA] shall not be subject to the direction or supervision of any other agency of the United
States or any State in the exercise of the rights, powers, and privileges of the [FHFA].”).

The third argument advanced by plaintiffs—that the FHFA-C is the United States
because it steps into the shoes of a government instrumentality—also is not meritorious. A
government instrumentality’s actions are attributable to the United States for purposes of the
Tucker Act. See Corr v. Metro. Wash. Airports Auth., 702 F.3d 1334, 1336 (Fed. Cir. 2012)
(noting that a claim against a government instrumentality is a claim against the United States for
purposes of the Little Tucker Act, 28 U.S.C. § 1346(a)(2)). The Supreme Court established
in Lebron v. National Railroad Passenger Corp. that a company is a government instrumentality
when (1) it is created by “special law,” (2) it is established “for the furtherance of governmental
objectives,” and (3) the federal government “retains for itself permanent authority to appoint a
majority of the [company’s] directors . . . .” 513 U.S. 374, 400 (1995). After Lebron, the
Supreme Court clarified that, for purposes of the instrumentality test, “the practical reality of
federal control and supervision prevails over Congress’ disclaimer of [the entity’s] governmental
status.” Dep’t of Transp. v. Ass’n of Am. R.Rs., 575 U.S. 43, 55 (2015).

There is no dispute that the Enterprises satisfy the first two prongs of the Lebron test;
Congress created the Enterprises by special law to achieve governmental objectives related to the
housing market. See 12 U.S.C. § 4501; see also Herron, 861 F.3d at 167 (addressing claims
involving Fannie and noting that “[t]his case satisfies the first two Lebron criteria”); Am.
Bankers Mortg. Corp. v. Fed. Home Loan Mortg. Corp., 75 F.3d 1401, 1406-07 (9th Cir. 1996)
(reaching same conclusion for Freddie). The status of the Enterprises, therefore, turns on the
third prong: whether the government retains permanent authority to appoint a majority of the
Enterprises’ directors.

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 The Federal Circuit has not addressed the government-control prong with respect to the
Enterprises, but courts in other jurisdictions have done so. Those decisions provide a starting
point for the court. It appears that every court to consider the issue, with the exception of one
district court, has held that the government does not exercise permanent control over the
Enterprises. Sisti v. Fed. Hous. Fin. Agency, 324 F. Supp. 3d 273, 279 (D.R.I. 2018)
(concluding that the government retains permanent authority to control the Enterprises after
noting that “[t]he non-controlling precedent to date” has reached the opposite conclusion). Most
of the courts that concluded that the government lacks permanent control over the Enterprises
issued their decisions before the Supreme Court in Association of American Railroads
emphasized the importance of evaluating the practical reality over nomenclature, and the other
courts focused on the statutory purpose for the conservatorships rather than the Enterprises’
actual situation. E.g., Herron, 861 F.3d at 169 (relying on the notion that a conservatorship is
fundamentally temporary). In other words, the courts adopting the prevailing view considered
the issue of control without regard for the Supreme Court’s instruction to focus on the practical
reality. The court, therefore, does not find those decisions persuasive.

The crux of the inquiry, as the Supreme Court mandates, is on the practical reality of the
government’s control over the Enterprises. Ass’n of Am. R.Rs., 575 U.S. at 55. It is of no
import that Congress nominally authorized a facially temporary conservatorship, see 12 U.S.C.
§ 4617(a) (permitting the FHFA to act as conservator to “reorganiz[e]” or “rehabilitat[e]” the
Enterprises), because Congress’s disclaimers are no substitute for the court’s obligation to assess
the government’s actual control, Ass’n of Am. R.Rs., 575 U.S. at 55. The court focuses on the
length of the conservatorship because the FHFA-C wields complete control over the Enterprises
so long as they are in conservatorship. See generally 12 U.S.C. § 4617.

Plaintiffs allege that the Enterprises will remain undercapitalized—and thus subject to
conservatorship pursuant to 12 U.S.C. § 4617(a)(3)(J)—until the PSPAs, in their current form,
are changed because the Enterprises cannot accumulate any capital under the existing terms of
the PSPAs. Although the PSPAs could be further amended, plaintiffs’ allegations reflect that
Treasury and the FHFA-C will not do so because the purpose of the PSPA Amendments is to
prevent the Enterprises from accumulating the necessary capital to become independent
companies. Plaintiffs, in short, have alleged that the government intended, and has taken steps to
ensure, that the conservatorships never end. Those facts, viewed in isolation, would support a
conclusion that the practical reality is that the Enterprises are under permanent government
control. The court’s inquiry, however, is not limited to plaintiffs’ allegations because it has
taken judicial notice of relevant facts reflecting that the status quo has changed: The Treasury
Secretary and the FHFA Director are now both committed to ending the conservatorships.
Moreover, the idea that the Enterprises are permanently subject to government control because
they can never accumulate the capital needed to exit the conservatorships is undermined by
recent developments. Indeed, Treasury proposed amending the Net Worth Sweep to allow the
Enterprises to retain more capital, and the FHFA Director testified during his confirmation
hearing that, if confirmed, he would seek to increase the amount of capital that the Enterprises

-22-
retain. Simply stated, the practical reality is that the Enterprises are not subject to permanent
government control because the relevant parties are working to terminate the conservatorships. 22

In sum, the FHFA-C does not become the United States if the FHFA steps into the
Enterprises’ shoes when serving as conservator.

b. The FHFA-C retains the FHFA’s government character because the FHFA-C does not
step into the Enterprises’ shoes.

The key inquiry, therefore, is whether the FHFA steps into the shoes of the Enterprises
when acting as conservator. Defendant argues that the FHFA-C sheds its government character
and assumes the identity of the Enterprises based on the reasoning in O’Melveny. Defendant’s
reliance on O’Melveny is misplaced. O’Melveny concerns a receiver stepping into the shoes of a
failed bank. 512 U.S. at 86. The roles of a conservator and receiver are meaningfully different.
In a recent decision, the United States District Court for the District of Rhode Island artfully
explained the differences and their import for assessing whether the FHFA-C is the government:

The O’Melveny Court held that FDIC, when acting as a receiver for a private
entity, steps into the shoes of that private entity for state law claims. This holding
makes sense given the purpose of receivership: “to preserve a company’s assets,
for the benefit of creditors, in the face of bankruptcy.” When FDIC is appointed
receiver, it must dispose of the received entity’s assets, resolving obligations and
claims made against the entity. Notably, “[i]n receivership, the receiver owes
fiduciary duties to the creditors, which the corporation would otherwise owe to
creditors during a period of insolvency.” It logically follows, then, that the
receiver steps into the shoes of the private entity, because it assumes the fiduciary
duties of that entity.

Conservatorship, in contrast, serves a different function. FHFA has
described the purpose of conservatorship is “to establish control and oversight of
a company to put it in a sound and solvent condition.” Conservators, unlike
receivers, have a fiduciary duty running to the corporation itself.

22
Plaintiffs may disagree with the court’s conclusion that events occurring after the
PSPA Amendments are relevant to determining whether the Enterprises were under permanent
government control during the events discussed in plaintiffs’ complaint. Even if the court agreed
that events occurring after the PSPA Amendments are not germane, plaintiffs still would not
prevail because they allege that the conservatorships began as temporary measures. See 1st Am.
Compl. ¶¶ 28 (noting that FHFA publicly announced that the conservatorships would be
terminated once the Enterprises were stabilized), 29 (noting that, when the conservatorships were
imposed, the FHFA announced that the Enterprises would be returned to their shareholders, once
stabilized), 55 (noting that FHFA’s director had “vowed” in 2008 that the Enterprises would exit
conservatorship and return to normal operations). Thus, the Enterprises were not under
permanent government control before the PSPA Amendments.

-23-
 This is “critically distinct” from the fiduciary duties owed as a receiver—
the receiver does indeed “step into the shoes” of the entity by assuming the
fiduciary duties of the entity, but the conservator does not: it remains distinct, and
rather owes a duty to the entity. Given the difference in fiduciary duties,
O’Melveny’s “steps into the shoes” holding makes sense in the context of
receivership, but not in the context of conservatorship.

Sisti, 324 F. Supp. 3d at 282-83 (citations and footnotes omitted). See generally Brian Taylor
Goldman, The Indefinite Conservatorship of Fannie Mae and Freddie Mac Is State-Action, 17 J.
Bus. & Sec. L. 11, 23-30 (2016). The district court, relying on the above analysis, declined to
treat the FHFA-C as a private actor. Sisti, 324 F. Supp. 3d at 284. This court agrees with the
reasoning and conclusion in Sisti: The FHFA does not shed its government character when
acting as conservator because it does not step into the shoes of the Enterprises. Otherwise stated,
the FHFA-C is the United States because it retains the FHFA’s government character. Plaintiffs’
claims, therefore, are against the United States for purposes of the Tucker Act.

C. The court lacks jurisdiction over plaintiffs’ judicial takings claim.

The court now turns to defendant’s challenge to the plausibility of plaintiffs’ judicial
takings claim, which, in the court’s view, raises a jurisdictional question. Plaintiffs allege in
count II of their amended complaint that they possess a property interest in certain causes of
action which were foreclosed by the D.C. Circuit’s interpretation of HERA. As explained below,
however, there is no jurisdiction in this court over plaintiffs’ takings claim that collaterally
attacks the rulings of another federal court.

In their amended complaint, plaintiffs allege that they possess a property interest in
shareholder derivative claims, as well as claims presenting requests for declaratory or injunctive
relief, regarding the Net Worth Sweep: “As holders of Preferred Stock, Plaintiffs had the right to
protect their investment by filing certain causes of action, including derivative lawsuits and
claims seeking injunctive and declaratory relief.” 1st Am. Compl. ¶ 134. According to
plaintiffs, this property right is “protected by the Fifth Amendment.” Id. ¶ 135. Plaintiffs further
argue that in Perry II the D.C. Circuit’s interpretation of HERA—so as to block such relief—
took their property right in these causes of action. Id. ¶¶ 91, 136. Plaintiffs also argue that any
other court ruling that has a similar effect on their causes of action would constitute a taking. Id.
¶ 137.

Plaintiffs acknowledge that their petition for certiorari challenging Perry II was denied by
the Supreme Court. Id. ¶ 91. Nonetheless, plaintiffs ask this court to entertain their challenge to
Perry II, and to any similar court rulings, because

to the extent that any courts continue to hold that such derivative claims are not
possible and thereby block the shareholders in Fannie and Freddie from obtaining
a full and just recovery for the loss of their shareholder rights, we assert that such
an interpretation of HERA, as applied to the facts of these cases and the [PSPA]
Amendment[s], is itself a Taking without just compensation.

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Id. ¶ 92. Unfortunately for plaintiffs, the Federal Circuit does not consider collateral attacks on
the judgments of other federal courts to be cognizable under this court’s jurisdiction over takings
claims.

As the Federal Circuit noted recently: “It is well established that the Claims Court
‘cannot entertain a taking[s] claim that requires the court to scrutinize the actions of another
tribunal.’” Campbell v. United States, 932 F.3d 1331, 1340 (Fed. Cir. 2019) (alteration in
original) (citing Petro-Hunt, L.L.C. v. United States, 862 F.3d 1370, 1386 (Fed. Cir. 2017);
Allustiarte v. United States, 256 F.3d 1349, 1351-52 (Fed. Cir. 2001)). In Campbell, the
appellants attempted to challenge the bases of rulings by a bankruptcy court and a federal district
court. Id. Their takings claim could not proceed, however, because it was a “collateral attack on
the decisions of the bankruptcy court and district court on a takings theory.” Id. The Federal
Circuit held that “[t]he proper forum for such a challenge is the judicial appellate process.” Id.

Following Campbell and the precedent cited in Campbell, the court concludes that there
is no jurisdiction in this court for plaintiffs’ takings claim attacking the holdings of Perry II that
were adverse to plaintiffs, and attacking similar court rulings, if any. 23 The court, therefore,
dismisses count II—plaintiffs’ judicial takings claim—because it lacks jurisdiction over that
claim. The court now turns to the remaining jurisdictional issues raised by defendant’s motion to
dismiss.

D. The court lacks jurisdiction over plaintiffs’ claim that sounds in tort.

1. Plaintiffs’ fiduciary duty claim sounds in tort.

Defendant argues that the court lacks jurisdiction over plaintiffs’ fiduciary duty claim
because the United States does not owe to each Enterprise’s shareholders a fiduciary duty that is
grounded in a statute or contract. Defendant asserts that such a fiduciary duty cannot be based
on (1) HERA because, pursuant to the statute, the FHFA-C is only required to act in the
government’s and the Enterprises’ best interests; or (2) the PSPAs because plaintiffs are not
parties to those contracts. Plaintiffs counter that their claim is based on a fiduciary duty rooted in
both HERA and the PSPAs. As to HERA, plaintiffs assert that Congress made the FHFA-C a
fiduciary by authorizing it to control the Enterprises, entrusting it with duties that are at the core
of what it means to be a fiduciary, and using terminology—“conservator”—associated with a
fiduciary. Additionally, plaintiffs contend that recognizing that Treasury owes a fiduciary duty
to shareholders is the only way to give meaning to Congress’s mandate in HERA that Treasury
protect taxpayers by considering, before purchasing securities, the need to maintain the
Enterprises as privately owned entities. With respect to the PSPAs, plaintiffs argue that Treasury
owes a fiduciary duty to the shareholders because it acquired control rights under the contract.

The court, pursuant to the Tucker Act, lacks jurisdiction over tort claims. 28 U.S.C.
§ 1491(a)(1). A breach of fiduciary duty is generally classified as a tort. Newby v. United
States, 57 Fed. Cl. 382, 294 (2003). A fiduciary duty claim, however, does not sound in tort for

23
The court notes that in Fairholme II it interpreted HERA to permit derivative claims
related to the Net Worth Sweep. 147 Fed. Cl. at 49-51.

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purposes of the Tucker Act when the fiduciary relationship is founded on a money-mandating
statute or a contractual provision between the claimant and United States. See Hopi Tribe v.
United States, 782 F.3d 662, 667 (Fed. Cir. 2015) (statute); Cleveland Chair Co. v. United States,
557 F.2d 244, 246 (Ct. Cl. 1977) (contract); see also 28 U.S.C. § 1491(a)(1) (providing
jurisdiction over claims “founded upon . . . any Act of Congress . . . or contract with the United
States”).

The initial issue is whether HERA establishes a fiduciary relationship between the
FHFA-C and the Enterprises’ shareholders. The court begins with the language of the statute.
Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 438 (1999). “If Congress has expressed its
intention by clear statutory language, that intention controls and must be given effect.” Rosete v.
Office of Pers. Mgmt., 48 F.3d 514, 517 (Fed. Cir. 1995); accord Conn. Nat’l Bank v. Germain,
503 U.S. 249, 253-54 (1992) (“[C]ourts must presume that a legislature says in a statute what it
means and means in a statute what it says there.”). Congress provided in HERA that the FHFA-
C is only required to act in the interests of itself or the Enterprises. 12 U.S.C. § 4617(b)(2)(J).
That statement reflects a clear intent: the FHFA-C does not owe a fiduciary duty to shareholders
because the conservator is not required to consider shareholders’ interests. 24 See id.; see also
Collins, 938 F.3d at 580 (noting that HERA “may permit” the FHFA-C to pursue actions that are
“inconsistent with fiduciary duties”). The plain language controls, and therefore the court does
not consider the peripheral considerations urged by plaintiffs such as the implications of the
word “conservator,” the FHFA-C’s control over the Enterprises, or the FHFA-C’s other powers.
In sum, plaintiffs cannot establish jurisdiction for their fiduciary duty claim by relying on HERA.

The next issue is whether Treasury owes a fiduciary duty to shareholders because it
purchased securities pursuant to HERA. 25 Plaintiffs contend that Treasury assumed such a duty

24
The court’s interpretation of HERA’s plain language is buttressed by the fact that
Congress seemingly made a deliberate decision to exclude shareholder interests from the FHFA-
C’s considerations. Congress modeled HERA on the Financial Institutions Reform, Recovery,
and Enforcement Act (“FIRREA”). Jacobs, 908 F.3d at 893. Under FIRREA, Congress
permitted the FDIC as conservator to consider the best interests of a bank, its depositors, or the
FDIC. 12 U.S.C. § 1821(d)(2)(J)(ii). Although Congress permitted the FDIC to take into
consideration the interests of its depositors, Congress omitted the analogue of depositors—
shareholders—from the list of germane interests that the conservator can consider when acting
pursuant to HERA. Compare id. (FIRREA), with 12 U.S.C. § 4617(b)(2)(J) (HERA). The
omission is telling.
25
The gravamen of plaintiffs’ direct fiduciary duty claim is that the FHFA-C owed a
fiduciary duty to plaintiffs. See 1st Am. Compl. ¶¶ 166-167. Indeed, plaintiffs state in their
complaint that the “FHFA violated its fiduciary duty to Plaintiffs,” id. ¶ 172, and make no
similar allegation with regard to Treasury. Although plaintiffs have not alleged that their direct
fiduciary duty claim is premised on Treasury’s actions in particular, the court nonetheless
considers the parties’ arguments on whether such a claim would be within the court’s jurisdiction
for two reasons. First, the parties have fully briefed the issue without noting the discrepancy
between plaintiffs’ arguments and the allegations in their complaint. Second, the court’s
-26-
when it agreed to the PSPAs because of the determinations that Congress required the Treasury
Secretary to make prior to buying the securities. Before purchasing securities pursuant to
HERA, the Secretary is required to determine that the purchase is necessary to protect taxpayers
and evaluate various considerations in connection with protecting the taxpayers. 12 U.S.C.
§§ 1455(l)(1)(B)-(C), 1719(g)(1)(B)-(C). One of those considerations is the need to maintain the
Enterprises as privately owned companies. Id. §§ 1455(l)(1)(C), 1719(g)(1)(C). At no point,
however, did Congress direct (or even suggest) that the Secretary must protect the shareholders.
The court declines to stretch the statutory language to support a fiduciary relationship based on
any incidental benefit shareholders may derive from the Secretary considering the need to keep
the Enterprises privately owned in the context of protecting taxpayers. Simply stated, Treasury
did not assume any fiduciary obligations to the Enterprises’ shareholders by virtue of HERA.

Finally, the court turns to whether Treasury owed a fiduciary duty to the Enterprises’
other shareholders because it acquired control rights by agreeing to the PSPAs. Plaintiffs’
argument is premised on the state-law principle (which they term “general corporate law”) that a
controlling shareholder owes a fiduciary duty to the minority shareholders. The court is not
convinced. First, plaintiffs’ allegation of a fiduciary relationship is not founded on a contract
within the meaning of the Tucker Act. Plaintiffs are not attempting to enforce any duty imposed
on Treasury that is specified in the PSPAs. They invoke the contracts solely to establish that
Treasury is a controlling shareholder and rely on that conclusion to argue that it has a fiduciary
duty based on state law. The contract, otherwise stated, is one step removed from the purported
genesis of the fiduciary duty—the application of state-law principles. That gap is too much in
light of the court’s obligation to narrowly construe the Tucker Act’s waiver of sovereign
immunity. See Smith, 855 F.2d at 1552 (noting that the Tucker Act is narrowly construed); see
also Perry II, 864 F.3d at 619-20 (rejecting the legal theory that the Enterprises’ shareholders’
need to reference the PSPAs for their fiduciary duty claim was enough to conclude that the claim
was rooted in a contract for purposes of the Tucker Act).

Second, plaintiffs fail to demonstrate the applicability of the state-law principles
underlying their theory for why Treasury assumed fiduciary duties. Federal law governs the
obligations Treasury incurred by entering into the PSPAs. See Boyle v. United Techs. Corp.,
487 U.S. 500, 519 (1988) (“The proposition that federal common law continues to govern the
‘obligations to and rights of the United States under its contracts’ is nearly as old as Erie [v.
Tompkins, 304 U.S. 64 (1938),] itself.”). Although courts may shape federal law by drawing
from state-law principles, plaintiffs do not explain why doing so is appropriate in this instance.

Third, plaintiffs do not prevail even if their fiduciary duty claim could be founded on a
contract and federal common law incorporates the state-law principles regarding controlling
shareholders’ fiduciary obligations. Under Delaware and Virginia law, a controlling shareholder
owes a fiduciary duty to the minority shareholders. See Ivanhoe Partners v. Newmont Min.
Corp., 535 A.2d 1334, 1344 (Del. 1987); Parsch v. Massey, 79 Va. Cir. 446 (2009); see also
Quadrant Structured Prod. Co. v. Vertin, 102 A.3d 155, 183 (Del. Ch. 2014) (acknowledging that

resolution of the issue is immaterial to the ultimate outcome because, as discussed below,
plaintiffs lack standing to pursue their direct claims in counts I, III, and VI.

-27-
those “who effectively control a corporation” owe a fiduciary duty to others). 26 To have the
requisite level of control, the controlling shareholder must (1) be able to exercise a majority of
the corporation’s voting power or (2) direct the corporation without owning a majority of stock.
Kahn v. Lynch Commc’n Sys., 638 A.2d 1110, 1113 (Del. 1994). The latter, effective exercise
of control, “is not an easy test to satisfy; the individual or group must be, “as a practical
matter, . . . no differently situated than if they had majority voting control.” In re PNB Holding
Co. S’holders Litig., No. CIV.A. 28-N, 2006 WL 2403999, at *9 (Del. Ch. Aug. 18, 2006).
Plaintiffs have not established that Treasury meets either control test. First, plaintiffs do not
allege that Treasury owns any of the Enterprises’ voting stock. Treasury purchased preferred
stock and acquired the right to buy common (i.e., voting) stock, but there is no indication that
Treasury exercised its warrants or otherwise acquired common stock. 27 Second, plaintiffs do not
demonstrate that Treasury exercised effective control over the Enterprises. Although Treasury
acquired the right to preclude the Enterprises from taking certain actions, Treasury did not
control the Enterprises because it could not direct any action—it could only respond to certain
requests made by the Enterprises. As a practical matter, therefore, Treasury is situated
differently than if it had majority voting power.

In sum, plaintiffs’ fiduciary duty claim is a tort claim because plaintiffs have not
established that the FHFA-C or Treasury owed shareholders a fiduciary duty based on a statute
or contract. The court, therefore, dismisses count VI—breach of fiduciary duty—because it
lacks jurisdiction over tort claims.

2. Plaintiffs’ takings and illegal-exaction claims do not sound in tort.

Defendant also argues that plaintiffs’ Fifth Amendment takings and illegal-exaction
claims sound in tort because they are premised on purported misconduct by the FHFA-C.
Plaintiffs counter that they have pleaded the predicates for takings and illegal-exaction claims,
which means that it is irrelevant whether they also alleged facts that are germane to tortious
actions.

When a party pleads the predicates for a takings claim or illegal-exaction claim, the court
possesses jurisdiction to entertain such claims. See Hansen v. United States, 65 Fed. Cl. 76, 80-
81 (2005) (“[S]o long as there is some material evidence in the record that establishes the
predicates for a [claim covered by the Tucker Act,] . . . a plaintiff succeeds in demonstrating

26
The court refers to Delaware and Virginia law because Fannie is a Delaware
corporation, and Freddie is a Virginia corporation. When evaluating Virginia law, the court also
looks to Delaware state court decisions because Virginia courts do so to resolve unsettled issues
in the Commonwealth. E.g., U.S. Inspect Inc. v. McGreevy, No. 160966, 2000 WL 33232337, at
*4 (Va. Cir. Ct. Nov. 27, 2000).
27
Even if Treasury had exercised its option to buy a majority of the voting stock, it
would not be a controlling shareholder because the FHFA-C succeeded to all of the shareholders’
rights. See 12 U.S.C. § 4617(b)(2)(A) (noting that the FHFA-C, by operation of law, succeeds to
all rights and powers of any Enterprise shareholder). Treasury, therefore, would have no voting
power.

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subject matter jurisdiction in this court . . . .”). Those claims, at a basic level, are contentions
that the government expropriated private property lawfully (takings) or unlawfully (illegal
exaction). See Orient Overseas Container Line (UK) Ltd. v. United States, 48 Fed. Cl. 284, 289
(2000) (“Takings claims arise because of a deprivation of property that is authorized by law.
Illegal exactions arise when the government requires payment in violation of the Constitution, a
statute, or a regulation.” (citation omitted)). If a party alleges the necessary predicates for these
claims, the court is not deprived of jurisdiction even if the complaint contains allegations that
could support a tort claim. See El-Shifa Pharm. Indus. Co. v. United States, 378 F.3d 1346, 1353
(Fed. Cir. 2004) (“That the complaint suggests the United States may have acted tortiously
towards the appellants does not remove it from the jurisdiction of the Court of Federal Claims.”);
Rith Energy, Inc. v. United States, 247 F.3d 1355, 1365 (Fed. Cir. 2001) (explaining that this
court has jurisdiction over a takings claim “even if the government’s action was subject to legal
challenge on some other ground”). Here, plaintiffs plead the predicates for takings and illegal-
exaction claims by alleging, in essence, that they were forced to give their property to the
government because of lawful or unlawful government conduct. Therefore, it is of no import to
the court’s jurisdiction whether plaintiffs have alleged facts that would also support a tort claim.

V. STANDING

In addition to asserting that the court lacks subject-matter jurisdiction to entertain
plaintiffs’ claims, defendant challenges plaintiffs’ standing to pursue their claims. A plaintiff
bears the burden of demonstrating that it has standing for each claim. Starr Int’l Co. v. United
States, 856 F.3d 953, 964 (Fed. Cir. 2017). It must establish, among other things, that it is
“assert[ing its] own legal rights and interests, and cannot rest [its] claim[s] to relief on the legal
rights or interests of third parties.” Kowalski v. Tesmer, 543 U.S. 125, 129 (2004). Further, the
label assigned to a claim is irrelevant; it is the substance of the allegations that controls. See
Allen v. Wright, 468 U.S. 737, 752 (1984) (“[T]he standing inquiry requires careful examination
of a complaint’s allegations to ascertain whether the particular plaintiff is entitled to an
adjudication of the particular claim asserted.”), abrogated on other grounds by Lexmark Int’l,
Inc. v. Static Control Components, Inc., 572 U.S. 118 (2014). Thus, in a suit brought by
shareholders, it is the substance of the allegations and not the label assigned to the allegations—
i.e., direct or derivative—that matters. See Starr, 856 F.3d at 966-67; see also In re Sunrise Sec.
Litig., 916 F.2d 874, 882 (3d Cir. 1990) (“Whether a claim is [direct] or derivative is determined
from the body of the complaint rather than from the label employed by the parties.”). A
shareholder lacks standing to litigate nominally direct claims that are substantively derivative in
nature because its personal request for relief would be based on the rights of the company. See
Starr, 856 F.3d at 966-67; see also Weir v. Stagg, No. 09-21745-CIV, 2011 WL 13174531, at *9
(S.D. Fla. Feb. 7, 2011) (“Shareholders do not have standing to bring a direct action for injuries
suffered by a corporation, but rather, must bring a derivative action.”). A shareholder, therefore,
must establish that the claims it labeled as direct are substantively direct in nature—i.e.,
premised on its injuries rather than the corporation’s injuries—to have standing to litigate those
claims. See Starr, 856 F.3d at 966-67.

Defendant challenges plaintiffs’ standing to bring their claims on two grounds.
Defendant first argues that plaintiffs lack standing because their claims, pled as direct claims,
actually belong to the Enterprises and are therefore derivative in nature. The parties in this case

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and the related cases fully briefed and argued this issue prior to the court issuing the Fairholme II
decision. The court concluded in Fairholme II that Fannie and Freddie shareholders lack
standing to pursue direct claims that are derivative in nature.

Thereafter, the court solicited short supplemental briefs from plaintiffs and defendant
regarding the applicability of the holdings in Fairholme II to this case. In their supplemental
brief, plaintiffs suggest that their allegations in support of counts I and III of the amended
complaint, for purposes of establishing standing, are materially different from the allegations
regarding the takings and illegal-exaction claims asserted in Fairholme, while defendant
contends in its supplemental brief that there are no material differences. 28 Defendant also argues
that plaintiffs cannot assert their contract-based claims in counts IV and V because they have no
contract with the United States. The court addresses each of these standing issues in turn.

A. Plaintiffs’ allegations are not materially different from the allegations in Fairholme.

As an initial matter, plaintiffs contend that their allegations are materially different from
those advanced in Fairholme, such that the standing inquiry would be affected. Specifically,
plaintiffs argue that their case does not focus on overpayments taken from the Enterprises, but on
a direct appropriation of plaintiffs’ property rights in their stock and their rights to distributions
from the Enterprises. In essence, plaintiffs attempt to distinguish what they characterize as the
Fairholme plaintiffs’ allegation of indirect harm to the shareholders from their own allegation of
the expropriation of their economic interests.

As defendant points out, however, the direct claims in Fairholme and the claims that rely
on the same legal theories in this case are virtually indistinguishable in nature. Counts I, III, and
VI of the amended complaint in this case mirror, in every essential way, the direct takings,
illegal-exaction, and fiduciary duty claims in Fairholme. Expropriation of the shareholders’
economic interests, by means of the Net Worth Sweep, was alleged in Fairholme, just as it is
alleged in the amended complaint in this case. Compare Fairholme II, 147 Fed. Cl. at 20, 46-47,
with 1st Am. Compl. ¶¶ 10, 13, 57, 70, 73, 87, 128, 144, 168. Thus, the standing analysis in
Fairholme II is fully applicable to the claims presented here in counts I, III, and VI of the
amended complaint.

B. Plaintiffs’ claims actually belong to the Enterprises.

Having determined that plaintiffs’ allegations in counts I, III, and VI do not differ
materially from those advanced in Fairholme, the court turns to defendant’s contention that
plaintiffs lack standing to litigate these claims. Defendant’s standing argument is premised on its
assertion that plaintiffs’ claims actually belong to the Enterprises––and are therefore derivative
in nature––because, to prevail, plaintiffs would need to establish an injury to the Enterprises and
any relief would accrue to the Enterprises. Plaintiffs counter that they assert direct claims

28
Plaintiffs concede that their allegations in support of the fiduciary duty claim in count
VI of the amended complaint are indistinguishable from those supporting the same type of claim
in Fairholme.

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because the government (1) targeted private shareholders and (2) discriminated against them by
rearranging the Enterprises’ capital structure to plaintiffs’ detriment, which renders the claims
for such conduct both direct and derivative under the dual-nature exception. 29 Defendant replies
that the Federal Circuit rejected the notion that a plaintiff states a direct claim by alleging it was
targeted by the challenged action. Defendant also contends that the dual-nature exception is not
applicable because Treasury was not a controlling shareholder, the Enterprises did not issue new
shares, and the PSPA Amendments did not involve the reallocation of power.

Neither theory plaintiffs advance for why their claims are substantively direct, rather than
derivative, is persuasive. First, it is of no import whether the government targeted shareholders
with the PSPA Amendments. See Starr, 856 F.3d at 973 (noting that the plaintiffs did not
“sufficiently explain why the Government’s subjective motivations are relevant to the inquiry
into direct standing”). The direct-versus-derivative inquiry “turns on the plaintiff’s injury, not
the defendant’s motive.” Pagan v. Calderon, 448 F.3d 16, 30 (1st Cir. 2006). Second, plaintiffs
have not asserted claims that qualify as both direct and derivative based on the dual-nature
exception. The Federal Circuit explained that, pursuant to this exception, shareholder claims
may be both direct and derivative “when a ‘reduction in [the] economic value and voting power
affected the minority stockholders uniquely . . . .’” Starr, 856 F.3d at 968 (quoting Gentile v.
Rossette, 906 A.2d 91, 99 (Del. 2006)). Specifically, shareholder claims are both direct and
derivative if

“(1) a stockholder having majority or effective control causes the corporation to
issue ‘excessive’ shares of its stock in exchange for assets of the controlling
stockholder that have a lesser value,” and “(2) the exchange causes an increase in
the percentage of the outstanding shares owned by the controlling stockholder,
and a corresponding decrease in the share percentage owned by the public
(minority) shareholders.”

Id. (quoting Gentile, 906 A.2d at 100). The exception does not apply here because Treasury was
not a controlling shareholder at the time the PSPA Amendments were executed, 30 the PSPA
Amendments did not involve the issuance of new shares, and shareholder voting power was not
reallocated under the PSPA Amendments. It is not enough, contrary to plaintiffs’ contention,
that the government allegedly exacted economic value from the other shareholders by
rearranging the corporate structure. See El Paso Pipeline GP Co. v. Brinckerhoff, 152 A.3d
1248, 1264 (Del. 2016) (applying Gentile and holding a plaintiff does not state a direct claim
under the dual-nature exception by pleading the “extraction of solely economic value from the
minority by a controlling stockholder”). Because plaintiffs have not established that their

29
The plaintiffs in the related cases also asserted that their claims must be construed as
direct claims to vindicate important federal policies if shareholders cannot assert derivative
claims because of HERA. But as this court held in Fairholme II, the shareholders of the
Enterprises, notwithstanding HERA, have standing to assert derivative claims because of the
FHFA-C’s conflict of interest. 147 Fed. Cl. at 49-51.
30
Treasury is not a controlling shareholder for the reasons set forth in Section IV.D.1,
supra.

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“direct” claims are substantively direct in nature, they cannot demonstrate that they have
standing to litigate those claims.

Plaintiffs fare no better if the court moves beyond their arguments for why their “direct”
claims are substantively direct in nature. Federal law governs whether plaintiffs’ claims are
direct or derivative. See Starr, 856 F.3d at 965. But, as the parties acknowledge, federal law in
this area is informed by Delaware law. Id.; see also Kamen v. Kemper Fin. Servs., Inc., 500 U.S.
90, 97 (1991) (noting the “presumption that state law should be incorporated into federal
common law”). Under Delaware law, the test for whether a shareholder’s claim is derivative or
direct depends on the answers to two questions: “(1) who suffered the alleged harm (the
corporation or the suing stockholders, individually); and (2) who would receive the benefit of
any recovery or other remedy (the corporation or the stockholders, individually)?” Tooley v.
Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1033 (Del. 2004) (en banc). “Normally,
claims of corporate overpayment are . . . regarded as derivative [because] . . . the corporation is
both the party that suffers the injury (a reduction in its assets or their value) as well as the party
to whom the remedy (a restoration of the improperly reduced value) would flow.” Gentile, 906
A.2d at 99, discussed in Starr, 856 F.3d at 965. Such claims are derivative even “though the
overpayment may diminish the value of the corporation’s stock or deplete corporate assets that
might otherwise be used to benefit the stockholders, such as through a dividend.” Protas v.
Cavanagh, No. CIV.A. 6555-VCG, 2012 WL 1580969, at *6 (Del. Ch. May 4, 2012); see also
Hometown Fin. Inc. v. United States, 56 Fed. Cl. 477, 486 (2003) (“[C]ourts have consistently
held that shareholders lack standing to bring cases on their own behalf where their losses from
the alleged injury to the corporation amount to nothing more than a diminution in stock value or
a loss of dividends.”).

In their complaint, plaintiffs focus on the expropriation of the Enterprises’ assets via
compulsory payments of all profits. The gravamen of each claim is the same: The government,
via the PSPA Amendments, compelled the Enterprises to overpay Treasury. Regardless of
plaintiffs’ label (direct) or theory (taking, illegal exaction, or breach of fiduciary duty) for their
claims, the claims are substantively derivative in nature because they are premised on allegations
of overpayment. 31 See Gentile, 906 A.2d at 99; see also Roberts, 889 F.3d at 409 (explaining
that the plaintiffs asserted “classic derivative claims” when they alleged that “the [PSPA
Amendments] illegally dissipated corporate assets by transferring them to Treasury”). Plaintiffs

31
Plaintiffs would remain unsuccessful if their allegations of waste and mismanagement
(styled as self-dealing, overreach, or abuse of discretion) were construed to be indicative of some
action other than overpayment. Any claims premised on waste and mismanagement are
derivative in nature. Kramer v. W. Pac. Indus., Inc., 546 A.2d 348, 353 (Del. 1988) (noting that
“mismanagement resulting in corporate waste, if proven represents a direct wrong to the
corporation . . . [that] is entirely derivative in nature”). Plaintiffs’ claims are also derivative in
nature to the extent that they are premised on (1) a purported reduction in share price as a
consequence of the Enterprises losing assets or (2) the FHFA-C acting unfairly by agreeing to
transfer profits pursuant to the PSPA Amendments. See Hometown, 56 Fed. Cl. at 486 (stock
prices); In re Straight Path Commc’ns Inc. Consol. S’holder Litig., No. CV 2017-0486-SG, 2017
WL 5565264, at *4 (Del. Ch. Nov. 20, 2017) (“Sale of corporate assets to a controller for an
unfair price states perhaps the quintessential derivative claim . . . .”).

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cannot transform their substantively derivative claims into direct claims by merely alleging that,
as a result of overpayments, they were deprived of their stockholder rights to receive dividends
or liquidation payments. The claims remain derivative because plaintiffs’ purported “harms are
‘merely the unavoidable result . . . of the reduction in the value of the entire corporate entity.’”
Protas, 2012 WL 1580969, at *6 (quoting Gentile, 906 A.2d at 99); see also Agostino v. Hicks,
845 A.2d 1110, 1122 (Del. Ch. 2004) (“[T]he inquiry should focus on whether an injury is
suffered by the shareholder that is not dependent on a prior injury to the corporation.”). Because
plaintiffs’ claims are derivative in nature, plaintiffs lack standing to pursue those claims on their
own behalf.

In sum, plaintiffs have not established that they have standing to litigate three of their
claims (counts I, III, and VI) because they do not, and cannot, demonstrate that those claims are
substantively direct claims. Therefore, the court dismisses these claims on standing grounds to
the extent that it has subject-matter jurisdiction over those claims. 32

C. Plaintiffs lack standing to bring their contract claims because they are not in privity
with the United States.

Finally, the court turns to plaintiffs’ claims founded on the stock certificates issued by
each Enterprise, which are alleged to be contracts under relevant state law. The key issue is
whether the United States is a party to these contracts so that plaintiffs are in privity with the
United States and thus have standing for the claims set forth in counts IV and V of the amended
complaint. It is well established that “[a] plaintiff must be in privity with the United States to
have standing to sue the sovereign on a contract claim.” Sullivan v. United States, 625 F.3d
1378, 1379-80 (Fed. Cir. 2010) (citing Anderson v. United States, 344 F.3d 1343, 1351 (Fed.
Cir. 2003)); accord Fid. & Guar. Ins. Underwriters, Inc. v. United States, 805 F.3d 1082, 1087
(Fed. Cir. 2015).

Plaintiffs argue that once the FHFA-C became the conservator for the Enterprises, the
contracts, which were formerly between each Enterprise and the shareholder, became contracts
between the United States and the shareholder. According to plaintiffs, “while the initial
contracts did not involve the Government, the Government—through [the FHFA-C]—became a
party to the contracts by assuming the [Enterprises’] obligations, which it then breached when it
[chose] to implement the Net Worth Sweep to further the Government’s interests.” Class Pls.’
Suppl. Opp’n to Def.’s Mot. to Dismiss 7. Plaintiffs’ privity allegation is founded on part of a
sentence in the Federal Circuit’s decision in First Hartford Corp. Pension Plan & Trust v. United
States, 194 F.3d 1279, 1289 (Fed. Cir. 1999), which describes permissible exceptions to the
usual privity requirements for suits in contract against the United States. Plaintiffs’ reliance on
First Hartford is misplaced.

The discussion of privity in First Hartford upon which plaintiffs rely began with a
statement of the general rule: “[T]he ‘government consents to be sued only by those with whom
it has privity of contract.’” Id. (quoting Erickson Air Crane Co. of Wash. v. United States, 731

32
As explained above, the court lacks jurisdiction over plaintiffs’ fiduciary duty claim.
See supra Section IV.D.1.

-33-
F.2d 810, 813 (Fed. Cir. 1984)). The Federal Circuit also noted a number of exceptions to the
general rule and cited cases as examples of these exceptions, none of which apply here. Id. It
then summarized the principle uniting these exceptions: “[T]he common thread that unites these
exceptions is that the party standing outside of privity by contractual obligation stands in the
shoes of a party within privity.” Id. According to plaintiffs, the FHFA-C stepped into the shoes
of the Enterprises and became a party to the contracts with the shareholders that were expressed
in their stock certificates, and the shareholders are now in privity of contract with the United
States. Whatever the attractiveness of plaintiffs’ legal construct, the privity analysis in First
Hartford that is specifically referenced by plaintiffs does not support their thesis.

The plaintiffs in First Hartford were shareholders of Dollar Dry Dock Bank of New York
(“Dollar”) who attempted to show privity of contract with the United States to support their
direct breach-of-contract claims against the United States in this court. 194 F.3d at 1282, 1289.
Because they had no contract with the United States, they attempted to stand in the shoes of the
bank, which itself had a contract with the FDIC, the alleged breaching party. Id. at 1289. In
other words, their breach-of-contract claim was founded on the FDIC’s breach of its contract
with Dollar. Id. The Federal Circuit ruled that the plaintiffs could not stand in the shoes of the
bank because, as shareholders of a corporation, they had no contractual obligations vis-à-vis the
bank’s contracting partners. Id.

Plaintiffs’ reliance on this portion of First Hartford is flawed. First, in that case, the
plaintiffs attempted to step into the shoes of the bank to establish privity of contract with the
United States. Here, however, plaintiffs attempt to force the FHFA-C into the shoes of the
Enterprises to establish privity of contract. These are not analogous inquiries as to privity. Put
another way, the legal question of whether the shareholders in First Hartford could stand in the
shoes of Dollar is materially different from the question of whether the FHFA-C stands in the
shoes of the Enterprises. The cited analysis in First Hartford does not touch upon the role of a
government agency that becomes the conservator of a corporation, and whether that agency, as
conservator, steps into the shoes of the corporation. 33

The question remains, then, whether the FHFA-C steps into the shoes of Fannie and
Freddie, for privity-of-contract purposes, because it is the conservator for the Enterprises. As an
initial matter, it is plaintiffs’ burden to show privity of contract with the United States, and their
citation to First Hartford is insufficiently persuasive to meet this burden. Also unpersuasive is
plaintiffs’ attempt to extend the exceptions to the general requirement of privity set forth in First
Hartford. They argue:

33
Unlike the parties in this case, who dispute whether the FHFA-C is the United States
for jurisdictional purposes, see supra Section IV.B, the Federal Circuit in First Hartford treated
the FDIC as the United States both for jurisdictional purposes and for the privity-of-contract
question, without comment. See 194 F.3d at 1288 (finding jurisdiction for a takings claim
founded on actions of the FDIC); id. at 1284, 1289 (finding no standing for breach-of-contract
claims because only Dollar, not the shareholders, was in privity of contract with the FDIC and
the United States).
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 Typically, situations falling within this framework involve a third-party private
person stepping into the shoes of private party that is in privity with the
Government. There is no reason, however, to treat a third-party Government
entity stepping into the shoes of a private party by contract and statute differently
than a third-party private entity stepping into those same shoes.

Class Pls.’ Suppl. Opp’n to Def.’s Mot. to Dismiss 7 (citing First Hartford, 194 F.3d at 1289).
However, they do not supply any authority for the proposition that “a third-party Government
entity” (i.e., the FHFA) that purportedly steps into the shoes of a “private party” (i.e., Fannie or
Freddie) in a contractual relationship with another private party (i.e., a shareholder) is in privity
of contract with that other private party. Accordingly, no argument of plaintiffs convinces the
court that plaintiffs have standing for their breach-of-contract claims. 34

Unmentioned by the parties is a different privity analysis in First Hartford. 194 F.3d at
1295-96. In First Hartford, one of the plaintiffs’ contract-based claims was for the rescission of
their contracts to purchase shares from Dollar, described as “share purchase contracts.” Id. at
1296. If these contracts are the equivalent of plaintiffs’ stock certificate contracts with the
Enterprises, and if the FDIC’s role as receiver for Dollar could be considered to be equivalent to
the FHFA-C’s role as conservator for the Enterprises, the Federal Circuit’s privity analysis of the
rescission claim would not support plaintiffs’ standing to bring their contract claims against the
FHFA-C. 35 In First Hartford, the Federal Circuit concluded that

[t]he rescission sought by First Hartford in its complaint is that of the contract
under which First Hartford purchased its shares when . . . Dollar converted from
mutually-held to stock-form. As noted by the Court of Federal Claims, “[a]
‘rescission’ amounts to the unmaking of a contract or an undoing of it from the
beginning and not merely a termination of the contract.” The federal government
was not a party to the contracts by which First Hartford and other investors
purchased shares in Dollar. Unless both the plaintiff and the defendant are parties
to the disputed contract, a rescission claim must be dismissed for failure to state a
claim upon which relief can be granted. Accordingly, while we do not foreclose
that shareholder capital is perhaps one of several measures of damages that
ultimately might be considered on the [derivative] contract counts, the Court of
Federal Claims cannot rescind the share purchase contracts to which the federal
government was not a party and thus this count was correctly dismissed.

34
Plaintiffs also reference Slattery, 583 F.3d at 827-28. There is, however, no analysis
of privity of contract, or of the discussion of privity in First Hartford, in that opinion. Plaintiffs’
argument based on Slattery is undeveloped, cursory, and ultimately unpersuasive.
35
For its jurisdictional inquiry, the court concluded that the FHFA-C did not step into
the shoes of the Enterprises. See Section IV.B, supra. Although the terminology is similar, the
guiding precedent for the jurisdictional and standing inquiries is not the same. See id.
-35-
Id. at 1295-96 (citation omitted) (quoting First Hartford Corp. Pension Plan & Tr. v. United
States, 42 Fed. Cl. 599, 616 n.26 (1998), aff’d in part, rev’d in part and remanded, 194 F.3d at
1279).

Having considered plaintiffs’ arguments regarding privity and standing, plaintiffs have
not met their burden to establish that they have standing to assert the breach-of-contract claim in
count IV, or the breach-of-the-covenant-of-good-faith-and-fair-dealing claim in count V. The
court therefore dismisses these counts of their amended complaint for lack of standing.

VI. CONCLUSION

For the reasons stated above, the court dismisses all of plaintiffs’ claims. The court lacks
jurisdiction to entertain plaintiffs’ judicial takings claim and their fiduciary duty claim. Further,
plaintiffs lack standing to bring their contract claims due to the absence of privity with the
United States, and lack standing to bring their nominally direct takings, illegal-exaction, and
fiduciary duty claims because the nature of these claims is derivative, not direct. 36 The court
therefore GRANTS defendant’s motion to dismiss. 37 The clerk is directed to enter judgment in
this consolidated case accordingly. No costs.

IT IS SO ORDERED.

s/ Margaret M. Sweeney
MARGARET M. SWEENEY
Chief Judge

36
Because all of plaintiffs’ claims must be dismissed for lack of jurisdiction or for lack
of standing, the court need not reach defendant’s remaining arguments that these claims should
be dismissed for failure to state a claim upon which relief can be granted.
37
Plaintiffs’ motion to certify a class action is accordingly moot.
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