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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 11-15614
________________________
D.C. Docket No. 4:10-cv-00436-RH-WCS
LEON COUNTY FLORIDA,
LEON COUNTY ENERGY IMPROVEMENT DISTRICT,
Plaintiffs - Appellants,
versus
FEDERAL HOUSING FINANCE AGENCY,
ACTING DIRECTOR OF FEDERAL HOUSING FINANCE AGENCY,
FEDERAL HOME LOAN MORTGAGE CORPORATION,
FEDERAL NATIONAL MORTGAGE ASSOCIATION
Defendants - Appellees,
CHARLES E. HALDEMAN, JR.,
In his capacity as Chief Executive Officer of
Federal Home Loan Mortgage Corporation, et al.,
Defendants.
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Appeal from the United States District Court
for the Northern District of Florida
________________________
(November 9, 2012)
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Before BARKETT and JORDAN, Circuit Judges, and HODGES, * District Judge.
BARKETT, Circuit Judge:
Leon County, Florida and the Leon County Energy Improvement District
(together, “Leon County”) appeal the dismissal of their complaint against the
Federal Housing Finance Agency (“FHFA”), its acting director, Charles E.
Haldeman, Jr., the Federal National Mortgage Association (“Fannie Mae”) and the
Federal Home Loan Mortgage Corporation (“Freddie Mac”), for lack of subject
matter jurisdiction. 1
On appeal, Leon County argues that by directing Fannie Mae, Freddie Mac,
and the Federal Home Loan Banks to refrain from purchasing mortgages
encumbered with certain first-priority lien obligations, some of which were held by
Leon County, the FHFA engaged in rulemaking without providing “notice and
opportunity for public comment pursuant to (the relevant provisions of the
Administrative Procedure Act (“APA”)]. 12 U.S.C. § 4526(b). The FHFA
responds that its directive did not constitute rulemaking but was simply an exercise
of its business judgment as a “conservator” of Fannie Mae and Freddie Mac and,
*
Honorable Wm. Terrell Hodges, United States District Judge for the Middle District of Florida,
sitting by designation.
1
The district court did not specify whether it dismissed Leon County’s complaint pursuant to
Rule 12(b)(1) or Rule 12(b)(6) of the Federal Rules of Civil Procedure. However, in its motion
to dismiss, the FHFA argued that 12 U.S.C. § 4617(f) withdrew the district court’s jurisdiction,
and the district court appeared to base its decision on that argument. See 12 U.S.C. § 4617(f)
(articulating a limitation on court action).
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that pursuant to § 4617(f), “no court may take any action to restrain or affect the
exercise of powers or functions of the [FHFA] as a conservator or a receiver.” Id.
§ 4617(f).
BACKGROUND
In 2008, Congress enacted the Housing and Economic Recovery Act of 2008
(“HERA”), Pub. L., No. 110–289, 122 Stat. 2654 (codified at 12 U.S.C. § 4501 et
seq.), which established the FHFA to regulate and oversee Fannie Mae and Freddie
Mac, as well as the Federal Home Loan Banks, which together largely control the
country’s secondary market for residential mortgages. In addition to the FHFA’s
regulatory authority, HERA vests in the FHFA the authority to act as conservator
or receiver for Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. Id. §
4617(a). In September 2008, following the collapse of the housing market and the
ensuing economic crisis, the FHFA became conservator of Fannie Mae and
Freddie Mac and remains conservator of both entities. See Fed. Hous. Fin.
Agency, Statement of FHFA Director James B. Lockhart Announcing
Conservatorship of Fannie Mae and Freddie Mac (2008).
Leon County is one of many local governments to have established a
Property Assessed Clean Energy (“PACE”) program, which assists its citizens in
obtaining funding to finance home improvements aimed at achieving energy
efficiency. To secure repayment of these PACE funds, the improved property at
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issue is encumbered with a lien which, under Florida law, takes priority over all
other liens. On July 6, 2010, the FHFA instructed Fannie Mae, Freddie Mac, and
the Federal Home Loan Banks to “undertake certain prudential actions” aimed at
discouraging the acquisition of mortgages attached to properties encumbered with
first-priority PACE liens.2 To comply with this directive, Fannie Mae and Freddie
Mac announced that it would no longer purchase mortgages subject to first-priority
PACE liens originating after July 6, 2010.
Claiming that this restriction would destroy the PACE program, Leon
County sought injunctive and declaratory relief to prohibit the implementation of
Fannie Mae and Freddie Mac’s announced restriction. The district court dismissed
Leon County’s complaint on the grounds that, in issuing the directive to Fannie
Mae and Freddie Mac, the FHFA was acting in its capacity as a “conservator” and,
pursuant to § 4617(f), “no court may take any action to restrain or affect the
exercise of powers or functions of the [FHFA] as a conservator or a receiver.” Id.
§ 4617(f). Leon County appeals that determination, seeking to avoid the
jurisdictional bar in § 4617(f) by arguing that the FHFA was acting as a regulator
and not as a conservator. “Our review of a district court’s determination of subject
2
This instruction was via a statement to Fannie Mae, Freddie Mac, and the Federal Home Loan
Banks explaining that it had “determined that certain energy retrofit lending programs present
significant safety and soundness concerns that must be addressed by [Fannie Mae, Freddie Mac,]
and the Federal Home Loan Banks.” Fed. Hous. Fin. Agency, Statement on Certain Energy
Retrofit Loan Programs 1 (2010).
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matter jurisdiction as well as statutory interpretation is de novo.” United States v.
Rendon, 354 F.3d 1320, 1324 (11th Cir. 2003).
DISCUSSION
Under subchapter I of HERA, the FHFA has “[g]eneral supervisory and
regulatory authority” over Fannie Mae, Freddie Mac, and the Federal Home Loan
Banks. 12 U.S.C. § 4511(b). Pursuant to this general regulatory authority, the
FHFA may, through its Director, “issue any regulations, guidelines, or orders
necessary to carry out the duties of the Director under this chapter or the
authorizing statutes, and to ensure the purposes of this chapter and the authorizing
statutes are accomplished.” Id. § 4526(a). The “principal duties” articulated in the
statute are:
(A) to oversee the prudential operations of each regulated entity; and
(B) to ensure that--
(i) each regulated entity operates in a safe and sound manner,
including maintenance of adequate capital and internal controls;
(ii) the operations and activities of each regulated entity foster liquid,
efficient, competitive, and resilient national housing finance markets
(including activities relating to mortgages on housing for low- and
moderate-income families involving a reasonable economic return
that may be less than the return earned on other activities);
(iii) each regulated entity complies with this chapter and the rules,
regulations, guidelines, and orders issued under this chapter and the
authorizing statutes;
(iv) each regulated entity carries out its statutory mission only through
activities that are authorized under and consistent with this chapter
and the authorizing statutes; and
(v) the activities of each regulated entity and the manner in which
such regulated entity is operated are consistent with the public
interest.
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Id. § 4513(a)(1)(B). The Director of the FHFA also has the duty to, “by regulation,
establish criteria governing the portfolio holdings of [Fannie Mae and Freddie
Mac], to ensure that the holdings are backed by sufficient capital and consistent
with the mission and the safe and sound operations of [Fannie Mae and Freddie
Mac].” Id. § 4624(a). When issuing regulations, the Director must provide “notice
and opportunity for public comment pursuant to [the relevant provisions of the
APA].” Id. § 4526(b).
Distinct from its regulatory and supervisory authority, § 4617(a) authorizes
the FHFA to appoint itself conservator or receiver of Fannie Mae, Freddie Mac,
and/or the Federal Home Loan Banks “for the purpose of reorganizing,
rehabilitating, or winding up the affairs of a regulated entity.” Id. § 4617(a)(2).
When the FHFA became the conservator of Fannie Mae and Freddie Mac in
September 2008, the FHFA “immediately succeed[ed] to . . . all rights, titles,
powers and privileges of [Fannie Mae and Freddie Mac] . . . .” 12 U.S.C. §
4617(b)(2)(A)(i). As conservator, the FHFA is vested with the “[p]owers” to:
take such action as may be—
(i) necessary to put the regulated entity in a sound and solvent condition; and
(ii) appropriate to carry on the business of the regulated entity and preserve
and conserve the assets and property of the regulated entity.
Id. § 4617(b)(2)(D). As conservator, the FHFA may “[o]perate” Fannie Mae and
Freddie Mac by:
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(i) tak[ing] over the assets of and operat[ing] the regulated entity with all the
powers of the shareholders, the directors, and the officers of the regulated
entity and conduct[ing] all business of the regulated entity;
(ii) collect[ing] all obligations and money due the regulated entity;
(iii) perform[ing] all functions of the regulated entity in the name of the
regulated entity which are consistent with the appointment as conservator or
receiver;
(iv) preserv[ing] and conserv[ing] the assets and property of the regulated
entity; and
(v) provid[ing] by contract for assistance in fulfilling any function, activity,
action, or duty of the [FHFA] as conservator or receiver.
Id. § 4617(b)(2)(B). Section 4617(f) limits judicial review of the FHFA’s actions
as conservator, stating that “no court may take any action to restrain or affect the
exercise of powers or functions of [FHFA] as a conservator or receiver.” Id. §
4617(f).
Although it may appear at first blush that many of the functions of the FHFA
as regulator and as conservator overlap, we consider both the concept and function
of a conservatorship and the overall statutory scheme to determine whether the
actions of the FHFA in issuing its directive regarding PACE mortgages should be
deemed an act taken by the FHFA as conservator, insulated from judicial review,
or an act of rulemaking within its function as a regulator.
We recognize that when a directive is issued by the FHFA that applies
across the board to an entire category of cases, it contains an aspect of rulemaking
and should therefore be carefully examined to assure that the FHFA is not simply
attempting to avoid its responsibility to give notice and provide an opportunity for
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public comment. The FHFA cannot evade judicial scrutiny by merely labeling its
actions with a conservator stamp. Congress did not intend that the nature of the
FHFA’s actions would be determined based upon the FHFA’s self-declarations
because the distinction between regulator and conservator would be one without a
meaning or effect. Moreover, “if the FHFA were to act beyond statutory or
constitutional bounds in a manner that adversely impacted the rights of others, §
4617(f) would not bar judicial oversight or review of its actions.” In re Fed. Home
Loan Mortg. Corp. Derivative Litig., 643 F. Supp. 2d 790, 799 (E.D. Va. 2009)
(citation omitted), aff’d sub nom. La. Mun. Police Emps. Ret. Sys. v. Fed. Hous.
Fin. Agency, 434 F. App’x 188 (4th Cir. 2011) (per curiam). With that concern in
mind, we must consider all relevant factors pertaining to the directive to determine
whether it was issued pursuant to the FHFA’s powers as conservator or as
regulator. These would include, for example, its subject matter, its purpose, its
outcome, and whether it involves a matter in which public comment might be
relevant, appropriate, useful or intended by Congress.
The directive in this case identified a specific form of security interest
priming a relatively small number of residential mortgages available to Fannie Mae
and Freddie Mac in the mortgage market as a whole. The directive had a very
narrow field of operation. It did not establish a general set of criteria to be applied
across the board by Fannie Mae and Freddie Mac to their mortgage transactions in
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general. A directive in that form would have the mark of a regulation. The
directive at issue here, by comparison, does not contain any indicia of a general
regulation and looks more like a discreet management decision by a conservator.
After carefully considering the directive here, we are satisfied that it
comports with the duties, purpose, and actions of a prudent conservator and does
not constitute an act of rulemaking. A conservator is one who has been given the
legal authority to establish control of an entity to put it in a sound and solvent
condition. Essentially, the powers of the directors, officers, and shareholders of
the entity in conservatorship are transferred to the conservator, and those powers
include marshaling, protecting, and managing assets. Part of managing the assets
and assuring the solvency of a mortgage-purchasing entity is considering the
degree of risk entailed by the acquisition of particular mortgages. It is fully within
the responsibilities of a protective conservator, acting as a prudent business
manager, to decline to purchase a mortgage when its lien will be relegated to an
inferior position for repayment. The fact that the conservator declines to purchase
any—or many—mortgages in which another entity holds a first-priority lien does
not turn the FHFA’s business decision into an act of rulemaking. Rather it is
clearly within the broad powers given by Congress to the FHFA as conservator to
take actions “necessary to put [Fannie Mae and Freddie Mac] in a sound and
solvent condition” and “to carry on the business of [Fannie Mae and Freddie Mac]”
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in a way that will “preserve and conserve” its assets. 12 U.S.C. § 4617(b)(2)(D).
As the Second Circuit recently noted, “[d]irecting protective measures against
perceived risks is squarely within FHFA’s powers as conservator.” Town of
Babylon v. Fed. Hous. Fin. Agency,— F.3d —, Nos. 11-3408-CV, 11-3285-CV,
2012 WL 5233601, at *3 (2d Cir. Oct. 24, 2012). Moreover, the function of
providing an opportunity for public comment has considerably less resonance
where, as here, the disagreement with the directive would simply be a
disagreement with a business assessment regarding the level of an investment risk.
For all of these reasons, we agree with the district court that, under the
specific facts in this case, the FHFA’s directive not to purchase PACE-encumbered
mortgages was within the FHFA’s broad powers as conservator. Accordingly,
because § 4617(f) provides that “no court may take any action to restrain or affect
the exercise of powers or functions of the [FHFA] as a conservator or receiver,”
see 12 U.S.C. § 4617(b), the district court correctly held that § 4617(f) bars Leon
County’s claims.
AFFIRMED.
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