Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-14-05262/USCOURTS-caDC-14-05262-1/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 15, 2016 Decided February 21, 2017

No. 14-5243

PERRY CAPITAL LLC, FOR AND ON BEHALF OF INVESTMENT 

FUNDS FOR WHICH IT ACTS AS INVESTMENT MANAGER,

APPELLANT

v.

STEVEN T. MNUCHIN, IN HIS OFFICIAL CAPACITY AS THE 

SECRETARY OF THE DEPARTMENT OF THE TREASURY, ET AL.,

APPELLEES

Consolidated with 14-5254, 14-5260, 14-5262

Appeals from the United States District Court

for the District of Columbia

(No. 1:13-cv-01025)

(No. 1:13-cv-01053)

(No. 1:13-cv-01439)

(No. 1:13-cv-01288)

Theodore B. Olson argued the cause for Perry Capital 

LLC, et al. With him on the briefs were Douglas R. Cox, 

Matthew D. McGill, Charles J. Cooper, David H. Thompson, 

Peter A. Patterson, Brian W. Barnes, Drew W. Marrocco, 

Michael H. Barr, Richard M. Zuckerman, Sandra Hauser, and 

Janet M. Weiss.

USCA Case #14-5262 Document #1662090 Filed: 02/21/2017 Page 1 of 103
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Hamish P.M. Hume argued the cause for American 

European Insurance Company, et al. With him on the briefs 

were Matthew A. Goldstein, David R. Kaplan, and Geoffrey C. 

Jarvis.

Thomas P. Vartanian, Steven G. Bradbury, Robert L. 

Ledig, and Robert J. Rhatigan were on the brief for amici 

curiae the Independent Community Bankers of America, the 

Association of Mortgage Investors, Mr. William M. Isaac, and 

Mr. Robert H. Hartheimer in support of appellants.

Thomas F. Cullen, Jr., Michael A. Carvin, James E. 

Gauch, Lawrence D. Rosenberg, and Paul V. Lettow were on 

the brief for amici curiae Louise Rafter, Josephine and Stephen 

Rattien, and Pershing Square Capital Management, L.P. in 

support of appellants and reversal.

Jerrold J. Ganzfried and Bruce S. Ross were on the brief 

for amici curiae 60 Plus Association, Inc. in support of 

reversal. 

Eric Grant was on the brief for amicus curiae Jonathan R. 

Macey in support of appellants and reversal. 

Thomas R. McCarthy was on the brief for amici curiae

Timothy Howard and The Coalition for Mortgage Security in 

support of appellants.

Myron T. Steele was on the brief for amicus curiae Center 

for Individual Freedom in support of appellants.

Michael H. Krimminger was on the brief for amicus curiae

Investors Unite in support of appellants for reversal. 

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Howard N. Cayne argued the cause for appellees Federal 

Housing Finance Agency, et al. With him on the brief were 

Paul D. Clement, D. Zachary Hudson, Michael J. Ciatti, 

Graciela Maria Rodriguez, David B. Bergman, Michael A.F. 

Johnson, Dirk C. Phillips, and Ian S. Hoffman. 

Mark B. Stern, Attorney, U.S. Department of Justice, 

argued the cause for appellee Steven T. Mnuchin. With him on 

the brief were Benjamin C. Mizer, Principal Deputy Assistant 

Attorney General, Beth S. Brinkmann, Deputy Assistant 

Attorney General, Alisa B. Klein, Abby C. Wright, and Gerard 

Sinzdak, Attorneys.

Dennis M. Kelleher was on the brief for amicus curiae

Better Markets, Inc. in support of appellees and affirmance.

Pierre H. Bergeron was on the brief for amicus curiae

Black Chamber of Commerce in support of neither party.

Colleen J. Boles, Assistant General Counsel, Kathryn R. 

Norcross, Senior Counsel, and Jerome A. Madden, Counsel, 

were on the brief for amicus curiae The Federal Deposit 

Insurance Corporation in support of FHFA and affirmance.

Before: BROWN and MILLETT, Circuit Judges, and 

GINSBURG, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge MILLETT and

Senior Circuit Judge GINSBURG.

Dissenting opinion filed by Circuit Judge BROWN.

MILLETT, Circuit Judge, and GINSBURG, Senior Circuit 

Judge: In 2007–2008, the national economy went into a severe 

recession due in significant part to a dramatic decline in the 

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housing market. That downturn pushed two central players in 

the United States’ housing mortgage market—the Federal 

National Mortgage Association (“Fannie Mae” or “Fannie”)

and the Federal Home Loan Mortgage Corporation (“Freddie 

Mac” or “Freddie”)—to the brink of collapse. Congress 

concluded that resuscitating Fannie Mae and Freddie Mac was 

vital for the Nation’s economic health, and to that end passed

the Housing and Economic Recovery Act of 2008 (“Recovery 

Act”), Pub. L. No. 110-289, 122 Stat. 2654 (codified, as 

relevant here, in various sections of 12 U.S.C.). Under the 

Recovery Act, the Federal Housing Finance Agency (“FHFA”) 

became the conservator of Fannie Mae and Freddie Mac.

In an effort to keep Fannie Mae and Freddie Mac afloat, 

FHFA promptly concluded on their behalf a stock purchase 

agreement with the Treasury Department, under which 

Treasury made billions of dollars in emergency capital 

available to Fannie Mae and Freddie Mac (collectively, “the 

Companies”) in exchange for preferred shares of their stock. 

In return, Fannie and Freddie agreed to pay Treasury a 

quarterly dividend in the amount of 10% of the total amount of 

funds drawn from Treasury. Fannie’s and Freddie’s frequent 

inability to make those dividend payments, however, meant 

that they often borrowed more cash from Treasury just to pay 

the dividends, which in turn increased the dividends that Fannie 

and Freddie were obligated to pay in future quarters. In 2012, 

FHFA and Treasury adopted the Third Amendment to their 

stock purchase agreement, which replaced the fixed 10% 

dividend with a formula by which Fannie and Freddie just paid 

to Treasury an amount (roughly) equal to their quarterly net 

worth, however much or little that may be. 

A number of Fannie Mae and Freddie Mac stockholders

filed suit alleging that FHFA’s and Treasury’s alteration of the 

dividend formula through the Third Amendment exceeded 

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their statutory authority under the Recovery Act, and 

constituted arbitrary and capricious agency action in violation 

of the Administrative Procedure Act, 5 U.S.C. § 706(2)(A). 

They also claimed that FHFA, Treasury, and the Companies

committed various common-law torts and breaches of contract

by restructuring the dividend formula. 

We hold that the stockholders’ statutory claims are barred 

by the Recovery Act’s strict limitation on judicial review. See 

12 U.S.C. § 4617(f). We also reject most of the stockholders’ 

common-law claims. Insofar as we have subject matter 

jurisdiction over the stockholders’ common-law claims against 

Treasury, and Congress has waived the agency’s immunity 

from suit, those claims, too, are barred by the Recovery Act’s 

limitation on judicial review. Id. As for the claims against 

FHFA and the Companies, some are barred because FHFA 

succeeded to all rights, powers, and privileges of the 

stockholders under the Recovery Act, id. § 4617(b)(2)(A); 

others fail to state a claim upon which relief can be granted. 

The remaining claims, which are contract-based claims 

regarding liquidation preferences and dividend rights, are 

remanded to the district court for further proceedings. 

I. Background

A. Statutory Framework

1. The Origins of Fannie Mae and Freddie Mac

Created by federal statute in 1938, Fannie Mae originated 

as a government-owned entity designed to “provide stability in 

the secondary market for residential mortgages,” to “increas[e] 

the liquidity of mortgage investments,” and to “promote access 

to mortgage credit throughout the Nation.” 12 U.S.C. § 1716; 

see id. § 1717. To accomplish those goals, Fannie Mae (i) 

purchases mortgage loans from commercial banks, which frees 

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up those lenders to make additional loans, (ii) finances those 

purchases by packaging the mortgage loans into mortgagebacked securities, and (iii) then sells those securities to 

investors. In 1968, Congress made Fannie Mae a publicly

traded, stockholder-owned corporation. See Housing and 

Urban Development Act, Pub. L. No. 90-448, § 801, 82 Stat. 

476, 536 (1968) (codified at 12 U.S.C. § 1716b). 

Congress created Freddie Mac in 1970 to “increase the 

availability of mortgage credit for the financing of urgently 

needed housing.” Federal Home Loan Mortgage Corporation 

Act, Pub. L. No. 91-351, preamble, 84 Stat. 450 (1970). Much 

like Fannie Mae, Freddie Mac buys mortgage loans from a 

broad variety of lenders, bundles them together into mortgagebacked securities, and then sells those mortgage-backed 

securities to investors. In 1989, Freddie Mac became a publicly 

traded, stockholder-owned corporation. See Financial 

Institutions Reform, Recovery, and Enforcement Act of 1989, 

Pub. L. No. 101-73, § 731, 103 Stat. 183, 429–436. 

Fannie Mae and Freddie Mac became major players in the 

United States’ housing market. Indeed, in the lead up to 2008, 

Fannie Mae’s and Freddie Mac’s mortgage portfolios had a 

combined value of $5 trillion and accounted for nearly half of 

the United States mortgage market. But in 2008, the United 

States economy fell into a severe recession, in large part due to 

a sharp decline in the national housing market. Fannie Mae 

and Freddie Mac suffered a precipitous drop in the value of 

their mortgage portfolios, pushing the Companies to the brink 

of default.

2. The 2008 Housing and Economic Recovery Act

Concerned that a default by Fannie and Freddie would 

imperil the already fragile national economy, Congress enacted 

the Recovery Act, which established FHFA and authorized it 

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to undertake extraordinary economic measures to resuscitate 

the Companies. To begin with, the Recovery Act denominated 

Fannie and Freddie “regulated entit[ies]” subject to the direct 

“supervision” of FHFA, 12 U.S.C. § 4511(b)(1), and the

“general regulatory authority” of FHFA’s Director, id.

§ 4511(b)(1), (2). The Recovery Act charged FHFA’s Director 

with “oversee[ing] the prudential operations” of Fannie Mae 

and Freddie Mac and “ensur[ing] that” they “operate[] in a safe 

and sound manner,” “consistent with the public interest.” Id.

§ 4513(a)(1)(A), (B)(i), (B)(v).

The Recovery Act further authorized the Director of 

FHFA to appoint FHFA as either conservator or receiver for 

Fannie Mae and Freddie Mac “for the purpose of reorganizing, 

rehabilitating, or winding up the[ir] affairs.” 12 U.S.C. 

§ 4617(a)(2). The Recovery Act invests FHFA as conservator 

with broad authority and discretion over the operation of 

Fannie Mae and Freddie Mac. For example, upon appointment

as conservator, FHFA “shall * * * immediately succeed 

to * * * all rights, titles, powers, and privileges of the regulated 

entity, and of any stockholder, officer, or director of such 

regulated entity with respect to the regulated entity and the 

assets of the regulated entity.” Id. § 4617(b)(2)(A). In 

addition, FHFA “may * * * take over the assets of and operate 

the regulated entity,” and “may * * * preserve and conserve the 

assets and property of the regulated entity.” Id.

§ 4617(b)(2)(B)(i), (iv). 

The Recovery Act further invests FHFA with expansive 

“[g]eneral powers,” explaining that FHFA “may,” among other 

things, “take such action as may be * * * necessary to put the 

regulated entity in a sound and solvent condition” and 

“appropriate to carry on the business of the regulated entity and 

preserve and conserve [its] assets and property[.]” 12 U.S.C. 

§ 4617(b)(2), (2)(D). FHFA’s powers also include the 

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discretion to “transfer or sell any asset or liability of the 

regulated entity in default * * * without any approval, 

assignment, or consent,” id. § 4617(b)(2)(G), and to “disaffirm 

or repudiate [certain] contract[s] or lease[s],” id. § 4617(d)(1). 

See also id. § 4617(b)(2)(H) (power to pay the regulated 

entity’s obligations); id. § 4617(b)(2)(I) (investing the 

conservator with subpoena power).

Consistent with Congress’s mandate that FHFA’s Director 

protect the “public interest,” 12 U.S.C. § 4513(a)(1)(B)(v), the 

Recovery Act invested FHFA as conservator with the authority 

to exercise its statutory authority and any “necessary” 

“incidental powers” in the manner that “the Agency [FHFA] 

determines is in the best interests of the regulated entity or the 

Agency.” Id. § 4617(b)(2)(J) (emphasis added).

 

The Recovery Act separately granted the Treasury 

Department “temporary” authority to “purchase any 

obligations and other securities issued by” Fannie and Freddie. 

12 U.S.C. §§ 1455(l)(1)(A), 1719. That provision made it 

possible for Treasury to buy large amounts of Fannie and 

Freddie stock, and thereby infuse them with massive amounts 

of capital to ensure their continued liquidity and stability.

Continuing Congress’s concern for protecting the public 

interest, however, the Recovery Act conditioned such 

purchases on Treasury’s specific determination that the terms

of the purchase would “protect the taxpayer,” 12 U.S.C. 

§ 1719(g)(1)(B)(iii), and to that end specifically authorized 

“limitations on the payment of dividends,” id. 

§ 1719(g)(1)(C)(vi). A sunset provision terminated Treasury’s 

authority to purchase such securities after December 31, 2009. 

Id. § 1719(g)(4). After that, Treasury was authorized only “to 

hold, exercise any rights received in connection with, or sell, 

any obligations or securities purchased.” Id. § 1719(g)(2)(D).

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Lastly, the Recovery Act sharply limits judicial review of 

FHFA’s conservatorship activities, directing that “no court 

may take any action to restrain or affect the exercise of powers 

or functions of the Agency as a conservator.” 12 U.S.C. 

§ 4617(f).

B. Factual Background

On September 6, 2008, FHFA’s Director placed both 

Fannie Mae and Freddie Mac into conservatorship. The next 

day, Treasury entered into Senior Preferred Stock Purchase 

Agreements (“Stock Agreements”) with Fannie and Freddie, 

under which Treasury committed to promptly invest billions of 

dollars in Fannie and Freddie to keep them from defaulting. 

Fannie and Freddie had been “unable to access [private] capital 

markets” to shore up their financial condition, “and the only 

way they could [raise capital] was with Treasury support.” 

Oversight Hearing to Examine Recent Treasury and FHFA 

Actions Regarding the Housing GSEs Before the H. Comm. on 

Fin. Servs., 110th Cong. 12 (2008) (Statement of James B. 

Lockhart III, Director, FHFA). 

In exchange for that extraordinary capital infusion, 

Treasury received one million senior preferred shares in each 

company. Those shares entitled Treasury to: (i) a $1 billion 

senior liquidation preference—a priority right above all other 

stockholders, whether preferred or otherwise, to receive 

distributions from assets if the entities were dissolved; (ii) a 

dollar-for-dollar increase in that liquidation preference each 

time Fannie and Freddie drew upon Treasury’s funding 

commitment; (iii) quarterly dividends that the Companies 

could either pay at a rate of 10% of Treasury’s liquidation 

preference or a commitment to increase the liquidation 

preference by 12%; (iv) warrants allowing Treasury to 

purchase up to 79.9% of Fannie’s and Freddie’s common stock; 

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and (v) the possibility of periodic commitment fees over and 

above any dividends.1 

The Stock Agreements also included a variety of 

covenants. Of most relevance here, the Stock Agreements 

included a flat prohibition on Fannie and Freddie “declar[ing]

or pay[ing] any dividend (preferred or otherwise) or mak[ing]

any other distribution (by reduction of capital or otherwise), 

whether in cash, property, securities or a combination thereof”

without Treasury’s advance consent (unless the dividend or 

distribution was for Treasury’s Senior Preferred Stock or 

warrants). J.A. 2451.

The Stock Agreements initially capped Treasury’s 

commitment to invest capital at $100 billion per company. It 

quickly became clear, however, that Fannie and Freddie were 

in a deeper financial quagmire than first anticipated. So their 

survival would require even greater capital infusions by 

Treasury, as sufficient private investors were still nowhere to 

be found. Consequently, FHFA and Treasury adopted the First 

Amendment to the Stock Agreements in May 2009, under 

which Treasury agreed to double the funding commitment to 

$200 billion for each company. 

Seven months later, in a Second Amendment to the Stock 

Agreements, FHFA and Treasury again agreed to raise the cap,

this time to an adjustable figure determined in part by the 

amount of Fannie’s and Freddie’s quarterly cumulative losses

between 2010 and 2012. As of June 30, 2012, Fannie and 

Freddie together had drawn $187.5 billion from Treasury’s 

funding commitment.

 1 Thus far, Treasury has not asked Fannie and Freddie to pay any 

commitment fees. 

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Through the first quarter of 2012, Fannie and Freddie 

repeatedly struggled to generate enough capital to pay the 10% 

dividend they owed to Treasury under the amended Stock 

Agreements.

2

 FHFA and Treasury stated publicly that they 

worried about perpetuating the “circular practice of the 

Treasury advancing funds to [Fannie and Freddie] simply to 

pay dividends back to Treasury,” and thereby increasing their

debt loads in the process.

3

Accordingly, FHFA and Treasury adopted the Third 

Amendment to the Stock Agreements on August 17, 2012. The

Third Amendment to the Stock Agreements replaced the 

previous quarterly 10% dividend formula with a requirement 

that Fannie and Freddie pay as dividends only the amount, if 

any, by which their net worth for the quarter exceeded a capital 

buffer of $3 billion, with that buffer decreasing annually down 

to zero by 2018. In simple terms, the Third Amendment 

requires Fannie and Freddie to pay quarterly to Treasury a 

dividend equal to their net worth—however much or little that 

might be. Through that new dividend formula, Fannie and 

Freddie would never again incur more debt just to make their 

quarterly dividend payments, thereby precluding any dividenddriven downward debt spiral. But neither would Fannie or 

Freddie be able to accrue capital in good quarters. 

Under the Third Amendment, Fannie Mae and Freddie

Mac together paid Treasury $130 billion in dividends in 2013, 

 2 Neither company drew upon Treasury’s commitment in the second 

quarter of 2012 though.

3 Press Release, United States Dep’t of the Treasury, Treasury 

Department Announces Further Steps to Expedite Wind Down of 

Fannie Mae and Freddie Mac (August 17, 2012), 

https://www.treasury.gov/press-center/press-releases/Pages/tg 1684. 

aspx (“Treasury Press Release”).

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and another $40 billion in 2014. The next year, however, 

Fannie’s and Freddie’s quarterly net worth was far lower: 

Fannie paid Treasury $10.3 billion and Freddie paid Treasury

$5.5 billion. See FANNIE MAE, FORM 10-K FOR THE FISCAL 

YEAR ENDED DECEMBER 31, 2015 (Feb. 19, 2016); FREDDIE 

MAC, FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31,

2015 (Feb. 18, 2016). By comparison, without the Third 

Amendment, Fannie and Freddie together would have had to 

pay Treasury $19 billion in 2015 or else draw once again on 

Treasury’s commitment of funds and thereby increase 

Treasury’s liquidation preference. In the first quarter of 2016, 

Fannie paid Treasury $2.9 billion and Freddie paid Treasury no 

dividend at all. See FANNIE MAE, FORM 10-Q FOR THE 

QUARTERLY PERIOD ENDED MARCH 31, 2016 (May 5, 2016); 

FREDDIE MAC, FORM 10-Q FOR THE QUARTERLY PERIOD 

ENDED MARCH 31, 2016 (May 3, 2016).

Under the Third Amendment, and FHFA’s 

conservatorship, Fannie and Freddie have continued their 

operations for more than four years. During that time, Fannie 

and Freddie, among other things, collectively purchased at least

11 million mortgages on single-family owner-occupied 

properties, and Fannie issued over $1.5 trillion in single-family 

mortgage-backed securities.4 

 4 See FANNIE MAE, FORM 10-K FOR THE FISCAL YEAR ENDED 

DECEMBER 31, 2015 (Feb. 19, 2016); FREDDIE MAC, ANNUAL 

HOUSING ACTIVITIES REPORT FOR 2015, at 1 (March 15, 2016); 

FANNIE MAE, 2015 ANNUAL HOUSING ACTIVITIES REPORT AND 

ANNUAL MORTGAGE REPORT, tbl. 1A (March 14, 2016); FANNIE 

MAE, 2014 ANNUAL HOUSING ACTIVITIES REPORT AND ANNUAL 

MORTGAGE REPORT, tbl. 1A (March 13, 2015); FREDDIE MAC,

ANNUAL HOUSING ACTIVITIES REPORT FOR 2014, at 1 (March 11, 

2015); FANNIE MAE, 2013 ANNUAL HOUSING ACTIVITIES REPORT 

AND ANNUAL MORTGAGE REPORT, tbl. 1A (March 13, 2014); 

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C. Procedural History

In 2013, a number of Fannie Mae and Freddie Mac

stockholders filed suit challenging the Third Amendment. 

Different groups of plaintiffs have pressed different claims. 

First, various hedge funds, mutual funds, and insurance 

companies (collectively, “institutional stockholders”) argued 

that (i) FHFA’s and Treasury’s adoption of the Third 

Amendment exceeded their authority under the Recovery Act, 

and (ii) FHFA and Treasury each engaged in arbitrary and 

capricious conduct, in violation of the Administrative 

Procedure Act (“APA”). The institutional stockholders

requested declaratory and injunctive relief, but no damages.

5

 

Second, a class of stockholders (“class plaintiffs”) and a 

few of the institutional stockholders alleged that, in adopting 

the Third Amendment, FHFA and the Companies breached the 

terms governing dividends, liquidation preferences, and voting 

rights in the stock certificates for Freddie’s Common Stock and 

for both Fannie’s and Freddie’s Preferred Stock. They further 

alleged that those defendants breached the implied covenants 

of good faith and fair dealing in those certificates. The class 

plaintiffs also alleged that FHFA and Treasury breached statelaw fiduciary duties owed by a corporation’s management and 

 

FREDDIE MAC, ANNUAL HOUSING ACTIVITIES REPORT FOR 2013, at

1 (March 12, 2014). 

5 One of the institutional stockholders—Arrowood—does not 

identify the claims for which it seeks damages in its prayer for relief. 

However, looking at the description of each claim, Arrowood alleges 

that it sustained damages only in its breach of contract and breach of 

implied covenant claims. For the Recovery Act and APA claims, 

Arrowood alleges only that it is entitled to relief “under 5 U.S.C. 

§§ 702, 706(2)(C),” J.A. 208, provisions of the APA that do not 

authorize money damages.

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controlling shareholder, respectively. Some of the institutional 

stockholders asserted similar claims against FHFA. The class

plaintiffs asked the court to declare their lawsuit a “proper 

derivative action,” J.A. 277, and to award damages as well as 

injunctive and declaratory relief. 

The district court granted FHFA’s and Treasury’s motions

to dismiss both complaints for failure to state a claim under 

Federal Rule of Civil Procedure 12(b)(6). See Perry Capital 

LLC v. Lew, 70 F. Supp. 3d 208, 246 (D.D.C. 2014). 

Specifically, the court dismissed the Recovery Act and APA 

claims as barred by the Recovery Act’s express limitation on 

judicial review, 12 U.S.C. § 4617(f). The court dismissed the 

APA claims against Treasury on the same statutory ground, 

reasoning that Treasury’s “interdependent, contractual conduct 

is directly connected to FHFA’s activities as a conservator.” 

Id. at 222. The district court explained that “enjoining Treasury 

from partaking in the Third Amendment would restrain 

FHFA’s uncontested authority to determine how to conserve 

the viability of [Fannie and Freddie].” Id. at 222–223. 

Turning to the class plaintiffs’ claims for breach of 

fiduciary duty, the court dismissed those as barred by FHFA’s 

statutory succession to all rights and interests held by Fannie’s

and Freddie’s stockholders, 12 U.S.C. § 4617(b)(2)(A). The 

court then dismissed the breach of contract and breach of the 

implied covenant of good faith and fair dealing claims based 

on liquidation preferences as not ripe because Fannie and 

Freddie had not been liquidated. Finally, the district court 

dismissed the dividend-rights claims, reasoning that no such 

rights exist.6

 

 6

 The class plaintiffs had also alleged that the failure of FHFA and 

Treasury to provide just compensation for taking private property 

violated the Takings Clause of the Fifth Amendment. The district 

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II. Jurisdiction

Before delving into the merits, we pause to assure 

ourselves of our jurisdiction, as is our duty. See Steel Co. v. 

Citizens for a Better Environment, 523 U.S. 83, 94 (1998) (“On 

every writ of error or appeal, the first and fundamental question 

is that of jurisdiction[.]”) (citation omitted). A provision of the 

Recovery Act deprives courts of jurisdiction “to affect, by 

injunction or otherwise, the issuance or effectiveness of any 

classification or action of the Director under this 

subchapter * * * or to review, modify, suspend, terminate, or 

set aside such classification or action.” 12 U.S.C. § 4623(d). 

That language does not strip this court of jurisdiction to 

hear this case. By its terms, Section 4623(d) applies only to 

“any classification or action of the Director.” 12 U.S.C. 

§ 4623(d). Thus, Section 4623(d) prohibits review of the 

Director’s establishment of “risk-based capital 

requirements * * * to ensure that the enterprises operate in a 

safe and sound manner, maintaining sufficient capital and 

reserves to support the risks that arise in the operations and 

management of the enterprises.” Id. § 4611(a)(1). In 

particular, Section 4614 requires “the Director” to “classify” 

Fannie and Freddie as “adequately capitalized,” 

“undercapitalized,” “significantly undercapitalized,” or 

“critically undercapitalized.” Id. § 4614(a). Classification as 

undercapitalized or significantly undercapitalized in turn 

subjects Fannie and Freddie to a host of supervisory actions by 

“the Director.” See id. §§ 4615–4616. It is those capital-

 

court dismissed that challenge for failure to state a legally cognizable 

claim, Fed. R. Civ. P. 12(b)(6), and the class plaintiffs have not 

challenged that ruling on appeal.

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classification decisions that Section 4623(d) insulates from 

judicial review.

The Third Amendment was not a “classification or action 

of the Director” of FHFA. Rather, it was an action taken by 

FHFA acting as Fannie’s and Freddie’s conservator. Judicial 

review of the actions of the agency as conservator is addressed 

by Section 4617(f), not by Section 4623(d)’s particular focus 

on the Director’s own actions. Compare 12 U.S.C. § 4617(f) 

(referencing “powers or functions of the Agency”) (emphasis 

added), with id. § 4623(d) (referencing “any classification or 

action of the Director”) (emphasis added). 

FHFA argues that the Director’s decision in 2008 to 

suspend capital classifications of Fannie Mae and Freddie Mac 

during the conservatorship could be a “classification or action 

of the Director.” FHFA Suppl. Br. at 6–8 (quoting 12 U.S.C. 

§ 4623(d)). Perhaps. But those are not the actions that the 

institutional stockholders and the class plaintiffs challenge. 

Instead, they challenge FHFA’s decision as conservator to 

agree to changes in the Stock Agreement and to how Fannie 

and Freddie will compensate Treasury for its extensive past and 

promised future infusions of needed capital. Those actions do 

not fall within Section 4623(d)’s jurisdictional bar for Directorspecific actions. 

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III. Statutory Challenges to the Third Amendment

Turning to the merits, we address first the institutional 

stockholders’ claims that FHFA’s and Treasury’s adoption of 

the Third Amendment violated both the Recovery Act and the 

APA. Both of those statutory claims founder on the Recovery 

Act’s far-reaching limitation on judicial review. Congress was 

explicit in Section 4617(f) that “no court” can take “any action” 

that would “restrain or affect” FHFA’s exercise of its “powers 

or functions * * * as a conservator or a receiver.” 12 U.S.C. 

§ 4617(f). We take that law at its word, and affirm dismissal 

of the institutional stockholders’ claims for injunctive and 

declaratory relief designed to unravel FHFA’s adoption of the 

Third Amendment.

A. Section 4617(f) Bars the Challenges to

FHFA Based on the Recovery Act

1. Section 4617(f)’s Textual Barrier to Plaintiffs’ 

Claims for Relief

The institutional stockholders’ complaints ask the district 

court to declare the Third Amendment invalid, to vacate the 

Third Amendment, and to enjoin FHFA from implementing it. 

Those prayers for relief fall squarely within Section 4617(f)’s 

plain textual compass. The institutional stockholders seek to 

“restrain [and] affect” FHFA’s “exercise of powers” “as a 

conservator” in amending the terms of Fannie’s and Freddie’s 

contractual funding agreement with Treasury to guarantee the 

Companies’ continued access to taxpayer-financed capital 

without risk of incurring new debt just to pay dividends to 

Treasury. Such management of Fannie’s and Freddie’s assets, 

debt load, and contractual dividend obligations during their 

ongoing business operation sits at the core of FHFA’s 

conservatorship function. 

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This court has interpreted a nearly identical statutory 

limitation on judicial review to prohibit claims for declaratory, 

injunctive, and other forms of equitable relief as long as the 

agency is acting within its statutory conservatorship authority. 

The Financial Institutions Reform, Recovery, and Enforcement 

Act of 1989 (“FIRREA”), Pub. L. No. 101-73, 103 Stat. 183, 

governs the Federal Deposit Insurance Corporation (“FDIC”) 

when it serves as a conservator or receiver for troubled 

financial institutions. Section 1821(j) of that Act prohibits

courts from “tak[ing] any action * * * to restrain or affect the 

exercise of powers or functions of [the FDIC] as a conservator 

or a receiver.” 12 U.S.C. § 1821(j). 

In multiple decisions, we have held that Section 1821(j)

shields from a court’s declaratory and other equitable powers a 

broad swath of the FDIC’s conduct as conservator or receiver

when exercising its statutory authority. To start with, in 

National Trust for Historic Preservation in the United States v. 

FDIC (National Trust I), 995 F.2d 238 (D.C. Cir. 1993) (per 

curiam), aff’d in relevant part, 21 F.3d 469 (D.C. Cir. 1994),

we held that Section 1821(j) “bars the [plaintiff’s] suit for 

injunctive relief” seeking to halt the sale of a building as 

violating the National Historic Preservation Act, 16 U.S.C. 

§ 470 et seq. (repealed December 19, 2014). See 995 F.2d at 

239. We explained that, because “the powers and functions the 

FDIC is exercising are, by statute, deemed to be those of a 

receiver,” an injunction against the sale “would surely ‘restrain 

or affect’ the FDIC’s exercise of those powers or functions.” 

Id. Given Section 1821(j)’s “strong language,” we continued, 

it would be “[im]possible * * * to interpret the FDIC’s 

‘powers’ and ‘authorities’ to include the limitation that those 

powers be subject to—and hence enjoinable for noncompliance with—any and all other federal laws.” Id. at 240. 

Indeed, “given the breadth of the statutory language,” Section 

1821(j) “would appear to bar a court from acting” 

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notwithstanding a “parade of possible violations of existing 

laws.” National Trust for Historic Preservation in the United 

States v. FDIC (National Trust II), 21 F.3d 469, 472 (D.C. Cir. 

1994) (per curiam) (Wald, J., joined by Silberman, J.,

concurring).

Again in Freeman v. FDIC, 56 F.3d 1394 (D.C. Cir. 1995), 

this court rejected the plaintiffs’ attempt to enjoin the FDIC, as 

receiver of a bank, from foreclosing on their home, id. at 1396. 

We acknowledged that Section 1821(j)’s stringent limitation 

on judicial review “may appear drastic,” but that “it fully 

accords with the intent of Congress at the time it enacted 

FIRREA in the midst of the savings and loan insolvency crisis 

to enable the FDIC” to act “expeditiously” in its role as 

conservator or receiver. Id. at 1398. Given those exigent 

financial circumstances, “Section 1821(j) does indeed effect a 

sweeping ouster of courts’ power to grant equitable 

remedies[.]” Id. at 1399; see also MBIA Ins. Corp. v. FDIC, 

708 F.3d 234, 247 (D.C. Cir. 2013) (In Section 1821(j), 

“Congress placed ‘drastic’ restrictions on a court’s ability to 

institute equitable remedies[.]”) (quoting Freeman, 56 F.3d at 

1398). 

The rationale of those decisions applies with equal force 

to Section 4617(f)’s indistinguishable operative language. The 

plain statutory text draws a sharp line in the sand against 

litigative interference—through judicial injunctions, 

declaratory judgments, or other equitable relief—with FHFA’s 

statutorily permitted actions as conservator or receiver. And, 

as with FIRREA, Congress adopted Section 4617(f) to protect 

FHFA as it addressed a critical aspect of one of the greatest 

financial crises in the Nation’s modern history. 

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2. FHFA’s Actions Fall Within its Statutory 

Authority

The institutional stockholders cite language in National 

Trust I, which states that FIRREA’s—and by analogy the 

Recovery Act’s—prohibition on injunctive and declaratory 

relief would not apply if the agency “has acted or proposes to 

act beyond, or contrary to, its statutorily prescribed, 

constitutionally permitted, powers or functions,” National 

Trust I, 995 F.2d at 240. They then argue that FHFA’s adoption 

of the Third Amendment was out of bounds because, in their 

view, the Recovery Act “requires FHFA as conservator to act 

independently to conserve and preserve the Companies’ assets, 

to put the Companies in a sound and solvent condition, and to 

rehabilitate them.” Institutional Pls. Br. at 26 (emphasis 

added). As the institutional stockholders see it, by committing 

Fannie’s and Freddie’s quarterly net worth—if any—to 

Treasury in exchange for continued access to Treasury’s 

taxpayer-funded financial lifelines, FHFA acted like a de facto

receiver functionally liquidating Fannie’s and Freddie’s 

businesses. And FHFA did so, they add, without following the 

procedural preconditions that the Recovery Act imposes on a 

receivership, such as publishing notice and providing an 

alternative dispute resolution process to resolve liquidation 

claims, see 12 U.S.C. § 4617(b)(3)(B)(i), (b)(7)(A)(i).

7

 

That exception to the bar on judicial review has no 

application here because adoption of the Third Amendment 

falls within FHFA’s statutory conservatorship powers, for four

reasons.

 7

 The institutional stockholders do not argue that FHFA or Treasury 

transgressed constitutional bounds in any respect.

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(i) The Recovery Act endows FHFA with extraordinarily 

broad flexibility to carry out its role as conservator. Upon 

appointment as conservator, FHFA “immediately succeed[ed]

to * * * all rights, titles, powers, and privileges” not only of 

Fannie Mae and Freddie Mac, but also “of any stockholder, 

officer, or director of such regulated entit[ies] with respect to 

the regulated entit[ies] and the assets of the regulated 

entit[ies.]” 12 U.S.C. § 4617(b)(2)(A)(i). In addition, among

FHFA’s many “[g]eneral powers” is its authority to “[o]perate 

the regulated entity,” pursuant to which FHFA “may, as 

conservator or receiver * * * take over the assets of and 

operate * * * and conduct all business of the regulated 

entity; * * * collect all obligations and money due the 

regulated entity; * * * perform all functions of the regulated 

entity * * * ; preserve and conserve the assets and property of 

the regulated entity; and * * * provide by contract for 

assistance in fulfilling any function, activity, action, or duty of 

the Agency as conservator or receiver.” Id. § 4617(b)(2), 

(2)(B) (emphasis added). The Recovery Act further provides 

that FHFA “may, as conservator, take such action as may 

be * * * necessary to put the regulated entity in a sound and 

solvent condition; and * * * 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) (emphasis added). FHFA also “may disaffirm 

or repudiate [certain] contract[s] or lease[s].” Id. § 4617(d)(1)

(emphasis added); see also id. § 4617(b)(2)(G) (providing that 

FHFA “may, as conservator or receiver, transfer or sell any 

asset or liability of the regulated entity in default” without 

consent) (emphasis added). 

Accordingly, time and again, the Act outlines what FHFA

as conservator “may” do and what actions it “may” take. The 

statute is thus framed in terms of expansive grants of 

permissive, discretionary authority for FHFA to exercise as the 

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“Agency determines is in the best interests of the regulated 

entity or the Agency.” 12 U.S.C. § 4617(b)(2)(J). “It should 

go without saying that ‘may means may.’” United States Sugar 

Corp. v. EPA, 830 F.3d 579, 608 (D.C. Cir. 2016) (quoting 

McCreary v. Offner, 172 F.3d 76, 83 (D.C. Cir. 1999)). And 

“may” is, of course, “permissive rather than obligatory.” 

Baptist Memorial Hosp. v. Sebelius, 603 F.3d 57, 63 (D.C. Cir. 

2010). 

Entirely absent from the Recovery Act’s text is any 

mandate, command, or directive to build up capital for the 

financial benefit of the Companies’ stockholders. That is 

noteworthy because, when Congress wanted to compel FHFA 

to take specific measures as conservator or receiver, it switched 

to language of command, employing “shall” rather than “may.” 

Compare 12 U.S.C. § 4617(b)(2)(B) (listing actions that FHFA 

“may” take “as conservator or receiver” to “[o]perate the 

regulated entity”), and id. § 4617(b)(2)(D) (specifying actions 

that FHFA “may, as conservator” take), with id.

§ 4617(b)(2)(E) (specifying actions that FHFA “shall” take 

when “acting as receiver”), and id. § 4617(b)(14)(A)

(specifying that FHFA as conservator or receiver 

“shall * * * maintain a full accounting”). “[W]hen a statute 

uses both ‘may’ and ‘shall,’ the normal inference is that each is 

used in its usual sense—the one act being permissive, the other 

mandatory.” Sierra Club v. Jackson, 648 F.3d 848, 856 (D.C. 

Cir. 2011) (internal quotation marks and citation omitted).

In short, the most natural reading of the Recovery Act is 

that it permits FHFA, but does not compel it in any judicially 

enforceable sense, to preserve and conserve Fannie’s and 

Freddie’s assets and to return the Companies to private 

operation. And, more to the point, the Act imposes no precise 

order in which FHFA must exercise its multi-faceted 

conservatorship powers. 

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FHFA’s execution of the Third Amendment falls squarely 

within its statutory authority to “[o]perate the [Companies],” 

12 U.S.C. § 4617(b)(2)(B); to “reorganiz[e]” their affairs, id.

§ 4617(a)(2); and to “take such action as may

be * * * appropriate to carry on the[ir] business,” id. 

§ 4617(b)(2)(D)(ii). Renegotiating dividend agreements, 

managing heavy debt and other financial obligations, and 

ensuring ongoing access to vital yet hard-to-come-by capital 

are quintessential conservatorship tasks designed to keep the 

Companies operational. The institutional stockholders no 

doubt disagree about the necessity and fiscal wisdom of the 

Third Amendment. But Congress could not have been clearer 

about leaving those hard operational calls to FHFA’s 

managerial judgment. 

That, indeed, is why Congress provided that, in exercising 

its statutory authority, FHFA “may” “take any 

action * * * which the Agency determines is in the best 

interests of the regulated entity or the Agency.” 12 U.S.C. 

§ 4617(b)(2)(J) (emphasis added). Notably, while FIRREA 

explicitly permits FDIC to factor the best interests of depositors 

into its conservatorship judgments, id. § 1821(d)(2)(J)(ii), the 

Recovery Act refers only to the best interests of FHFA and the 

Companies—and not those of the Companies’ shareholders or 

creditors. Congress, consistent with its concern to protect the 

public interest, thus made a deliberate choice in the Recovery

Act to permit FHFA to act in its own best governmental 

interests, which may include the taxpaying public’s interest. 

The dissenting opinion (at 8) views Sections

4617(b)(2)(D) and (E) as “mark[ing] the bounds of FHFA’s 

conservator or receiver powers.” Not so. As a plain textual 

matter, the Recovery Act expressly provides FHFA many 

“[g]eneral powers” “as conservator or receiver,” 12 U.S.C. 

§ 4617(b)(2), that are not delineated in Section 4617(b)(2)(D)

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or (E). See id. § 4617(b)(2)(A) (assuming “all rights, titles, 

powers, and privileges of the regulated entity, and of any 

stockholder, officer, or director of such regulated entity with 

respect to the regulated entity and the assets of the regulated 

entity”); id. § 4617(b)(2)(B) (power to “[o]perate the regulated 

entity”); id. § 4617(b)(2)(C) (power to “provide for the 

exercise of any function by any stockholder, director, or officer 

of any regulated entity”); id. § 4617(b)(2)(G) (power to 

“transfer or sell any asset or liability of the regulated entity in 

default”); id. § 4617(b)(2)(H) (power to “pay [certain] valid 

obligations of the regulated entity”); id. § 4617(b)(2)(I) (power 

to issue subpoenas and take testimony under oath). See also id.

§ 4617(d)(1) (granting FHFA as the conservator or receiver the 

power to “repudiate [certain] contract[s] or lease[s]”). 

The institutional stockholders also argue that, because 

Section 4617(b)(2)(D) describes FHFA’s “[p]owers as 

conservator” by providing that FHFA “may * * * take such 

action as may be” “necessary to put the [Companies] in a sound 

and solvent condition” and “appropriate to * * * preserve and 

conserve [their] assets,” FHFA may act only when those two 

conditions are satisfied. Institutional Pls. Reply Br. at 13. In 

their view, FHFA “does not have other powers as conservator.” 

Id. 

The short answer is that the Recovery Act says nothing 

like that. It contains no such language of precondition or 

mandate. Indeed, if that is what Congress meant, it would have 

said FHFA “may only” act as necessary or appropriate to those 

tasks. Not only is that language missing from the Recovery 

Act, but Congress did not even say that FHFA “should”—let 

alone, “should first”—preserve and conserve assets or “should” 

first put the Companies in a sound and solvent condition. Nor 

did it articulate FHFA’s power directly in terms of asset 

preservation or sound and solvent company operations. What 

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the statute says is that FHFA “may * * * take such action as 

may be” “necessary to put the [Companies] in a sound and 

solvent condition” and “may be” “appropriate to * * * preserve 

or conserve [the Companies’] assets.” 12 U.S.C. 

§ 4617(b)(2)(D) (emphases added). So at most, the Recovery 

Act empowers FHFA to “take such action” as may be necessary

or appropriate to fulfill several goals. That is how Congress 

wrote the law, and that is the law we must apply. See Barnhart 

v. Sigmon Coal Co., 534 U.S. 438, 461–462 (2002) (“[C]ourts 

must presume that a legislature says in a statute what it means 

and means in a statute what it says there.”) (quoting 

Connecticut Nat’l Bank v. Germain, 503 U.S. 249, 253–254 

(1992)); Klayman v. Zuckerberg, 753 F.3d 1354, 1358 (D.C. 

Cir. 2014) (“[I]t is this court’s obligation to enforce statutes as 

Congress wrote them.”).

8

 

(ii) Even if the Recovery Act did impose a primary duty to 

preserve and conserve assets, nothing in the Recovery Act says 

that FHFA must do that in a manner that returns them to their 

prior private, capital-accumulating, and dividend-paying

condition for all stockholders. See Institutional Pls. Br. at 44. 

Tellingly, the institutional stockholders and dissenting opinion

accept that the original Stock Agreements and the First and 

Second Amendments fit comfortably within FHFA’s statutory 

authority as conservator. See Dissenting Op. at 21 

(acknowledging that FHFA “manage[d] the Companies within 

 8 The dissenting opinion suggests that Congress’s use of permissive 

“may” terminology is “a simple concession to the practical reality 

that a conservator may not always succeed in rehabilitating its ward.” 

Dissenting Op. at 9 n.1. Not so. Even with the hypothesized addition 

of mandatory terms to the statute, the Act would at most command 

FHFA to take actions “necessary to put the [Companies] in a sound 

and solvent condition” and “appropriate to * * * preserve and 

conserve [their] assets.” 12 U.S.C. § 4617(b)(2)(D). FHFA’s 

compliance thus would turn on its actions, not on their outcome. 

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the conservator role” until “the tide turned * * * with the Third 

Amendment”). But the Stock Agreements and First and 

Second Amendments themselves both obligated the 

Companies to pay large dividends to Treasury and prohibited

them, without Treasury’s approval, from “declar[ing] or 

pay[ing] any dividend (preferred or otherwise) or mak[ing] any 

other distribution (by reduction of capital or otherwise), 

whether in cash, property, securities or a combination thereof.” 

E.g., J.A. 2451; cf. 12 U.S.C. § 1719(g)(1)(C)(vi) (“To protect 

the taxpayers, the Secretary of the Treasury shall take into 

consideration,” inter alia, “[r]estrictions on the use of 

corporation resources, including limitations on the payment of 

dividends[.]”). 

That means that FHFA’s ability as conservator to give 

Treasury (and, by extension, the taxpayers) a preferential right 

to dividends, to the effective exclusion of other stockholders, 

was already put in place by the unchallenged and thus 

presumptively proper Stock Agreements and Amendments that 

predated the Third Amendment. The Third Amendment just 

locked in an exclusive allocation of dividends to Treasury that 

was already made possible by—and had been in practice 

under—the previous agreements, in exchange for continuing 

the Companies’ unprecedented access to guaranteed capital.

The institutional stockholders point to Section 4617(a)(2) 

as a purported source of FHFA’s mandatory duty to return the 

Companies to their old financial ways. But that Section 

provides only that FHFA’s Director has the power to appoint 

FHFA as “conservator or receiver for the purpose of 

reorganizing, rehabilitating, or winding up the affairs of a 

regulated entity.” 12 U.S.C. § 4617(a)(2). It is then the multipaged remaining portion of Section 4617 that details at 

substantial length FHFA’s many “[g]eneral powers” as 

conservator or receiver. Id. § 4617(b)(2). 

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Furthermore, that explicit power to “reorganiz[e]” 

supports FHFA’s action because the Third Amendment 

reorganized the Companies’ financial operations in a manner 

that ensures that quarterly dividend obligations are met without 

drawing upon Treasury’s commitment and thereby increasing 

Treasury’s liquidation preference. FHFA’s textual authority to 

reorganize and rehabilitate the Companies, in other words, 

forecloses any argument that the Recovery Act made the status 

quo ante a statutorily compelled end game. 

In addition, the Recovery Act openly recognizes that 

sometimes conservatorship will involve managing the 

regulated entity in the lead up to the appointment of a 

liquidating receiver. See 12 U.S.C. § 4617(a)(4)(D) (providing 

that appointment of FHFA as a receiver automatically 

terminates a conservatorship under the Act). The authority 

accorded FHFA as a conservator to reorganize or rehabilitate

the affairs of a regulated entity thus must include taking 

measures to prepare a company for a variety of financial 

scenarios, including possible liquidation. Contrary to the 

dissenting opinion (at 11), that does not make FHFA a “hybrid” 

conservator-receiver. It makes FHFA a fully armed 

conservator empowered to address all potential aspects of the 

Companies’ financial condition and operations at all stages

when confronting a threatened business collapse of truly 

unprecedented magnitude and with national economic 

repercussions.

The institutional stockholders nonetheless argue that, 

rather than adopt the Third Amendment’s dividend allocation, 

FHFA could instead have adopted a payment-in-kind dividend 

option that would have increased Treasury’s liquidation 

preference by 12% in return for avoiding a 10% dividend 

payment. Perhaps. But the Recovery Act does not compel that 

choice over the variable dividend to Treasury put in place by 

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the Third Amendment. Either way, Section 4617(f) flatly 

forbids declaratory and injunctive relief aimed at 

superintending to that degree FHFA’s conservatorship or 

receivership judgments.9

The dissenting opinion claims that the Third Amendment’s 

prevention of capital accumulation went too far because it 

constitutes a “de facto receiver[ship]” or “de facto liquidation,” 

and thus could not possibly constitute a permissible

“conservator” measure. See Dissenting Op. at 10, 17, 25. That

position presumes the existence of a rigid boundary between 

the conservator and receiver roles that even the dissenting 

opinion seems to admit may not exist. See Dissenting Op. at 7 

(acknowledging that “the line between a conservator and a 

receiver may not be completely impermeable”). Wherever that 

line may be, it is not crossed just because an agreement that 

ensures continued access to vital capital diverts all dividends to 

the lender, who had singlehandedly saved the Companies from 

collapse, even if the dividend payments under that agreement 

may at times be greater than the dividend payments under 

 9 The institutional stockholders also contend that FHFA’s adoption 

of the Third Amendment violated Section 4617(a)(7), which 

provides that FHFA “shall not be subject to the direction or 

supervision of any other agency.” 12 U.S.C. § 4617(a)(7). The 

institutional stockholders pleaded, however, only that “on 

information and belief, FHFA agreed to the [Third 

Amendment] * * * at the insistence and under the direction and 

supervision of Treasury.” J.A. 122, ¶ 70. On a motion to dismiss for 

failure to state a claim, we are not required to credit a bald legal 

conclusion that is devoid of factual allegations and that simply 

parrots the terms of the statute. See Ashcroft v. Iqbal, 556 U.S. 662, 

678 (2009) (“A pleading that offers labels and conclusions or a 

formulaic recitation of the elements of a cause of action will not do. 

Nor does a complaint suffice if it tenders naked assertions devoid of 

further factual enhancement.”) (citations, internal quotation marks, 

and alterations omitted).

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previous agreements. The proof that no de facto liquidation 

occurred is in the pudding: non-capital-accumulating entities

that continue to operate long-term, purchasing more than 11

million mortgages and issuing more than $1.5 trillion in singlefamily mortgage-backed securities over four years, are not the 

same thing as liquidating entities.

The argument also overlooks that the Third Amendment’s 

redirection of dividends to Treasury came in exchange for a 

promise of continued access to necessary capital free of the 

preexisting risk of accumulating more debt simply to pay 

dividends to Treasury. Now, after more than eight years of 

conservatorship—four of which have been under the Third 

Amendment—Fannie and Freddie have gone from a state of 

near-collapse to fluctuating levels of profitability. FHFA thus 

has “carr[ied] on the business of” Fannie and Freddie, 12 

U.S.C. § 4617(b)(2)(D)(ii), in that they remain fully 

operational entities with combined operating assets of $5 

trillion, see Treasury Resp. Br. at 35. While the dissenting 

opinion worries that the Companies have “no hope of survival 

past 2018,” Dissenting Op. at 27, the Third Amendment allows 

the Companies after 2018 to draw upon Treasury’s remaining 

funding commitment if needed to remedy any negative net 

worth.10

(iii) The institutional stockholders argue that the Third 

Amendment violated FHFA’s “fiduciary and statutory

obligations to * * * rehabilitate [the Companies] to normal 

 10 The dissenting opinion comments that the dividend payments 

under the Third Amendment did not go towards paying off what the 

Companies borrowed from Treasury. See Dissenting Op. at 21, 23. 

Yet the Stock Agreements and the First and Second Amendments, 

which the dissenting opinion acknowledges were lawful, id. at 21, 

similarly did not provide for the Companies’ dividends to pay down 

Treasury’s liquidation preference. 

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business operations,” Institutional Pls. Br. at 34, because the 

Amendment was as a factual matter not needed to prevent 

further indebtedness, and was instead intended to secure a 

windfall for Treasury (and indirectly taxpayers) at the expense 

of the stockholders. They likewise contend that FHFA’s 

motivation for adopting the Third Amendment all along has 

been to liquidate the Companies. They rest those arguments on 

factual allegations that FHFA and Treasury knew Fannie and 

Freddie had just turned an economic corner, and had

experienced substantial increases in their net worth. In that 

regard, the institutional stockholders cite evidence that FHFA 

and Treasury were aware before they adopted the Third 

Amendment that Fannie and Freddie might each experience a 

substantial one-time increase in net worth in 2013 and 2014 due 

to the realization of certain deferred tax assets. They also point 

to presentations Fannie Mae made to FHFA and Treasury in

July and August before the Third Amendment was executed, 

predicting that Fannie Mae and Freddie Mac would need only 

small draws from Treasury’s commitment (totaling less than $9 

billion) to pay Treasury its dividend through the year 2022. In 

the institutional stockholders’ view, FHFA’s alleged 

knowledge that rosier days were dawning shows that FHFA 

had no legitimate conservatorship reason to adopt the Third 

Amendment rather than to pursue measures that would allow 

the Companies to accumulate capital and return to the 

dividend-paying status quo ante. 

To be clear, though, the institutional stockholders argue 

that the Third Amendment would be just as flawed in their view 

even if Fannie and Freddie had made no profits, were badly 

hemorrhaging money in 2013 and 2014, and thus were in dire 

need of the Third Amendment’s promise of continued access 

to capital, free from dividend obligations that would have

increased still further Treasury’s liquidation preference. See 

Oral Arg. Tr. 22–24 (Q: “[D]oes the argument that they were 

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not acting as a proper conservator depend on the fact that they 

were in fact profitable? A: “[N]o, it doesn’t.”).11

Treasury argues, by contrast, that FHFA was taking a 

broader and longer-term view of the Companies’ financial 

condition. In almost every quarter before the Third 

Amendment was adopted, Fannie and Freddie had been unable 

to make their dividend payments to Treasury without taking on 

more debt to Treasury. In SEC filings, Fannie and Freddie 

themselves predicted that they would be unable to pay the 10% 

dividend over the long term. See, e.g., J.A. 1983 (Fannie Mae 

statement that it “do[es] not expect to generate net income or 

comprehensive income in excess of [its] annual dividend 

obligation to Treasury over the long term[,]” so its “dividend 

obligation to Treasury will increasingly drive [its] future draws 

under the senior [Stock Agreement]”); id. at 2160 (similar for 

Freddie Mac). Other market participants shared that view. See, 

e.g., id. at 655 (Moody’s report). 

According to Treasury, the Third Amendment put a 

structural end to “the circular practice of the Treasury 

advancing funds to [Fannie and Freddie] simply to pay 

dividends back to Treasury.” Treasury Press Release, supra. 

Said another way, the Third Amendment changed the dividend 

formula to require Fannie and Freddie to pay whatever 

dividend they could afford—however little, however much—

to prevent them from ever again having to fruitlessly borrow 

 11 After the large dividends in 2013 and 2014, Fannie and Freddie 

made a far smaller dividend payment—a combined $15.8 billion—

in 2015. In the first quarter of 2016, Freddie Mac had a 

comprehensive loss of $200 million and paid no dividend at all. See

FREDDIE MAC, FORM 10-Q FOR THE QUARTERLY PERIOD ENDED 

MARCH 31, 2016 (May 3, 2016). That loss was due to market forces 

such as interest-rate volatility and widening spreads between interest 

rates and benchmark rates. Id. at 1–2. 

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from Treasury to pay Treasury. If Fannie and Freddie made 

profits, Treasury would reap the rewards; if they suffered 

losses, Treasury would have to forgo payment entirely.

The problem with the institutional stockholders’ argument

is that the factual question of whether FHFA adopted the Third 

Amendment to arrest a “debt spiral” or whether it was intended 

to be a step in furthering the Companies’ return to “normal 

business operations” is not dispositive of FHFA’s authority to 

adopt the Third Amendment. Nothing in the Recovery Act

confines FHFA’s conservatorship judgments to those measures 

that are driven by financial necessity. And for purposes of 

applying Section 4617(f)’s strict limitation on judicial relief, 

allegations of motive are neither here nor there, as the 

dissenting opinion agrees (at 20). The stockholders cite 

nothing—nor can we find anything—in the Recovery Act that 

hinges FHFA’s exercise of its conservatorship discretion on 

particular motivations. See Leon County, Fla. v. FHFA, 816 F. 

Supp. 2d 1205, 1208 (N.D. Fla. 2011) (“Congress barred 

judicial review of the conservator’s actions without making an 

exception for actions said to be taken from an improper 

motive.”). 

Likewise, the duty that the Recovery Act imposes on 

FHFA to comply with receivership procedural protections 

textually turns on FHFA actually liquidating the Companies. 

See, e.g., 12 U.S.C. § 4617(b)(3)(B) (“The receiver, in any case 

involving the liquidation or winding up of the affairs of [Fannie 

or Freddie], shall * * * promptly publish a notice to the 

creditors of the regulated entity to present their claims, together 

with proof, to the receiver[.]”). Undertaking permissible 

conservatorship measures even with a receivership mind would

not be out of statutory bounds.

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33

The institutional stockholders’ burden instead is to show 

that FHFA’s actions were frolicking outside of statutory limits

as a matter of law. What matters then is the substantive 

measures that FHFA took, and nothing in the Recovery Act 

mandated that FHFA take steps to return Fannie Mae and 

Freddie Mac at the first sign of financial improvement to the 

old economic model that got them into so much trouble in the 

first place. Nor did anything in the Recovery Act forbid FHFA 

from adopting measures that took a more comprehensive, waitand-see view of the Companies’ long-term financial condition, 

or simply kept the Companies’ heads above water while FHFA 

observed their economic performance over time and through 

ever-changing market conditions. See, e.g., supra note 11.

12

(iv) The institutional stockholders cite state-law and 

historical sources to suggest that FHFA was not acting as a 

common-law conservator normally would when it adopted the 

Third Amendment. See Institutional Pls. Br. at 29–33. The 

problem for the plaintiffs is that arguments about the contours 

of common-law conservatorship do nothing to show that FHFA 

exceeded statutory bounds, which is what National Trust I

referenced. Under the Recovery Act, FHFA as conservator 

may “take any action authorized by this section, which the 

Agency determines is in the best interests of the regulated 

entity or the Agency.” 12 U.S.C. § 4617(b)(2)(J)(ii) (emphasis 

added). That explicit statutory authority to take 

 12 We grant the plaintiffs’ various motions to supplement the record 

with evidence of what FHFA and Treasury officials knew about the 

Companies’ predicted financial performance and when. That 

evidence does not affect our analysis, and we see no need to remand 

the claims for the district court to consider a fuller administrative 

record because the Recovery Act simply does not impose upon 

FHFA the precise duties that the institutional plaintiffs’ factual 

arguments suppose.

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34

conservatorship actions in the conservator’s own interest, 

which here includes the public and governmental interests, 

directly undermines the dissenting opinion’s supposition that 

Congress intended FHFA to be nothing more than a commonlaw conservator. See Dissenting Op. at 16 (asserting that, in 

the common-law probate context, a conservator is generally 

“forbid[den] * * * from acting for the benefit of the 

conservator himself or a third party”).

On top of that, Congress in the Recovery Act gave FHFA 

the ability to obtain from Treasury capital infusions of 

unprecedented proportions, as long as the deal FHFA struck 

with Treasury “protect[ed] the taxpayer” and “provide[d] 

stability to the financial markets.” 12 U.S.C. §§ 1455, 

1719(g)(1)(B)(i), (iii). That $200 billion-plus lifeline is what 

saved the Companies—none of the institutional stockholders 

were willing to infuse that kind of capital during desperate

economic times—and bears no resemblance to the type of 

conservatorship measures that a private common-law 

conservator would be able to undertake. Indeed, the dissenting 

opinion acknowledges that FHFA “operating as a conservator 

may act in its own interests to protect both the Companies and 

the taxpayers from whom [FHFA] was ultimately forced to 

borrow[.]” Dissenting Op. at 19. To paraphrase the dissenting 

opinion (at 27), Congress made clear in the Recovery Act that 

FHFA is not your grandparents’ conservator. For good reason.

The dissenting opinion asserts that our reading of Section 

4617(b)(2)(J)(ii) effectively “forecloses any opportunity for 

meaningful judicial review of FHFA’s actions,” Dissenting Op. 

at 18, and decries the abandonment of the “rule of law,” see id.

at 2. That is quite surprising to hear. As the balance of our 

opinion makes clear—much of which the dissenting opinion

joins—the Recovery Act only limits judicial remedies (banning 

injunctive, declaratory, and other equitable relief) after a court 

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35

determines that the actions taken fall within the scope of 

statutory authority. The Act does not prevent either 

constitutional claims (none are raised here) or judicial review 

through cognizable actions for damages like breach of contract. 

The dissenting opinion also argues that the court’s holding 

is inconsistent with Congress’s provision of judicial review for 

FHFA’s actions in Section 4617(a)(5). Dissenting Op. at 18. 

But Section 4617(a)(5) permits judicial review only at the 

behest of a regulated entity itself and even then only of the 

Director’s decision to appoint FHFA as a conservator or 

receiver.13 That narrow focus of the provision is underscored 

by the requirement that the lawsuit must be promptly filed 

within thirty days of the appointment decision (a deadline that 

none of the plaintiffs here met). We thus beg to differ with the 

dissenting opinion’s claim (at 18, 22) that Section 4617(a)(5) 

provides more intrusive judicial review for actions FHFA takes

when acting as a receiver, many of which would presumably 

occur outside of that thirty-day filing window. Cf. James 

Madison Ltd. by Hecht v. Ludwig, 82 F.3d 1085, 1092–1094 

 13 Section 4617(a)(5) provides in full: 

(A) In general 

If the Agency is appointed conservator or receiver under this 

section, the regulated entity may, within 30 days of such 

appointment, bring an action in the United States district 

court for the judicial district in which the home office of such 

regulated entity is located, or in the United States District 

Court for the District of Columbia, for an order requiring the 

Agency to remove itself as conservator or receiver. 

(B) Review

Upon the filing of an action under subparagraph (A), the 

court shall, upon the merits, dismiss such action or direct the 

Agency to remove itself as such conservator or receiver.

12 U.S.C. § 4617(a)(5). 

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(D.C. Cir. 1996) (distinguishing between provisions in 

FIRREA for judicial review of the appointment of FDIC as 

conservator or receiver and those governing judicial review of 

the FDIC’s exercise of its powers as conservator or receiver). 

Nothing in our reading of Section 4617(b)(2)(J)(ii), which 

governs what decisions a properly appointed conservator or 

receiver makes, undermines the sharply cabined opportunity 

for early-stage judicial review of the appointment decision 

itself.

* * * * *

In short, for all of their arguments that FHFA has exceeded 

the bounds of conservatorship, the institutional stockholders

have no textual hook on which to hang their hats. Indeed, they 

do not dispute that FHFA had the authority as conservator to 

enter the Companies into the Stock Agreements with Treasury 

to raise vitally needed capital, to agree to pay dividends to 

Treasury on the stocks sold as part of that capital-raising

bargain, to foreclose dividend payments to private stockholders

in that process, cf. 12 U.S.C. § 1719(g)(1)(C)(vi), or to amend 

the terms of the Stock Agreements. The dissenting opinion

even admits that FHFA’s actions prior to the Third 

Amendment—which include the debt-inducing dividends paid 

under the First and Second Amendments as well as the original 

Stock Agreements—were “within the conservator role.” See 

Dissenting Op. at 21. 

What the institutional stockholders and dissenting opinion

take issue with, then, is the allocated amount of dividends that 

FHFA negotiated to pay its financial-lifeline stockholder—

Treasury—to the exclusion of other stockholders, and that 

decision’s feared impact on business operations in the future. 

But Section 4617(f) prohibits us from wielding our equitable 

relief to second-guess either the dividend-allocating terms that 

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FHFA negotiated on behalf of the Companies, or FHFA’s 

business judgment that the Third Amendment better balances

the interests of all parties involved, including the taxpaying 

public, than earlier approaches had. See County of Sonoma v. 

FHFA, 710 F.3d 987, 993 (9th Cir. 2013) (“[I]t is not our place 

to substitute our judgment for FHFA’s[.]”). Because the Third 

Amendment falls within FHFA’s broad conservatorship 

authority under the Recovery Act, we must enforce Section 

4617(f)’s explicit prohibition on the equitable relief that the 

institutional stockholders seek. 

B. Section 4617(f) Bars the Challenges to FHFA’s 

Compliance with the APA

The institutional stockholders also claim that FHFA’s 

adoption of the Third Amendment amounted to arbitrary and 

capricious agency action in violation of the APA. That 

argument cannot surmount Section 4617(f)’s barrier to 

equitable relief—the only form of relief statutorily authorized 

for an APA violation. See 5 U.S.C. § 702 (allowing “action in 

a court * * * seeking relief other than money damages”); Cohen 

v. United States, 650 F.3d 717, 723 (D.C. Cir. 2011) (en banc). 

Indeed, Section 4617(f)’s strict limitation on judicial review 

would be an empty promise if it evaporated upon the assertion 

that FHFA’s actions ran afoul of some other statute. 

We accordingly “do not think it possible, in light of the 

strong language of” Section 4617(f) to read the Recovery Act’s 

grant of “‘powers’ and ‘authorities’ to include the limitation 

that those powers be subject to—and hence enjoinable for noncompliance with—any and all other federal laws.” See 

National Trust I, 995 F.2d at 240. Just as we cannot secondguess FHFA’s conservatorship decisions under the Recovery

Act, we cannot quarterback those actions under the APA either.

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C. Section 4617(f) Bars the Challenges to Treasury’s 

Compliance with the Recovery Act and the APA

Lastly, the institutional stockholders argue that 

declaratory and injunctive relief should be available against 

Treasury because its own actions in signing on to the Third 

Amendment both violated the Recovery Act and were arbitrary 

and capricious in violation of the APA. Those claims fall 

within Section 4617(f)’s sweep as well. 

To be sure, Section 4617(f) most explicitly bars judicial 

relief against FHFA, and not Treasury. But Section 4617(f) 

also forecloses judicial relief that would “affect” the exercise 

of FHFA’s “powers or functions” as conservator or receiver. 

12 U.S.C. § 4617(f). An action “can ‘affect’ the exercise of 

powers by an agency without being aimed directly at [that 

agency].” Hindes v. FDIC, 137 F.3d 148, 160 (3d Cir. 1998); 

see also Telematics Int’l, Inc. v. NEMLC Leasing Corp., 967 

F.2d 703, 707 (1st Cir. 1992) (Enjoining a third party “would 

have the same effect, from the FDIC’s perspective, as directly 

enjoining the FDIC[.]”).

In this case, the effect of any injunction or declaratory 

judgment aimed at Treasury’s adoption of the Third 

Amendment would have just as direct and immediate an effect 

as if the injunction operated directly on FHFA. After all, it 

takes (at least) two to contract, and the Companies, under 

FHFA’s conservatorship, are just as much parties to the Third 

Amendment as Treasury. One side of the agreement cannot 

exist without the other. 

Accordingly, Section 4617(f)’s prohibition on relief that 

“affect[s]” FHFA applies here because the requested 

injunction’s operation would have exactly the same force and 

effect as enjoining FHFA directly. See Dittmer Properties, 

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39

L.P. v. FDIC, 708 F.3d 1011, 1017 (8th Cir. 2013) (“Dittmer’s 

request for injunctive relief is barred by § 1821(j), even though 

the FDIC is no longer the holder of the note, because the relief 

requested—a declaration that the note is void as to Dittmer—

affects the FDIC’s ability to function as receiver in th[is]

case.”).

14 

The institutional stockholders argue that this case is 

different because they claim Treasury “violated a provision of 

federal law unrelated to the conduct of a receivership.” 

Institutional Pls. Reply Br. at 25. But Section 4617(f)’s plain 

language focuses on the “[e]ffect” of “any action” on FHFA’s 

exercise of its powers; the cause of that effect is textually 

irrelevant. What matters here is that the institutional 

stockholders’ claims against Treasury are integrally and 

inextricably interwoven with FHFA’s conduct as conservator. 

Specifically, the complaint alleges that Treasury violated a 

provision of the Recovery Act—the very same law that governs 

FHFA’s conservatorship activities—and that the Recovery Act 

prevented Treasury from entering into the Third Amendment

with the Companies, operating at the direction of FHFA as 

conservator. Such a holding would just be another way of 

declaring that the Recovery Act barred FHFA from entering the 

Companies into the Third Amendment with Treasury. 

Treasury’s action thus cannot be enjoined without 

simultaneously unraveling FHFA’s own exercise of its powers 

and functions. 

 14 See also Kuriakose v. Federal Home Loan Mortgage Corp., 674 

F. Supp. 2d 483, 494 (S.D.N.Y. 2009) (“By moving to declare 

unenforceable the non-participation clause in Freddie Mac severance 

agreements, in essence Plaintiffs are seeking an order which restrains 

the FHFA from enforcing this contractual provision in the 

future. * * * [The Recovery Act] clearly provides that this Court 

does not have the jurisdiction to interfere with such authority.”).

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In so holding, we have no occasion to decide whether or 

how Section 4617(f) might apply to “an order against a third 

party [that] would be of little consequence to [FHFA’s] overall 

functioning as receiver” or conservator, Hindes, 137 F.3d at 

161, or to third-party activities that are by their nature less 

interwoven with FHFA’s judgments as conservator or receiver. 

It is enough that, in this case, the direct and unavoidable effect 

of invalidating Treasury’s contract with the Companies would 

be to void the contract with Treasury that FHFA concluded on 

the Companies’ behalf. That would be a “dramatic and 

fundamental” incursion on FHFA’s exercise of its 

conservatorship authority. Id.

15

IV. The Class Plaintiffs’ Claims

The class plaintiffs appeal the dismissal of their claims 

against Treasury, the FHFA, and the Companies (as nominal 

defendants) for breach of fiduciary duty,16 and against the 

FHFA and the Companies for breach of contract and for breach 

 15 None of the cases that plaintiffs cite has anything to do with thirdparty claims that would directly restrain or affect the actions of a 

conservator. See, e.g., Ecco Plains, LLC v. United States, 728 F.3d 

1190, 1202 n.17 (10th Cir. 2013) (stating that Section 1821(j) does 

not apply to a claim for money damages); National Trust II, 995 F.2d 

at 241 (characterizing Section 1821(j) as “[t]he prohibition against 

restraining the FDIC” in a case that only sought to restrain the FDIC 

itself).

16 The class plaintiffs named the Companies as nominal defendants 

to their derivative claims on behalf of the Companies for breach of 

fiduciary duty because “the corporation in a shareholder derivative 

suit should be aligned as a defendant when the corporation is under 

the control of officers who are the target of the derivative suit.” Knop 

v. Mackall, 645 F.3d 381, 382 (D.C. Cir. 2011).

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of the implied covenant of good faith and fair dealing.17 Two 

groups of institutional shareholders – namely, the Arrowood 

plaintiffs and the Fairholme plaintiffs – likewise asserted 

common-law claims in district court (in addition to their APA 

claims), but they did not preserve their appeal against the 

dismissal of those claims: They did not raise in their opening 

brief their claims for breach of contract. The Fairholme 

plaintiffs also forfeited their claim for breach of fiduciary duty 

against the FHFA by failing to raise in their opening brief the 

district court’s alternative holding that the “claim is derivative 

. . . and, therefore, barred under § 4617(b)(2)(A)(i),” Perry 

Capital LLC, 70 F. Supp. 3d at 229 n.24. See Jankovic v. Int’l 

Crisis Grp., 494 F.3d 1080, 1086 (D.C. Cir. 2007).

A. The Claims Against Treasury

The class plaintiffs alleged that by executing the Third 

Amendment Treasury violated fiduciary duties to the 

Companies and their shareholders that are imposed by state 

corporate law because it is a controlling shareholder in the 

Companies. We have subject matter jurisdiction over the class 

plaintiffs’ claims for breach of fiduciary duty against Treasury 

because “all civil actions to which [Freddie Mac] is a party 

shall be deemed to arise under the laws of the United States, 

and the district courts of the United States shall have original 

jurisdiction of all such actions.” 12 U.S.C. § 1452(f); see also

Lackey v. Wells Fargo Bank, N.A., 747 F.3d 1033, 1035 n.2 

(8th Cir. 2014) (“Because Freddie Mac is a party to this case, 

 17 The FHFA and the Companies submitted a joint brief. When 

describing their arguments on appeal, therefore, we will refer to them 

collectively as the FHFA.

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the district court had original jurisdiction pursuant to 12 U.S.C. 

§ 1452(f)”).18 

 18 We previously have interpreted a so-called “Deemer Clause” to 

provide jurisdiction under 28 U.S.C. § 1331, Auction Co. of Am. v. 

FDIC, 132 F.3d 746, 751 (D.C. Cir. 1997), clarified on denial of 

reh’g, 141 F.3d 1198 (1998), but have also held a Deemer Clause 

instead grants jurisdiction “directly” under Article III, § 2 of the 

Constitution, A.I. Trade Fin., Inc. v. Petra Int’l Banking Corp., 62 

F.3d 1454, 1460 (D.C. Cir. 1995). Although we need not decide 

which is the correct approach, we must assure ourselves the Congress 

has “not expand[ed] the jurisdiction of the federal courts beyond the 

bounds established by the Constitution.” Verlinden B.V. v. Cent. 

Bank of Nigeria, 461 U.S. 480, 491 (1983). For federally chartered 

organizations such as Freddie Mac, the Congress may grant federal 

jurisdiction “so long as the legislature does more than merely confer 

a new jurisdiction,” but also “ensure[s] the proper administration of 

some federal law (although the disputed issues in any specific case 

may be confined to matters of state law).” A.I. Trade, 62 F.3d at 

1461-62 (internal quotation marks and brackets omitted). 

Whether the Deemer Clause is constitutional depends upon the 

substantive law anchoring that grant of federal jurisdiction today, not 

just the legislation extant when the clause was enacted, viz., the 

Emergency Home Finance Act of 1970, Pub. L. No. 91-351, 

§ 303(e)(2), 84 Stat. 450, 453. Federal law today governs the 

composition and election of Freddie Mac’s board of directors, 12 

U.S.C. § 1452(a)(2), limits its capital distributions, § 1452(b), sets 

forth in detail both the powers of and limitations upon Freddie Mac 

with respect to its purchase and disposition of mortgages, §§ 1452(c), 

1454(a), exempts the company from certain taxes, § 1452(e), and 

provides for conservatorship or receivership by the FHFA, § 4617. 

Cf. A.I. Trade, 62 F.3d at 1463. An issue of federal law may well 

arise in a suit involving Freddie Mac and “the potential application 

of that law provides a sufficient predicate for the exercise of the 

federal judicial power.” Id. at 1462. The Congress may, “by 

bringing all such disputes within the unifying jurisdiction of the 

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Whether sovereign immunity shields Treasury from suit is 

a trickier question because the class plaintiffs forfeited any 

argument under the Federal Tort Claims Act, 28 U.S.C. 

§ 1346(b), by failing to respond to Treasury’s contention that 

the FTCA is inapplicable. Cf. NetworkIP, LLC v. FCC, 548 

F.3d 116, 120 (D.C. Cir. 2008) (“[A]rguments in favor of 

subject matter jurisdiction can be waived by inattention or 

deliberate choice”). The class plaintiffs argue the APA 

provides an alternate waiver of sovereign immunity for their 

claims for breach of fiduciary duty against Treasury. Under 5 

U.S.C. § 702, 

An action in a court of the United States seeking 

relief other than money damages and stating a 

claim that an agency or an officer or employee 

thereof acted or failed to act in an official 

capacity or under color of legal authority shall 

not be dismissed nor relief therein be denied on 

the ground that it is against the United States 

. . . .

We agree with the class plaintiffs with respect to their pleas for 

declaratory relief against Treasury for several reasons.

First, the class plaintiffs sought “relief other than money 

damages,” to which the waiver of § 702 is limited, by 

requesting a declaration that Treasury breached its fiduciary 

duties. Bowen v. Massachusetts, 487 U.S. 879, 892 (1988) 

 

federal courts,” avoid or ameliorate the potential for “diverse 

interpretations of those substantive provisions” that may prove 

“vexing to the very commerce” the provisions were undoubtedly 

“enacted to promote.” Id. at 1463.

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(holding declaratory relief is not “money damages”).19 

Therefore, § 702 waives immunity for the class plaintiffs’ 

claims for breach of fiduciary duty insofar as they seek 

declaratory relief.

Second, § 702 waives Treasury’s immunity for the claims 

for breach of fiduciary duty because they are not founded upon 

a contract. The waiver in § 702 does not apply “if any other 

statute that grants consent to suit expressly or impliedly forbids 

the relief which is sought.” See also Albrecht v. Comm. on 

Emp. Benefits, 357 F.3d 62, 67-68 (D.C. Cir. 2004). We have 

interpreted the Tucker Act, 28 U.S.C. § 1491(a)(1), which 

waives sovereign immunity for some claims “founded . . . 

upon” a contract and brought in the U.S. Court of Federal 

Claims, to “impliedly forbid[]” contract claims against the 

Government from being brought in district court under the 

waiver in the APA. Albrecht, 357 F.3d at 67-68. Treasury on 

appeal does not dispute the class plaintiffs’ characterization of 

their claims as not contractual, though the agency argued in 

district court that the claims were in essence a contract action 

because it “assumed [any fiduciary duties] in entering into the 

 19 Contrary to the class plaintiffs’ assertions, however, their request 

for “[s]uch other and further relief as the Court may deem just and 

proper” does not qualify as non-monetary relief. J.A. 279 ¶ 12. Such 

boilerplate requests – which refer to the proviso of Federal Rule of 

Civil Procedure 54(c) that a “final judgment should grant the relief 

to which each party is entitled, even if the party has not demanded 

that relief in its pleadings” – “come[] into play only after the court 

determines it has jurisdiction.” See Hedgepeth ex rel. Hedgepeth v. 

Wash. Metro. Area Transit Auth., 386 F.3d 1148, 1152 n.2 (D.C. Cir. 

2004) (Roberts, J.). The class plaintiffs do not argue that their 

request for “disgorgement,” J.A. 278 ¶ 5, is not “money damages.” 

Nor do they invoke the request for rescission of the Third 

Amendment that appears outside of the prayer for relief in their 

complaint. 

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[Stock Agreements]” with Fannie Mae and Freddie Mac. 

Treasury Defs. Mem. in Support of Mot. To Dismiss or for 

Summ. J., Doc. No. 19-1, at 44 In re Fannie Mae/Freddie Mac 

Senior Preferred Stock Purchase Agreement Class Action 

Litigs., 1:13-mc-01288 (Jan. 17, 2014). That Treasury has not 

briefed the issue on appeal does not, however, relieve us of our 

obligation to assure ourselves we have jurisdiction, see Steel 

Co., 523 U.S. at 94; this obligation extends to sovereign 

immunity because it is “jurisdictional in nature,” FDIC v. 

Meyer, 510 U.S. 471, 475 (1994), and may not be waived by 

an agency’s conduct of a lawsuit, Dep’t of the Army v. FLRA, 

56 F.3d 273, 275 (D.C. Cir. 1995).

In order to determine whether an action is in “its essence” 

contractual, we examine “the source of the rights upon which 

the plaintiff bases its claims” and “the type of relief sought (or 

appropriate).” Megapulse, Inc. v. Lewis, 672 F.2d 959, 968 

(D.C. Cir. 1982); see also Albrecht, 357 F.3d at 68-69. The 

class plaintiffs claim that, because it is the controlling 

shareholder, Treasury owes the Companies and their 

shareholders “fiduciary duties of due care, good faith, loyalty, 

and candor.” J.A. 275 ¶ 177; see also Derivative Compl., Doc. 

No. 39, at 27 ¶ 74 In re Fannie Mae/Freddie Mac, 1:13-mc01288 (July 30, 2014). These claims against Treasury are not 

“a disguised contract action,” Megapulse, Inc., 672 F.2d at 968, 

because they do not seek to enforce any duty imposed upon 

Treasury by the Stock Agreements – the only relevant contracts 

to which Treasury is a party. Although any fiduciary duty 

allegedly owed by Treasury as a controlling shareholder in the 

Companies arose from its purchase of shares pursuant to the 

Stock Agreements, we do not think that “any case requiring 

some reference to . . . a contract is necessarily on the contract

and therefore directly within the Tucker Act.” Id. at 967-68. 

The class plaintiffs do not contend Treasury breached the terms 

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46

of the Stock Agreements nor otherwise invoke them except to 

establish that Treasury is a controlling shareholder.

The relief the class plaintiffs seek does not further 

illuminate whether their claims are essentially contractual. In 

Megapulse, we held the action was not founded upon a contract 

in part because the plaintiffs sought no specific performance of 

the contract and no damages, 672 F.2d at 969, presumably 

because specific performance is an explicitly contractual 

remedy and because “damages are a prototypical contract 

remedy,” A & S Council Oil Co. v. Lader, 56 F.3d 234, 240 

(D.C. Cir. 1995). Here, the class plaintiffs seek a declaration 

that Treasury breached its fiduciary duties and an award of 

“compensatory damages” in favor of the Companies. These 

forms of relief are not specific to actions that sound in contract, 

cf. Spectrum Leasing Corp. v. United States, 764 F.2d 891, 

894-95 (D.C. Cir. 1985) (concluding a claim was essentially 

contractual in part because the relief sought amounted to “the 

classic contractual remedy of specific performance”), and any 

relief would not be determined by reference to the terms of the 

contract, cf. Albrecht, 357 F.3d at 69 (concluding a claim was 

essentially contractual in part because a contract would 

“determine whether the relief sought . . . is available”).20 The 

plaintiffs also seek rescission with respect to their claim 

 20 The class plaintiffs also request “disgorgement” in favor of the 

Companies, but they do not explain further what measure of relief 

they seek and on appeal they appear to characterize the plea as one 

for damages. We do not take the class plaintiffs to seek more than 

restitution of the dividends paid to Treasury pursuant to the Third 

Amendment and in excess of the 10% dividend, because they have 

not alleged that Treasury has otherwise profited from its execution 

of the Third Amendment. Restitution of the benefits conferred by a 

plaintiff is not specific to claims for breach of contract, 1 DAN B.

DOBBS, LAW OF REMEDIES § 4.1(1), pp. 552-53 (2d ed. 1993), so the 

plea for disgorgement does not alter our analysis.

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regarding Fannie Mae. This plea does not render the claim 

essentially contractual even though rescission is typically a 

remedy for breach of contract because there is no question that 

any breach of contract claim would concern the Purchase 

Agreement and the class plaintiffs seek rescission of only the 

Third Amendment. In sum, the Tucker Act does not “impliedly 

forbid[]” us from awarding relief against Treasury based on the 

waiver of immunity in § 702 because the class plaintiffs’ 

claims are not founded upon a contract.

Third, Treasury’s argument that § 702 does not waive its 

immunity from suit for state law claims is foreclosed by our 

precedent. We have “repeatedly” and “expressly” held in the 

broadest terms that “the APA’s waiver of sovereign immunity 

applies to any suit whether under the APA or not.” Trudeau v. 

FTC, 456 F.3d 178, 186 (D.C. Cir. 2006) (internal quotation 

marks omitted). Furthermore, we concluded in United States 

Information Agency v. Krc, 989 F.2d 1211 (D.C. Cir. 1993), 

that § 702 waived sovereign immunity for a (presumably) state 

tort claim against the Government because the FTCA did not 

“impliedly forbid” the non-monetary relief the plaintiff sought. 

Id. at 1216 (citing § 702).

Fourth, the class plaintiffs forthrightly point out that we 

have held “the waiver of sovereign immunity under § 702 is 

limited by the ‘adequate remedy’ bar of § 704,” Nat’l Wrestling 

Coaches Ass’n v. Dep’t of Educ., 366 F.3d 930, 947 (D.C. Cir. 

2004) (quoting 5 U.S.C. § 704); see also Transohio Sav. Bank 

v. Dir., OTS, 967 F.2d 598, 607 (D.C. Cir. 1992), and go on to 

argue we should look to more recent authority that contradicts 

those holdings, see Trudeau, 456 F.3d at 187-89. Again, that 

Treasury has no response to this point does not relieve us of our 

duty to ascertain whether Treasury’s immunity has been 

waived. We agree with the class plaintiffs that the holdings in 

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48

National Wrestling and Transohio Savings are no longer good 

law. 

Section 704 provides that “final agency action for which 

there is no other adequate remedy in a court [is] subject to 

judicial review.” 5 U.S.C. § 704. In Cohen v. United States, 

650 F.3d 717 (D.C. Cir. 2011) (en banc), after first concluding 

that immunity from suit was waived by § 702 with nary a 

mention of the adequate remedy bar of § 704, id. at 722-31, we 

held that whether there is an “other adequate remedy” for the 

purpose of § 704 determines whether a litigant states “a valid 

cause of action” under the APA. Id. at 731. We did not 

expressly speak to whether the adequate remedy bar limits 

immunity, but it strains credulity to think the choice to address 

the adequate remedy bar not as a condition of immunity, but 

instead as a requirement for a cause of action, was not 

deliberate in that case. 

A further reason for this reading of Cohen is that we there 

cited approvingly, id. at 723, our prior holding in Trudeau, 456 

F.3d 178, that the requirement of final agency action in § 704 

is not a condition of the waiver of immunity in § 702, but 

instead limits the cause of action created by the APA, id. at 

187-89. The holding of Trudeau and its endorsement in Cohen

clearly override National Wrestling and Transohio Savings: 

We see no textual or logical basis for construing § 704 – which 

limits judicial review to “final agency action for which there is 

no other adequate remedy” – to condition a waiver of sovereign 

immunity on the absence of an adequate remedy but not on the 

presence of final agency action. In Trudeau we concluded the 

finality requirement does not bear upon the waiver of immunity 

in § 702 because the waiver “is not limited to APA cases – and 

hence . . . it applies regardless of whether the elements of an 

APA cause of action [under § 704] are satisfied.” Id. at 187. 

This reasoning applies equally to the adequate remedy bar. See 

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49

Viet. Veterans of Am. v. Shinseki, 599 F.3d 654, 661 (D.C. Cir. 

2010) (relying in part upon our holding that the finality 

requirement no longer limits a court’s subject matter 

jurisdiction to reach the same conclusion for the adequate 

remedy bar and referring to them collectively as the “the APA’s 

reviewability provisions”). 

Furthermore, in a departure from prior cases, we have 

several times recognized that the finality requirement and 

adequate remedy bar of § 704 determine whether there is a 

cause of action under the APA, not whether there is federal 

subject matter jurisdiction. Cent. for Auto Safety v. Nat’l 

Highway Traffic Safety Admin., 452 F.3d 798, 805-06 (D.C. 

Cir. 2006); Trudeau, 456 F.3d at 183-85; Shinseki, 599 F.3d at 

661; Cohen, 650 F.3d at 731 & n.10. Reading § 704 to limit 

only the cause of action that may be brought under the APA 

and not the grant of immunity in § 702 is in line with our new 

understanding of § 704 as narrowly focused upon the 

requirements for the APA cause of action. We therefore hold 

that § 702 waives Treasury’s immunity regardless whether 

there is another adequate remedy under § 704 because the 

absence of such a remedy is instead an element of the cause of 

action created by the APA.

In sum, pursuant to 12 U.S.C. § 1452(f) and 28 U.S.C. 

§ 1291, we have subject matter jurisdiction over the class 

plaintiffs’ claims against Treasury for breach of fiduciary duty, 

and the Congress waived the agency’s immunity from suit for 

these claims, insofar as they are for declaratory relief, in the 

APA, 5 U.S.C. § 702. We nonetheless affirm the district 

court’s dismissal of the claims for a declaratory judgment. As 

discussed in greater detail above, supra at 38-40, 12 U.S.C. 

§ 4617(f) bars us from awarding equitable relief against 

Treasury with respect to the Third Amendment because doing 

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so would impermissibly “restrain or affect the exercise of 

powers or functions of the [FHFA] as a conservator.”

B. The Claims Against the FHFA and the Companies

The class plaintiffs sued the FHFA (and the Companies, as 

nominal defendants) for breach of fiduciary duties imposed on 

a corporation’s management under state law. They also alleged 

claims against the FHFA and the Companies for breach of 

contract and breach of the implied covenant of good faith and 

fair dealing. We have subject matter jurisdiction over the class 

plaintiffs’ claims under 12 U.S.C. § 1452(f). As mentioned 

above, our obligation to assure ourselves we have jurisdiction, 

see Steel Co., 523 U.S. at 94, extends to sovereign immunity 

because it is jurisdictional, Meyer, 510 U.S. at 475. “A waiver 

. . . must be unequivocally expressed in statutory text,” Lane v. 

Pena, 518 U.S. 187, 192 (1996), so the Government may not 

waive immunity merely by its conduct in a lawsuit, Dep’t of 

the Army, 56 F.3d at 275. We therefore disregard FHFA’s 

point that the agency, “in its capacity as Conservator, has not 

asserted sovereign immunity with respect to [its] execution of 

the Third Amendment.” FHFA July 2016 Supp. Br. at 4.

Assuming the FHFA has sovereign immunity when it acts 

on behalf of the Companies as conservator, cf. Auction Co. of 

Am. v. FDIC, 141 F.3d 1198, 1201-02 (D.C. Cir. 1998) 

(holding a suit against the FDIC was a suit against the United 

States for purposes of jurisdiction and sovereign immunity 

where the FDIC “did not act as receiver for any particular 

depository”), the Congress has waived the agency’s immunity 

by consenting to suit. The Congress has granted Freddie Mac 

“power . . . to sue and be sued . . . in any State, Federal, or other 

court,” 12 U.S.C. § 1452(c)(7), and has granted Fannie Mae the 

same “power . . . to sue and to be sued . . . in any court of 

competent jurisdiction, State or Federal,” id. § 1723a(a). The 

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FHFA “by operation of law[] immediately succeed[ed] to . . . 

all . . . powers” of the Companies upon its appointment as 

conservator – including the Companies’ power to sue and be 

sued – under the so-called Succession Clause of the Recovery 

Act. Id. § 4617(b)(2)(A)(i). Such a statutory grant of power to 

“sue and be sued” constitutes an “unequivocally expressed” 

waiver of sovereign immunity. United States v. Nordic Vill. 

Inc., 503 U.S. 30, 33-34 (1992); see also Meyer, 510 U.S. at 

475.21

By providing for the FHFA to succeed to the Companies’ 

power to sue and be sued, the Congress has given its express 

consent that the FHFA is subject to suit in the same way the 

Companies would otherwise be when the agency acts on their 

behalf as conservator. This understanding is borne out by the 

FHFA’s other functions under the Succession Clause, which 

further provides that the FHFA succeeds to “all rights, titles, 

powers, and privileges of the regulated entity.” 

§ 4617(b)(2)(A)(i). The Supreme Court interpreted the nearly 

identical provision in FIRREA to “place[] the FDIC in the 

shoes of the [entity in receivership], to work out its claims 

under state law.” O’Melveny & Myers v. FDIC, 512 U.S. 79, 

86-87 (1994) (interpreting 12 U.S.C. § 1821(d)(2)(A)(i)). The 

Recovery Act further empowers the FHFA, as conservator, to 

“take over the assets of and operate the [Companies] with all 

the powers of [their] shareholders, . . . directors, and . . . 

officers” and to “perform all functions of the [Companies] in 

the name of the [Companies].” 12 U.S.C. § 4617(b)(2)(B)(i), 

(iii).

 21 We need not reach the question whether the FHFA’s 

conservatorship of Fannie Mae and Freddie Mac endows the 

Companies with sovereign immunity because their “sue and be sued” 

clauses would waive any immunity.

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What if the class plaintiffs’ claims for breach of fiduciary 

duty are cognizable under the FTCA, 28 U.S.C. § 1346(b)? 

The FTCA does not withdraw the Congress’s waiver of 

immunity in this case, for the FTCA provides:

The authority of any federal agency to sue and 

be sued in its own name shall not be construed 

to authorize suits against such federal agency on 

claims which are cognizable under [the FTCA], 

and the remedies provided by this title in such 

cases shall be exclusive.

28 U.S.C. § 2679(a). The Congress has not, however, 

authorized the FHFA to be sued “in its own name” by enacting 

a “sue and be sued” clause specifically for the agency. Instead, 

the Congress has granted the FHFA the power to be sued just 

as the Companies would be absent a conservatorship insofar as 

the agency steps into the shoes of the Companies and acts on 

their behalf to defend alleged breaches of their obligations. 

Because the Companies, pre-conservatorship, were not 

affected by the FTCA proviso cited above, neither is the FHFA 

when it is sued for an action taken on their behalf – in this case, 

the Third Amendment.22 Nor would the Tucker Act, 28 U.S.C. 

 22 It follows that the FTCA does not apply to Fannie Mae or Freddie 

Mac either, even though the FHFA, as conservator, exercises 

complete control over the Companies. The statute provides that the 

remedies set forth in the FTCA “shall be exclusive” despite any “sue 

and be sued” clause of a “federal agency,” 28 U.S.C. § 2679(a), 

which includes “corporations primarily acting as instrumentalities or 

agencies of the United States, but does not include any contractor 

with the United States,” id. § 2671. Generally, we determine 

whether a defendant is such a corporation that is subject to the FTCA 

by examining whether the Federal Government has the power “‘to 

control the detailed physical performance of the [corporation].’” 

Macharia v. United States, 334 F.3d 61, 68 (D.C. Cir. 2003) (quoting 

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§ 1491(a)(1), require the class plaintiffs to file their claims for 

breach of contract in the Court of Federal Claims. “If a separate 

waiver of sovereign immunity and grant of jurisdiction exist, 

district courts may hear cases over which, under the Tucker Act 

alone, the Court of Federal Claims would have exclusive 

jurisdiction.” Auction Co. of Am. v. FDIC, 132 F.3d 746, 752 

n.4 (D.C. Cir. 1997) (suit for breach of contract), clarified on 

denial of reh’g, 141 F.3d 1198 (1998).

1. The Succession Clause

The FHFA and the class plaintiffs dispute whether the 

common-law claims against the agency are barred by the socalled Succession Clause, which provides that the FHFA, as 

conservator, “succeed[s] to” the stockholders’ rights “with 

respect to” the Companies and their assets, 12 U.S.C. 

§ 4617(b)(2)(A)(i). In Kellmer v. Raines, 674 F.3d 848 (D.C. 

Cir. 2012), we held the Succession Clause “plainly transfers [to 

the FHFA the] shareholders’ ability to bring derivative suits” 

on behalf of the Companies, but left open whether it transfers 

claims as to which the FHFA would face a manifest conflict of 

interest. Id. at 850. 

The class plaintiffs argue the Succession Clause should not 

be read to bar their derivative claims for breach of fiduciary 

duty because the FHFA would face a conflict of interest in 

pursuing, on behalf of the Companies, claims against itself. 

They also argue the Succession Clause does not apply to their 

 

United States v. Orleans, 425 U.S. 807, 814 (1976)). As we have 

just concluded, however, the Recovery Act evinces the Congress’s 

intention to “place[]” the FHFA “in the shoes” of the Companies, 

O’Melveny & Myers, 512 U.S. at 86-87, which become wards of the 

Government. The Companies therefore remain subject to suit as 

private corporations for violations of state law just as they were 

before the FHFA was appointed conservator. 

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direct claims for breach of contract and for breach of fiduciary 

duty. The FHFA responds that the Succession Clause transfers 

to it the right to bring derivative suits without exception, that 

all the claims of the class plaintiffs are derivative, and that the 

Succession Clause also transfers any direct claims to the 

agency. 

The district court held the statute bars all the class 

plaintiffs’ claims and dismissed them “pursuant to [Federal 

Rule of Civil Procedure] 12(b)(1) for lack of standing,” Perry 

Capital LLC, 70 F. Supp. 3d at 233, 235 n.39, 239 n.45, but 

whether the Succession Clause bars the claims has no bearing 

upon standing under Article III of the Constitution of the 

United States. See Lujan v. Defs. of Wildlife, 504 U.S. 555, 

560-61 (1992). The district court’s error, however, is of no 

moment; we simply examine the issue under Rule 12(b)(6). 

EEOC v. St. Francis Xavier Parochial Sch., 117 F.3d 621, 624 

(D.C. Cir. 1997) (“Although the district court erroneously 

dismissed the action pursuant to Rule 12(b)(1), we could 

nonetheless affirm the dismissal if dismissal were otherwise 

proper based on failure to state a claim under Federal Rule of 

Civil Procedure 12(b)(6)”).

We conclude the Succession Clause transfers to the FHFA 

without exception the right to bring derivative suits but not 

direct suits. The class plaintiffs’ claims for breach of fiduciary 

duty are derivative and therefore barred, but their contractbased claims are direct and may therefore proceed.

a. The Succession Clause bars derivative suits, 

but not direct suits

The Recovery Act transfers some of the shareholders’ 

rights to the FHFA during conservatorship and receivership 

and provides that others are retained by the shareholders during 

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conservatorship but terminated during receivership. 

Specifically, the Succession Clause provides that “as 

conservator or receiver” the FHFA “shall . . . by operation of 

law, immediately succeed to . . . all rights, titles, powers, and 

privileges of the regulated entity, and of any stockholder . . . 

with respect to the regulated entity and [its] assets.” 

§ 4617(b)(2)(A)(i). The Recovery Act further limits 

shareholders’ rights during receivership by providing that the 

FHFA’s appointment as receiver and consequent succession to 

the shareholders’ rights “terminate[s] all rights and claims that 

the stockholders . . . of the regulated entity may have against 

the assets or charter of the regulated entity or the [FHFA] . . . 

except for their right to payment, resolution, or other 

satisfaction of their claims” in the administrative claims 

process. § 4617(b)(2)(K)(i). 

The Recovery Act thereby transfers to the FHFA all claims 

a shareholder may bring derivatively on behalf of a Company 

whilst claims a shareholder may lodge directly against the 

Company are retained by the shareholder in conservatorship 

but terminated during receivership. The Act distinguishes 

between the transfer of rights “with respect to the regulated 

entity and [its] assets” in the Succession Clause and the 

termination of rights “against the assets or charter of the 

regulated entity” in § 4617(b)(2)(K)(i). Rights “with respect 

to” a Company and its assets are only those an investor asserts 

derivatively on the Company’s behalf. Cf. Levin v. Miller, 763 

F.3d 667, 672 (7th Cir. 2014) (so interpreting the analogous 

provision of FIRREA, 12 U.S.C. § 1821(d)(2)(A)(i)). Rights 

and claims “against the assets or charter of the regulated entity” 

are an investor’s direct claims against and rights to the assets

of the Company once it is placed in receivership in order to be 

liquidated, see 12 U.S.C. § 4617(b)(2)(E); that the Recovery 

Act terminates such rights and claims in receivership indicates 

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that shareholders’ direct claims against and rights in the 

Companies survive during conservatorship.23

This reading is borne out by the statutory context. If the 

Succession Clause transferred all of the stockholders’ rights to 

the FHFA in conservatorship and receivership, as the FHFA 

contends, then they would have no rights left to assert during 

the administrative claims process should a Company be 

liquidated. That result is plainly precluded by 

§ 4617(b)(2)(K)(i), which excepts from termination upon the 

FHFA’s appointment as receiver a shareholder’s “right to 

payment, resolution, or other satisfaction of [his or her] 

claims.” Furthermore, we see the logic in permitting the 

shareholders to retain their rights to bring suit against a 

Company during conservatorship and terminating those rights 

when the Agency institutes an administrative claims process as 

required when it becomes a receiver. See 12 U.S.C. 

§ 4617(b)(3)-(5). We note that the Federal Circuit recently 

held, albeit without considering the Succession Clause, that 

Fannie Mae’s former Chief Financial Officer had no takings 

claim based on the company’s failure – pursuant to FHFA’s 

regulations – to pay severance benefits as mandated by his 

employment contract because the CFO “was left with the right 

to enforce his contract against Freddie Mac in a breach of 

 23 The FHFA argues that “[b]ecause the Conservator already can 

pursue derivative claims belonging to the Enterprises, the statutory 

phrase ‘rights . . . of any stockholder’ only has meaning if it 

encompasses direct claims.” FHFA Br. at 48. This argument is 

foreclosed by Kellmer, where we determined the Succession Clause 

“plainly transfers [to the FHFA the] shareholders’ ability to bring 

derivative suits,” 674 F.3d at 850, and it overlooks that, when the

Companies are in conservatorship, the Succession Clause functions 

not only to grant the FHFA powers, but also to take powers from the 

shareholders.

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contract action . . . under state contract law.” Piszel v. United 

States, 833 F.3d 1366, 1377 (Fed. Cir. 2016).

The class plaintiffs argue that because, as shareholders, 

they retain rights in the Companies during a conservatorship, 

the Succession Clause should be read to permit them to sue 

derivatively to protect those rights when the FHFA has a 

conflict of interest. They point to the decisions of two other 

circuits interpreting 12 U.S.C. § 1821(d)(2)(A), a nearly 

identical provision in FIRREA, to permit such an

exception. See First Hartford Corp. Pension Plan & Tr. v. 

United States, 194 F.3d 1279, 1295 (Fed. Cir. 1999); Delta Sav. 

Bank v. United States, 265 F.3d 1017, 1022-23 (9th Cir. 2001). 

Contrary to the class plaintiffs’ assertions, two circuit court 

decisions do not so clearly “settle[] the meaning of [the] 

existing statutory provision” in FIRREA that we must conclude 

the Congress intended sub silentio to incorporate those rulings 

into the Recovery Act. Merrill Lynch v. Dabit, 547 U.S. 71, 85 

(2006). 

Nor are we convinced by the reasoning of those two cases 

that the Succession Clause implicitly excepts derivative suits 

where the FHFA would have a conflict of interest. The courts 

in those cases thought it would be irrational to transfer to an 

agency the right to sue itself derivatively because “the very 

object of the derivative suit mechanism is to permit 

shareholders to file suit on behalf of a corporation when the 

managers or directors of the corporation, perhaps due to a 

conflict of interest, are unable or unwilling to do so.” First 

Hartford, 194 F.3d at 1295; see also Delta Sav., 265 F.3d at 

1022-23 (extending the exception to suits against certain 

agencies with which the conservator or receiver has an 

“interdependent” relationship and “managerial and operational 

overlap”). As the district court in this case noted, however, it 

makes little sense to base an exception to the rule against 

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derivative suits in the Succession Clause “on the purpose of the 

‘derivative suit mechanism,’” rather than the plain statutory 

text to the contrary. See Perry Capital LLC, 70 F. Supp. 3d at 

230-31. We therefore conclude the Succession Clause does not 

permit shareholders to bring derivative suits on behalf of the 

Companies even where the FHFA will not bring a derivative 

suit due to a conflict of interest.

b. The class plaintiffs’ claims for breach of 

fiduciary duty are derivative but their 

contract-based claims are direct and may 

proceed

Having concluded the Succession Clause extends to 

derivative, but not direct, claims, it follows that the class 

plaintiffs’ claims for breach of fiduciary duty are barred but 

their contract-based claims may proceed. The class plaintiffs 

contend they asserted both direct and derivative claims for 

breach of fiduciary duty, alleging a direct claim against the 

FHFA “with respect to . . . Fannie Mae” under Delaware law.24 

 24 The district court applied Delaware law to the class plaintiffs’ 

common-law claims. See Perry Capital LLC, 70 F. Supp. 3d at 235 

n.39, 236, 238, 239 n.45. On appeal, all parties agree we should 

apply Delaware law to claims regarding Fannie Mae and Virginia 

law to those regarding Freddie Mac. The parties have thereby 

waived any objection to the district court’s application of Delaware 

law to claims regarding Fannie Mae. See A-L Assocs., Inc. v. Jorden, 

963 F.2d 1529, 1530 (D.C. Cir. 1992) (applying law “[t]he court 

below held, and the parties agree,” was applicable); Patton Boggs 

LLP v. Chevron Corp., 683 F.3d 397, 403 (D.C. Cir. 2012); 

Jannenga v. Nationwide Life Ins. Co., 288 F.2d 169, 172 (D.C. Cir. 

1961); cf. Milanovich v. Costa Crociere, S.p.A., 954 F.2d 763, 766 

(D.C. Cir. 1992) (applying U.S. contract principles to determine 

whether a contractual choice-of-law provision was valid where the 

district court had applied those principles because “both parties here 

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Class Pls. Br. at 21-22. In order to determine whether these 

claims are direct or derivative, we must examine (1) “[w]ho 

suffered the alleged harm” and (2) “who would receive the 

benefit of the recovery.” Tooley v. Donaldson, Lufkin & 

 

have assumed that American contract law principles control”). 

Accord, e.g., Williams v. BASF Catalysts LLC, 765 F.3d 306, 316 (3d 

Cir. 2014) (holding that “parties may waive choice-of-law issues” in 

part because “choice-of-law questions do not go to the court’s 

jurisdiction”). We have occasionally held a party forfeited any 

objection to the district court’s choice of law in part because we 

could detect no “error,” Wash. Metro. Area Transit Auth. v. 

Georgetown Univ., 347 F.3d 941, 945 (D.C. Cir. 2003); Nello L. Teer 

Co. v. Wash. Metro. Area Transit Auth., 921 F.2d 300, 302 n.2 (D.C. 

Cir. 1990), or “apparent error” in the district court’s choice, Burke v. 

Air Serv Int’l, Inc., 685 F.3d 1102, 1105 (D.C. Cir. 2012). We do 

not read these cases to have established a standard for forfeiture or 

waiver particular to choice of law, especially considering none 

indicated that the absence of an error or “apparent” error was 

necessary to the outcome. In this case, we see no reason to deviate 

from the district court’s selection of Delaware law for the claims 

regarding Fannie Mae. 

We need not address whether the district court should have applied 

Virginia law to the claims regarding Freddie Mac because, for 

purposes of this appeal, Delaware and Virginia law dictate the same 

result, see Aref v. Lynch, 833 F.3d 242, 262 (D.C. Cir. 2016) (“We 

need not determine which state’s law applies . . . because the result 

is the same under all three” potentially applicable laws); Skirlick v. 

Fid. & Deposit Co. of Md., 852 F.2d 1376, 1377 (D.C. Cir. 1988) 

(same), and the parties have waived any contention that yet another 

law should displace the district court’s choice. The district court also 

cited federal case law in evaluating whether the class plaintiffs had a 

contractual right to dividends, Perry Capital LLC, 70 F. Supp. 3d at 

237 & n.41, but the cited federal decisions do not displace state 

contract law, cf. O’Melveny & Myers, 512 U.S. at 85-89 (rejecting 

the argument that federal common law should govern tort claims 

lodged by the FDIC).

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Jenrette, Inc., 845 A.2d 1031, 1035 (Del. 2004); see also 

Gentile v. Rossette, 906 A.2d 91, 99-101 (Del. 2006). A suit is 

direct if “[t]he stockholder . . . demonstrate[s] that the duty 

breached was owed to the stockholder” and that “[t]he 

stockholder’s claimed direct injury [is] independent of any 

alleged injury to the corporation.” Tooley, 845 A.2d at 1039.

The class plaintiffs did not plead a direct claim for breach 

of fiduciary duty because they did not seek relief that would 

accrue directly to them. They instead requested a declaration 

that, “through the Third Amendment, Defendant[] FHFA ... 

breached [its] ... fiduciary dut[y] to Fannie Mae,” and sought 

an award of “compensatory damages and disgorgement in 

favor of Fannie Mae.” J.A. 278 ¶¶ 4-5. Both forms of relief 

would benefit Fannie Mae directly and the shareholders only 

derivatively. See Tooley, 845 A.2d at 1035. The class 

plaintiffs also asked the district court to declare the Third 

Amendment was not “in the best interests of Fannie Mae or its 

shareholders, and constituted waste and a gross abuse of 

discretion,” J.A. 278 ¶ 3, but a declaration that only partially 

resolves a cause of action does not remedy any injury. Cf. 

Calderon v. Ashmus, 523 U.S. 740, 746-47 (1998) (holding that 

the case or controversy requirement of Article III was not 

satisfied where a prisoner sought a declaratory judgment as to 

the validity of a defense a state was likely to raise in his habeas 

action). In the introductory portion of their complaint, the class 

plaintiffs also sought rescission of the Third Amendment to 

remedy the alleged breach of fiduciary duty, but the class 

plaintiffs requested this relief only for their derivative claim. 

J.A. 215 ¶ 3 (“This is also a derivative action brought by 

Plaintiffs on behalf of Fannie Mae, seeking . . . equitable relief, 

including rescission, for breach of fiduciary duty”), 226 ¶ 27 

(“[T]his action also seeks, derivatively on behalf of Fannie 

Mae, an award of . . . equitable relief with respect to such 

breach, including rescission of the Third Amendment”). 

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In any event, the class plaintiffs forfeited in district court 

any argument that their claim for breach of fiduciary duty is 

direct. In its motion to dismiss, the FHFA contended the class 

plaintiffs’ claims for breach of fiduciary duty were derivative, 

but the class plaintiffs did not respond by arguing they asserted 

a direct claim. Although they occasionally referred to the 

FHFA’s fiduciary duties to the shareholders, the class plaintiffs 

did not develop any argument that the claims are direct and 

instead discussed separately why the Succession Clause does 

not bar “Their Direct Contract-Based Claims,” Mem. in Opp’n 

to Mot. to Dismiss, Doc. No. 33 at 25 In re Fannie 

Mae/Freddie Mac, 1:13-mc-01288 (Mar. 21, 2014) 

(hereinafter Class Pls. Opp’n to Mot. to Dismiss), and “Their 

Derivative Claims” for breach of fiduciary duty, id. at 32. The 

class plaintiffs then characterize their only count of breach of 

fiduciary duty as asserting “derivative claims.” Id.

The class plaintiffs ask for a “remand to allow [them] to 

pursue their direct fiduciary breach claims regarding the Fannie 

Mae Third Amendment.” Class Pls. Br. at 23. At oral 

argument they cited DKT Memorial Fund v. Agency for 

International Development, 810 F.2d 1236 (D.C. Cir. 1987), in 

which this court, “in the interest of justice,” granted counsel’s 

motion at oral argument to amend the complaint in order to 

correct an inadvertent error and then ruled the claims, as 

amended, were not subject to dismissal upon the grounds 

asserted by the defendants. Id. at 1239. In this case the class 

plaintiffs ask us to grant them leave to amend the complaint to 

add a new claim they are not asking us to rule on but instead 

want to pursue in district court. We see no reason to oust the 

district judge from making that decision in the first instance 

when the case returns to district court for further proceedings 

on certain of the plaintiffs’ contract-based claims.

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The district court also held the class plaintiffs’ contractbased claims were derivative. Perry Capital LLC, 70 F. Supp. 

3d at 235 & n.39, 239 n.45. Contrary to the FHFA’s assertions,

the class plaintiffs sufficiently appealed this ruling. Their 

statement of issues on appeal comprises whether the 

Succession Clause “bars any of Appellants’ claims in this 

action.” Furthermore, that the class plaintiffs’ contract-based 

claims are direct is apparent from their extensive discussion of 

the FHFA’s alleged breach of their contractual rights and the 

harm the alleged breach caused them. 

Indeed, the contract-based claims are obviously direct 

“because they belong to” the class plaintiffs “and are ones that 

only [the class plaintiffs] can assert.” Citigroup Inc. v. AHW 

Inv. P’ship, 140 A.3d 1125, 1138 (Del. 2016). These are “not 

claims that could plausibly belong to” the Companies because 

they assert that the Companies breached contractual duties 

owed to the class plaintiffs by virtue of their stock certificates. 

Id. We therefore do not subject them to the two-part test set 

forth in Tooley, which determines “when a cause of action for 

breach of fiduciary duty or to enforce rights belonging to the 

corporation itself must be asserted derivatively.” NAF 

Holdings, LLC v. Li & Fung (Trading) Ltd., 118 A.3d 175, 176 

(Del. 2015). The two-part test is necessary “[b]ecause directors 

owe fiduciary duties to the corporation and its stockholders, 

[and] there must be some way of determining whether 

stockholders can bring a claim for breach of fiduciary duty 

directly, or whether a particular fiduciary duty claim must be 

brought derivatively.” Citigroup Inc., 140 A.3d at 1139 

(footnote omitted). Tooley has no application “when a plaintiff 

asserts a claim based on the plaintiff’s own right.” Id. at 1139-

40; El Paso Pipeline GP Co. v. Brinckerhoff, 2016 WL 

7380418, at *9 (Del. Dec. 20, 2016) (“[W]hen a plaintiff asserts 

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63

a claim based upon the plaintiff's own right . . . Tooley does 

not apply”).25 

2. The Class Plaintiffs’ contract-based claims

As a preliminary matter, the class plaintiffs assert the bar 

to equitable relief of 12 U.S.C. § 4617(f), discussed above, 

does not apply “to equitable claims related to contractual 

breaches,” Class Pls. Br. at 34-35, but this argument is forfeit 

because it was not raised in district court. Bennett v. Islamic 

Republic of Iran, 618 F.3d 19, 22 (D.C. Cir. 2010). 

Accordingly, we evaluate the class plaintiffs’ contract-based 

claims only insofar as they seek damages. As discussed in 

greater detail above, supra at 17-37, an award of equitable 

relief against the FHFA with respect to the Third Amendment 

would impermissibly “restrain or affect the exercise of powers 

or functions of the [FHFA] as a conservator,” § 4617(f), and a 

similar award against the Companies would plainly achieve the 

same result. The class plaintiffs next challenge the district 

court’s dismissal under Rules 12(b)(1) and (6) of their claims 

against the FHFA and the Companies for breach of contract and 

breach of the implied covenant as to the provisions in the stock 

 25 The class plaintiffs (the only party to address on the merits whether 

the contract-based claims are direct or derivative) cite only Delaware 

law in addressing the claims for breach of contract as to both Fannie 

Mae and Freddie Mac despite their assumption that Virginia law 

governs claims against Freddie Mac. The issue need detain us no 

further because we have found no indication Virginia would classify 

the breach of contract claims as derivative. Cf. Simmons v. Miller, 

261 Va. 561, 573, 544 S.E.2d 666, 674 (2001) (“A derivative action 

is an equitable proceeding in which a shareholder asserts, on behalf 

of the corporation, a claim that belongs to the corporation rather than 

the shareholder . . . . [A]n action for injuries to a corporation cannot 

be maintained by a shareholder on an individual basis and must be 

brought derivatively.”).

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certificates dealing with voting and dividend rights and 

liquidation preferences. Upon de novo review, Kim v. United 

States, 632 F.3d 713, 715 (D.C. Cir. 2011), we affirm the 

dismissal of all claims except for those regarding the 

liquidation preferences and the claim for breach of implied 

covenant regarding dividend rights.

a. Voting rights

The class plaintiffs contend the Third Amendment violates 

their stock certificates that, with some variations not relevant 

here, provide that a vote of two thirds of the stockholders is 

required “to authoriz[e], effect[] or validat[e] the amendment, 

alteration, supplementation or repeal of any of the provisions 

of [the] Certificate if such [action] would materially and 

adversely affect the . . . terms or conditions of the [stock].” J.A. 

251. The class plaintiffs claim they were entitled to vote on the 

Third Amendment because it “nullif[ied] their right ever to 

receive a dividend or liquidation distribution,” and thereby 

“materially and adversely affect[ed]” them. Class Pls. Reply 

Br. at 11. The FHFA does not respond to this argument on 

appeal, and the district court nowhere addressed it in 

dismissing the contract-based claims. We nonetheless affirm 

the district court’s dismissal. Although the Third Amendment 

makes it impossible for the class plaintiffs to receive dividends 

or a liquidation preference, it was not an “alteration,

supplementation or repeal of . . . provisions” in the certificates. 

Those provisions guarantee only the right to vote on certain 

changes to the certificates, not on any corporate action that 

affects the rights guaranteed by the certificates. 

b. Dividend rights

The class plaintiffs’ various stock certificates provide 

(with irrelevant variations in wording) that stockholders will 

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“be entitled to receive, ratably, when, as and if declared by the 

Board of Directors, in its sole discretion . . . [,] non-cumulative 

cash dividends,” J.A. 248, or “shall be entitled to receive, 

ratably, dividends . . . when, as and if declared by the Board,” 

J.A. 250. According to the class plaintiffs, the certificates 

thereby guarantee them a right to dividends, discretionary 

though they may be. We agree with the FHFA’s response that 

the class plaintiffs have no enforceable right to dividends 

because the certificates accord the Companies complete 

discretion to declare or withhold dividends. 

The class plaintiffs argue they nonetheless have a 

contractual right to discretionary dividends because Delaware 

and Virginia limit directors’ discretion to withhold dividends. 

This limit upon a board’s discretion stems from its fiduciary 

duties to shareholders, not from the terms of their stock 

certificates. See Gabelli & Co. v. Liggett Grp. Inc., 479 A.2d 

276, 280 (Del. 1984) (Dividends may not be withheld as a 

result of “fraud or gross abuse of discretion”); Penn v. 

Pemberton & Penn, Inc., 189 Va. 649, 658, 53 S.E.2d 823, 828 

(Va. 1949) (Failure to declare dividends is actionable if it “is 

so arbitrary, or so unreasonable, as to amount to a breach of 

trust”). Such fiduciary duties have no bearing upon whether 

the terms of the contracts imposed a duty to declare dividends, 

as the class plaintiffs alleged.

Lastly, the class plaintiffs advance a convoluted argument 

that the Third Amendment violated their rights to receive 

mandatory dividends (1) for their preferred stock before any 

distributions on common stock, and (2) for their common stock 

“ratably,” along with other holders of such stock. Before the 

Third Amendment, the class plaintiffs assert, Treasury could 

have received a dividend exceeding the 10% coupon on its 

liquidation preference only by exercising its option to purchase 

up to 79.9% of the Companies’ common stock, and the 

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payment of any dividend on that common stock would have 

required distributions to the class plaintiffs as well. To the 

class plaintiffs, it follows that their right to mandatory 

dividends was breached by the provision of the Third 

Amendment for dividends to be paid to Treasury that could 

(and at times did) exceed the 10% coupon. This argument fails 

because the plaintiffs have not shown their certificates 

guarantee that more senior shareholders will not exhaust the 

funds available for distribution as dividends. The class 

plaintiffs contend the Third Amendment “was a fiduciary 

breach, and hence cannot be relied on as the basis for nullifying 

the mandatory priority and ratability rights,” Class Pls. Br. at 

39, but this argument goes to their claims for breach of 

fiduciary duty, addressed above. 

The class plaintiffs next challenge the district court’s 

dismissal of their claim that the implied covenant prohibited 

the FHFA from depriving them of the opportunity to receive 

dividends. The class plaintiffs argue the district court wrongly 

concluded the FHFA did not breach the implied covenant 

because it acted within its statutory authority. See Perry 

Capital LLC, 70 F. Supp. 3d at 238-39. The FHFA contends 

the plaintiffs “try to impose fiduciary and other duties on the 

Conservator to always act in the best interests of shareholders, 

when [the Recovery Act] instead authorizes the Conservator to 

‘[act] in the best interests of the [Companies] or the Agency,’” 

FHFA Br. at 18 (citing § 4617(b)(2)(J)(ii)) (second alteration 

in original), and that “the Conservator’s discretion to declare 

dividends, unlike that of a corporate board, is without 

limitation,” id. at 56 n.21. Insofar as the FHFA argues (and the 

district court held) that the Recovery Act preempts state law 

imposing an implied covenant, this approach is foreclosed by 

the plain text of the Recovery Act and by our precedent.

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Virginia and Delaware law imposing an implied covenant 

of good faith and fair dealing is not “an obstacle to the 

accomplishment and execution of the full purposes and 

objectives of Congress,” Hillman v. Maretta, 133 S. Ct. 1943, 

1949-50 (2013), and is therefore not preempted by the 

Recovery Act. The Recovery Act provides that the FHFA, as 

conservator, “may disaffirm or repudiate any contract” the 

Companies executed before the conservatorship “the 

performance of which the conservator . . . determines to be 

burdensome,” 12 U.S.C. § 4617(d)(1), “within a reasonable 

period following” the agency’s appointment as conservator, id.

§ 4617(d)(2). That the Recovery Act permits the FHFA in 

some circumstances to repudiate contracts the Companies 

concluded before the conservatorship indicates that the 

Companies’ contractual obligations otherwise remain in force. 

Cf. Waterview Mgmt. Co. v. FDIC, 105 F.3d 696, 700-01 (D.C. 

Cir. 1997) (so interpreting a nearly identical provision in 

FIRREA, 12 U.S.C. § 1821(e)). Furthermore, by providing for 

the FHFA to succeed to “all rights, titles, powers, and 

privileges of the [Companies],” 12 U.S.C. § 4617(b)(2)(A)(i), 

the Recovery Act places the FHFA “‘in the shoes’” of the 

Companies and “does not permit [the agency] to increase the 

value of the [contract] in its hands by simply ‘preempting’ out 

of existence pre-receivership contractual obligations.” 

Waterview Mgmt. Co., 105 F.3d at 701 (quoting O’Melveny & 

Myers, 512 U.S. at 87, in reaching the same conclusion for the 

Succession Clause of FIRREA, 12 U.S.C. § 1821(d)(2)(A)(i)). 

The class plaintiffs next challenge the district court’s 

conclusion that they failed to state a claim for breach of the 

implied covenant, which they contend required the Companies 

– and, therefore, their conservator – to act reasonably and not 

to deprive them of the fruits of their bargain, namely the 

opportunity to receive dividends. The FHFA urges us to affirm 

the district court’s determination that the class plaintiffs’ lack 

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of an enforceable contractual right to dividends foreclosed the 

claim that the implied covenant instead provided such a right. 

See Perry Capital LLC, 70 F. Supp. 3d at 238. 

Under Delaware law, “[e]xpress contractual provisions 

always supersede the implied covenant,” Gerber v. Enter. 

Prod. Holdings, LLC, 67 A.3d 400, 419 (Del. 2013), overruled 

on other grounds by Winshall v. Viacom Int’l Inc., 76 A.3d 808, 

815 n.13 (Del. 2013), and “one generally cannot base a claim 

for breach of the implied covenant on conduct authorized by 

the terms of the agreement,” Dunlap v. State Farm Fire & Cas. 

Co., 878 A.2d 434, 441 (Del. 2005). Here, however, the stock 

certificates upon which the class plaintiffs rely provide for 

dividends “if declared by the Board of Directors, in its sole 

discretion.” J.A. 248. A party to a contract providing for such 

discretion violates the implied covenant if it “act[s] arbitrarily 

or unreasonably.” Nemec v. Shrader, 991 A.2d 1120, 1126 

(Del. 2010); see also Gerber, 67 A.3d at 419 (“When 

exercising a discretionary right, a party to the contract must 

exercise its discretion reasonably” (emphasis omitted)). What 

is arbitrary or unreasonable depends upon “the parties’ 

reasonable expectations at the time of contracting.” Nemec, 

991 A.2d at 1126; see also Gerber, 67 A.3d at 419. Virginia 

law similarly provides “where discretion is lodged in one of 

two parties to a contract . . . such discretion must, of course, be 

exercised in good faith.” Historic Green Springs, Inc. v. 

Brandy Farm, Ltd., 32 Va. Cir. 98, at *3 (Va. Cir. 1993) 

(alteration in original); see also Va. Vermiculite, Ltd. v. W.R. 

Grace & Co.- Conn., 156 F.3d 535, 542 (4th Cir. 1998). 

We remand this claim, insofar as it seeks damages, for the 

district court to evaluate it under the correct legal standard, 

namely, whether the Third Amendment violated the reasonable 

expectations of the parties at the various times the class 

plaintiffs purchased their shares. We note that the class 

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plaintiffs specifically allege that some class members 

purchased their shares before the Recovery Act was enacted in 

July 2008 and the FHFA was appointed conservator the 

following September, while others purchased their shares later, 

but the class plaintiffs define their class action to include more 

broadly “all persons and entities who held shares . . . and who 

were damaged thereby,” J.A. 262-63. The district court may 

need to redefine or subdivide the class depending upon what 

the various plaintiffs could reasonably have expected when 

they purchased their shares. For those who purchased their 

shares after the enactment of the Recovery Act and the FHFA’s 

appointment as conservator, the analysis should consider, inter 

alia, (1) Section 4617(b)(2)(J)(ii) (authorizing the FHFA to act 

“in the best interests of the [Companies] or the Agency”), (2) 

Provision 5.1 of the Stock Agreements, J.A. 2451, 2465 

(permitting the Companies to declare dividends and make other 

distributions only with Treasury’s consent), and (3) pertinent 

statements by the FHFA, e.g., J.A. 217 ¶ 8, referencing 

Statement of FHFA Director James B. Lockhart at News 

Conference Announcing Conservatorship of Fannie Mae and 

Freddie Mac (Sept. 7, 2008) (The “FHFA has placed Fannie 

Mae and Freddie Mac into conservatorship. That is a statutory 

process designed to stabilize a troubled institution with the 

objective of returning the entities to normal business 

operations. FHFA will act as the conservator to operate the 

Enterprises until they are stabilized.”).

The district court also held the class plaintiffs “fail to plead 

claims of breach of the implied covenant against the 

[Companies]” because they allege only that the FHFA’s actions 

were arbitrary and unreasonable. Perry Capital LLC, 70 F. 

Supp. 3d at 239. This is a distinction without a difference 

because the action they challenge – the FHFA’s adoption of the 

Third Amendment – was taken on behalf of the Companies. 

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The Companies and the FHFA are thus identically situated for 

purposes of this claim.

c. Liquidation preferences

The class plaintiffs also allege the FHFA, by adopting the 

Third Amendment, breached the guarantees in their stock 

certificates and in the implied covenant to a share of the 

Companies’ assets upon liquidation because it ensured there 

would be no assets to distribute. The FHFA urges us to affirm 

the district court’s dismissal of these claims as unripe. See 

Perry Capital LLC, 70 F. Supp. 3d at 234-35. 

“The ripeness doctrine generally deals with when a federal 

court can or should decide a case,” Am. Petrol. Inst. v. EPA, 

683 F.3d 382, 386 (D.C. Cir. 2012), and has both constitutional 

and prudential facets. Ripeness “shares the constitutional 

requirement of standing that an injury in fact be certainly 

impending.” Nat’l Treasury Emps. Union v. United States, 101 

F.3d 1423, 1427 (D.C. Cir. 1996). We decide whether to defer 

resolving a case for prudential reasons by “evaluat[ing] (1) the 

fitness of the issues for judicial decision and (2) the hardship to 

the parties of withholding court consideration.” Nat’l Park 

Hosp. Ass’n v. Dep’t of Interior, 538 U.S. 803, 808 (2003); see

Am. Petrol., 683 F.3d at 386. 

These claims satisfy the constitutional requirement 

because the class plaintiffs allege not only that the Third 

Amendment poses a “certainly impending” injury, Nat’l 

Treasury, 101 F.3d at 1427, but that it immediately harmed 

them by diminishing the value of their shares. Cf. State Nat’l 

Bank v. Lew, 795 F.3d 48, 56 (D.C. Cir. 2015) (holding unripe 

a claim seeking recovery for a present loss in share-price in part 

because the plaintiffs failed to allege “their current investments 

are worth less now, or have been otherwise adversely affected 

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now”). The class plaintiffs allege the Third Amendment, by 

depriving them of their right to share in the Companies’ assets 

when and if they are liquidated, immediately diminished the 

value of their shares. The case or controversy requirement of 

Article III of the U.S. Constitution is therefore met.

The FHFA (like the district court) says the claims are not 

prudentially ripe because there can be no breach of any 

contractual obligation to distribute assets until the Companies 

are required to perform, namely, upon liquidation. Not so. 

Under the doctrine of anticipatory breach, “a voluntary 

affirmative act which renders the obligor unable . . . to 

perform” is a repudiation, RESTATEMENT (SECOND) OF 

CONTRACTS § 250(b), that “ripens into a breach prior to the 

time for performance . . . if the promisee elects to treat it as 

such” by, for instance, suing for damages, Franconia Assocs. 

v. United States, 536 U.S. 129, 143 (2002) (internal quotation 

marks omitted); RESTATEMENT (SECOND) OF CONTRACTS 

§§ 253(1), 256 cmt. c. Accord Lenders Fin. Corp. v. Talton, 

249 Va. 182, 189, 455 S.E.2d 232, 236 (Va. 1995); W. WillowBay Court, LLC v. Robino-Bay Court Plaza, LLC, C.A. No. 

2742-VCN, 2009 WL 458779, at *5 & n.37 (Del. Ch. Feb. 23, 

2009). An anticipatory breach satisfies prudential ripeness and 

therefore enables the promisee to seek damages immediately 

upon repudiation, Sys. Council EM-3 v. AT&T Corp., 159 F.3d 

1376, 1383 (D.C. Cir. 1998) (“[I]f a performing party 

unequivocally signifies its intent to breach a contract, the other 

party may seek damages immediately under the doctrine of 

anticipatory repudiation”). In other words, anticipatory breach 

is “a doctrine of accelerated ripeness” because it “gives the 

plaintiff the option to have the law treat the promise to breach 

[or the act rendering performance impossible] as a breach 

itself.” Homeland Training Ctr., LLC v. Summit Point Auto. 

Research Ctr., 594 F.3d 285, 294 (4th Cir. 2010) (citing 

Franconia Assocs., 536 U.S. at 143). 

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The class plaintiffs’ claims for breach of contract with 

respect to liquidation preferences are better understood as 

claims for anticipatory breach, so there is no prudential reason 

to defer their resolution.26 Nor do we see any prudential 

obstacle to adjudicating the class plaintiffs’ claim that 

repudiating the guarantee of liquidation preferences constitutes 

a breach of the implied covenant. Our holding that the 

claims are ripe sheds no light on the merit of those claims and, 

contrary to the assertions in the dissenting opinion (at 17), has 

no bearing upon the scope of the FHFA's statutory authority as 

conservator under the Recovery Act. Whether the class 

plaintiffs stated claims for breach of contract and breach of the 

implied covenant is best addressed by the district court in the 

 26 Although the class plaintiffs do not describe the Third Amendment 

as “an anticipatory repudiation” until their reply brief, Class Pls. 

Reply Br. at 13, they have emphasized throughout this litigation that 

it “nullified – and thereby breached – the contractual rights to a 

liquidation distribution” by rendering performance impossible. 

Class Pls. Br. at 40-41; see also, e.g., J.A. 223 ¶ 22 (alleging the 

Third Amendment “effectively eliminated the property and 

contractual rights of Plaintiffs and the Classes to receive their 

liquidation preference upon the dissolution, liquidation or winding 

up of Fannie Mae and Freddie Mac”); Class Pls. Opp’n to Mot. to 

Dismiss at 37 (“[T]he Third Amendment has made it impossible for 

[the Companies] ever to have . . . assets available for distribution to 

stockholders other than Treasury” and thereby “eliminated Plaintiffs’ 

present . . . liquidation rights in breach of the Certificates” (internal 

quotation marks omitted)). The class plaintiffs allege they “paid 

valuable consideration in exchange for these contractual rights,” 

which rights “had substantial market value . . . that [was] swiftly 

dissipated in the wake of the Third Amendment,” J.A. 224 ¶ 23, 

causing the class plaintiffs to “suffer[] damages,” e.g., J.A. 269 

¶ 144. 

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first instance.27 That court’s earlier conclusion in the negative 

was made for “largely the same reasons” that it had held the 

claims unripe, Perry Capital LLC, 70 F. Supp. 3d at 236, and 

so must be reconsidered in light of our reversal of the court’s 

holding on ripeness.

V. Conclusion

We affirm the judgment of the district court that the 

institutional plaintiffs’ claims against the FHFA and Treasury 

alleging arbitrary and capricious conduct and conduct in excess 

of their statutory authority are barred by 12 U.S.C. 

§ 4617(f). We affirm the district court’s dismissal of their 

common-law claims because they were not properly 

appealed. With respect to the class plaintiffs’ claims, we affirm 

the judgment of the district court on all claims except for the 

claims alleging breach of contract and breach of the implied 

covenant of good faith and fair dealing regarding liquidation 

preferences and the claim for breach of the implied covenant 

 27 We remand the contract-based claims only insofar as they seek 

damages because the pleas for equitable relief are barred by 12 

U.S.C. § 4617(f). “Because ripeness is a justiciability doctrine that 

is drawn both from Article III limitations on judicial power and from 

prudential reasons for refusing to exercise jurisdiction, we consider 

it first.” La. Pub. Serv. Comm’n v. FERC, 522 F.3d 378, 397 (D.C. 

Cir. 2008) (internal quotation marks and brackets omitted); see also

In re Aiken Cty., 645 F.3d 428, 434 (D.C. Cir. 2011) (“The ripeness 

doctrine, even in its prudential aspect, is a threshold inquiry that does 

not involve adjudication on the merits”). We therefore first 

determined the claims are ripe, supra at 70-73, and only then 

concluded the requests for equitable relief are barred by § 4617(f).

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with respect to dividend rights, which claims we remand for 

further proceedings consistent with this opinion.

So ordered.

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BROWN, Circuit Judge, dissenting in part:

One critic has called it “wrecking-ball benevolence,”

James Bovard, Editorial, Nothing Down: The Bush 

Administration’s Wrecking-Ball Benevolence, BARRON’S, 

Aug. 23, 2004, http://tinyurl.com/Barrons-Bovard; while 

another, dismissing the compassionate rhetoric, dubs it “crony 

capitalism,” Gerald P. O’Driscoll, Jr., Commentary, 

Fannie/Freddie Bailout Baloney, CATO INST.,

http://tinyurl.com/Cato-O-Driscoll (last visited Feb. 13, 

2017). But whether the road was paved with good intentions 

or greased by greed and indifference, affordable housing 

turned out to be the path to perdition for the U.S. mortgage 

market. And, because of the dominance of two so-called 

Government Sponsored Entities (“GSE”s)—the Federal 

National Mortgage Association (“Fannie Mae” or “Fannie”) 

and the Federal Home Loan Mortgage Corporation (“Freddie 

Mac” or “Freddie,” collectively with Fannie Mae, the 

“Companies”)—the trouble that began in the subprime 

mortgage market metastasized until it began to affect most 

debt markets, both domestic and international.

By 2008, the melt-down had become a crisis. A decade

earlier, government policies and regulations encouraging

greater home ownership pushed banks to underwrite

mortgages to allow low-income borrowers with poor credit 

history to purchase homes they could not afford. Banks then

used these risky mortgages to underwrite highly-profitable 

mortgage-backed securities—bundled mortgages—which 

hedge funds and other investors later bought and sold, further 

stoking demand for ever-riskier mortgages at ever-higher 

interest rates. Despite repeated warnings from regulators and 

economists, the GSEs’ eagerness to buy these loans meant 

lenders had a strong incentive to make risky loans and then 

pass the risk off to Fannie and Freddie. By 2007, Fannie and 

Freddie had acquired roughly a trillion dollars’ worth of 

subprime and nontraditional mortgages—approximately 40 

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2

percent of the value of all mortgages purchased. And since 

more risk meant more profit and the GSEs knew they could 

count on the federal government to cover their losses, their 

appetite for riskier mortgages was entirely rational.

The housing boom generated tremendous profit for

Fannie and Freddie. But then the bubble burst. Individuals 

began to default on their loans, wrecking neighborhoods, 

wiping out the equity of prudent homeowners, and threatening 

the stability of banks and those who held or guaranteed 

mortgage-backed assets. In March 2008, Bear Sterns 

collapsed, requiring government funds to finance a takeover 

by J.P. Morgan Chase. In July, the Federal Deposit Insurance 

Corporation (the “FDIC”) seized IndyMac. But Bear Sterns 

and IndyMac—huge companies, to be sure—paled in 

comparison to Fannie and Freddie, which together backed $5 

trillion in outstanding mortgages, or nearly half of the $12 

trillion U.S. mortgage market. In late-July 2008, Congress 

passed and President Bush signed the Housing and Economic 

Recovery Act of 2008, authorizing a new government agency, 

the Federal Housing Finance Agency (“FHFA” or the 

“Agency”), to serve as conservator or receiver for Fannie and 

Freddie if certain conditions were met; Fannie and Freddie

were placed into FHFA conservatorship the following month. 

Only weeks thereafter, Lehman Brothers failed, the 

government bailed out A.I.G., Washington Mutual declared

bankruptcy, and Wells Fargo obtained government assistance 

for its buy-out of Wachovia.

There is no question that FHFA was created to confront a 

serious problem for U.S. financial markets. The Court 

apparently concludes a crisis of this magnitude justifies 

extraordinary actions by Congress. Perhaps it might. But 

even in a time of exigency, a nation governed by the rule of 

law cannot transfer broad and unreviewable power to a

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3

government entity to do whatsoever it wishes with the assets 

of these Companies. Moreover, to remain within 

constitutional parameters, even a less-sweeping delegation of 

authority would require an explicit and comprehensive 

framework. See Whitman v. Am. Trucking Ass’ns, Inc., 531 

U.S. 457, 468 (2001) (“Congress . . . does not alter the 

fundamental details of a regulatory scheme in vague terms or 

ancillary provisions—it does not, one might say, hide 

elephants in mouseholes.”) Here, Congress did not endow 

FHFA with unlimited authority to pursue its own ends; rather, 

it seized upon the statutory text that had governed the FDIC

for decades and adapted it ever so slightly to confront the new 

challenge posed by Fannie and Freddie.

Perhaps this was a bad idea. The perils of massive GSEs 

had been indisputably demonstrated. Congress could have 

faced up to the mess forthrightly. Had both Companies been 

placed into immediate receivership, the machinations that led 

to this litigation might have been avoided. See Thomas H. 

Stanton, The Failure of Fannie Mae and Freddie Mac and the 

Future of Government Support for the Housing Finance 

System, 14–15 (Brooklyn L. Sch., Conference Draft, Mar. 27, 

2009), http://tinyurl.com/Stanton-Conference (arguing Fannie 

and Freddie could have been converted into wholly owned 

government corporations with limited lifespans in order to 

stabilize the mortgage market). But the question before the 

Court is not whether the good guys have stumbled upon a 

solution. There are no good guys. The question is whether 

the government has violated the legal limits imposed on its 

own authority. 

Regardless of whether Congress had many options or 

very few, it chose a well-understood and clearly-defined 

statutory framework—one that drew upon the common law to

clearly delineate the outer boundaries of the Agency’s 

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4

conservator or, alternatively, receiver powers. FHFA pole 

vaulted over those boundaries, disregarding the plain text of 

its authorizing statute and engaging in ultra vires conduct. 

Even now, FHFA continues to insist its authority is entirely

without limit and argues for a complete ouster of federal 

courts’ power to grant injunctive relief to redress any action it 

takes while purporting to serve in the conservator role. See

FHFA Br. 21. While I agree with much of the Court’s 

reasoning, I cannot conclude the anti-injunction provision

protects FHFA’s actions here or, more generally, endorses

FHFA’s stunningly broad view of its own power. Plaintiffs—

not all innocent and ill-informed investors, to be sure—are 

betting the rule of law will prevail. In this country, everyone

is entitled to win that bet. Therefore, I respectfully dissent

from the portion of the Court’s opinion rejecting the 

Institutional and Class Plaintiffs’ claims as barred by the antiinjunction provision and all resulting legal conclusions.

I.

The Housing and Economic Recovery Act of 2008 

(“HERA” or the “Act”), Pub. L. No. 110-289, 122 Stat. 2654 

(codified at 12 U.S.C. § 4511, et seq.), established a new 

financial regulator, FHFA, and endowed it with the authority 

to act as conservator or receiver for Fannie and Freddie. The 

Act also temporarily expanded the United States Treasury’s 

(“Treasury”) authority to extend credit to Fannie and Freddie 

as well as purchase stock or debt from the Companies. My 

disagreement with the Court turns entirely on its interpretation 

of HERA’s text.

Pursuant to HERA, FHFA may supervise and, if needed, 

operate Fannie and Freddie in a “safe and sound manner,” 

“consistent with the public interest,” while “foster[ing] liquid, 

efficient, competitive, and resilient national housing finance 

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markets.” 12 U.S.C. § 4513(a)(1)(B). The statute further 

authorizes the FHFA Director to “appoint [FHFA] as 

conservator or receiver” for Fannie and Freddie “for the 

purpose of reorganizing, rehabilitating, or winding up [their] 

affairs.” Id. § 4617(a)(1), (2) (emphasis added). In order to 

ensure FHFA would be able to act quickly to prevent the 

effects of the subprime mortgage crisis from cascading further 

through the United States and global economies, HERA also 

provided “no court may take any action to restrain or affect 

the exercise of powers or functions of [FHFA] as a 

conservator or a receiver.” Id. § 4617(f) (emphasis added).

By its plain terms, HERA’s broad anti-injunction 

provision bars equitable relief against FHFA only when the 

Agency acts within its statutory authority—i.e. when it 

performs its “powers or functions.” See New York v. FERC, 

535 U.S. 1, 18 (2002) (“[A]n agency literally has no power to 

act . . . unless and until Congress confers power upon it.”). 

Accordingly, having been appointed as “conservator” for the 

Companies, FHFA was obligated to behave in a manner 

consistent with the conservator role as it is defined in HERA 

or risk intervention by courts. Indeed, this conclusion is 

consistent with judicial interpretations of HERA’s sister 

statute and, more broadly, with the common law.

A.

FHFA’s general authorization to act appears in HERA’s 

“[d]iscretionary appointment” provision, which states, “The 

Agency may, at the discretion of the Director, be appointed 

conservator or receiver” for Fannie and Freddie. 12 U.S.C.

§ 4617(a)(2) (emphasis added). The disjunctive “or” clearly 

indicates FHFA may choose to behave either as a conservator 

or as a receiver, but it may not do both simultaneously. See 

also id. § 4617(a)(4)(D) (“The appointment of the Agency as 

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6

receiver of a regulated entity under this section shall 

immediately terminate any conservatorship established for the 

regulated entity under this chapter.”). The Agency chose the

first option, publicly announcing it had placed Fannie and 

Freddie into conservatorship on September 6, 2008 after a 

series of unsuccessful efforts to capitalize the Companies. 

They remain in FHFA conservatorship today. Accordingly, 

we must determine the statutory boundaries of power, if any,

placed on FHFA when it functions as a conservator and 

determine whether FHFA stepped out of bounds. 

The Court emphasizes Subsection 4617(b)(2)(B)’s 

general overview of the Agency’s purview: 

The Agency may, as conservator or receiver—

(i) take over the assets of and operate the 

regulated entity with all the powers of the 

shareholders, the directors, and the officers of 

the regulated entity and conduct all business of 

the regulated entity;

(ii) collect all obligations and money due the 

regulated entity;

(iii) perform all functions of the regulated entity 

in the name of the regulated entity which are 

consistent with the appointment as conservator 

or receiver;

(iv) preserve and conserve the assets and 

property of the regulated entity; and

(v) provide by contract for assistance in 

fulfilling any function, activity, action, or duty 

of the Agency as conservator or receiver.

Id. § 4617(b)(2)(B). From this text, the Court intuits a general 

statutory mission to behave as a “conservator” in virtually all 

corporate actions, presumably transitioning to a “receiver” 

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only at the moment of liquidation. Op. 27 (“[HERA] openly 

recognizes that sometimes conservatorship will involve 

managing the regulated entity in the lead up to the

appointment of a liquidating receiver.”); 32 (“[T]he duty that 

[HERA] imposes on FHFA to comply with receivership 

procedural protections textually turns on FHFA actually 

liquidating the Companies.”). In essence, the Court’s position 

holds that because there was a financial crisis and only 

Treasury offered to serve as White Knight, both FHFA and 

Treasury may take any action they wish, apart from formal 

liquidation, without judicial oversight. This analysis is 

dangerously far-reaching. See generally 2 James Wilson, Of 

the Natural Rights of Individuals, in THE WORKS OF JAMES 

WILSON 587 (1967) (warning it is not “part of natural liberty 

. . . to do mischief to anyone” and suggesting such a 

nonexistent right can hardly be given to the state to impose by 

fiat). While the line between a conservator and a receiver

may not be completely impermeable, the roles’ heartlands are 

discrete, well-anchored, and authorize essentially distinct and 

specific conduct.

For clarification of the general mission statement 

appearing in Subsection (B), the reader need only continue to 

read through Subsection 4617(b)(2). See Kellmer v. Raines, 

674 F.3d 848, 850 (D.C. Cir. 2012) (“[T]o resolve this 

[statutory interpretation of HERA] issue, we need only heed 

Professor Frankfurter’s timeless advice: ‘(1) Read the statute; 

(2) read the statute; (3) read the statute!’” (quoting Henry J. 

Friendly, Mr. Justice Frankfurter and the Reading of Statutes, 

in BENCHMARKS 196, 202 (1967))).

A mere two subsections later, HERA helpfully lists the 

specific “powers” that FHFA possesses once appointed 

conservator:

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The Agency may, as conservator, 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.

12 U.S.C. § 4617(b)(2)(D) (emphasis added). The next 

subsection defines FHFA’s “[a]dditional powers as receiver:”

In any case in which the Agency is acting as 

receiver, the Agency shall place the regulated entity 

in liquidation and proceed to realize upon the assets 

of the regulated entity in such manner as the Agency 

deems appropriate, including through the sale of 

assets, the transfer of assets to a limited-life 

regulated entity[,] . . . or the exercise of any other 

rights or privileges granted to the Agency under this 

paragraph.

Id. § 4617(b)(2)(E) (emphasis added). Apparently, when the 

Court asserts “for all of their arguments that FHFA has 

exceeded the bounds of conservatorship, the institutional 

stockholders have no textual hook on which to hang their 

hats,” Op. 36, it refers solely to the limited confines of

Subsection 4617(b)(2)(B). 

Plainly the text of Subsections 4617(b)(2)(D) and 

(b)(2)(E) mark the bounds of FHFA’s conservator or receiver 

powers, respectively, if and when the Agency chooses to 

exercise them in a manner consistent with its general 

authority to “operate the regulated entity” appearing in 

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Subsection 4617(b)(2)(B).

1

 Of course, this is not to say 

FHFA may take action if and only if the preconditions listed 

in the statute are met. Indeed, in provisions following the 

specific articulation of powers contained in Subsections (D) 

and (E), and thus drafted in contemplation of the distinctions 

articulated in those earlier subsections, the statute lists certain 

powers that may be exercised by FHFA as either a 

“conservator or receiver.” 12 U.S.C. § 4617(b)(2)(G) (power 

to “transfer or sell any asset or liability of the regulated entity 

in default” without prior approval by the regulated entity); id. 

§ 4617(b)(2)(H) (power to “pay [certain] valid obligations of 

 1 The Court makes much of the statute’s statement that a 

conservator “may” take action to operate the company in a sound 

and solvent condition and preserve and conserve its assets while a 

receiver “shall” liquidate the company. It concludes the statute 

permits, but does not compel in any judicially enforceable sense, 

FHFA to preserve and conserve Fannie’s and Freddie’s assets 

however it sees fit. See Op. 21–25. I disagree. Rather, read in the 

context of the larger statute—especially the specifically defined 

powers of a conservator and receiver set forth in Subsections 

4617(b)(2)(D) and (b)(2)(E)—Congress’s decision to use 

permissive language with respect to a conservator’s duties is best 

understood as a simple concession to the practical reality that a 

conservator may not always succeed in rehabilitating its ward. The 

statute wisely acknowledges that it is “not in the power of any man 

to command success” and does not convert failure into a legal 

wrong. See Letter from George Washington to Benedict Arnold 

(Dec. 5, 1775), in 3 THE WRITINGS OF GEORGE WASHINGTON, 192 

(Jared Sparks, ed., 1834). Of course, this does not mean the 

Agency may affirmatively sabotage the Companies’ recovery by

confiscating their assets quarterly to ensure they cannot pay off 

their crippling indebtedness. There is a vast difference between 

recognizing that flexibility is necessary to permit a conservator to 

address evolving circumstances and authorizing a conservator to 

undermine the interests and destroy the assets of its ward without 

meaningful limit.

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the regulated entity”). Indeed, each of these powers is 

entirely consistent with either the Subsection (D) conservator 

role or the Subsection (E) receiver role, and they do not 

override the distinctions between them. Congress cannot be 

expected to specifically address an entire universe of possible

actions in its enacted text—assigning each to a “conservator,” 

a “receiver,” or both. See, e.g., id. § 4617(b)(2)(C) (joint 

conservator/receiver power to “provide for the exercise of any 

function by any stockholder, director, or officer of any 

regulated entity”). But if a power is enumerated as that of a 

“receiver” (or fairly read to be a “receiver” power), FHFA 

cannot exercise that power while calling itself a 

“conservator.” The statute confirms as much: the Agency “as 

conservator or receiver” may “exercise all powers and 

authorities specifically granted to conservators or receivers, 

respectively, under [Section 4617], and such incidental 

powers as shall be necessary to carry out such powers.” Id. 

§ 4617(J)(i) (emphasis added). 

A conservator endeavors to “put the regulated entity in a 

sound and solvent condition” by “reorganizing [and] 

rehabilitating” it, and a receiver takes steps towards 

“liquidat[ing]” the regulated entity by “winding up [its] 

affairs.” 12 U.S.C. § 4617(a)(2), (b)(2)(D)–(E).

2

 In short, 

FHFA may choose whether it intends to serve as a 

conservator or receiver; once the choice is made, however, its 

“hard operational calls” consistent with its “managerial 

judgment” are statutorily confined to acts within its chosen 

 2 The Director’s discretion to appoint FHFA as “‘conservator or receiver 

for the purpose of reorganizing, rehabilitating, or winding up the affairs of 

a regulated entity’” does not suggest slippage between the roles. See 

FHFA Br. 41 (quoting 12 U.S.C. § 4617(a)(2)). Between the conservator 

and receiver roles, FHFA surely has the power to accomplish each of the 

enumerated functions; nonetheless, a conservator can no more “wind[] up” 

a company than a receiver can “rehabilitat[e]” it. See 12 U.S.C. 

§ 4617(b)(3)(B) (using “liquidation” and “winding up” as synonyms).

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role. See Op. 23. There is no such thing as a hybrid 

conservator-receiver capable of governing the Companies in 

any manner it chooses up to the very moment of liquidation. 

See Op. 55–56 (noting HERA “terminates [shareholders]

rights and claims” in receivership and acknowledging 

shareholders’ direct claims against and rights in the 

Companies survive during conservatorship).3 

Moreover, it is the proper role of courts to determine 

whether FHFA’s challenged actions fell within its statutorilydefined conservator role. In County of Sonoma v. FHFA, for 

example, when our sister circuit undertook this inquiry, it 

observed, “If the [relevant] directive falls within FHFA’s 

conservator powers, it is insulated from review and this case 

must be dismissed,” but “[c]onversely, the anti-judicial 

review provision is inapplicable when FHFA acts beyond the 

scope of its conservator power.” 710 F.3d 987, 992 (9th Cir. 

2013); see also Leon Cty. v. FHFA, 700 F.3d 1273, 1278 

(11th Cir. 2012) (“FHFA cannot evade judicial scrutiny by 

merely labeling its actions with a conservator stamp.”). Here, 

the Court abdicates this crucial responsibility, blessing FHFA 

with unreviewable discretion over any action—short of 

formal liquidation—it takes towards its wards.

B.

But HERA does not exist in an interpretive vacuum. 

Congress imported the powers and limitations FHFA enjoys 

 3 HERA’s provision for judicial review over a claim promptly filed 

“within 30 days” of the Director’s decision to appoint a conservator or 

receiver further indicates Congress contemplated continuity of the 

conservator or receiver role during the period the conservatorship or 

receivership endured. 12 U.S.C. § 4617(a)(5). Here, therefore, in 

transitioning sub silencio from the conservator to receiver role, FHFA has 

escaped the statute’s contemplated, though admittedly brief, period for 

judicial review following the transition.

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in its “conservator” and “receiver” roles, as well as the 

insulation from judicial review that accompanies them,

directly from the Financial Institutions Reform, Recovery, 

and Enforcement Act of 1989 (“FIRREA”), Pub. L. No. 101-

73, 103 Stat. 183, which governs the FDIC. See Mark A. 

Calabria, The Resolution of Systemically Important Financial 

Institutions: Lessons from Fannie and Freddie 10 (Cato Inst.,

Working Paper No. 25, 2015), http://tinyurl.com/CatoWorking-Paper (“In crafting the conservator and receivership 

provisions . . . the Committee staff . . . quite literally ‘marked 

up’ Sections 11 and 13 of the [Federal Deposit Insurance Act 

(“FDIA”), FIRREA’s predecessor statute] . . . . The 

presumption was that FDIA powers would apply to a GSE 

resolution, unless there was a compelling reason otherwise.”). 

Our interpretation of conservator powers and the judiciary’s 

role in policing their boundaries under HERA is, therefore, 

guided by congressional intent expressed in FIRREA and the 

case law interpreting it. See Lorillard v. Pons, 434 U.S. 575, 

580–81 (1978) (noting when “Congress adopts a new law 

incorporating sections of a prior law, Congress normally can 

be presumed to have had knowledge of the interpretation 

given to the incorporated law” and to have “adopte[d] that 

interpretation”); Motion Picture Ass’n of Am., Inc. v. FCC, 

309 F.3d 796, 801 (D.C. Cir. 2002) (“Statutory provisions in 

pari materia normally are construed together to discern their 

meaning.”); see also Felix Frankfurter, Some Reflections on 

the Reading of Statutes, 47 COLUM. L. REV. 527, 537 (1947)

[hereinafter Reading of Statutes] (“[I]f a word is obviously 

transplanted from another legal source, whether the common 

law or other legislation, it brings the old soil with it.”).

In language later copied word-for-word into HERA, 

FIRREA lists the FDIC’s powers “as conservator or receiver,” 

12 U.S.C. § 1821(d)(2)(A)–(B), and it later lists the FDIC’s 

“[p]owers as conservator” alone, id. § 1821(d)(2)(D). Save 

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for references to a “regulated entity” in place of a “depository 

institution,” the conservator powers delineated in the two 

statutes are identical. In fact, FIRREA’s text demonstrates 

the Legislature’s clear intent to create a textual distinction

between conservator and receiver powers: 

The FDIC is authorized to act as conservator or 

receiver for insured banks and insured savings 

associations that are chartered under Federal or State

law. The title also distinguishes between the powers 

of a conservator and receiver, making clear that a 

conservator operates or disposes of an institution as 

a going concern while a receiver has the power to 

liquidate and wind up the affairs of an institution. 

H.R. REP. NO. 101-209, at 398 (1989) (Conf. Rep.) (emphasis 

added). Courts have respected this delineation, noting 

“Congress did not use the phrase ‘conservator or receiver’ 

loosely.” 1185 Ave. of Americas Assocs. v. RTC, 22 F.3d 494, 

497 (2d Cir. 1994) (“Throughout FIRREA, Congress used 

‘conservator or receiver’ where it granted rights to both 

conservators and receivers, and it used ‘conservator’ or 

‘receiver’ individually where it granted rights to the [agency] 

in only one capacity.”).

FIRREA had assigned to “conservators” responsibility 

for taking “such action as may be . . . necessary to put the 

insured depository institution in a sound and solvent 

condition; and . . . appropriate to carry on the business of the 

institution and preserve and conserve [its] assets,” 12 U.S.C. 

§ 1821(d)(2)(D), and it imposed upon them a “fiduciary duty 

to minimize the institution’s losses,” 12 U.S.C. § 1831f(d)(3). 

“Receivers,” on the other hand, “place the insured depository

institution in liquidation and proceed to realize upon the 

assets of the institution.” Id. § 1821(d)(2)(E). The proper 

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interpretation of the text is unmistakable: “a conservator may 

operate and dispose of a bank as a going concern, while a 

receiver has the power to liquidate and wind up the affairs of 

an institution.” James Madison Ltd. ex rel. Hecht v. Ludwig, 

82 F.3d 1085, 1090 (D.C. Cir. 1996); see also, e.g., Del E. 

Webb McQueen Dev. Corp. v. RTC, 69 F.3d 355, 361 (9th 

Cir. 1995) (“The RTC [a government agency similar to the 

FDIC], as conservator, operates an institution with the hope 

that it might someday be rehabilitated. The RTC, as receiver, 

liquidates an institution and distributes its proceeds to 

creditors according to the priority rules set out in the 

regulations.”); RTC v. United Tr. Fund, Inc., 57 F.3d 1025, 

1033 (11th Cir. 1995) (“The conservator’s mission is to 

conserve assets[,] which often involves continuing an ongoing 

business. The receiver’s mission is to shut a business down 

and sell off its assets. A receiver and conservator consider 

different interests when making . . . strategic decision[s].”). 

The two roles simply do not overlap, and any conservator 

who “winds up the affairs of an institution” rather than 

operate it “as a going concern”—within the context of a 

formal liquidation or not—does so outside its authority as 

conservator under the statute. 

Of course, parameters for the “conservator” and 

“receiver” roles are not the only things HERA lifted directly 

from FIRREA. The anti-injunction clause at issue here came 

too. Section 1821(j) of FIRREA provided, “[N]o court may 

take any action, except at the request of the Board of 

Directors by regulation or order, to restrain or affect the 

exercise of powers or functions of the [FDIC] as a conservator 

or a receiver.” 12 U.S.C. § 1821(j). Another near-perfect fit.

Indeed, National Trust for Historic Preservation in the 

United States v. FDIC emphasized that, while FIRREA’s antiinjunction clause prevented review of the FDIC’s actions 

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where it had “exercise[d the] powers or functions” granted to 

it as “conservator or receiver,” the Court retained the ability 

to decide claims alleging the agency “ha[d] acted or 

propose[d] to act beyond, or contrary to, its statutorily 

prescribed, constitutionally permitted, powers or functions.” 

21 F.3d 469, 472 (D.C. Cir. 1994) (Wald, J., concurring); see 

also Freeman v. FDIC, 56 F.3d 1394, 1398 (D.C. Cir. 1995) 

(“‘[Section] 1821(j) does indeed bar courts from restraining or 

affecting the exercise of powers or functions of the FDIC as a 

conservator or a receiver . . . unless it has acted or proposed to 

act beyond, or contrary to, its statutorily prescribed, 

constitutionally permitted, powers or functions.’” (quoting 

Nat’l Tr. for Historic Pres., 21 F.3d at 472 (Wald, J., 

concurring))). Insulating all actions within the conservator 

role is an entirely different proposition from exempting 

actions outside that role, and this Circuit’s precedent leaves 

no doubt that a thorough analysis is required to determine 

where on the continuum an agency stands before applying 

FIRREA’s—or HERA’s—anti-injunction clause to bar a 

plaintiff’s claims.

C.

When Congress lifted HERA’s conservatorship standards 

verbatim from FIRREA, it also incorporated the long history 

of fiduciary conservatorships at common law baked into that 

statute. Indeed, “[i]t is a familiar maxim that a statutory term 

is generally presumed to have its common-law meaning.” 

Evans v. United States, 504 U.S. 255, 259 (1992); see

Morissette v. United States, 342 U.S. 246, 263 (1952) 

(“[W]here Congress borrows terms of art in which are 

accumulated the legal tradition and meaning of centuries of 

practice, it presumably knows and adopts the cluster of ideas 

that were attached to each borrowed word in the body of 

learning from which it was taken and the meaning its use will 

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convey to the judicial mind unless otherwise instructed. In 

such case, absence of contrary direction may be taken as 

satisfaction with widely accepted definitions, not as a 

departure from them.”); see generally Roger J. Traynor, 

Statutes Revolving in Common-Law Orbits, 17 CATH. U. L.

REV. 401 (1968) (discussing the interaction between statutes 

and judicial decisions across a number of fields, including 

commercial law). As Justice Frankfurter colorfully put it, 

“[I]f a word is obviously transplanted from another legal 

source, whether the common law or other legislation, it brings 

the old soil with it.” Reading of Statutes, supra, at 537.

We have an obvious transplant here. At common law,

“conservators” were appointed to protect the legal interests of 

those unable to protect themselves. In the probate context, for 

example, a conservator was bound to act as the fiduciary of 

his ward. See In re Kosmadakes, 444 F.2d 999, 1004 (D.C. 

Cir. 1971). This duty forbade the conservator—whether 

overseeing a human or corporate person—from acting for the 

benefit of the conservator himself or a third party. See RTC v. 

CedarMinn Bldg. Ltd. P’ship, 956 F.2d 1446, 1453–54 (8th

Cir. 1992) (observing “[a]t least as early as the 1930s, it was 

recognized that the purpose of a conservator was to maintain 

the institution as an ongoing concern,” and holding “the 

distinction in duties between [RTC] conservators and 

receivers” is thus not “more theoretical than real”).4

 

Consequently, today’s Black’s Law Dictionary defines a 

“conservator” as a “guardian, protector, or preserver,” while a 

“receiver” is a “disinterested person appointed . . . for the 

protection or collection of property that is the subject of 

 4 While the execution of multiple contracts with Treasury “bears no 

resemblance to the type of conservatorship measures that a private 

common-law conservator would be able to undertake,” Op. 34, that is a 

distinction in degree, not in kind.

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diverse claims (for example, because it belongs to a bankrupt 

[entity] or is otherwise being litigated).” BLACK’S LAW 

DICTIONARY 370, 1460 (10th ed. 2014). These “[w]ords that 

have acquired a specialized meaning in the legal context must 

be accorded their legal meaning.” Buckhannon Bd. & Care 

Home, Inc. v. W.V. Dep’t of Health & Human Res., 532 U.S. 

598, 615 (2001) (Scalia, J., concurring).

5 They comprise the 

common law vocabulary that Congress chose to employ in

FIRREA and, later, in HERA to authorize the FDIC and 

FHFA to serve as “conservators” in order to “preserve and 

conserve [an institution’s] assets” and operate that institution 

in a “sound and solvent” manner. 12 U.S.C. § 1821(d)(2)(D).

The word “conservator,” therefore, is not an infinitely

malleable term that may be stretched and contorted to 

encompass FHFA’s conduct here and insulate Plaintiffs’ APA 

claims from judicial review. Indeed, the Court implicitly 

acknowledges this fact in permitting the Class Plaintiffs to 

mount a claim for anticipatory breach of the promises in their 

shareholder agreements. See Op. 71–73. A proper reading of 

the statute prevents FHFA from exceeding the bounds of the 

conservator role and behaving as a de facto receiver.

The Court suggests FHFA’s incidental power to, “as 

conservator or receiver[,] . . . take any action authorized by 

[Section 4617], which the Agency determines is in the best 

 5 These legal definitions are reflected in the terms’ ordinary meaning. For 

example, the Oxford English Dictionary defines a “conservator” as “[a]n 

officer appointed to conserve or manage something; a keeper, 

administrator, trustee of some organization, interest, right, or resource.” 3 

OXFORD ENGLISH DICTIONARY 766 (2d ed. 1989). In contrast, it defines a 

“receiver” as “[a]n official appointed by a government . . . to receive . . . 

monies due; a collector.” 13 OXFORD ENGLISH DICTIONARY 317–18 (2d 

ed. 1989). Regardless of the terms’ audience, therefore, a “conservator” 

protects and preserves assets for an entity while a “receiver” operates as a 

collection agent for creditors. 

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interests of the regulated entity or the Agency” in 12 U.S.C. 

§ 4617(b)(2)(J)(ii) erases any outer limit to FHFA’s statutory 

powers despite the common law definition of “conservator” 

and, therefore, forecloses any opportunity for meaningful 

judicial review of FHFA’s actions in conducting its so-called 

conservatorship at the time of the Third Amendment. See Op.

33–34. Of course, the Court’s reading of Subsection 

4617(b)(2)(J)(ii) directly contradicts the immediatelypreceding subsection’s authorization of FHFA “as conservator 

or receiver” to “exercise all powers and authorities 

specifically granted to conservators or receivers, 

respectively.” 12 U.S.C. § 4617(b)(2)(J)(i) (emphasis added). 

It also upends Subsection 4617(a)(5)’s provision of judicial 

review for actions FHFA may take in certain facets of its 

receiver role. But even if that were not the case, Supreme 

Court precedent requires an affirmative act by Congress—an 

explicit “instruct[ion]” that review should proceed in a 

“contrary” manner—to authorize departure from a common 

law definition. Morissette, 342 U.S. at 263. And given the 

potential for disruption in the financial markets discussed in 

Part III infra, one would expect Congress to express itself 

explicitly in this matter. See FDA v. Brown & Williamson 

Tobacco Corp., 529 U.S. 120, 160 (2000) (“[W]e are 

confident that Congress could not have intended to delegate a 

decision of such economic and political significance to an 

agency in so cryptic a fashion.”). Congress offered no such 

statement here.

Rather, the more appropriate reading of the relevant text 

merely permits FHFA to engage in self-dealing transactions, 

an authorization otherwise inconsistent with the conservator 

role. See Gov’t of Rwanda v. Johnson, 409 F.3d 368, 373 

(D.C. Cir. 2005) (discussing “the age-old principle applicable 

to fiduciary relationships that, unless there is a full disclosure 

by the agent, trustee, or attorney of his activity and interest in 

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the transaction to the party he represents and the obtaining of 

the consent of the party represented, the party serving in the 

fiduciary capacity cannot receive any profit or emolument 

from the transaction”); see also 7 COLLIER ON BANKRUPTCY

¶ 1108.09 (16th ed.) (noting a trustee’s duty of loyalty in 

bankruptcy law requires a “single-minded devotion to the 

interests of those on whose behalf the trustee acts”). FHFA 

operating as a conservator may act in its own interests to 

protect both the Companies and the taxpayers from whom the 

Agency was ultimately forced to borrow, but FHFA is not 

empowered to jettison every duty a conservator owes its ward, 

and it is certainly not entitled to disregard the statute’s own 

clearly defined limits on conservator power. 

In fact, FIRREA contains a nearly identical self-dealing 

provision, which provides, “The [FDIC] may, as conservator 

or receiver . . . take any action authorized by this chapter, 

which the [FDIC] determines is in the best interests of the 

depository institution, its depositors, or the [FDIC].” 12 

U.S.C. § 1821(d)(2)(J)(ii). This authorization has not given 

courts pause in interpreting FIRREA to require the FDIC to 

behave within its statutory role. See Nat’l Tr. for Historic 

Pres., 21 F.3d at 472 (Wald, J., concurring) (“[Section] 

1821(j) does indeed bar courts from restraining or affecting

the exercise of powers or functions of the FDIC as a

conservator or a receiver, unless it has acted or proposes to act 

beyond, or contrary to, its statutorily prescribed, 

constitutionally permitted, powers or functions.”); see also 

Sharpe v. FDIC, 126 F.3d 1147, 1155 (9th Cir. 1997) 

(holding the statutory bar on judicial review of the FDIC’s 

actions taken as a conservator or receiver “does not bar 

injunctive relief when the FDIC has acted beyond, or contrary 

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to, its statutorily prescribed, constitutionally permitted, 

powers or functions”).

6

II.

Having determined this Court may enjoin FHFA if it 

exceeded its powers as conservator of Fannie and Freddie, I

now examine FHFA’s conduct. It is important to note at the 

outset the motives behind any actions taken by FHFA are

irrelevant to this inquiry, as no portion of HERA’s text invites 

such an analysis. Rather, I examine whether or not FHFA 

acted beyond its authority, looking only to whether its actions

are consistent either with (1) “put[ting] the regulated entity in 

a sound and solvent condition” by “reorganizing [and] 

rehabilitating” it as a conservator or (2) taking steps towards 

“liquidat[ing]” it by “winding up [its] affairs” as a receiver. 

12 U.S.C. § 4617(a)(2), (b)(2)(D)–(E).

In September 2008, FHFA placed Fannie and Freddie 

into conservatorship; Director James Lockhart explained the 

conservatorship as “a statutory process designed to stabilize a 

troubled institution with the objective of returning the entities 

to normal business operations” and promised FHFA would 

“act as the conservator to operate [Fannie and Freddie] until 

they are stabilized.” Press Release, Fed. Hous. Fin. Agency, 

 6 The Court also suggests the authority to act “‘in the best interests of the 

regulated entity or the Agency’” is consistent with the Director’s mandate 

to protect the “‘public interest.’” Op. 8 (quoting 12 U.S.C. 

§ 4513(a)(1)(B)(v)). Of course, the FHFA Director is also bound to 

“carr[y] out [FHFA’s] statutory mission only through activities that are 

authorized under and consistent with this chapter and the authorizing 

statutes.” Id. § 4513(a)(1)(B)(iv). Indeed, this text only confirms what 

should have been evident: the availability of meaningful judicial review

cannot bend to exigency, especially since Congress clearly did not believe 

the 2008 financial crisis required a more far-reaching statutory 

authorization than prior occasions of financial distress had commanded.

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Statement of FHFA Director James B. Lockhart at News 

Conference Announcing Conservatorship of Fannie Mae and 

Freddie Mac (Sept. 7, 2008), http://tinyurl.com/LockhartStatement. FHFA even promised it would “continue to retain 

all rights in the [Fannie and Freddie] stock’s financial worth; 

as such worth is determined by the market.” JA 2443 (FHFA 

Fact Sheet containing “Questions and Answers on 

Conservatorship”). And, for a period of time thereafter, 

FHFA did in fact manage the Companies within the 

conservator role. It even enlisted Treasury to provide cash 

infusions that, while costly, preserved at least a portion of the 

value of the market-held shares in the corporations. 

But the tide turned in August 2012 with the Third 

Amendment and its “Net Worth Sweep,” transferring nearly 

all of the Companies’ profits into Treasury’s coffers. 

Specifically, the Third Amendment replaced Treasury’s right 

to a fixed-rate 10 percent dividend with the right to sweep

Fannie and Freddie’s entire quarterly net worth (except for an 

initial capital reserve, which initially totaled $3 billion and

will decline to zero by 2018). Additionally, the agreement 

provided that, regardless of the amount of money paid to 

Treasury as part of this Net Worth Sweep dividend, Fannie 

and Freddie would continue to owe Treasury the $187.5 

billion it had originally loaned the Companies. It was, to say 

the least, a highly unusual transaction. Treasury was no 

longer another, admittedly very important, investor entitled to 

a preferred share of the Companies’ profits; it had received a 

contractual right from FHFA to loot the Companies to the 

guaranteed exclusion of all other investors.

In an August 2012 press release summarizing the Third 

Amendment’s terms, Treasury took a very different tone from 

Lockhart’s 2008 statement: “[W]e are taking the next step 

toward responsibly winding down Fannie Mae and Freddie 

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22

Mac, while continuing to support the necessary process of 

repair and recovery in the housing market.” Press Release, 

Dep’t of Treasury, Treasury Department Announces Further 

Steps To Expedite Wind Down of Fannie Mae and Freddie 

Mac (Aug. 17, 2012), http://tinyurl.com/Treasury-PressRelease (emphasis added). Treasury further noted the Third 

Amendment would achieve the “important objective[]” of 

“[a]cting upon the commitment made in the Administration’s 

2011 White Paper that the GSEs will be wound down and will 

not be allowed to retain profits, rebuild capital, and return to 

the market in their prior form.” Id. The Acting FHFA 

Director echoed Treasury’s sentiment in April 2013, 

explaining to Congress the following year the Net Worth 

Sweep would “wind down” Fannie and Freddie and “reinforce 

the notion that [they] will not be building capital as a potential 

step to regaining their former corporate status.” Statement of 

Edward J. DeMarco, Acting Director, FHFA, Before the S. 

Comm. on Banking, Hous. & Urban Affairs (Apr. 18, 2013), 

http://tinyurl.com/DeMarco-Statement. 

The evolution of FHFA’s position from 2008 to 2013 is 

remarkable; it had functionally removed itself from the role of 

a HERA conservator. FHFA and Treasury even described 

their actions using HERA’s exact phrase defining a receiver’s 

conduct, yet FHFA still purported to exercise only its power 

as a conservator and operated free from HERA’s constraints 

on receivers. See 12 U.S.C. § 4617(a)(4)(D), (b)(2)(E), 

(b)(3), (c) (establishing liquidation procedures and priority 

requirements); id. § 4617(a)(5) (providing for judicial 

review).

The shift in policy was borne out in FHFA’s and 

Treasury’s actions. Indeed, all parties agree the Net Worth 

Sweep had the effect of replacing a fixed-rate dividend with a 

quarterly transfer of each company’s net worth above an 

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initial (and declining) capital reserve of $3 billion. There is 

similarly no dispute that Treasury collected a $130 billion 

dividend in 2013, $40 billion in 2014, and $15.8 billion in 

2015. In fact, during the period from 2008 to 2015, Fannie 

and Freddie together paid Treasury $241.2 billion, an amount 

well in excess of the $187.5 billion Treasury loaned the 

Companies. FHFA’s decision to strip these cash reserves 

from Fannie and Freddie, consistently divesting the 

Companies of their near-entire net worth, is plainly 

antithetical to a conservator’s charge to “preserve and 

conserve” the Companies’ assets. 

Of course, and as the Court observes, Op. 29–31, Fannie 

and Freddie continue to operate at a profit. Indeed, as early as 

the second quarter of 2012, the Companies had outearned 

Treasury’s 10 percent cash dividend. Nonetheless, the Net 

Worth Sweep imposed through the Third Amendment—

which was executed shortly after the second quarter 2012 

earnings were released—confiscated all but a small portion of 

Fannie’s and Freddie’s profits. The maximum reserve of $3 

billion, given the Companies’ enormous size, rendered them

extremely vulnerable to market fluctuations and risked

triggering a need to once again infuse Fannie and Freddie 

with taxpayer money. See JA 1983 (2012 SEC filing stating 

“there is significant uncertainty in the current market 

environment, and any changes in the trends in 

macroeconomic factors that [Fannie] currently anticipate[s], 

such as home prices and unemployment, may cause [its] 

future credit-related expenses or income and credit losses to 

vary significantly from [its then-]current expectations”). In 

fact, FHFA has since referred to the Companies, even with 

their several-billion-dollar cushion, as “effectively balancesheet insolvent” and “a textbook illustration of instability.” 

Defs. Mot. to Dismiss at 19, Samuels v. FHFA, No. 13-cv22399 (S.D. Fla. Dec. 6, 2013), ECF No. 38; see also 

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generally, Statement of Melvin L. Watt, Director, FHFA, 

Statement Before the H. Comm. on Fin. Servs., at 3 (Jan. 27, 

2015), http://tinyurl.com/Watt-Statement (“[U]nder the terms 

of the [contracts with Treasury], the [Companies] do not have 

the ability to build capital internally while they remain in 

conservatorship.”). As time went on, and the maximum 

reserve decreased, the situation only deteriorated. Given the 

task of replicating their successful rise each quarter amid 

volatile market conditions, it is surprising the Companies 

managed to maintain consistent profitability until 2016, when

Freddie Mac posted a $200 million loss in the first quarter. 

See FREDDIE MAC, FORM 10-Q FOR THE QUARTERLY PERIOD 

ENDED MARCH 31, 2016, at 7 (May 3, 2016). Under the

circumstances, it strains credulity to argue FHFA was acting 

as a conservator to “observe[ Fannie’s and Freddie’s]

economic performance over time” and consider other 

regulatory options when it executed the Third Amendment.

Op. 33. FHFA and Treasury are not “studying” the 

Companies, they are profiting off of them!7

Nonetheless, the Court suggests the Third Amendment 

was simply a logical extension of the principles articulated in 

the prior two agreements. Op. 25–26. This is incorrect; the 

Net Worth Sweep fundamentally transformed the relationship 

between the Companies and Treasury: a 10 percent dividend 

became a sweep of the Companies’ near-entire net worth; an 

in-kind dividend option disappeared in favor of cash

 7 Similarly, any argument that the Third Amendment was executed to 

avoid a downward spiral hardly saves FHFA at this juncture. See, e.g., Op.

31–32. As an initial matter, the contention rests entirely upon an 

examination of motives. But see id. 32 (confirming motives are irrelevant 

to the legal inquiry). Second, even if one were to consider motives, the 

availability of an in-kind dividend and information recently obtained in 

this litigation creates, to put it mildly, a dispute of fact regarding the 

motivations behind FHFA and Treasury’s decision to execute the Third 

Amendment.

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payments; the ability to retain capital above and beyond the 

required dividend payment evaporated; and, most importantly, 

the Companies lost any hope of repaying Treasury’s 

liquidation preference and freeing themselves from its debt. 

Indeed, the capital depletion accomplished in the Third 

Amendment, regardless of motive, is patently incompatible

with any definition of the conservator role. Outside the 

litigation context, even FHFA agrees: “As one of the primary 

objectives of conservatorship of a regulated entity would be 

restoring that regulated entity to a sound and solvent 

condition, allowing capital distributions to deplete the entity’s 

conservatorship assets would be inconsistent with the 

agency’s statutory goals, as they would result in removing 

capital at a time when the Conservator is charged with 

rehabilitating the regulated entity.” 76 Fed. Reg. 35,724, 

35,727 (June 20, 2011). But rendering Fannie and Freddie 

mere pass-through entities for huge amounts of money

destined for Treasury does exactly that which FHFA has 

deemed impermissible. Even Congress, in debating the 

Consolidated Appropriations Act of 2016, H.R. 2029, 114th 

Cong. § 702 (2015), acknowledged such action would require 

additional congressional authorization. See 161 Cong. Rec. 

S8760 (daily ed. Dec. 17, 2015) (statement of Sen. Corker)

(noting the Senate Banking Committee passed a bipartisan bill

to “protect taxpayers from future economic down-turns by 

replacing Fannie and Freddie with a privately capitalized 

system” that ultimately did not receive a vote by the full 

Senate). 

Here, FHFA placed the Companies in de facto 

liquidation—inconsistent even with “managing the regulated

entit[ies] in the lead up to the appointment of a liquidating 

receiver,” as the Court incorrectly, and obliquely, defines the 

outer limits of the conservator role, Op. 27—when it entered 

into the Third Amendment and captured nearly all of the 

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Companies’ profits for Treasury. To paraphrase an aphorism 

usually attributed to Everett Dirksen, a hundred billion here, a 

hundred billion there, and pretty soon you’re talking about 

real money. But instead of acknowledging the reality of the 

Companies’ situation, the Court hides behind a false 

formalism, establishing a dangerous precedent for future acts

of FHFA, the FDIC, and even common law conservators.

III.

Finally, the practical effect of the Court’s ruling is 

pernicious. By holding, contrary to the Act’s text, FHFA 

need not declare itself as either a conservator or receiver and 

then act in a manner consistent with the well-defined powers 

associated with its chosen role, the Court has disrupted settled 

expectations about financial markets in a manner likely to

negatively affect the nation’s overall financial health.

Congress originally established the FDIC to rebuild 

confidence in our nation’s banking system following the 

Great Depression, see Banking Act of 1933, Pub. L. No. 73-

66, 48 Stat. 162, and in the years that followed it has

empowered the institution to insure deposits and serve as a 

conservator or receiver for failed banks, see Federal Deposit 

Insurance Act of 1950, Pub. L. No. 81-979, 64 Stat. 873 

(FIRREA’s predecessor statute, which incorporated the 

conservator and receiver roles). Consistent with its mission, 

the FDIC has provided assistance, up to and including 

conservatorship and receivership, for thousands of financial 

institutions over numerous periods of economic stress. For 

decades, investors relied on the common law’s 

conservator/receiver distinction, maintained by the FDIC and 

enforced by courts, to evaluate their investments and guide 

judicial review. 

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Congress chose to import this effective statutory scheme 

into HERA in an effort to combat our most recent financial 

crisis, evidencing its belief that FIRREA’s terms were equal 

to the task confronting FHFA. But FHFA’s actions in 

implementing the Net Worth Sweep “bear no resemblance to 

actions taken in conservatorships or receiverships overseen by 

the FDIC.” Amicus Br. for Indep. Comm. Bankers of Am. 6 

(reflecting the views of former high-ranking officials of the 

FDIC). Yet today the Court holds that, in the context of 

HERA—and FIRREA by extension—any action taken by a 

regulator claiming to be a conservator (short of officially 

liquidating the company) is immunized from meaningful 

judicial scrutiny. All this in the context of the Third 

Amendment’s Net Worth Sweep, which comes perilously 

close to liquidating Fannie and Freddie by ensuring they have 

no hope of survival past 2018. The Court’s conservator is not 

your grandfather’s, or even your father’s, conservator. 

Rather, the Court adopts a dangerous and radical new regime

that introduces great uncertainty into the already-volatile 

market for debt and equity in distressed financial institutions.

Now investors in regulated industries must invest 

cognizant of the risk that some conservators may abrogate 

their property rights entirely in a process that circumvents the 

clear procedures of bankruptcy law, FIRREA, and HERA. 

Consequently, equity in these corporations will decrease as 

investors discount their expected value to account for the 

increased uncertainty—indeed if allegations of regulatory 

overreach are entirely insulated from judicial review, private 

capital may even become sparse. Certainly, capital will 

become more expensive, and potentially prohibitively 

expensive during times of financial distress, for all regulated 

financial institutions.

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More ominously, the existence of a predictable rule of 

law has made America’s enviable economic progress 

possible. See, e.g., TOM BETHELL, THE NOBLEST TRIUMPH: 

PROPERTY AND PROSPERITY THROUGH THE AGES 3 (1998)

(“When property is privatized, and the rule of law is 

established, in such a way that all including the rulers 

themselves are subject to the same law, economies will 

prosper and civilization will blossom.”). Private individual 

and institutional investors in regulated industries rightly 

expect the law will protect their financial rights—either 

through an agency interpreting statutory text or a court 

reviewing agency action thereafter. They are also entitled to 

expect a conservator will act to conserve and preserve the 

value of the company in which they have invested, honoring 

the capital and investment conventions of governing law. A 

rational investor contemplating the terms of HERA would not 

conclude Congress had changed these prevailing norms. See 

generally Yates v. United States, 135 S. Ct. 1074, 1096 (2015) 

(Kagan, J., dissenting) (noting statutory text may be drafted 

“to satisfy audiences other than courts”). Today, however, the 

Court explains this rational investor was wrong. And its bold 

and incorrect statutory interpretation could dramatically affect 

investor and public confidence in the fairness and 

predictability of the government’s participation in 

conservatorship and insolvency proceedings.

When assessing responsibility for the mortgage mess 

there is, as economist Tom Sowell notes, plenty of blame to 

be shared. Who was at fault? “The borrowers? The lenders? 

The government? The financial markets? The answer is yes. 

All were responsible and many were irresponsible.” THOMAS 

SOWELL, THE HOUSING BOOM AND BUST 28 (2009). But that 

does not mean more irresponsibility is the solution. 

Conservation is not a synonym for nationalization. 

Confiscation may be. But HERA did not authorize either, and 

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FHFA may not do covertly what Congress did not authorize 

explicitly. What might serve in a banana republic will not do 

in a constitutional one. 

***

FHFA, like the FDIC before it, was given broad powers

to enable it to respond in a perilous time in U.S. financial 

history. But with great power comes great responsibility. 

Here, those responsibilities and the authority FHFA received

to address them were well-defined, and yet FHFA disregarded 

them. In so doing, FHFA abandoned the protection of the 

anti-injunction provision, and it should be required to defend 

against the Institutional and Class Plaintiffs’ claims. 

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