Court Opinion

ID: 8211313
Source: CourtListenerOpinion
Date Created: 2022-10-03 15:00:44.427409+00
Date Added: 2024-06-11T16:42:02.617142
License: Public Domain

UNITED STATES DISTRICT COURT
                               FOR THE DISTRICT OF COLUMBIA

    FAIRHOLME FUNDS, INC., et al.,

          Plaintiffs,

    v.                                                             Case No. 1:13-cv-1053-RCL

    FEDERAL HOUSING FINANCE
    AGENCY, et al.,

          Defendants.

    In re Fannie Mae/Freddie Mac Senior
    Preferred Stock Purchase Agreement Class                      Case No. 1:13-mc-1288-RCL
    Action Litigations

    This Memorandum Opinion relates to:                                   CLASS ACTION
    ALL CASES
                                                                 *** FILED UNDER SEAL***
                                                                             unsealed October 3, 2022
                                                                             /s/ RCL
                                      MEMORANDUM OPINION

         Before the Court are the parties’ cross-motions for summary judgment. See Defs.’ Motion

for S.J., Fairholme ECF No. 145, Class ECF No. 143; Pls.’ Mot. for Partial S.J., Fairholme ECF

No. 146, Class ECF No. 144. 1 Defendants the Federal Housing Finance Agency (“FHFA”) as

conservator for Fannie Mae and Freddie Mac, FHFA Acting Director Sandra L. Thompson, Fannie

Mae, and Freddie Mac move for summary judgment on plaintiffs’ remaining claims in both of the

above-captioned cases. Plaintiffs Fairholme Funds, Inc., Fairholme Fund, Berkeley Insurance

Company, Acadia Insurance Company, Admiral Indemnity Company, Admiral Insurance

1
 The summary judgment filings in both cases are identical. For ease of reference, the Court cites the ECF number
under which the same document is filed in each case, using the citation “Fairholme ECF No.” for No. 1:13-cv-1053-
RCL and “Class ECF No.” for No. 1:13-mc-1288-RCL.

                                                       1
Company, Berkeley Regional Insurance Company, Carolina Casualty Insurance Company,

Midwest Employers Casualty Insurance Company, Nautilus Insurance Company, and Preferred

Employers Insurance Company in No. 1:13-cv-1053-RCL and the class-action Plaintiffs in No.

1:13-mc-1288-RCL move for partial summary judgment on the enforceability of a single

contractual provision in both cases. Upon consideration, defendants’ motion is GRANTED in part

and DENIED in part, and plaintiffs’ motion is DENIED.

                                      I.   BACKGROUND

         The Court has explained the factual background of this matter extensively in prior opinions.

See Fairholme Funds, Inc. v. Federal Housing Finance Agency, No. 1:13-cv-1053-RCL, 2018 WL

4680197, at *1–4 (D.D.C. Sept. 28. 2018); Perry Capital LLC v. Lew (“Perry I”), 70 F. Supp. 3d

208, 214-19 (D.D.C. 2014). The Court will therefore set out the facts here only as necessary to

resolve the cross-motions for summary judgment, drawing on the parties’ statements and counter-

statements of material fact and other materials in the summary judgment record. See generally

Defs.’ Statement of Undisputed Material Facts (“DSUMF”), Fairholme ECF No. 145-1, Class ECF

No. 143-1; Pls.’ Resp. to Defs.’ Statement of Undisputed Material Facts (“PRDSUMF”),

Fairholme ECF No. 151-1, Class ECF No. 147-1; Pls.’ Statement of Add’l Material Facts

(“PSAMF”), Fairholme ECF No. 151-2, Class ECF No. 147-2; Defs.’ Resp. to Pls.’ Statement of

Add’l Material Facts (“DRPSAMF”), Fairholme ECF No. 157-1, Class ECF No. 152-1; Pls.’

Statement of Undisputed Material Facts, Fairholme ECF No. 147-1, Class ECF No. 144-1 (D.D.C.

Mar. 21, 2022); Defs.’ Counter-Statement of Facts, Fairholme ECF No. 150-1, Class ECF No.

146-1.

         This matter is brought before the Court by a class-action lawsuit and an individual lawsuit.

The class-action lawsuit was brought by a class of private individual institutional investors who

own either preferred or common stock in Fannie Mae or Freddie Mac. Second Am. Consolidated

                                                  2
Class Action Compl. ¶¶ 18-33, Class ECF No. 71. The individual lawsuit was brought by an

institutional investor owning junior preferred stock in Fannie Mae and Freddie Mac and by various

insurance companies. First Am. Compl. ¶¶ 5-20, Fairholme ECF No. 75.Following this Court’s

most recent opinion, see Fairholme Funds, 2018 WL 4680197, a single, substantially identical

claim remains in both cases.

       Fannie Mae and Freddie Mac are government-sponsored entities (“GSEs”) created by

Congress to, among other goals, “promote access to mortgage credit throughout the Nation . . . by

increasing the liquidity of mortgage investments and improving the distribution of investment

capital available for residential mortgage financing.” 12 U.S.C. § 1716(4). Although the GSEs are

government-sponsored, Congress has converted them by statute to publicly traded companies. See

Housing and Urban Development Act, Pub. L. No. 90-448, § 802, 82 Stat. 536–538 (1968);

Financial Institutions Reform, Recovery and Enforcement Act, Pub. L. No. 101-73, § 731, 103

Stat. 432–433 (1989). The GSEs have issued both common stock and non-cumulative preferred

stock over the years, but neither has issued any further publicly traded stock since 2008. DSUMF

¶ 2; PRDSUMF ¶ 2.

       The GSEs suffered substantial losses following the onset of the 2008 financial crisis,

including a loss of $108 billion in 2008 alone. DSUMF ¶ 4; PRDSUMF ¶ 4. In response, Congress

enacted the Housing and Economic Recovery Act (“HERA”), Pub. L. No. 110-289, 122 Stat. 2654

(2008), which, among other things, created the FHFA and authorized it to act as a conservator or

receiver for both of the GSEs “for the purpose of reorganizing, rehabilitating, or winding up the[ir]

affairs.” 12 U.S.C. § 4617(a)(2). The FHFA placed both GSEs into conservatorship on September

6, 2008. DSUMF ¶ 6; PRDSUMF ¶ 6.

                                                 3
       Almost immediately after the conservatorship began, the GSEs entered into Senior

Preferred Stock Purchase Agreements (“PSPAs”) with the U.S. Department of the Treasury

(“Treasury”), with Treasury committing to invest up to $100 billion in each of the GSEs (“the

Treasury Commitment”). DSUMF ¶ 6; PRDSUMF ¶ 6; see PSPA, Ex. E to Defs.’ Mot. for S.J.,

Fairholme ECF No. 145-6, Class ECF No. 143-6. The PSPAs set out the general terms of the

agreements between the GSEs and Treasury, with more specific terms set out in the Certificates of

Designation of Terms of Variable Preference Senior Preferred Stock (“Treasury Stock

Certificates”) for each GSE. DSUMF ¶ 7; PRDSUMF ¶ 7; see Treasury Stock Certificate, Ex. F

to Defs.’ Mot. for S.J., Fairholme ECF No. 145-7, Class ECF No. 143-7.

       As relevant here, the PSPAs and the Treasury Stock Certificates provided that, as

consideration for investing in the GSEs, Treasury was entitled to (1) a $1 billion senior liquidation

preference (“the Liquidation Preference”)—a priority right before all other stockholders to receive

distributions from assets in the event of a liquidation, PSPA § 3.1; (2) an increase in that

Liquidation Preference equal to every dollar that the GSEs draw on the Treasury Commitment, id.

§ 3.3; (3) an annual dividend equal to 10 percent of the Liquidation Preference if paid in cash,

Treasury Stock Certificate § 2(a)–(c); (4) warrants allowing Treasury to purchase up to 79.9

percent of the GSEs’ common stock at a nominal price, PSPA §§ 1, 3.1; and (5) periodic

commitment fees (“PCFs”) to be agreed upon at a later date, id. § 3.2(b). The Treasury Stock

Certificates also provided that the GSEs, “[p]rior to the termination of the Commitment . . . may

pay down the Liquidation Preference of all outstanding shares of [Treasury’s] Senior Preferred

Stock pro rata, at any time, out of funds legally available therefor, but only to the extent of (i)

accrued and unpaid dividends previously added to the Liquidation Preference pursuant to Section

8 [of the Treasury Stock Certificate] and not repaid by any prior pay down of Liquidation

                                                 4
Preference and (ii) Periodic Commitment Fees previously added to the Liquidation Preference

pursuant to Section 8 [] and not repaid by any prior pay down of Liquidation Preference.” Treasury

Stock Certificate § 3(a). 2 The parties do not dispute that because of that provision, the GSEs were

contractually prohibited from paying down the Liquidation Preference except under the conditions

provided. DSUMF ¶ 8; PRDSUMF ¶ 8. Furthermore, the PSPAs prohibited the GSEs from making

“any other distribution,” including paying dividends to non-Treasury shareholders, without

Treasury’s permission. PSPA § 5.1.

         Treasury and FHFA twice agreed to amend the PSPAs before the amendment at issue in

this case. The First Amendment doubled Treasury’s Commitment to $200 billion for each of the

GSEs, while the Second Amendment provided that Treasury would invest as much as the GSEs

needed until December 31, 2012, before reinstating the $200 billion cap on the Treasury

Commitment. DSUMF ¶ 11; PRDSUMF ¶ 11. In the course of negotiating the first two

amendments to the PSPAs, FHFA sent a letter to Treasury proposing a “simple revision to each

[Treasury Stock] Certificate, easing the impediments to optional paydown” to correct the original

Treasury Stock Certificates’ “unintended consequence of dissuading the companies from

repurchasing preferred shares when they are able,” Letter from A. Pollard to S. Albrecht (Feb. 25,

2009), Ex. I to Defs.’ Mot. for S.J., Fairholme ECF No. 145-10, Class ECF No. 143-10. However,

Treasury declined to adopt that proposed revision, DSUMF ¶ 10; PRDSUMF ¶ 10.

         By early 2012, the GSEs had turned a corner and begun to record net profits. PSAMF ¶ 37;

DRPSAMF ¶ 37. Nevertheless, the GSEs found themselves in a circular problem of having to draw

further on the Treasury Commitment to pay its required dividends to Treasury, and so on August

2
 The same section provided less restrictive terms for paying down the Liquidation Preference after the termination of
Treasury’s Commitment. See Treasury Stock Certificate § 3(a).

                                                         5
17, 2012, Treasury and FHFA adopted the Third Amendment to the PSPAs, the subject of the

parties’ present dispute. DSUMF ¶ 17; PRDSUMF ¶ 17. The Third Amendment replaced the fixed

10 percent dividend each GSE would pay to Treasury with a process known as the “Net Worth

Sweep,” whereby each GSE would be required to pay Treasury the difference between its net

worth and a predetermined capital reserve each year, with that capital reserve decreasing until it

reached zero in 2018. DSUMF ¶ 17; PRDSUMF ¶ 17; see Third Amendment § 2, Ex. FF to Defs.’

Mot. for S.J., Fairholme ECF No. 145-33, Class ECF No. 143-33. The Third Amendment thus

eliminated the circular-draw problem, but it also eliminated any future possibility for any non-

Treasury stockholder, including plaintiffs, to receive dividends from the GSEs, because the GSEs

owed their net worth to Treasury and would not take on further debt to pay dividends to other

shareholders. Importantly, the Third Amendment did not alter the Treasury Stock Certificates’

restrictions on paying down the Liquidation Preference. See id. § 3(a). Treasury and FHFA

amended the PSPAs three times after the Third Amendment, no amendment eased the existing

restrictions on paydown of the Liquidation Preference. DSUMF ¶ 10; PRDSUMF ¶ 10.

                             II.    PROCEDURAL HISTORY

       Plaintiffs filed their respective suits challenging the Third Amendment in 2013. The initial

complaint in each suit alleged various claims for violations of the Administrative Procedure Act,

breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of

fiduciary duty, seeking damages as well as injunctive relief. The Court dismissed the initial

complaints in their entirety for failure to state a claim on September 30, 2014. See Perry I, 70 F.

Supp. 3d at 246. On appeal, the D.C. Circuit affirmed in part, remanding certain of plaintiffs’

breach of contract and implied covenant claims. See Perry Capital LLC v. Mnuchin (“Perry II”),

864 F.3d 591, 633–34 (D.C. Cir. 2017). Plaintiffs then filed an amended complaint in each case,

each of which defendants moved to dismiss. On September 28, 2018, the Court granted in part and

                                                6
denied in part defendants’ motion to dismiss in each case, holding that plaintiffs failed to state a

claim for breach of contract but allowing the implied covenant claim in each case to proceed. See

Fairholme Funds, 2018 WL 4680197, at *17.

       Earlier this year, defendants moved for summary judgment in both cases, and plaintiffs

moved for partial summary judgment in both cases on the issue of whether the provisions of the

PSPAs entitling Treasury to PCFs are legally enforceable. A trial is set for October of this year.

                                III.    LEGAL STANDARDS

   A. Summary Judgment

       Summary judgment is appropriate “if the movant shows that there is no genuine dispute as

to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.

56(a). A court evaluating a summary judgment motion must “view the evidence in the light most

favorable to the nonmoving party and draw all reasonable inferences in its favor.” Arthridge v.

Aetna Cas. & Sur. Co., 604 F.3d 625, 629 (D.C. Cir. 2010). “[S]ummary judgment will not lie if

the dispute about a material fact is ‘genuine,’ that is, if the evidence is such that a reasonable jury

could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242,

248 (1986).

   B. The Implied Covenant of Good Faith and Fair Dealing

       Under Delaware and Virginia law, which govern the claims of the Fannie Mae and Freddie

Mac shareholders, respectively, see Fairholme Funds, 2018 WL 4680197, at *2, an implied

covenant of good faith and fair dealing “attaches to every contract,” Dunlap v. State Farm Fire

and Cas. Co., 878 A.2d 434, 442 (Del. 2005); see also Historic Green Springs, Inc. v. Brandy

Farm, Ltd., 32 Va. Cir. 98, 1993 WL 13029827, at *3 (Va. Cir. 1993). The difference between an

ordinary breach of contract claim and an implied covenant claim is that while the former turns on

the express terms of the contract, the latter involves a “cautious enterprise” whereby the court

                                                  7
“infer[s] contractual terms to handle developments or contractual gaps that the asserting party

pleads neither party anticipated.” Nemec v. Shrader, 991 A.2d 1120, 1125 (Del. 2010) (internal

quotation marks and citation omitted). A breach of the implied covenant occurs where one party

“‘act[s] arbitrarily or unreasonably,’” which is to say that it “violate[s] the reasonable expectations

of the parties” at the time of contracting, Perry II, 864 F.3d at 631 (first alteration in original;

second alteration added) (quoting Nemec, 991 A.2d at 1126, and citing Historic Green Springs,

1993 WL 13029827, at *3).

       Otherwise, “[t]he elements of an implied covenant claim remain those of a breach of

contract claim: ‘a specific implied contractual obligation, a breach of that obligation by the

defendant, and resulting damage to the plaintiff.’” ASB Allegiance Real Estate Fund. v. Scion

Breckenridge Managing Member, LLC, 50 A.3d 434, 444 (Del. Ch. 2012) (quoting Fitzgerald v.

Cantor, 1998 WL 842316, at *1 (Del. Ch. Nov. 10, 1998)), rev’d on other grounds, 68 A.3d 665

(Del. 2013); see also Charles E. Brauer Co., Inc. v. NationsBank of Virginia, N.A., 251 Va. 28, 33

(1996) (“The breach of the implied duty [of good faith and fair dealing] gives rise only to a cause

of action for breach of contract.”). In both Delaware and Virginia, the last element—damages

resulting from the breach—must be proven “with reasonable certainty.” SIGA Technologies, Inc.

v. PharmAthene, Inc., 132 A.3d 1108, 1111 (Del. 2015); see also MCR Federal, LLC v. JB&A,

Inc., 294 Va. 446, 462 (2017).

                                       IV.    ANALYSIS

   A. Defendants’ Motions for Summary Judgment

       Defendants make four arguments in support of summary judgment: (1) that the Supreme

Court’s decision in Collins v. Yellen, 141 S. Ct. 1761 (2021) definitively establishes that FHFA

acted reasonably and therefore could not have breached the implied covenant of good faith and

fair dealing; (2) that the contracts between plaintiffs and defendants incorporate HERA, which

                                                  8
authorized the execution of the Third Amendment, and thus left no relevant “gaps” for the implied

covenant of good faith and fair dealing to fill; (3) that plaintiffs will not be able to prove the fact

or amount of damages; and (4) that plaintiffs’ alternative request for “restitution” is barred by

HERA and as a windfall impermissible under equitable principles governing that remedy.

       For the reasons explained below, the Court is not persuaded by the first two arguments, but

defendants are entitled to summary judgment on the third issue in part and the fourth in full.

Although a reasonable jury could conclude from the record with reasonable certainty that the Third

Amendment injured plaintiffs by depriving their shares of much of their value, a reasonable jury

could not conclude from the record with reasonable certainty that the Third Amendment in fact

deprived plaintiffs of dividends that they otherwise would have received. Furthermore, plaintiffs

may not pursue their proposed alternative remedy, because the type of “restitution” they request

includes rescission, an equitable remedy barred by HERA.

       1. Collins Does Not Govern Plaintiffs’ Claim

       Defendants’ first argument for summary judgment is that the Supreme Court’s decision in

Collins definitively establishes that FHFA acted reasonably and therefore could not have breached

the implied covenant of good faith and fair dealing. That argument falls wide of the mark.

Defendants both misconstrue the relevant standard, by taking the Supreme Court’s use of the word

“reasonable” in Collins out of context, and fail to make any alternative argument as to why they

might be entitled to judgment as a matter of law under the correct standard.

       The Supreme Court used the word “reasonable” in Collins in the course of analyzing

whether FHFA exceeded its statutory authority under HERA by enacting the Third Amendment.

The plaintiffs in that case sought, among other relief, an injunction that would effectively undo the

Third Amendment. Collins, 141 S. Ct. at 1775. The Supreme Court held that such an injunction

                                                  9
would violate a provision of HERA providing that “no court may take any action to restrain or

affect the exercise of powers or functions of the Agency as a conservator or a receiver.” 12 U.S.C.

§ 4617(f). The Court noted that HERA authorizes FHFA, in its capacity as conservator of the

GSEs, to act “in the best interests of the regulated entity or the Agency.” Id. § 4617(b)(2)(J)(ii).

The Court reasoned that because of that statutory authorization, “when the FHFA acts as a

conservator, it may aim to rehabilitate the regulated entity in a way that, while not in the best

interests of the regulated entity, is beneficial to the Agency and, by extension, the public it serves.”

Collins, 141 S. Ct. at 1776. Because “the FHFA could have reasonably concluded that [the Third

Amendment] was in the best interests of members of the public who rely on a stable secondary

mortgage market,” the Court explained, HERA “authorized the Agency to choose this option.” Id.

at 1777. And because the FHFA was acting within the scope of its authority as conservator, HERA

barred the plaintiffs’ claim for injunctive relief. Id. at 1778.

        These cases involve a different type of reasonableness analysis. A party to a contract

violates the implied covenant of good faith and fair dealing if it “act[s] arbitrarily or unreasonably,

thereby frustrating the fruits of the bargain that the asserting party reasonably expected.” Nemec,

991 A.2d at 1125. The question is not whether defendants acted reasonably in the abstract—rather,

“[w]hen conducting this analysis, [a court] must assess the parties’ reasonable expectations at the

time of contracting.” Id. at 1126; see also Perry II, 864 at 631 (“We remand [the implied covenant]

claim . . . for the district court to evaluate it under the correct legal standard, namely, whether the

Third Amendment violated the reasonable expectations of the parties.”).

        In other words, Collins does not resolve the issue here, because although reasonableness

factors into both analyses, it is reasonableness with respect to different matters. At issue in Collins

was whether FHFA could reasonably have determined that adopting the Third Amendment was

                                                   10
“in the best interests of the regulated entity or the Agency,” 12 U.S.C. § 4617(b)(2)(J)(ii) (emphasis

added), and thus acted within its statutory authority as conservator of the GSEs in so doing. Here,

in contrast, the issue is whether FHFA “violated the reasonable expectations of the parties” by

adopting the Third Amendment. Perry II, 864 F.3d at 631 (emphasis added).

       Defendants miss the difference between the relevant inquiries because they misapprehend

the applicable legal standard for implied covenant claims. Defendants argue that “[a] breach of

implied covenant claim involves a two-pronged inquiry: (1) whether the defendant acted arbitrarily

and unreasonably, and (2) whether the defendant acted in a way that was not reasonably expected

by the plaintiff.” Defs.’ Mot. for S.J. at 12 n.1 (emphasis in original). On defendants’

understanding, the Court need not reach the question of whether FHFA violated plaintiffs’

reasonable expectations so long as FHFA acted reasonably in the abstract. That simply is not a

correct reading of Delaware or Virginia law.

       Whether defendants acted reasonably and whether they violated plaintiffs’ reasonable

expectations are not two separate prongs; rather, the former is determined in reference to the latter.

Defendants cite one Delaware Superior Court case stating that “[i]f [the plaintiff] succeeds in

demonstrating that its reasonable expectations under the [contract] have been thwarted, in order to

benefit from the implied covenant of good faith and fair dealing, [the plaintiff] next must prove

that Defendants have acted arbitrarily or unreasonably.” TWA Res. v. Complete Production Servs.,

Inc., No. N11C-08-100-MMJ, 2013 WL 1304457, at *11 (Del. Super. Mar. 28, 2013) (emphasis

added) (citing Nemec, 991 A.2d at 1126). But that unreported trial-court opinion appears to

mischaracterize governing Delaware law. The Delaware Supreme Court has stated plainly that

“what is ‘arbitrary’ or ‘unreasonable’—or conversely ‘reasonable’—depends on the parties’

original contractual expectations.” Gerber v. Ent. Pords. Holdings, LLC, 67 A.3d 400, 419 (Del.

                                                 11
2013) (quoting ASB Allegiance, 50 A.3d at 442), overruled on other grounds by Winshall v.

Viacom Int’l, Inc., 76 A.3d 808 (Del. 2013); see also Nemec, 991 A.2d at 1126 (emphasis added)

(“[Courts] will only imply contract terms when the party asserting the implied covenant proves

that the other party has acted arbitrarily or unreasonably, thereby frustrating the fruits of the

bargain that the asserting party reasonably expected.”). While the Virginia Supreme Court has not

so clearly laid out a standard for evaluating implied covenant claims, courts applying Virginia law

have favorably cited the Second Restatement’s definition of the implied covenant and its comment

stating that “[g]ood faith performance or enforcement of a contract emphasizes faithfulness to an

agreed common purpose and consistency with the justified expectations of the other party.”

Restatement (Second) of Contracts § 205 & cmt. a (1981); see SunTrust Mortg., Inc. v. Mortgages

Unlimited, Inc., 2012 WL 1942056, at *3 (E.D. Va. May 29, 2013); Howie v. Atl. Home Inspection,

Inc., 62 Va. Cir. 164, 2003 WL 23162330, at *4–5 (Va. Cir. Ct. 2003). Moreover, defendants cite

no Virginia authority for their bifurcated test.

       Defendants make no argument at this stage concerning plaintiffs’ reasonable expectations.

Accordingly, their reliance on Collins does not help them to meet their burden as movants for

summary judgment of showing that they are entitled to judgment as a matter of law.

       2. The Contract Itself Did Not Specifically Authorize the Third Amendment

       Defendants next argue that a claim for breach of the implied covenant of good faith and

fair duty cannot lie because this Court has held that plaintiffs’ shareholder contracts incorporate

HERA, which the Supreme Court held in Collins “authorized” the Third Amendment, leaving no

“gaps” for the implied covenant to fill. See Nemec, 991 A.2d at 1125–26. That argument, like the

previous one, fails because defendants misread Delaware and Virginia law.

                                                   12
       It is true that in Delaware, “one generally cannot base a claim for breach of the implied

covenant on conduct authorized by the agreement.” Nemec, 991 A.2d at 1125–26 (alteration

removed) (quoting Dunlap, 878 A.2d at 441). Similarly, “in Virginia, when parties to a contract

create valid and binding rights, an implied covenant of good faith and fair dealing is inapplicable

to those rights.” Ward’s Equipment, Inc. v. New Holland N. Am., Inc., 254 Va. 379, 385 (1997).

And it is true that this Court held in a previous opinion that “certain changes to federal law—i.e.,

those affecting governance of the GSEs and their relationships with their shareholders—amend or

inform the investor contract.” Fairholme Funds, 2018 WL 4680197, at *9.

       But whether a certain act falls within FHFA’s statutorily authorized discretion and whether

FHFA may incur monetary damages for exercising that discretion in a manner inconsistent with

its independent contractual obligations are two separate inquiries. HERA makes that much clear

by authorizing FHFA, in its capacity as conservator of the GSEs, to repudiate contracts, 12 U.S.C.

§ 4617(d)(1), while also providing for the assessment of damages when FHFA does so, id.

§ 4617(d)(3); see also Perry II, 864 F.3d at 630 (citing repudiation provision for proposition that

“the Companies’ contractual obligations otherwise remain in force”). As this Court previously

explained when evaluating a similar argument at the motion to dismiss stage, “Defendants cannot

simply say that since HERA permits the conservator to act in its own best interests, the FHFA can

do whatever it wants and Plaintiffs could not expect otherwise. The question is whether Defendants

exercised their discretion arbitrarily or unreasonably in a way that frustrated Plaintiffs’

expectations under the contract.” Fairholme Funds, 2018 WL 4680197, at *13.

       Because HERA only authorizes the discretion through which FHFA agreed to the Third

Amendment, rather than the Third Amendment itself, the prohibition of implied covenant claims

                                                13
based on contractually authorized conduct does not bar plaintiffs’ claims and does not entitle

defendants to summary judgment.

       3. Some Disputed Issues of Material Fact Remain as to Damages

       Next, defendants argue that they are entitled to summary judgment because a reasonable

jury could not conclude from the summary judgment record that the Third Amendment caused

plaintiffs harm, a key element of plaintiffs’ implied covenant claim. Defendants argue that in order

to accept either plaintiffs’ theory of harm or their proposed measure of damages, a jury would have

to rely on inferences that the record does not reasonably support. The Court agrees in part.

       As an initial matter, an impermissibly speculative measure of damages does not necessarily

preclude a finding of harm for purposes of liability, as both Delaware and Virginia law distinguish

between the degree of certainty required to establish each. See SIGA Technologies, 132 A.3d at

1111 (emphasis in original) (footnotes and citations omitted) (“[W]hen a contract is breached,

expectation damages can be established as long as the plaintiff can prove the fact of damages with

reasonable certainty. The amount of damages can be an estimate.”); MCR Federal, 294 Va. at 462

(2017) (internal quotation marks and citation omitted) (“When it is certain that substantial damages

have been caused by the breach of a contract, and the uncertainty is not whether there have been

any damages, but only an uncertainty as to their true amount, then there can rarely be any good

reason for refusing all damages due to the breach merely because of that uncertainty.”).

       Accordingly, the Court begins with the question of whether a reasonable jury could

conclude from the summary judgment record that the Third Amendment caused plaintiffs any

harm. In both Delaware and Virginia, plaintiffs seeking to establish liability on a contract must

prove the fact of harm resulting from the alleged breach “with reasonable certainty.” SIGA

Technologies, 132 A.3d at 1111; see also MCR Federal, 294 Va. at 461–62. In other words, though

                                                14
the evidentiary burden is only a preponderance of the evidence, “speculation and conjecture” as to

whether the plaintiff suffered any substantial amount of harm “cannot form the basis for recovery.”

Condominium Servs., Inc. v. First Owners’ Ass’n of Forty Six Hundred Condominium, Inc., 281

Va. 561, 577 (internal quotation marks omitted) (quoting Shepherd v. Davis, 265 Va. 108, 125

(2003)); see also Kronenberg v. Katz, 872 A.2d 568, 609 (Del. Ch. 2004) (quoting Laskowski v.

Wallis, 205 A.2d 825, 826 (Del.1964)) (“Under Delaware law, plaintiffs . . . cannot recover

damages that are ‘merely speculative or conjectural.’”).

       To be sure, Delaware and Virginia law do not necessarily bar liability on a theory of harm

that relies on contingencies other than the alleged breach, but the plaintiff must be able to prove to

a reasonable factfinder that such contingencies were reasonably certain to occur. For example, in

BTG Int’l, Inc. v. Wellstate Therapeutics Corp., No. 12562-VCL, 2017 WL 4151172 (Del. Ch.

Sept. 19, 2017), the Delaware Chancery Court noted that Delaware “[c]ourts will award damages

for a renewal term” of a contract whose renewal was forgone because of the alleged breach “when

a plaintiff can prove that the contract would have been renewed with reasonable certainty,” but

nevertheless determined that such an award of damages was inappropriate in the case before it

because the initial contract did not expire until eight years after the alleged breach, and

“[p]redicting how [the parties] would approach the renewal right eight years in the future would

be, at best, an educated guess.” Id. at *20. And in TechDyn Sys. Corp. v. Whittaker Corp., 245 Va.

291 (1993), the Virginia Supreme Court affirmed a trial court’s decision to exclude as speculative

evidence of lost profits that depended on the assumption that the plaintiff “would have been the

successful bidder on” other contracting projects. Id. at 299. In other words, under both Delaware

and Virginia law, neither the overall theory of harm nor the contingencies upon which it depends

may be speculative or conjectural; both must be reasonably certain to have occurred.

                                                 15
         The Court must therefore evaluate whether the summary judgment record contains

evidence from which a reasonable jury could conclude that the harms plaintiffs allege, and any

contingencies upon which those harms depend, occurred without relying on mere speculation and

conjecture. At this stage, plaintiffs appear to offer two different theories of harm that they contend

they can prove with reasonable certainty. First, and primarily, they argue that the Third

Amendment deprived them of future dividends that they otherwise would have received. Second,

and in the alternative, they argue—and defendants do not directly dispute on the merits—that by

eliminating any possibility of future dividends, the Third Amendment at least caused their shares

to decline significantly in value. The Court will refer to those theories as “the lost-dividends

theory” and “the lost-value theory,” respectively. 3 For the reasons that follow, the Court concludes

that defendants are entitled to summary judgment on the lost-dividends theory but that a genuine

dispute of material fact precludes summary judgment on the lost-value theory.

                  (i) No genuine dispute remains as to the lost-dividends theory.

         Before applying the legal principles outlined above to plaintiffs’ lost-dividends theory—

that the Third Amendment deprived plaintiffs of dividends that they would have eventually

received—it is important to note three propositions that neither party disputes. First, before the

Third Amendment, the PSPAs and Treasury Stock Certificates prohibited the GSEs from paying

down Treasury’s Liquidation Preference absent certain conditions that have never in fact occurred,

and the Third Amendment did not change that. See PRDSUMF ¶ 8. 4 Second, and as a result, any

3
  One might hypothesize that a decline in stock price caused by the Third Amendment would reflect a corresponding
decline in probability-adjusted expectations regarding future dividends, and thus that these two theories of harm are
closely related. But plaintiffs apparently do not believe that the post–Third-Amendment decline in stock price captured
the entire value of the possible future dividends extinguished by the Net Worth Sweep. See Pls.’ Opp’n to Defs.’ Mot.
for S.J. at 36, Fairholme ECF No. 151, Class ECF No. 147 (“[E]ven [the decline in stock price] establishes the
existence of damages, although it significantly understates them.”).
4
 Plaintiffs “[d]ispute[]” that proposition only insofar as they maintain that “[t]he PSPAs can be amended to permit
Fannie Mae and Freddie Mac to pay down the Treasury liquidation preference.” Id. (emphasis added).

                                                         16
significant paydown would only be possible through a further amendment to the PSPAs. See id.

Third, even without the Third Amendment, the GSEs would not have been able to resume paying

plaintiffs dividends without first paying down Treasury’s Liquidation Preference, which in the real

world they have yet to do. See Pls.’ Opp’n to Defs.’ Mot. for S.J. (“Pls.’ Opp’n”) at 26–37,

Fairholme ECF No. 151, Class ECF No. 147. Thus, in order to find it reasonably certain that the

Third Amendment actually deprived plaintiffs of future dividends, a jury would have to find it

reasonably certain that, among other things, Treasury and FHFA eventually would have amended

the PSPAs to allow a paydown of the Liquidation Preference.

       Defendants argue that they are entitled to summary judgment on the fact of damages under

plaintiffs’ lost-dividends theory because there is insufficient evidence in the record from which a

reasonable factfinder could conclude with reasonable certainty that Treasury and FHFA would

have amended the PSPAs to allow such a paydown. The Court agrees.

       There certainly is no direct evidence in the record that Treasury and FHFA planned to

amend the PSPAs to allow a paydown if they did not implement the Net Worth Sweep. Defendants

have adduced evidence that early in negotiations leading to the first two amendments, FHFA

proposed a revision that at least would have eased restrictions on paydown and Treasury rejected

that proposal. See Letter from A. Pollard to S. Albrecht (Feb. 25, 2009); DSUMF ¶ 10; PRDSUMF

¶ 10. Plaintiffs can point to no evidence that Treasury had any actual plans to reverse that position

around the time it agreed to the Third Amendment. Plaintiffs must therefore rely on circumstantial

evidence to prove a key assumption underlying the lost-dividends theory.

       Plaintiffs argue that a reasonable jury could infer that Treasury would have allowed a

paydown for four reasons cited in the report of their expert, Dr. Joseph R. Mason: First, the federal

government has historically allowed prompt repayment of emergency financial assistance it has

                                                 17
given to companies in times of financial crisis; second, allowing a paydown would have served

the conservatorship’s goal of returning the GSEs to stability and normal operations; third, a

paydown would serve Treasury’s financial interests by resulting in the prompt return of the money

it loaned to the GSEs and maximizing the value of its stock warrants; and fourth, continuing to

prohibit a paydown would have been politically unpopular because the GSEs would have built up

substantial capital while still owing taxpayers billions of dollars. See Pls.’ Opp’n at 31–33;

Corrected Expert Report of Joseph R. Mason (“Mason Report”) ¶ 43, Ex. MM to Defs.’ Mot. for

S.J., Fairholme ECF No. 145-40, Class ECF No. 143-40. In sum, plaintiffs essentially argue that

they could convince a reasonable jury that but for the Third Amendment, Treasury and FHFA

would have had every financial and political incentive to bargain for a paydown and that doing so

would be consistent with historical practice. Then, plaintiffs contend, the jury could reasonably

infer that Treasury and FHFA would have acted on those incentives.

       The flaw in plaintiffs’ argument is that it requires the jury simply to guess how Treasury

and FHFA would have balanced their obligations to different stakeholders and responded to

financial and political incentives in a counterfactual world. For example, it is conceivable that

Treasury would have considered it more financially advantageous in the medium or long term to

keep the GSEs on the hook for substantial payments based on the large Liquidation Preference—

or even to wind them down by some means other than the Net Worth Sweep—than to take

advantage of large capital surpluses in the short term by allowing prompt repayment. It also is

uncertain how strong the political will would have been to see the GSEs repay taxpayers by paying

down the Liquidation Preference rather than continuing to pay Treasury dividends and PCFs.

Moreover, even if Treasury and FHFA found it mutually beneficial to negotiate an amendment

easing restrictions on paydown of the Liquidation Preference, it is difficult to say whether they

                                               18
ultimately would be able to reach an agreement and whether the specific terms of that agreement

in fact would result in a paydown in the foreseeable future that would be substantial enough for

the GSEs to resume paying dividends to plaintiffs.

       To be sure, it might be a “reasonable inference,” in the sense of the summary judgment

standard, to infer from the incentives at play that it would have been rational for Treasury and

FHFA to agree to a paydown of the Liquidation Preference, eventually, in some way, shape, or

form. But, as explained above, Delaware and Virginia law both require reasonable certainty as to

the fact of damages; and a reasonable inference that it would be rational for one to take a course

of action does not alone support a further inference that it is reasonably certain one would take

that course of action. That Treasury and FHFA would have amended the PSPAs to allow a

paydown rather than responding to their incentives in some other manner would be, “at best, an

educated guess” that assumes the occurrence of contingencies for which there is no specific support

in the record. Cf. BTG Int’l, 2018 WL 4151172, at *20.

       Nor does the federal government’s past practice of generally allowing recipients of

financial assistance to repay their debts support an inference of reasonable certainty that Treasury

would have allowed the GSEs to pay down the Liquidation Preference in the foreseeable future.

Plaintiffs cite M & G Polymers, LLC v. Carestream Health, Inc., No. 07C-11-242-PLA, 2010 WL

1611042 (Del. Super. Apr. 21, 2010) for the proposition that courts often allow theories of harm

to proceed to trial where past practice would allow a factfinder to determine with reasonable

certainty that a key contingency would have occurred, but that case is inapposite here. The court

in that case concluded that expert testimony opining that the plaintiff and defendant likely would

have renewed their contract for one period was not merely speculative. Id. at *39–40. Key to the

court’s reasoning was uncontroverted evidence that “both [parties] have a history of renewing”

                                                19
similar contracts for at least one period. Id. at *40 (quoting M & G Polymers, LLC v. Carestream

Health, Inc., No. 07C-11-242-PLA, 2009 WL 353466, at *9 (Del. Super. Aug. 5, 2009)). In other

words, both parties to the contract had a demonstrated history of doing something uncomplicated

and not inconsistent with the contract’s terms—renewing it—in precisely the same way it was

theorized they would have done again but for the breach. Here, in contrast, plaintiffs and their

expert base their conclusion that Treasury would have amended the PSPAs, which prohibited a

substantial paydown, to allow such a paydown, on federal agencies’ general historical practice of

minimizing the amount of time spent as conservators of private companies and Treasury’s post-

2008 practice of allowing a redemption of stock it had purchased in non–government-sponsored

companies like AIG, without any evidence of whether Treasury previously had agreements with

those companies prohibiting such a redemption. See Mason Report, App. C, ¶¶ 1–14. Moreover,

plaintiffs cannot point to any historical practices by the other party to the PSPAs—FHFA—which

did not even exist prior to HERA. 5

         Even taking into account the general historical practices plaintiffs cite, a jury would be left

to guess as to whether Treasury would have behaved similarly under materially different

circumstances and made the affirmative decision to amend a contract that did not allow the

paydown that plaintiffs’ primary theory of harm assumes—and whether FHFA, which has no prior

history with similar financial arrangements, even would have pushed the issue. Even a good guess

would require an inherently speculative logical leap that could not result in the reasonable certainty

that Delaware and Virginia law require as to damages. The Court therefore concludes that

defendants are entitled to summary judgment on plaintiffs’ lost-dividends theory of harm.

5
  Plaintiffs also cite LG Display Co., Ltd. V. AU Optronics Corp., 722 F. Supp. 2d 466 (D. Del. 2010), but that is a
patent case applying a test that the Federal Circuit has approved for determining a “reasonable royalty” for a patent
license based on, among other things, industry practice, see id. at 471–72, and thus is of little relevance to determining
damages based on the parties’ past practice in a Delaware-and-Virginia–law contract case.

                                                           20
                  (ii) A genuine dispute remains as to the lost-value theory.

         However, in their opposition to defendants’ motions for summary judgment, plaintiffs

suggest an alternative theory of harm: that the Third Amendment, by eliminating any possibility

of future dividends for non-Treasury shareholders, deprived plaintiffs’ shares of much of their

value, even if such dividends were not reasonably certain to occur in the foreseeable future.

Specifically, plaintiffs argue that an event study by one of defendants’ experts showing a sharp

decline in stock prices after the Third Amendment’s announcement “refutes the claim that this

action caused no harm.” Pls.’ Opp’n at 35.6 The Court agrees that on that lost-value theory,

disputed issues of material fact preclude summary judgment as to the fact of harm.

         Defendants do not dispute on the merits the proposition that a decline in share value caused

by the elimination of possible future dividends would constitute a cognizable harm under Delaware

or Virginia law. Instead, they argue in conclusory fashion that “[p]laintiffs cannot avoid summary

judgment based on a theory of harm that their own expert rejected,” Defs.’ Reply to Pls.’ Opp’n

(“Defs.’ Reply”) at 18, Fairholme ECF No.157-3, Class ECF No. 152-3, a reference to Dr. Mason’s

argument that the decline in stock price underestimates the value of possible future dividends, see

Expert Reply Report of Joseph R. Mason (“Mason Reply Report”) ¶ 85, Fairholme ECF No. 145-

42, Class ECF No. 143-42; Depo. of Joseph R. Mason at 51:1–22, 55:6–22, 79:20–81:13, Ex. SS

to Defs.’ Reply, Fairholme ECF No. 157-3, Class ECF No. 152-3. But defendants cite no authority

for the proposition that relying on expert testimony for one assertion estops a party from making

an argument inconsistent with another assertion in that expert’s testimony. Such an estoppel

6
  The parties do not cite the event study itself, referring instead to PSAMF ¶ 97, which draws conclusions about
damage calculations from it but does not appear to describe or cite it. Neither party, however, disputes its basic content,
and other materials in the summary judgment record, cited below, show a robust dispute between the parties’ experts
over the relevance of the drop in stock price.

                                                           21
argument makes especially little sense here, as it is clear that plaintiffs’ expert considered the drop

in stock price an underestimate of the harm plaintiffs suffered rather than a non-harm entirely.

       There is no reason to preclude plaintiffs from relying on the lost-value theory in the

alternative to defeat total summary judgment. The Court therefore concludes that defendants are

not entitled to summary judgment in full on the question of damages, there being a lingering

dispute of material fact as to whether the Third Amendment and its elimination of possible future

dividends harmed plaintiffs by depriving them of much of the value of their shares. Since

defendants do not specifically dispute that plaintiffs can prove the amount of damages resulting

from that alleged harm, the Court has no occasion to consider that separate question at this time.

       4. Plaintiffs’ Proposed Alternative Remedy Is Barred

       Finally, defendants argue that plaintiffs’ alternative request for “restitution” is barred as a

matter of law, both by HERA and as an impermissible windfall under equitable principles

governing that remedy. The “alternative request” to which defendants refer comes in two passages

in Dr. Mason’s expert report proposing “restitution” as an “alternative measure of damages.”

Mason Report ¶ 15; see also id. ¶¶ 94–95. The Court agrees that HERA bars the alternative remedy

that plaintiffs seek and accordingly does not reach defendants’ further argument that that remedy

would grant plaintiffs an impermissible windfall.

       According to defendants, plaintiffs’ alternative request for “restitution” would violate a

provision of HERA found at 12 U.S.C. § 4617(f), which states that, “[e]xcept as provided in this

section or at the request of the Director, no court may take any action to restrain or affect the

exercise of powers or functions of the Agency as a conservator or a receiver.” The D.C. Circuit

has described that clause as “draw[ing] a sharp line in the sand against litigative interference—

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

                                                  22
statutorily permitted actions as conservator or receiver.” Perry II, 864 F.3d at 606. Defendants

argue that “restitution,” as plaintiffs use that word, is a form of “other equitable relief” that the

statute bars. By “equitable relief,” this Court understands the D.C. Circuit to mean remedies other

than a money judgment or enforcement thereof. That is apparent from its grouping of “other

equitable relief” with “judicial injunctions,” id., and from the text of the statute, which speaks of

remedies that “restrain or affect the exercise of powers or functions of the Agency as a conservator

or a receiver,” 12 U.S.C. § 4617(f). Thus, the Court must determine what type of alternative

remedy plaintiffs propose and whether it requires only the payment of a money judgment or

something more.

       Despite Dr. Mason’s use of the word “restitution,” the remedy he describes is more

precisely characterized as “rescission.” Courts often use the word “restitution” to mean at least

three different things—the first an independent cause of action and the others alternative remedies

for breach of contract. See Restatement (Third) of Restitution & Unjust Enrichment, Intro. Note to

Pt. 2, Ch. 4 (2011). In his report, Dr. Mason explains that the proposed alternative remedy of

“restitution” would “requir[e] the Defendants to disgorge the net benefits they have received under

the contracts” and plaintiffs to “give up [their] right to the shares,” resulting in an “unwinding [of]

the [shareholder] contracts in their entirety.” Mason Report ¶¶ 94–95. That describes a use of the

word “restitution” that the Restatement calls “rescission,” an alternative remedy for breach of

contract which “requires a mutual restoration and accounting in which each party (a) restores

property received from the other, to the extent such restoration is feasible, (b) accounts for

additional benefits obtained at the expense of the other party as a result of the transaction and its

subsequent avoidance, as necessary to prevent unjust enrichment, and (c) compensates the other

for loss from related expenditure as justice may require.” Restatement (Third) of Restitution &

                                                  23
Unjust Enrichment § 54(2). And indeed, Dr. Mason himself notes that his proposed alternative

remedy is called “‘rescission’ in some courts.” Mason Report ¶ 94.

       Although Dr. Mason describes that remedy as “an alternative measure of damages,” id.

¶ 15, it is actually a form of equitable relief barred by § 4617(f). The Supreme Courts of Delaware

and Virginia, whose laws govern plaintiffs’ claims, have both described rescission as an equitable

remedy. See Devine v. Buki, 289 Va. 162, 172–73 (2015) (describing rescission as an “equitable

remedy”); Gotham Partners, L.P. v. Hallwood Realty Partners, L.P, 817 A.2d 160, 176–78 (Del.

2002) (describing “rescission” and “rescissory damages” as “equitable remedies”). And that

classification fits the way the D.C. Circuit used the phrase “equitable relief” in Perry II, 864 F.3d

at 606. Rescission here would require more than a money judgment. It would terminate plaintiffs’

shareholder contracts, extinguishing their ownership rights and forcing a reorientation of the

GSEs’ capital structure. And because that remedy would be for an action that FHFA took within

the scope of its authority as conservator—adopting the Third Amendment—it would violate

§ 4617(f).

       Plaintiffs argue that “monetary restitution” is a legal remedy rather than an equitable one,

but the four principal cases they cite for that proposition do not support their position. One

describes as legal (in dictum) a remedy that it calls “unjust enrichment” or “restitution” but the

Restatement calls “performance-based damages,” whereby the nonbreaching party simply

recovers the value it bestowed on the breaching party without any further need to unwind an

ongoing contractual relationship. Dickerson v. Villages of Five Points Property Owners Ass’n,

Inc., No. 2020-0420-PWG, 2020 WL 7251512, at *5 (Del. Ch. Dec. 9, 2020); see Restatement

(Third) of Restitution & Unjust Enrichment § 38. Two others concern money judgments as a

remedy for the cause of action known as restitution. Clark v. Teeven Holding Co., Inc., 625 A.2d

                                                 24
869, 878 (Del. Ch. 1992); Belcher v. Kirkwood, 238 Va. 430, 432–33 (1989). The last case

describes a “claim for return of the payments” as “one cognizable at law” but a “request for

rescission [as] solely for equitable relief.” Primrose Dev. Corp. v. Benchmark Acquisition Fund I

Ltd. P’ship, 45 Va. Cir. 461, 1998 WL 972200, at *2–3 (Va. Cir. 1998). None of those cases stand

for the proposition that the remedy of rescission is, or can be, legal rather than equitable, and all

of them discuss remedies that solely involve a money judgment. 7 Here, in contrast, Dr. Mason

proposes a wholesale unwinding of the shareholder contracts, with plaintiffs giving up their rights

as shareholders. That is an equitable remedy that, as explained above, includes more than just a

money judgment.

         Properly understood, the alternative remedy of rescission that Dr. Mason proposes asks the

Court to “affect the exercise of powers or functions of the Agency as a conservator or a receiver”

in violation of HERA. 12 U.S.C. § 4617(f). Accordingly, defendants are entitled to summary

judgment on the unavailability of that remedy. 8

    B. Plaintiffs’ Motions for Partial Summary Judgment

         Plaintiffs in both cases also move for partial summary judgment on a narrow issue: whether

the provision of the PSPAs entitling Treasury to PCFs would have been enforceable in a world

without the Third Amendment. Plaintiffs argue that those provisions are unenforceable as a matter

7
 The Restatement takes the position that “[r]escission as a remedy for breach of contract is not available against a
defendant whose defaulted obligation is exclusively an obligation to pay money.” Restatement (Third) of Restitution
& Unjust Enrichment § 37(2).
8
  The Court further notes that even if HERA did not bar rescission as a remedy for the alleged breach of the implied
covenant of good faith and fair dealing, under both Delaware and Virginia law, “the remedy of equitable rescission
[for a contract claim] is only available when the underlying breach . . . is ‘substantial’ or ‘material.’” Young-Allen v.
Bank of America, N.A., 298 Va. 462, 469 (2020); see also Segovia v. Equities First Holdings, LLC, C.A. No. 06C-09-
149-JRS, 2008 WL 2251218, at *23 (Del. Super. May 30, 2008) (emphasis added) (“The concept of cancelling
contracts upon a material breach is well-settled in Delaware law.”). “A material breach is a failure to do something
that is so fundamental to the contract that the failure to perform that obligation defeats an essential purpose of the
contract.” Horton v. Horton, 254 Va. 111, 115 (1997). While defendants do not raise that issue in their summary
judgment motion, and thus the Court will not grant summary judgment on that ground, plaintiffs also do not explain
how they intend to prove at trial that the alleged breach here was material.

                                                          25
of New York law, which governs them, and under federal statutes setting out the GSEs’ charters;

or, in the alternative, that no PCF could have been assessed before 2016 because of the expiration

of a contractual deadline for setting a periodic commitment fee for the period between 2011 and

2015. Thus, plaintiffs contend, no disputed issue of material fact remains as to whether, in their

but-for world, the GSEs would have paid Treasury PCFs, at least before 2016. Plaintiffs argue that

the alleged unenforceability of the PCF provisions affects both liability, because it informs what

plaintiffs’ reasonable expectations were at the time of the Third Amendment, 9 and damages,

because it affects the GSEs’ projected profitability in the but-for world.

         Defendants raise a host of counterarguments, both procedural and substantive, in

opposition to plaintiffs’ motion. Most importantly, they argue that without evidence suggesting

that the PCFs would not have been assessed as a matter of fact, a determination in 2022 that they

should not have been assessed as a matter of law would not itself be material to determining

plaintiffs’ reasonable expectations at the time of the Third Amendment or the profits the GSEs

could have been expected to reap but for the Net Worth Sweep. The Court agrees.

         Plaintiffs are not necessarily wrong to suggest that the assessment of PCFs or lack thereof

would have affected their reasonable expectations of what FHFA might “bargain away” in

negotiations over an amendment to the PSPAs, and they are doubtless correct that it would have

affected the GSEs’ ability to pay future dividends in a world without the Net Worth Sweep. But

whether plaintiffs reasonably could have expected the GSEs to pay PCFs to Treasury and whether

the GSEs in fact would have done so—and thus burdened their future ability to pay dividends to

9
 This Court has previously held that the relevant time of “contracting” for purposes of evaluating plaintiffs’ implied
covenant claim is the time immediately before the enactment of the Third Amendment. See Fairholme Funds, 2018
WL 4680197, at *8–9.

                                                         26
non-Treasury shareholders—are factual questions conceptually distinct from the legal question of

whether the GSEs could have been required to do so.

       With respect to liability, plaintiffs argue that “[a]n interpretation of the [PSPAs] that is at

odds with governing law is per se unreasonable,” and thus, “[i]f the PCF was legally unenforceable,

the only reasonable shareholder expectation, as a matter of law, was that the PCF would never be

paid,” Pls.’ Reply to Defs.’ Opp’n to Pls.’ Mot. for Partial S.J. at 3, Fairholme ECF No. 156, Class

ECF No. 151, but that argument is unpersuasive for two reasons. First, plaintiffs do not cite any

authority, whether from Delaware, Virginia, or elsewhere, to support it. Second, it makes no

logical sense. It does not follow from a third party’s legal conclusion—even a correct one—that a

contractual provision is unenforceable that the parties to the contract will not perform according

to the terms of that provision. The logical link that is missing is evidence that some person would

have challenged the provision, or that one of the parties to the contract would have declined to

perform. And plaintiffs point to no evidence, much less undisputed evidence, that anyone at FHFA

or Treasury considered the PCF provisions unenforceable or had any plans not to comply with

their terms, nor that any person planned to challenge them in court. Plaintiffs therefore have not

demonstrated that no genuinely disputed issue of material fact remains as to whether they

reasonably could have expected the GSEs to pay PCFs to Treasury.

       With respect to damages, plaintiffs argue that if the PCF provisions are unenforceable, the

jury can assume for purposes of calculating expectation damages that the GSEs would not have

paid PCFs to Treasury in a world without the Net Worth Sweep. But again, that does not follow,

because plaintiffs point to no evidence suggesting that the GSEs in fact would not have done so.

                                                 27
Plaintiffs therefore have not demonstrated that no genuinely disputed issue of material fact remains

as to whether the GSEs would have paid PCFs to Treasury but for the Net Worth Sweep. 10

         Because plaintiffs have not met their burden as the moving party of demonstrating that no

genuine dispute of material fact remains as to the issues raised in their motion, they are not entitled

to partial summary judgment regarding the enforceability of the PCF provisions. The Court has no

occasion to consider on the merits whether the provisions are enforceable.

                                           V.      CONCLUSION

         In accordance with the above analysis,

         1) In No. 1:13-cv-1053-RCL, Defendants’ Motion [145] for Summary Judgment will be

             GRANTED with respect to the lost-dividends theory of harm and plaintiffs’ proposed

             alternative remedy of rescission and DENIED in all other respects, and Plaintiffs’

             Motion [146] for Partial Summary Judgment will be DENIED.

         2) In No. 1:13-mc-1288-RCL, Defendants’ Motion [143] for Summary Judgment will be

             GRANTED with respect to the lost-dividends theory of harm and plaintiffs’ proposed

             alternative remedy of rescission and DENIED in all other respects, and Plaintiffs’

             Motion [144] for Partial Summary Judgment will be DENIED.

         Separate orders in each case consistent with this Memorandum Opinion shall issue this

date.

 Date: September 23, 2022                                                     _/s/ Royce C. Lamberth_______
                                                                              Royce C. Lamberth
                                                                              United States District Judge

10
   The Court further notes that given its determination that defendants are entitled to summary judgment on plaintiffs’
lost-dividends theory of harm, it is now less clear what effect PCFs would have on damage calculations.

                                                         28