Failure to State Claim

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7^th Circuit Court of Appeals

Case Name: Christopher Roberts, et al. v. Federal Housing Finance Agency, et al.

Case No.: 17-1880

Officials: WOOD, Chief Judge, and BAUER and EASTERBROOK, Circuit Judges.

Focus: Failure to State Claim

At the height of the 2008 financial crisis, Congress created the Federal Housing Finance Agency (the Agency) and authorized it to place into conservatorship two critical government‐sponsored enterprises—the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, commonly known as Fannie Mae and Freddie Mac. 12 U.S.C. § 4617(a). To stabilize Fannie and Freddie, along with the broader financial markets, Congress empowered the U.S. Treasury to purchase their “obligations and other securities” through the end of 2009. 12 U.S.C. §§ 1455(l)(1)(A), 1719(g)(1)(A). The Agency and Treasury acted quickly. In exchange for a cash infusion and fixed fund‐ ing commitment for each enterprise, Treasury received senior preferred shares. Its shares gave it extraordinary governance and economic rights, including the right to receive dividends tied to the amount of Treasury’s payments. But the stabilization effort proved to be more difficult than was initially expected. As Fannie and Freddie’s capital needs mounted, Treasury agreed three times to modify the original stock purchase agreements. The First and Second Amendments primarily increased Treasury’s funding commitment. The third modification—which, unlike the first two, was made after Treasury’s purchasing authority had expired—introduced a variable dividend under which Treasury’s dividend rights were set equal to the companies’ outstanding net worth.

That net‐worth dividend, sometimes called the Net Worth Sweep, is at the heart of this litigation. The plaintiffs are private shareholders of Fannie and Freddie. They sued Treasury and the Agency, claiming that the Agency violated its duties in two ways: by agreeing to the net‐worth dividend and by unlawfully succumbing to the direction of Treasury. They fault Treasury both for exceeding its statutory authority and failing to follow proper procedures. The district court dismissed the complaint for failure to state a claim. See 12 U.S.C. § 4617(f). We affirm.

Affirmed

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Attorney Derek A. Hawkins is the managing partner at Hawkins Law Offices LLC, where he heads up the firm’s startup law practice. He specializes in business formation, corporate governance, intellectual property protection, private equity and venture capital funding and mergers & acquisitions. Check out the website at www.hawkins-lawoffices.com or contact them at 262-737-8825.