David Jacobs v. Federal Housing Finance Agency , 908 F.3d 884 ( 2018 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_______________
No. 17-3794
_______________
DAVID JACOBS; GARY HINDES,
Appellants
v.
FEDERAL HOUSING FINANCE AGENCY,
IN ITS CAPACITY AS CONSERVATOR OF THE
FEDERAL NATIONAL MORTGAGE ASSOCIATION
AND THE FEDERAL HOME LOAN MORTGAGE
CORPORATION;
UNITED STATES DEPARTMENT OF THE TREASURY;
FEDERAL NATIONAL MORTGAGE ASSOCIATION;
FEDERAL HOME LOAN MORTGAGE CORPORATION
_______________
On Appeal from the United States District Court
for the District of Delaware
(D.C. No. 1:015-cv-00708)
District Judge: Honorable Gregory M. Sleet
_______________
Argued September 7, 2018
Before: HARDIMAN, KRAUSE, and BIBAS, Circuit Judges
(Filed: November 14, 2018)
_______________
Christopher N. Kelly, Esq.
Michael A. Pittenger, Esq. [ARGUED]
Alan R. Silverstein, Esq.
Potter Anderson & Corroon
1313 North Market Street
6th Floor
Wilmington, DE 19801
Myron T. Steele, Esq.
Potter, Anderson & Corroon
800 North State Street
Suite 401
Dover, DE 19901
Counsel for Appellants
David B. Bergman, Esq.
Howard N. Cayne, Esq. [ARGUED]
Ian S. Hoffman, Esq.
Dirk Phillips, Esq.
Asim Varma, Esq.
Arnold & Porter Kaye Scholer
601 Massachusetts Avenue, N.W.
Washington, D.C. 20001
2
Robert C. Maddox, Esq.
Robert J. Stearn, Jr., Esq.
Richards Layton & Finger
920 North King Street
One Rodney Square
Wilmington, DE 19801
Counsel for Appellee Federal Housing Finance
Agency
Gerard J. Sinzdak, Esq. [ARGUED]
Abby C. Wright, Esq.
United States Department of Justice
Civil Division
950 Pennsylvania Avenue, N.W.
Washington, D.C. 20530
Counsel for Appellee United States Department of
Treasury
Robert C. Maddox, Esq.
Robert J. Stearn, Jr., Esq.
Richards Layton & Finger
920 North King Street
One Rodney Square
Wilmington, DE 19801
Meaghan M. Vergow, Esq.
O’Melveny & Myers
1625 I Street, N.W.
Washington, DC 20006
Counsel for Appellee Federal National Mortgage
Association
3
Michael J. Ciatti, Esq.
King & Spalding
1700 Pennsylvania Avenue, N.W.
Suite 200
Washington, D.C. 20006
Robert C. Maddox, Esq.
Robert J. Stearn, Jr., Esq.
Richards Layton & Finger
920 North King Street
One Rodney Square
Wilmington, DE 19801
Counsel for Appellee Federal Home Loan Mortgage
Corporation
_______________
OPINION OF THE COURT
_______________
BIBAS, Circuit Judge.
In 2008, the U.S. government strove to rescue the collaps-
ing economy. Its extreme measures helped many, but others
suffered as a result. One of the rescue measures, the Housing
and Economic Recovery Act, authorized the government to act
as conservator for Fannie Mae and Freddie Mac, two govern-
ment-sponsored enterprises with critical roles in the home-
mortgage market. Under that conservatorship, Fannie and
Freddie made a deal with the Department of Treasury. The deal
guaranteed Fannie and Freddie access to hundreds of billions
of dollars. But in return, they had to give their net profits to the
4
Treasury—in perpetuity. Fannie’s and Freddie’s junior share-
holders had expected to share in those future profits, but the
deal wiped out that expectation. So some of those junior share-
holders now challenge that deal.
We reject the shareholders’ challenge on all fronts. First,
the Recovery Act gave the government broad, discretionary
power to enter into the deal. Second, the deal complies with the
requirements of the Recovery Act, as well as Delaware and
Virginia corporate law. And third, the relief sought would “re-
strain or affect the exercise of [the government’s] powers” as
conservator, which the Recovery Act forbids. 12 U.S.C.
§ 4617(f). That relief, even the monetary relief, would unwind
the whole deal. So we will affirm the District Court’s dismis-
sal.
I. BACKGROUND
A. Statutory framework
1. Fannie Mae and Freddie Mac. In the wake of the Great
Depression, Congress created Fannie, and later Freddie, to sup-
port the home-mortgage market. Pub. L. No. 91-351, 84 Stat.
450, § 301(b), as amended by Pub. L. No. 101-73, 103 Stat.
183, § 731(a) (codified at 12 U.S.C. § 1451 note) (Freddie
Mac); 12 U.S.C. §§ 1716-17 (Fannie Mae). Fannie and Freddie
do so by borrowing money, buying home mortgages, packag-
ing them into guaranteed mortgage-backed securities, and sell-
ing those securities to investors. 12 U.S.C. §§ 1454-55, 1719.
By buying mortgages and then guaranteeing the resulting
securities, Fannie and Freddie make the mortgage market both
more liquid and more stable. Perry Capital LLC v. Mnuchin,
5
864 F.3d 591, 599 (D.C. Cir. 2017) (Perry Capital), cert. de-
nied, 138 S. Ct. 978 (2018). They relieve mortgage lenders of
the risk of default and free up their capital to make more loans.
As a result, lenders can keep lending to home buyers who meet
Fannie’s and Freddie’s underwriting standards, secure in the
knowledge that Fannie and Freddie will buy those mortgages.
By 2008, Fannie and Freddie owned or guaranteed five trillion
dollars’ worth of mortgages and mortgage-backed securities—
nearly half of the market. Id. In short, they are the backbone of
the U.S. residential-mortgage market.
Fannie and Freddie are government-sponsored enterprises;
they were created by congressional charter but are owned by
private shareholders. 2 U.S.C. § 622(8). Although Fannie and
Freddie are privately owned and publicly traded companies,
the public has long viewed their securities as implicitly backed
by the federal government’s credit. That perceived government
guarantee has helped them to borrow money and to buy mort-
gages more cheaply than they otherwise could have. Perry
Capital LLC v. Lew, 70 F. Supp. 3d 208, 215 (D.D.C. 2014),
aff’d in part, 864 F.3d 591. All that borrowing, lending, and
buying propelled the housing market to record highs by the
mid-2000’s.
2. The Housing and Economic Recovery Act of 2008. Then
the housing bubble burst. House prices plunged, slashing the
value of Fannie’s and Freddie’s mortgage portfolios. Fannie’s
and Freddie’s guarantees put them on the hook not only for the
mortgages they owned, but also for many mortgage-backed se-
curities based on loans gone bad. Congress feared that they
might default, threatening not only the housing market but the
6
precarious national economy as a whole. Perry Capital, 864
F.3d at 599.
To ward off that threat, Congress passed the Recovery Act.
The Recovery Act created the Federal Housing Financing
Agency and empowered it to supervise and regulate Fannie and
Freddie. 12 U.S.C. § 4511. The Recovery Act gives the Agency
many enumerated, mostly discretionary powers. For instance,
it authorizes the Agency’s Director to “appoint the Agency as
conservator . . . for the purpose of reorganizing [or] rehabilitat-
ing . . . the affairs of” Fannie or Freddie. Id. § 4617(a)(1)-(2).
As conservator, the Agency inherits all the “rights, titles, pow-
ers, and privileges” of Fannie, Freddie, and their officers, di-
rectors, and shareholders. Id. § 4617(b)(2)(A)(i). The Recovery
Act also authorizes the Agency as conservator to exercise any
“incidental powers as shall be necessary to carry out [its enu-
merated] powers.” Id. § 4617(b)(2)(J)(i).
3. Section 4617(f) of the Recovery Act. Having given the
Agency sweeping authority and discretion, the Recovery Act
strictly limits judicial review: “[N]o court may take any action
to restrain or affect the exercise of powers or functions of the
Agency as a conservator or receiver.” Id. § 4617(f). This case
turns in part on how to interpret and apply that subsection.
B. Factual background
In 2008, the collapse of the housing market cost Fannie and
Freddie billions of dollars, threatening the U.S. mortgage mar-
ket. The Treasury quickly took steps to prop up Fannie and
7
Freddie. But the mortgage and financial markets remained per-
ilous, and the financial crisis grew worse. So the Agency put
both Fannie and Freddie into conservatorship.
Under the Agency’s direction, they entered into funding
agreements with the Treasury. The Treasury gave each enter-
prise a funding commitment. When Fannie’s or Freddie’s lia-
bilities exceed their assets, they can draw on that funding com-
mitment to keep their net worth in the black.
In return, the Treasury received one million shares of senior
preferred stock in each of Fannie and Freddie. These shares
gave the Treasury a liquidation preference in each enterprise
equal to $1 billion plus all the money drawn from the Treas-
ury’s funding commitment. The shares also gave the Treasury
an annual dividend equal to 10% of the liquidation preference,
if paid in cash.
The Treasury initially capped its funding commitment at
$100 billion per enterprise. That was not enough, at least for
Fannie. Two amendments to the funding agreement more than
doubled that cap, and Fannie and Freddie wound up drawing
$116.1 billion and $71.3 billion from the Treasury. But as Fan-
nie and Freddie drew more and more money from the Treasury,
they owed it larger and larger dividends. In a vicious cycle,
they sometimes had to draw money from the Treasury just to
pay the Treasury’s dividends.
In 2012, the Treasury and the Agency renegotiated the
funding agreements and agreed to the Third Amendment. The
Third Amendment replaced the 10% annual dividend with a
quarterly variable dividend. It set that variable dividend equal
8
to Fannie’s and Freddie’s positive net worth above a capital
buffer, which was set to decrease with each dividend payment.
The capital buffer is now down to zero. So each quarter, the
dividend consumes each enterprise’s entire positive net worth.
The challengers call this arrangement the Net Worth Sweep.
In other words, under the Third Amendment, if Fannie or
Freddie has a positive net worth, it pays all that worth out as a
dividend to the Treasury. If its net worth is zero or negative, it
pays nothing. Fannie and Freddie pay only what they can. That
way, they need never again draw from the Treasury to pay the
Treasury’s dividends. But they also have no money left over to
pay dividends to junior shareholders or to redeem the Treas-
ury’s shares, exit conservatorship, and return to private control.
C. Procedural history
David Jacobs and Gary Hindes filed this class-action suit
against the Agency, Treasury, Fannie, and Freddie to challenge
the Third Amendment. Their original complaint asserted
claims for breach of contract, breach of fiduciary duty, breach
of the implied covenant of good faith and fair dealing, and vi-
olations of Delaware and Virginia corporate law.
The challengers later amended their complaint, voluntarily
dismissing their claims for breach of contract, breach of fidu-
ciary duty, and breach of the implied covenant of good faith
and fair dealing. The amended complaint contains four counts:
two asserting that the Third Amendment violates Delaware and
Virginia corporate law, and two new claims against the Treas-
ury for unjust enrichment. It seeks declaratory, injunctive, and
9
monetary relief, including damages, restitution, and disgorge-
ment.
The Agency, Treasury, Fannie, and Freddie moved to dis-
miss. The District Court granted that motion, holding that 12
U.S.C. § 4617(f) barred all the challengers’ claims. Jacobs v.
FHFA, No. 15-708-GMS, 2017 WL 5664769, at *1 (D. Del.
Nov. 27, 2017). It reasoned that the Agency acted within its
statutory powers, that the Recovery Act did not incorporate
state law, and that § 4617(f)’s “sweeping limitations . . . on ju-
dicial review” deprived it of jurisdiction. Id. at *3-5. The court
also refused to take judicial notice of certain documents that
allegedly undermined the Agency’s and Treasury’s assertions,
because it did not rely on those assertions in reaching its deci-
sion. Id. at *7.
This appeal followed. Like the District Court, we do not
rely on those assertions, so we will affirm the refusal to take
judicial notice of the challengers’ documents. We review the
District Court’s dismissal de novo. Hindes v. FDIC, 137 F.3d
148, 153 (3d Cir. 1998).
II. THE RECOVERY ACT EMPOWERED THE AGENCY TO
ENTER INTO THE THIRD AMENDMENT
Section 4617(f) bars claims when 1) the government acts as
a conservator, 2) it does not exceed its statutory authority, and
3) the remedy sought would affect the exercise of that author-
ity. So to figure out whether § 4617(f) bars the challengers’
claims, we first identify “the powers or functions of the Agency
as a conservator.” In this part of the opinion, we hold that the
Act empowers the Agency to enter into the Third Amendment.
10
In Part III, we go on to hold that the Third Amendment does
not contravene any other limitations in the Recovery Act. And
in Part IV, we hold that the relief requested by the challengers
would “restrain or affect” the Agency’s exercise of its powers.
So the District Court properly dismissed this suit.
The Recovery Act defines the Agency’s “powers . . . as a
conservator.” 12 U.S.C. § 4617(f). Those powers are many and
mostly discretionary, including:
• the power to take over Fannie’s and Freddie’s assets.
Id. § 4617(b)(2)(B)(i).
• the power to operate Fannie and Freddie, using all
of the officers’, directors’, and shareholders’ pow-
ers. Id.
• the power to “preserve and conserve” Fannie’s and
Freddie’s assets. Id. § 4617(b)(2)(B)(iv).
• the power to “take such action as may be . . . neces-
sary to put [Fannie and Freddie] in a sound and sol-
vent condition,” and appropriate to carry on their
business. Id. § 4617(b)(2)(D).
These powers authorized the Agency to enter into the Third
Amendment. To begin, the Third Amendment is an exercise of
the Agency’s power to take over Fannie and Freddie’s assets
and operate their businesses. Id. § 4617(b)(2)(B)(i). To operate
their businesses, Fannie and Freddie must secure ongoing ac-
cess to capital, manage debt loads, control cash flow, and de-
cide whether and how to pay dividends. Perry Capital, 864
11
F.3d at 607. The Third Amendment is in essence a renegotia-
tion of an existing lending agreement (albeit with equity rather
than debt). Saxton v. FHFA, 901 F.3d 954, 960-61 (8th Cir.
2018) (Stras, J., concurring). That is a traditional power of cor-
porate officers or directors. Id. And the Agency, as conserva-
tor, inherits those powers. 12 U.S.C. § 4617(b)(2)(B)(i).
Next, the Third Amendment falls within the Agency’s
power to “preserve and conserve [Fannie’s and Freddie’s] as-
sets” and to do what is “necessary to put [Fannie and Freddie]
in a sound and solvent condition.” 12 U.S.C.
§ 4617(b)(2)(B)(iv), (D)(i). The Agency “may” exercise those
powers “as appropriate,” so we ask only whether the Agency
picked a suitable action, not the best alternative. Saxton, 901
F.3d at 961–62 (Stras, J., concurring).
Before the Third Amendment, the challengers admit, Fan-
nie and Freddie sometimes had to draw funds from the Treas-
ury just to pay the Treasury’s dividend. App. 51-52. That dug
Fannie and Freddie deeper and deeper into the hole, increasing
their future dividend obligations while also reducing their
available funds. “The Third Amendment permanently elimi-
nated” that Catch-22, as well as the associated “risk that cash-
dividend payments would consume [Fannie’s and Freddie’s]
lifeline.” Roberts v. FHFA, 889 F.3d 397, 404-05 (7th Cir.
2018). So the Agency could reasonably conclude that the Third
Amendment would “preserve and conserve [Fannie’s and
Freddie’s] assets” in the long run, putting them on a “sound
and solvent” footing. 12 U.S.C. § 4617(b)(2)(B)(iv), (D)(i).
12
Any of these powers alone would have authorized the
Agency to enter into the Third Amendment. Indeed, every fed-
eral court of appeals to address this issue has held that adopting
the Third Amendment “falls within [the Agency’s] statutory
conservatorship powers.” Perry Capital, 864 F.3d at 606; ac-
cord Saxton, 901 F.3d at 959; Collins v. Mnuchin, 896 F.3d
640, 653 (5th Cir. 2018); Roberts, 889 F.3d at 403; Robinson
v. FHFA, 876 F.3d 220, 232 (6th Cir. 2017). We agree. The
Recovery Act empowered the Agency to enter into the Third
Amendment.
III. THE THIRD AMENDMENT IS CONSISTENT WITH THE
RECOVERY ACT’S LIMITATIONS
The Third Amendment does not violate any other provision
of the Recovery Act. The challengers assert that it violates Del-
aware and Virginia corporate law, as supposedly incorporated
by two provisions of the Recovery Act (known as the succes-
sion clause and the repudiation-of-contracts clause). They also
assert that it violates the Act’s liquidation-of-assets procedures
and its alleged requirement to serve Fannie’s and Freddie’s in-
terests, rather than the government’s. But that is not so.
A. The Recovery Act’s provisions supposedly incorpo-
rating Delaware and Virginia law
Federal regulation required each enterprise to pick a state’s
laws for its corporate governance. 12 C.F.R. § 1239.3(b)(1).
Fannie chose Delaware law; Freddie chose Virginia law. The
chosen state’s laws govern each enterprise to the extent that
they are consistent with the enterprise’s authorizing statute and
other federal law. Id.
13
The challengers contend that the Recovery Act’s succes-
sion clause and repudiation-of-contracts clause incorporate and
require the Agency to follow Delaware and Virginia corporate
law. So, they reason, if the Agency violates those laws, it also
violates the Recovery Act itself. Because the Agency suppos-
edly violated Delaware and Virginia law, it violated the Act
itself and acted ultra vires. The Agency responds that the Re-
covery Act does not incorporate those state-law requirements
and that, even if it did, they would be preempted.
The challengers’ argument fails because the Third Amend-
ment is consistent with both states’ laws. So we need not de-
cide whether and to what extent the Act itself requires the
Agency to follow Delaware and Virginia law. We also need not
decide whether federal law preempts these states’ laws.
1. The Third Amendment complies with Delaware law. The
challengers claim that the Third Amendment does not specify
a rate at which to pay the Treasury’s dividend. They also claim
that it does not pay the Treasury in preference to or in relation
to other classes of shareholders. Both arguments miss the mark.
a. The dividend rate. Delaware’s corporate law entitles
“holders of preferred or special stock . . . to receive dividends
at such rates . . . as shall be stated in the certificate of incorpo-
ration or in the [board] resolution or resolutions providing for
the issue of such stock.” Del. Code Ann. tit. 8, § 151(c) (2017).
The Treasury receives all of Fannie’s and Freddie’s positive
net worth in perpetuity, the challengers argue, not just a speci-
fied dividend rate.
14
But the Third Amendment does specify a rate: 100%. The
challengers cite no Delaware authority holding this rate unlaw-
ful. So the rate argument fails.
b. The dividend preference. That same provision of Dela-
ware law authorizes dividends “payable in preference to, or in
such relation to, the dividends payable on any other class . . . of
stock.” Id. The challengers claim that the Third Amendment
does not create a preference, but rather permanently eliminates
all other shareholders’ dividends. And it cannot be payable in
relation to another dividend that does not exist.
This argument fails too. The Treasury’s dividend is payable
in preference to all other classes of stock. It is always paid first
and with all available funds. The challengers cite no Delaware
authority suggesting that this preference is unlawful or that it
must reserve funds to pay junior stockholders. Indeed, § 151
contemplates that preferred shareholders’ dividends may ab-
sorb all funds and leave none for junior shareholders: once pre-
ferred dividends have been paid out “to the extent of the pref-
erence, . . . a dividend on the remaining class or classes or series
of stock may then be paid out of the remaining assets of the
corporation available for dividends.” Id. (emphases added). So
common shareholders are not guaranteed dividends. They may
receive the dividends only if the board approves, only if pre-
ferred shareholders are paid, and only if assets remain available
for dividends. Here, after paying the Treasury’s dividend, no
assets remain. So even if Delaware law applies, the Third
Amendment complies with it.
2. The Third Amendment complies with Virginia law. The
challengers reiterate their dividend-preference argument for
15
Freddie, this time under Virginia law. Virginia statutory and
case law, they argue, forbids the Third Amendment’s pre-
ferred-dividend arrangement.
Virginia law authorizes corporations to issue classes of
stock that have preference over other classes. Va. Code Ann.
§ 13.1-638(C)(4) (West 2018). The challengers again claim
that the Treasury does not merely have a preference, but ex-
cludes other classes of stock entirely. But that is a preference,
just an extreme one. Nothing in the statute forbids that prefer-
ence.
The challengers also rely on two century-old Virginia
cases. One of them described the “common understanding”
that preferred shareholders get first dibs on earnings through
“limited dividends,” while common shareholders get the “hope
of unlimited gain” through the company’s “surplus profits.”
Johnson v. Johnson & Briggs, Inc., 122 S.E. 100, 103 (Va.
1924). But a “common understanding” is not a rigid rule. And
nothing about this case is “common.” Fannie and Freddie are
public-private entities in conservatorship under an intricate
statutory scheme tailored to respond to an economic catastro-
phe. The ordinary case does not control.
The challengers’ other case is likewise inapt. That case held
that a corporation may not agree to pay preferred dividends
when it lacks earnings with which to pay them. Drewry,
Hughes Co. v. Throckmorton, 92 S.E. 818, 819 (Va. 1917). But
the Third Amendment abides by this rule. Fannie and Freddie
pay Treasury a dividend only when they have funds to pay.
16
In short, the Third Amendment comports with both Dela-
ware’s and Virginia’s laws. No authority even puts the matter
in doubt, so we see no need to certify the issues to the Delaware
or Virginia Supreme Court. The challengers’ claims under the
Recovery Act’s succession and repudiation-of-contracts
clauses fail. See Fairholme Funds, Inc. v. FHFA, Nos. 13-
1053, 13-1439, 13-1288, 2018 WL 4680197, at *17 (D.D.C.
Sept. 28, 2018).
B. The Recovery Act’s priorities for liquidating assets
Next, the challengers argue that the Third Amendment vio-
lates the Recovery Act’s specified priorities for distributing as-
sets on liquidation, codified at 12 U.S.C. § 4617(b)(3)-(9), (c).
As common shareholders, the challengers would have had cer-
tain claims upon Fannie’s and Freddie’s assets if the enter-
prises had been put into liquidation. But as the District Court
explained, these provisions do not apply because neither Fan-
nie nor Freddie is in liquidation. Jacobs, 2017 WL 5664769, at
*6.
Perry Capital is not to the contrary. Though it allowed a
liquidation-preferences claim to go forward, it did so because
the stock certificates themselves guaranteed a liquidation pref-
erence. The wording of the certificates gave the plaintiffs there
a claim for anticipatory breach of contract. Perry Capital, 864
F.3d at 632-33.
But here, there is no claim that the stock certificates create a
liquidation priority; the challengers’ liquidation claim rests en-
tirely on the Recovery Act. And the challengers voluntarily dis-
missed their breach-of-contract claim. So Perry Capital is inapt.
17
C. The Agency’s multiple constituencies and additional
powers
The challengers next assert that the Agency as conservator
should have focused solely on maximizing Fannie’s and Fred-
die’s financial returns. They charge the Agency with “acting in
Treasury’s interest, and not [Fannie’s and Freddie’s] interest,
and acting in a manner [in which Fannie and Freddie] them-
selves had no power to act, when implementing the” Third
Amendment. Jacobs Br. 49. But the Recovery Act authorizes
the Agency to do just that.
1. The Agency’s multiple constituencies. When the Agency
acts as conservator, it need not act solely in Fannie’s and Fred-
die’s interests, as a traditional conservator would. It may also
act to protect its own interests and those of the public.
At common law, a conservator could not “act[ ] for the ben-
efit of [himself] or a third party.” Perry Capital, 864 F.3d at
641 (Brown, J., dissenting). But the Agency is no “common-
law conservator.” Id. at 613 (majority opinion). The Recovery
Act authorizes the Agency to use its powers as conservator in
whatever way it “determines is in the best interests of [Fannie
or Freddie] or the Agency.” 12 U.S.C. § 4617(b)(2)(J)(ii) (em-
phasis added). As the D.C. Circuit explained, this provision re-
flects Congress’s “deliberate choice” to let the Agency “act in
its own best governmental interests, which may include the
taxpaying public’s interest.” Perry Capital, 864 F.3d at 608.
That authorization implements the Recovery Act’s mandate
that the Agency “ensure that” Fannie and Freddie “operate[ ]
[in a manner] consistent with the public interest.” 12 U.S.C.
18
§ 4513(a)(1)(B), (B)(v). In the same vein, the Act instructs the
Treasury not to buy Fannie’s and Freddie’s securities unless
doing so would “provide stability to the financial markets” and
“protect the taxpayer.” Id. §§ 1455(l)(1)(B)(i), (iii),
1719(g)(1)(B)(i), (iii).
While the Agency must consider the public interest, it need
not consider the interests of Fannie’s and Freddie’s sharehold-
ers. That becomes clear when we compare the Recovery Act
with its predecessor. Much of the Recovery Act is closely pat-
terned on an earlier financial-institution-rescue law, the Finan-
cial Institutions Reform, Recovery, and Enforcement Act
(FIRREA). For instance, the Recovery Act’s limitation on ju-
dicial review is copied almost verbatim from the one in
FIRREA. Compare id. § 4617(f), with id. § 1821(j). Because
“Congress use[d] the same language in two statutes having
similar purposes,” we “presume that Congress intended that
text to have the same meaning in both statutes.” Smith v. City
of Jackson, 544 U.S. 228, 233 (2005). So our sister courts of
appeals all interpret § 4617(f) by looking to their precedents on
§ 1821(j). See, e.g., Perry Capital, 864 F.3d at 605-06; Robin-
son, 876 F.3d at 227; Roberts, 889 F.3d at 402. We will too.
FIRREA permits the Federal Deposit Insurance Corpora-
tion to act as conservator “in the best interests of the [bank], its
depositors, or the [FDIC].” 12 U.S.C. § 1821(d)(2)(J)(ii) (em-
phasis added). So the FDIC could take into account the inter-
ests of depositors. But the Recovery Act omits the analogue of
depositors—shareholders—from its list, referring only to the
best interests of Fannie, Freddie, and the Agency. Id.
19
§ 4617(b)(2)(J)(ii); see Perry Capital, 864 F.3d at 608. Partic-
ularly because Congress modeled the Recovery Act on
FIRREA, the Recovery Act’s omission of shareholders’ inter-
ests is telling. In short, the Agency is supposed to act in its own
interests (which reflect the interests of the government and the
public), not in the interests of Fannie’s and Freddie’s share-
holders.
The Third Amendment thus threw Fannie and Freddie a
$200-billion-plus lifeline to safeguard not just their own inter-
ests, but also the government’s and the public’s interests. These
other constituencies benefit from a risk-averse approach. Even
if the economy collapses again, the Agency, the government,
and the public will be assured that Fannie and Freddie can con-
tinue to stabilize the housing market.
The Third Amendment also serves Fannie’s and Freddie’s
own interests. They did not give away their future net worth
for nothing. In consideration, the Treasury gave up its right to
an unconditional 10% dividend, which sometimes cost Fannie
and Freddie more than their positive net worth and forced them
to borrow even more. The Third Amendment thus insured Fan-
nie and Freddie against downturns and “death spirals,” pre-
venting unpayable dividends from ratcheting up their debt
loads to unsustainable levels. Saxton, 901 F.3d at 962 (Stras,
J., concurring).
2. The Agency’s powers extend beyond Fannie’s and Fred-
die’s powers. Finally, it does not matter if the Agency acted in
a way that Fannie and Freddie could not have. The Recovery
20
Act gave the Agency not only powers inherited from those en-
terprises, but also a host of other powers. And the Agency acted
within those statutory powers.
IV. SECTION 4617(f) BARS THE REQUESTED RELIEF
The Recovery Act empowered the Agency to enter into the
Third Amendment. And the Third Amendment does not violate
any of the Recovery Act’s limitations. So entering into the
Third Amendment was a legitimate exercise of the Agency’s
powers as conservator.
The only remaining issue is whether the challengers’ re-
quested relief would “restrain or affect the exercise of [the
Agency’s] powers . . . as a conservator.” 12 U.S.C. § 4617(f).
The challengers concede that it would. And § 4617(f) applies
to all forms of relief that would do so, not just injunctions or
equitable relief. So that subsection bars all the relief requested
here.
A. The challengers concede that they seek to undo the
Third Amendment
At oral argument, the challengers admitted that the relief
they seek would undo the entire Third Amendment. They
would have us void it and force the Treasury to disgorge all the
dividends that it received under the Third Amendment. Undo-
ing the Third Amendment would restrain the Agency’s powers.
So the challengers’ concession dooms their case.
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B. Section 4617(f) applies to monetary relief that would
restrain or affect the exercise of the Agency’s powers as
conservator
The challengers argue, however, that their concession does
not bar their claims for monetary relief. They claim that
§ 4617(f) applies only to “equitable and injunctive relief,” not
damages claims. Appellants’ Br. 41-43. They even call that
subsection an “anti-injunction clause.” Id. at 19. But that label
is inaccurate.
Their argument has some support. Some courts of appeals
likewise call § 4617(f) an “anti-injunction” clause. E.g., Sax-
ton, 901 F.3d at 957; Robinson, 876 F.3d at 227. And some
interpret § 4617(f) as barring only equitable relief, not damages
claims. E.g., Saxton, 901 F.3d at 957; Perry Capital, 864 F.3d
at 606, 613-14.
We decline to adopt this interpretation for two reasons.
First, the text of § 4617(f) is not limited to declaratory, injunc-
tive, or other equitable relief. Second, our FIRREA precedent
suggests that § 4617(f) also bars some monetary claims.
1. The text of § 4617(f) extends to monetary relief. Section
4617(f) reads, in full: “Except 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.”
Nothing in that text refers to the type or form of remedy a
plaintiff seeks. It says nothing about law versus equity or dam-
ages versus injunctions. Rather, the text forbids courts to take
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“any action” that seeks to “restrain or affect” the Agency’s ex-
ercise of its powers as conservator. The focus is not on the form
of requested relief, but its effect. If monetary relief would have
that effect, then it is barred. If not, then it is permitted.
2. Our FIRREA precedent supports applying § 4617(f) to
some monetary relief. That interpretation accords with our
cases interpreting FIRREA’s parallel provision. In Rosa v. Res-
olution Trust Corp., we held that § 1821(j) barred monetary re-
lief granted as part of an injunction. 938 F.2d 383, 399 (3d Cir.
1991). We did not rely on the equitable nature of the relief.
What mattered was that the relief would have impeded the Res-
olution Trust Corporation’s powers as “conservator promptly
to perform its important functions in dealing with the savings
and loan crisis.” Id. The plaintiffs were limited to seeking a
“remedy that would not ‘restrain or affect’ the exercise of the
receiver’s or conservator’s powers or functions.” Id.
Our later precedent continued to apply Rosa’s approach.
Hindes, for example, recognized that § 1821(j) leaves open “a
judicial remedy for an appropriate damages claim.” 137 F.3d
at 161 (emphasis added). But not all damages claims are ap-
propriate. Courts have suggested that appropriate damages
claims might include constitutional claims, breach-of-contract
claims, claims authorized by FIRREA or the Recovery Act
through the administrative process, claims based on ultra vires
Agency action, and other damages claims that do not restrain
or affect the Agency’s exercise of its authorized powers. See
id. (constitutional claims); Perry Capital, 864 F.3d at 614
(same, as well as breach of contract); Saxton, 901 F.3d at 960
n.8 (Stras, J., concurring) (constitutional challenges to the
23
Agency’s structure); Collins, 896 F.3d at 659 (same); Gross v.
Bell Sav. Bank Pa SA, 974 F.2d 403, 407-08 (3d Cir. 1992)
(administrative claims authorized by FIRREA and claims of
ultra vires agency action); Rosa, 938 F.2d at 399 (other claims
that would not restrain or affect the exercise of authorized pow-
ers).
Here, the challengers’ claims fall into none of these catego-
ries. They are not constitutional. They have not gone through
the Recovery Act’s administrative process. They do not flow
from ultra vires agency action. And they are not claims for
breach of contract.
Their claims would also restrain or affect the Agency’s ex-
ercise of its statutory powers. The Recovery Act empowered
the Agency to enter into the Third Amendment. And all parties
agree that § 4617(f) bars declaratory and injunctive relief. But
granting the challengers’ claims for damages, restitution, or
disgorgement would require us to find the Third Amendment
unlawful. The challengers cannot evade the bar on declaratory
relief by asking for such a declaration as the basis for awarding
damages. No matter how we label the relief, striking down the
Third Amendment would interfere with the Agency’s exercise
of its powers as conservator.
Even apart from the declaratory aspect, awarding monetary
relief would restrain or affect the Agency’s conservatorship.
The request for damages, disgorgement, and restitution,
against both the Agency and the Treasury, would (as the chal-
lengers concede) unravel the Third Amendment, reverse the
monetary payments made under it, and prevent or at least deter
the Agency from implementing it further. Those are the same
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consequences that would flow from granting an injunction or a
declaratory judgment. So the monetary relief sought here
would restrain or affect the exercise of the Agency’s powers as
conservator. All of it is barred by § 4617(f).
*****
The challengers are in an unfortunate spot. They invested
in Fannie and Freddie, expecting regular dividend payments in
return. The Third Amendment destroyed those expectations.
But the Recovery Act is clear. It empowered the Agency to
enter into the Third Amendment. That deal complies with Del-
aware law, Virginia law, and the Recovery Act itself. And the
challengers’ requested relief would effectively unwind the
Third Amendment. Doing so would restrain or affect the
Agency’s exercise of its powers as conservator.
This we cannot do. So we will affirm.
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