Fairholme Funds, Inc. v. United States ( 2022 )

Case: 20-1912 Document: 95 Page: 1 Filed: 02/22/2022
United States Court of Appeals
for the Federal Circuit
______________________
FAIRHOLME FUNDS, INC., ACADIA INSURANCE
COMPANY, ADMIRAL INDEMNITY COMPANY,
ADMIRAL INSURANCE COMPANY, BERKLEY
INSURANCE COMPANY, BERKLEY REGIONAL
INSURANCE COMPANY, CAROLINA CASUALTY
INSURANCE COMPANY, CONTINENTAL
WESTERN INSURANCE COMPANY, MIDWEST
EMPLOYERS CASUALTY INSURANCE COMPANY,
NAUTILUS INSURANCE COMPANY, PREFERRED
EMPLOYERS INSURANCE COMPANY,
FAIRHOLME FUND, ANDREW T. BARRETT,
Plaintiffs-Appellants
v.
UNITED STATES,
Defendant-Cross-Appellant
______________________
2020-1912, 2020-1914
______________________
Appeals from the United States Court of Federal
Claims in No. 1:13-cv-00465-MMS, Senior Judge Margaret
M. Sweeney.
-------------------------------------------------
OWL CREEK ASIA I, L.P., OWL CREEK ASIA II,
L.P., OWL CREEK I, L.P., OWL CREEK II, L.P., OWL
CREEK ASIA MASTER FUND, LTD., OWL CREEK
CREDIT OPPORTUNITIES MASTER FUND, L.P.,
Case: 20-1912 Document: 95 Page: 2 Filed: 02/22/2022
2 FAIRHOLME FUNDS, INC. v. US
OWL CREEK OVERSEAS MASTER FUND, LTD.,
OWL CREEK SRI MASTER FUND, LTD.,
Plaintiffs-Appellants
v.
UNITED STATES,
Defendant-Appellee
______________________
2020-1934
______________________
Appeal from the United States Court of Federal Claims
in No. 1:18-cv-00281-MMS, Senior Judge Margaret M.
Sweeney.
-------------------------------------------------
MASON CAPITAL L.P., MASON CAPITAL MASTER
FUND L.P.,
Plaintiffs-Appellants
v.
UNITED STATES,
Defendant-Appellee
______________________
2020-1936
______________________
Appeal from the United States Court of Federal Claims
in No. 1:18-cv-00529-MMS, Senior Judge Margaret M.
Sweeney.
-------------------------------------------------
Case: 20-1912 Document: 95 Page: 3 Filed: 02/22/2022
FAIRHOLME FUNDS, INC. v. US 3
AKANTHOS OPPORTUNITY FUND, L.P.,
Plaintiff-Appellant
v.
UNITED STATES,
Defendant-Appellee
______________________
2020-1938
______________________
Appeal from the United States Court of Federal Claims
in No. 1:18-cv-00369-MMS, Senior Judge Margaret M.
Sweeney.
-------------------------------------------------
APPALOOSA INVESTMENT LIMITED
PARTNERSHIP I, PALOMINO MASTER LTD.,
AZTECA PARTNERS LLC, PALOMINO FUND LTD.,
Plaintiffs-Appellants
v.
UNITED STATES,
Defendant-Appellee
______________________
2020-1954
______________________
Appeal from the United States Court of Federal Claims
in No. 1:18-cv-00370-MMS, Senior Judge Margaret M.
Sweeney.
-------------------------------------------------
Case: 20-1912 Document: 95 Page: 4 Filed: 02/22/2022
4 FAIRHOLME FUNDS, INC. v. US
CSS, LLC,
Plaintiff-Appellant
v.
UNITED STATES,
Defendant-Appellee
______________________
2020-1955
______________________
Appeal from the United States Court of Federal Claims
in No. 1:18-cv-00371-MMS, Senior Judge Margaret M.
Sweeney.
-------------------------------------------------
ARROWOOD INDEMNITY COMPANY, ARROWOOD
SURPLUS LINES INSURANCE COMPANY,
FINANCIAL STRUCTURES LIMITED,
Plaintiffs-Appellants
v.
UNITED STATES,
Defendant-Appellee
______________________
2020-2020
______________________
Appeal from the United States Court of Federal Claims
in No. 1:13-cv-00698-MMS, Senior Judge Margaret M.
Sweeney.
-------------------------------------------------
Case: 20-1912 Document: 95 Page: 5 Filed: 02/22/2022
FAIRHOLME FUNDS, INC. v. US 5
JOSEPH CACCIAPALLE,
Plaintiff-Appellant
MELVIN BAREISS, ON BEHALF OF THEMSELVES
AND ALL OTHERS SIMILARLY SITUATED,
BRYNDON FISHER, BRUCE REID, ERICK
SHIPMON, AMERICAN EUROPEAN INSURANCE
COMPANY, FRANCIS J. DENNIS,
Plaintiffs
v.
UNITED STATES,
Defendant-Appellee
______________________
2020-2037
______________________
Appeal from the United States Court of Federal Claims
in No. 1:13-cv-00466-MMS, Senior Judge Margaret M.
Sweeney.
______________________
Decided: February 22, 2022
______________________
BRIAN W. BARNES, Cooper & Kirk, PLLC, Washington,
DC, argued for plaintiff-appellants Fairholme Funds, Inc.,
Acadia Insurance Company, Admiral Indemnity Company,
Admiral Insurance Company, Berkley Insurance Com-
pany, Berkley Regional Insurance Company, Carolina Cas-
ualty Insurance Company, Continental Western Insurance
Company, Midwest Employers Casualty Insurance Com-
pany, Nautilus Insurance Company, Preferred Employers
Insurance Company, Fairholme Fund, Andrew T. Barrett.
Also represented by VINCENT J. COLATRIANO, CHARLES J.
Case: 20-1912 Document: 95 Page: 6 Filed: 02/22/2022
6 FAIRHOLME FUNDS, INC. v. US
COOPER, PETER A. PATTERSON, DAVID THOMPSON.
BRUCE BENNETT, Jones Day, Los Angeles, CA, argued
for plaintiffs-appellants Owl Creek Asia I, L.P., Owl Creek
Asia II, L.P., Owl Creek I, L.P., Owl Creek II, L.P., Owl
Creek Asia Master Fund, Ltd., Owl Creek Credit Opportu-
nities Master Fund, L.P., Owl Creek Overseas Master
Fund, Ltd., Owl Creek SRI Master Fund, Ltd., Mason Cap-
ital L.P., Mason Capital Master Fund LP, Akanthos Oppor-
tunity Fund, L.P., Appaloosa Investment Limited
Partnership I, Palomino Master Ltd., Azteca Partners
LLC, Palomino Fund Ltd., CSS, LLC. Also argued by
LAWRENCE D. ROSENBERG, Washington, DC. Also repre-
sented by C. KEVIN MARSHALL.
DREW WILLIAM MARROCCO, Dentons US LLP, Washing-
ton, DC, argued for plaintiffs-appellants Arrowood Indem-
nity Company, Arrowood Surplus Lines Insurance
Company, Financial Structures Limited. Also represented
by RICHARD M. ZUCKERMAN, New York, NY.
HAMISH HUME, Boies Schiller & Flexner LLP, Washing-
ton, DC, argued for plaintiff-appellant Joseph Cacciapalle.
MARK B. STERN, Appellate Staff, Civil Division, United
States Department of Justice, Washington, DC, argued for
United States. Also represented by BRIAN M. BOYNTON,
KYLE T. EDWARDS, GERARD SINZDAK, ABBY CHRISTINE
WRIGHT.
NOAH SCHUBERT, Schubert Jonckheer & Kolbe LLP,
San Francisco, CA, for amici curiae Bryndon Fisher, Bruce
Reid, Erick Shipmon. Also represented by ROBERT
SCHUBERT; PATRICK VALLELY, Shapiro Haber & Urmy LLP,
Boston, MA.
______________________
Before LOURIE, PROST, and O’MALLEY, Circuit Judges.
Case: 20-1912 Document: 95 Page: 7 Filed: 02/22/2022
FAIRHOLME FUNDS, INC. v. US 7
O’MALLEY, Circuit Judge.
Certain shareholders of the Federal National Mortgage
Association (Fannie Mae) and the Federal Home Loan
Mortgage Corporation (Freddie Mac) appeal a judgment of
the United States Court of Federal Claims (Claims Court)
granting-in-part the government’s motion to dismiss their
directly pled constitutional and non-constitutional claims
for either lack of standing or lack of subject matter juris-
diction. See Fairholme Funds, Inc. v. United States, 147
Fed. Cl. 1 (2019); Owl Creek Asia I, L.P. v. United States,
148 Fed. Cl. 614 (2020); Mason Cap. L.P. v. United States,
148 Fed. Cl. 712 (2020); Akanthos Opportunity Master
Fund, L.P. v. United States, 148 Fed. Cl. 647 (2020); Appa-
loosa Inv. Ltd. P’ship I v. United States, 148 Fed. Cl. 679(2020); CSS, LLC v. United States, 149 Fed. Cl. 363 (2020);
Arrowood Indem. Co. v. United States, 148 Fed. Cl. 299(2020); Cacciapalle v. United States, 148 Fed. Cl. 745(2020). The government cross-appeals the portions of the
Claims Court’s judgment denying its motion to dismiss
shareholders’ derivative claims. Because we conclude that
the Claims Court correctly dismissed shareholders’ directly
pled claims but erred in not dismissing shareholders’ de-
rivatively pled allegations, we affirm-in-part and reverse-
in-part.
I. BACKGROUND
Shareholders 1 own stock in Fannie Mae and Freddie
Mac (collectively, the Enterprises). The Enterprises suf-
fered devastating financial losses in 2008 when the na-
tional housing market collapsed. In response, Congress
enacted the Housing and Economic Recovery Act of 2008
1 For conciseness, we refer collectively to appellants
as “shareholders.” When necessary, however, we will call
out individual shareholders by their respective names (e.g.,
Fairholme Funds, Barrett, Cacciapalle, etc.).
Case: 20-1912 Document: 95 Page: 8 Filed: 02/22/2022
8 FAIRHOLME FUNDS, INC. v. US
(HERA). HERA created the Federal Housing Finance
Agency (FHFA), an independent agency tasked with regu-
lating the Enterprises and (if necessary) stepping in as con-
servator or receiver. 12 U.S.C. §§ 4511, 4617. HERA also
contains a Succession Clause, which states that the FHFA
“shall, as conservator or receiver . . . immediately succeed
to [] all rights, titles, powers, and privileges of the [Enter-
prises], and of any stockholder . . . with respect to the [En-
terprises] and the assets of the [Enterprises].” Id.§ 4617(b)(2)(A)(i).
With the consent of the Enterprises’ boards of direc-
tors, the FHFA’s Director placed the Enterprises into con-
servatorship in September 2008. J.A. 497–98; J.A. 530.
The FHFA Director then negotiated preferred stock pur-
chase agreements (PSPAs) with the Department of Treas-
ury (Treasury) in which Treasury agreed to allow the
Enterprises to draw up to $100 billion in capital in ex-
change for: (1) senior preferred non-voting stock having
quarterly fixed-rate dividends and an initial liquidation
preference of $1 billion and (2) warrants to purchase up to
79.9% of the common stock of each Enterprise at a nominal
price. J.A. 415–18; J.A. 498–99.
FHFA and Treasury amended the terms of the original
PSPAs in the years that followed. Relevant to this appeal,
a “net worth sweep” under the PSPAs replaced the fixed-
rate dividend formula with a variable one that required the
Enterprises to make quarterly payments equal to their en-
tire net worth, minus a small capital reserve amount.
J.A. 437; J.A. 506–07. The net worth sweep caused the En-
terprises to transfer most, if not all, of their equity to Treas-
ury, leaving no residual value that could be distributed to
shareholders. J.A. 437; J.A. 506–07.
Shareholders launched a series of challenges to the net
worth sweep that have worked their way through several
fora, including the D.C. Circuit and the Supreme Court.
See, e.g., Perry Cap. LLC v. Lew, 70 F. Supp. 3d 208 (D.D.C.
Case: 20-1912 Document: 95 Page: 9 Filed: 02/22/2022
FAIRHOLME FUNDS, INC. v. US 9
2014) (“Perry I”); Perry Cap. LLC v. Mnuchin, 864 F.3d 591(D.C. Cir. 2017) (“Perry II”); Collins v. Yellen, 141 S. Ct.
1761 (2021) (“Collins”). Parallel to these unsuccessful at-
tempts to undo the net worth sweep, shareholders filed
complaints with the Claims Court, alleging the following
direct claims: (1) the net worth sweep violated the Fifth
Amendment for taking (or, alternatively, illegally exacting)
the shareholders’ equity in the Enterprises without just
compensation; (2) the FHFA breached its fiduciary duties
by entering into the net worth sweep; and (3) the FHFA
and the Enterprises breached an implied-in-fact contract
(with shareholders as the intended third-party beneficiar-
ies) by agreeing to the net worth sweep. See, e.g., Fair-
holme, 147 Fed. Cl. at 22. Barrett, an individual
shareholder of the Enterprises, separately asserted deriv-
ative claims on behalf of the Enterprises, alleging similar
takings, illegal exaction, breach of fiduciary duty, and
breach of contract claims. See id.
The government moved to dismiss the claims in every
case before the Claims Court in a single, omnibus motion.
See id. at 22 & n.11. The Claims Court first granted-in-
part and denied-in-part the government’s motion in one
case, Fairholme Funds, Inc. v. United States. See id. at 15.
Specifically, the Claims Court dismissed the shareholders’
direct Fifth Amendment takings and illegal exaction
claims for lack of standing because it found them to be sub-
stantively derivative in nature. See, e.g., id. at 45. The
Claims Court also dismissed for lack of subject matter ju-
risdiction the shareholders’ direct claims for breach of fidu-
ciary duty, see, e.g., id. at 37, and breach of implied-in-fact
contract, see, e.g., id. at 40. The Claims Court, however,
found that Barrett had standing to bring his derivative
claims, notwithstanding HERA’s Succession Clause, under
the conflict-of-interest exception espoused in First Hart-
ford Corp. Pension Plan & Trust v. United States, 194 F.3d
1279 (Fed. Cir. 1999). See Fairholme, 147 Fed. Cl. at 49.
Case: 20-1912 Document: 95 Page: 10 Filed: 02/22/2022
10 FAIRHOLME FUNDS, INC. v. US
Having dismissed the direct takings claims in Fairholme,
the Claims Court solicited supplemental briefing from the
parties in the other cases on the applicability of its holding in
Fairholme to those cases. See, e.g., Owl Creek Asia I, 148 Fed.
Cl. at 639. Following supplemental briefing, the Claims
Court dismissed each of the other seven cases on appeal for
the reasons explained in Fairholme. See J.A. 284–90. The
shareholders appealed in all seven of those cases; we have ju-
risdiction under 28 U.S.C. § 1295(a)(3). Because some of
Barrett’s claims in the Fairholme case survived, the Claims
Court certified its opinion in that case for interlocutory appeal
and cross-appeal by the shareholders and the government, re-
spectively, so that we could consider the matters collectively.
See Fairholme, 147 Fed. Cl. at 53–54. We possess jurisdic-
tion over the certified interlocutory appeal and cross-ap-
peal under 28 U.S.C. § 1292(d). We, thus, are resolving
eight appeals in this single opinion; seven from final judg-
ments and one certified interlocutory appeal. 2
II. STANDARD OF REVIEW
We review a dismissal for lack of standing de novo. See
Rack Room Shoes v. United States, 718 F.3d 1370, 1374
2 Some appellants chose to consolidate their cases for
briefing purposes, but the actual appeals were never con-
solidated. We granted the motions of other appellants to
consolidate the appeals in Owl Creek Asia I, L.P. v. United
States, No. 20-1934, Mason Capital L.P. v. United States,
No. 20-1936, Akanthos Opportunity Fund, L.P. v. United
States, No. 20-1938, Appaloosa Investment Ltd. Partner-
ship I v. United States, No. 20-1954, and CSS, LLC v.
United States, No. 20-1955. See, e.g., Order Granting Ap-
pellants’ Unopposed Mot. to Consolidate at 4, Owl Creek
Asia I, L.P. v. United States, No. 20-1934 (Fed. Cir. July 15,
2020), ECF No. 6. As a result, the docket reflects fewer
than eight sets of briefing, but that does not alter the num-
ber of matters actually resolved.
Case: 20-1912 Document: 95 Page: 11 Filed: 02/22/2022
FAIRHOLME FUNDS, INC. v. US 11
(Fed. Cir. 2013). We also review grants or denials of mo-
tions to dismiss for lack of subject matter jurisdiction de
novo. See Northrop Grumman Computing Sys., Inc. v.
United States, 709 F.3d 1107, 1111 (Fed. Cir. 2013); see also
Maher v. United States, 314 F.3d 600, 603 (Fed. Cir. 2002).
There were times where the Claims Court predicated
its dismissals on Rule of the Court of Federal Claims
12(b)(1) for lack of standing, or otherwise for lack of subject
matter jurisdiction, but certain of the claims actually fail,
in our view, to state a claim for which relief can be granted
under Rule 12(b)(6). We find those procedural errors to be
“of no moment” where the conclusion that dismissal under
Rule 12 is otherwise warranted. See Perry II, 864 F.3d at
623–24 (citing EEOC v. St. Francis Xavier Parochial Sch.,
117 F.3d 621, 624 (D.C. Cir. 1997)); see also Wyandot Na-
tion of Kan. v. United States, 858 F.3d 1392, 1397 (Fed. Cir.
2017) (noting that we may affirm the Claims Court’s dis-
missal of an action on any grounds supported by the rec-
ord).
III. THE SHAREHOLDERS’ DIRECT CLAIMS
The shareholders in all of these appeals challenge the
Claims Court’s dismissal of their direct takings and illegal
exaction claims for lack of standing. They also challenge
the Claims Court’s dismissal of their direct breach of con-
tract claims and breach of fiduciary duty claims for lack of
jurisdiction. Cacciapalle separately disputes dismissal of
an additional takings claim that only he asserts. 3
3 The Claims Court also dismissed Fairholme’s tak-
ings claim on the alternative ground that Fairholme did
not own shares in the Enterprises at the time of the net
worth sweep. Because we dismiss Fairholme’s direct
claims on alternative grounds, we need not address the
Claims Court’s alternative holding or the parties’ argu-
ments relating to it.
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12 FAIRHOLME FUNDS, INC. v. US
The government cross-appeals in all cases, arguing
that the Claims Court lacked jurisdiction over all the
shareholders’ claims because they are not claims against
the United States. The government also argues that
HERA’s Succession Clause bars all of Barrett’s derivative
claims and that he is estopped from pursuing a derivative
breach of contract claim.
We begin with the government’s first argument on
cross-appeal because that question is determinative of the
Claims Court’s jurisdiction to consider any of the share-
holders’ claims. We then address the shareholders’ argu-
ments regarding their direct claims before turning to those
relating to their derivative claims. We address the govern-
ment’s other arguments on cross-appeal where they most
logically fit in this analytical framework.
A. The FHFA, as conservator, is the United States
The Tucker Act grants the Claims Court subject matter
jurisdiction over “any claim against the United States
founded either upon the Constitution, or any Act of Con-
gress or any regulation of an executive department, or upon
any express or implied contract with the United States.”
28 U.S.C. § 1491(a)(1). The shareholders’ challenges to the
net worth sweep may only proceed, therefore, if they are
properly pled as claims “against the United States.”
The Supreme Court previously interpreted the Succes-
sion Clause of the Financial Institutions Reform, Recovery,
and Enforcement Act (FIRREA), which contains nearly
identical language to HERA’s Succession Clause, to mean
that, when a government agency serves as a receiver for an
entity, it “steps into the shoes of the failed [institution].”
O’Melveny & Myers v. FDIC, 512 U.S. 79, 86 (1994) (inter-
nal quotation marks omitted). Relying on O’Melveny, sev-
eral circuits have interpreted HERA’s Succession Clause to
indicate that the FHFA steps into the Enterprises’ shoes
(and, thus, sheds its governmental character) when acting
as the Enterprises’ conservator. See Herron v. Fannie Mae,
Case: 20-1912 Document: 95 Page: 13 Filed: 02/22/2022
FAIRHOLME FUNDS, INC. v. US 13
861 F.3d 160, 169 (D.C. Cir. 2017); see also Meridian Invs.,
Inc. v. Fed. Home Loan Mortg. Corp., 855 F.3d 573, 579 (4th
Cir. 2017); United States ex rel. Adams v. Aurora Loan
Servs., Inc., 813 F.3d 1259, 1261 (9th Cir. 2016).
Despite these cases, the Claims Court found that the
FHFA’s adoption of the net worth sweep during its tenure
as conservator did not cause the FHFA to shed its govern-
mental character. See Fairholme, 147 Fed. Cl. at 34. The
Claims Court based its holding on the reasoning in a dis-
trict court decision: Sisti v. Federal Housing Finance
Agency, 324 F. Supp. 3d 273 (D.R.I. 2018). See Fairholme,
147 Fed. Cl. at 33–34 (citing Sisti, 324 F. Supp. 3d at 279).
In the Sisti court’s view, a receiver “step[s] into the shoes
of the entity by assuming the fiduciary duties of the entity,
but the conservator does not: it remains distinct, and ra-
ther owes a duty to the entity.” Sisti, 324 F. Supp. 3d at
283 (internal quotation marks omitted) (emphasis in origi-
nal). After the Claims Court’s decision in this case, the
First Circuit overruled Sisti. Boss v. Fed. Hous. Fin.
Agency, 998 F.3d 532 (1st Cir. 2021). The First Circuit
agreed with its sister circuits and concluded that the re-
ceiver versus conservator distinction did not support the
district court’s conclusion. It found that the FHFA was not
a government actor when, pursuant to HERA’s Succession
Clause, it exercised the Enterprises’ private contractual
right to nonjudicially foreclose on appellants’ mortgages.
Montilla v. Fed. Nat’l Mortg. Ass’n, 999 F.3d 751, 757 (1st
Cir. 2021).
After the Claims Court issued its opinion and the First
Circuit overruled Sisti, the Supreme Court issued its deci-
sion in Collins, 141 S. Ct. 1761. Collins held that, in the
context of a separation-of-powers claim, the FHFA retained
its governmental character:
[E]ven when [the FHFA] acts as conservator or re-
ceiver, its authority stems from a special statute,
not the laws that generally govern conservators
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14 FAIRHOLME FUNDS, INC. v. US
and receivers. In deciding what it must do, what it
cannot do, and the standards that govern its work,
the FHFA must interpret [HERA], and “[i]nterpret-
ing a law enacted by Congress to implement the
legislative mandate is the very essence of ‘execu-
tion’ of the law.”
Id. at 1785–86 (citing Bowsher v. Synar, 478 U.S. 714, 733
(1986)). The Supreme Court highlighted the critical differ-
ences between the FHFA’s powers under HERA and those
of most conservators and receivers:
[The FHFA] can subordinate the best interests of
the [Enterprises] to its own best interests and those
of the public. See 12 U.S.C. § 4617(b)(2)(J)(ii). Its
business decisions are protected from judicial re-
view. § 4617(f). It is empowered to issue a “regu-
lation or order” requiring stockholders, directors,
and officers to exercise certain functions.
§ 4617(b)(2)(C). It is authorized to issue subpoe-
nas. § 4617(b)(2)(I). And of course, it has the power
to put the [Enterprises] into conservatorship and
simultaneously appoint itself as conservator.
§ 4617(a)(1).
Id. For these reasons, the Court held that “the FHFA
clearly exercises executive power” when acting as a conser-
vator. Id. at 1786. 4
4 The Supreme Court distinguished O’Melveny on
grounds that it had interpreted FIRREA, and not HERA.
The Supreme Court noted that O’Melveny “held that state
law, not federal common law, governed an attribute of the
FDIC’s status as receiver for an insolvent savings bank.”
Collins, 141 S. Ct. at 1786 n.20. In contrast to the FDIC’s
status under FIRREA, however, the Supreme Court con-
cluded that “[t]he nature of the FDIC’s authority in that
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FAIRHOLME FUNDS, INC. v. US 15
The government contends that the Claims Court erred
in holding that the FHFA retained its governmental char-
acter when it agreed to the net worth sweep in its role as
conservator. According to the government, Collins’s hold-
ing is distinguishable because that case dealt with a sepa-
ration-of-powers challenge to HERA’s restriction on the
President’s power to remove the FHFA’s Director, while
these cases deal with the FHFA’s adoption of the net worth
sweep. For a separation-of-powers analysis, intones the
government, courts look to all the functions and powers ex-
ercised by the relevant official. By contrast, outside the
separation-of-powers context, courts focus on whether the
agency’s specific actions are governmental in nature or are,
instead, commercial activities typically performed by pri-
vate entities. The government contends that, in agreeing
to the net worth sweep, the FHFA exercised a non-govern-
mental power that corporate officers and directors typically
wield: the renegotiation of an existing lending agreement.
The government analogizes the FHFA to the following
non-governmental entities: (1) the Enterprises, which must
pursue public policy goals and objectives pursuant to their
charter and (2) private actors, which must interpret appli-
cable federal law to determine what they can and cannot
do and what standards govern their work.
We are not convinced. As the Collins court noted, “[i]n
deciding what it must do, what it cannot do, and the stand-
ards that govern its work, the FHFA must interpret
[HERA], and ‘[i]nterpreting a law enacted by Congress to
implement the legislative mandate is the very essence of
execution of the law.’” Id. at 1785 (citing Bowsher, 478 U.S.
at 733) (alterations in original). Here, the FHFA exercised
one of its powers under HERA—subordinating the best in-
terests of the Enterprises and its shareholders to its own
capacity sheds no light on the nature of the FHFA’s distinc-
tive authority as conservator under [HERA].” Id.Case: 20-1912 Document: 95 Page: 16 Filed: 02/22/2022
16 FAIRHOLME FUNDS, INC. v. US
best interests and those of the public, 12 U.S.C.
§ 4617(b)(2)(J)(ii)—when it adopted the net worth sweep.
See Collins, 141 S. Ct. at 1776–77, 1786. It necessarily in-
terpreted its statutory mandate when reaching the conclu-
sion that it possessed the authority to do so. We therefore
hold that the FHFA’s adoption of the net worth sweep is
attributable to the United States. 5
Contrary to the government’s proffered analogies,
moreover, the FHFA is distinguishable from the Enter-
prises and private actors. Notwithstanding the Enter-
prises’ “federal governmental objectives,” the government
does not control their operations through its appointees as
is the case with the FHFA. See Am. Bankers Mortg. Corp.
v. Fed. Home Loan Mortg. Corp., 75 F.3d 1401, 1406–07
(9th Cir. 1996). Private actors interpreting the law are also
distinguishable from the FHFA because they do not exer-
cise any Congressionally granted powers. The FHFA, for
example, published final regulations in the Federal Regis-
ter reflecting the net worth sweep’s prohibition on distribu-
tion of capital while the Enterprises were in
conservatorship. See Conservatorship and Receivership,
76 Fed. Reg. 35,724 (June 20, 2011) (codified at 12 C.F.R.
pt. 1229, 1237); see also 12 C.F.R. § 1237.12. These regu-
lations cite, inter alia, 12 U.S.C. § 4617 as their legislative
source—which details the grant of authority to the FHFA
to impose a conservatorship or receivership, see 12 U.S.C.
§ 4617(a)—as well as HERA’s Succession Clause, see 12
U.S.C. § 4617(b)(2)(A)(i). Thus, unlike private actors
5 The government expresses concern for the
“far-reaching” consequences of holding that the FHFA as
conservator (and other government agencies that serve as
conservators or receivers) is, at all times, the government.
But our holding today is not so broad. We simply hold that,
as to the net worth sweep, the FHFA was acting in an ex-
ecutive capacity.
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FAIRHOLME FUNDS, INC. v. US 17
interpreting the law, the FHFA is different because it ex-
pressly wields executive power whenever it does so.
For these reasons, the shareholders’ claims are
“against the United States” and the Claims Court properly
exercised jurisdiction. See 28 U.S.C. § 1491(a)(1). We,
thus, turn to the merits of shareholders’ claims, beginning
with their direct constitutional claims.
B. Shareholders’ direct constitutional claims
The Claims Court dismissed shareholders’ direct tak-
ings and illegal exaction claims for lack of standing, on the
grounds that those claims were substantively derivative in
nature. See Fairholme, 147 Fed. Cl. at 46 (“Because plain-
tiffs have not established that their ‘direct’ claims are sub-
stantively direct in nature, they cannot demonstrate that
they have standing to litigate those claims.”). The Claims
Court concluded that “[t]he gravamen of each claim is the
same: [t]he government, via the [net worth sweep], com-
pelled the Enterprises to overpay Treasury.” Id. Relying
on the Delaware Supreme Court’s decision in Gentile v.
Rossette, 906 A.2d 91 (Del. 2006), which held that claims
founded upon allegations of overpayment were substan-
tively derivative, the Claims Court held that “[t]he claims
remain derivative because plaintiffs’ purported harms are
merely the unavoidable result . . . of the reduction in the
value of the entire corporate entity.” Fairholme, 147 Fed.
Cl. at 47 (internal quotation marks omitted) (citations
omitted) (citing Protas v. Cavanagh, No. 6555-VCG, 2012
WL 1580969, at *6 (Del. Ch. May 4, 2012)). The Claims
Court rejected shareholders’ contentions that their claims
qualified as direct under Delaware’s then-extant dual na-
ture doctrine, also described in Gentile. 6 Id. at 45–46.
6 Delaware’s dual nature doctrine allowed a substan-
tively derivative shareholder claim to also be direct when
the following circumstances obtain: “(1) a stockholder
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18 FAIRHOLME FUNDS, INC. v. US
Shareholders jointly argue that the Claims Court erred
in finding that their direct constitutional claims are sub-
stantively derivative. Because shareholders are pursuing
constitutional takings and illegal exaction claims, federal
law dictates whether they have standing. Cf. Starr Int’l
Co. v. United States, 856 F.3d 953, 965 (Fed. Cir. 2017)
(“Because Starr presses the Equity Claims under federal
law, federal law dictates whether Starr has direct stand-
ing.”) (citations omitted). According to federal law, only
“shareholder[s] with a direct, personal interest in a cause
of action,” rather than “injuries [that] are entirely deriva-
tive of their ownership interests” in a corporation, may
bring a direct shareholder action. Franchise Tax Bd. v. Al-
can Aluminium Ltd., 493 U.S. 331, 336–37 (1990).
State law may inform federal law in the corporate law
context, however. See Starr, 865 F.3d at 966 (“There exists
a ‘presumption that state law should be incorporated into
having majority or effective control causes the corporation
to issue ‘excessive’ shares of its stock in exchange for assets
of the controlling stockholder that have a lesser value; and
(2) the exchange causes an increase in the percentage of
the outstanding shares owned by the controlling stock-
holder, and a corresponding decrease in the share percent-
age owned by the public (minority) shareholders.” Gentile,
906 A.2d at 100. During the pendency of this appeal, the
Delaware Supreme Court abolished the dual nature doc-
trine by overruling that aspect of Gentile and its progeny.
See Brookfield Asset Mgmt., Inc. v. Rosson, 261 A.3d 1251,
1267 (Del. 2021) (en banc) (concluding: (1) that the dual na-
ture doctrine is inconsistent with multiple Delaware Su-
preme Court articulations of the test for when claims are
derivative in nature and also unworkable in practice and
(2) that claims are derivative in nature whenever the
shareholders’ claims are not completely independent from
the claims of harm to the corporation).
Case: 20-1912 Document: 95 Page: 19 Filed: 02/22/2022
FAIRHOLME FUNDS, INC. v. US 19
federal common law’ unless doing so in a particular context
‘would frustrate specific objectives of the federal pro-
grams.’”) (citing Kamen v. Kemper Fin. Servs., Inc.,
500 U.S. 90, 98 (1991)). We have explained that both fed-
eral law and Delaware law distinguish direct and deriva-
tive shareholder suits based on the following two factors:
“(1) who suffered the alleged harm (the corporation or the
suing stockholders, individually); and (2) who would re-
ceive the benefit of any recovery or other remedy (the cor-
poration or the stockholders, individually).” Id. (quoting
Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d
1031, 1033 (Del. 2004) (en banc)). 7
The shareholders rely on a mix of federal and state law
principles to urge us to overturn the Claims Court’s hold-
ing. We address their joint and individual contentions in
turn.
1. The shareholders’ joint arguments
Citing the Delaware Supreme Court’s two-part test es-
poused in Tooley, shareholders argue that the Claims
Court erred by characterizing the net worth sweep as an
overpayment to Treasury that directly harmed the Enter-
prises by reducing their total assets. Shareholders assert
that they satisfy prong one of Tooley’s test because the net
worth sweep directly harmed them by depriving them of
their rights to dividends and related distributions. And,
under prong two of Tooley, shareholders aver that only a
compensatory damages award paid to them would remedy
their loss in equity as a result of the net worth sweep. As
they did before the Claims Court, shareholders alterna-
tively argue that, even if their claims are derivative, they
are also direct under Gentile’s dual nature exception
7 The parties agree that Virginia law, which governs
the claims at issue here, mirrors Delaware law on these
points.
Case: 20-1912 Document: 95 Page: 20 Filed: 02/22/2022
20 FAIRHOLME FUNDS, INC. v. US
because the net worth sweep transferred to Treasury, “a
dominant shareholder,” shareholders’ equity.
As explained above, shareholders’ arguments based on
the dual nature exception to the Tooley test are no longer
viable; there is no such exception. See supra, at 17 n.6.
That leaves shareholders’ contention that they satisfy the
two-part Tooley test. They do not.
As the Delaware Supreme Court made clear in
Brookfield Asset Management, “equity overpayment[]
claims, absent more, are exclusively derivative.” 261 A.3d
at 1267. We have said the same: “claims of corporate over-
payment are treated as causing harm solely to the corpora-
tion and, thus, are regarded as derivative.” Starr, 856 F.3d
at 967 (quoting Gentile, 906 A.2d at 99, rev’d on other
grounds, Brookfield, 261 A.3d 1251). An overpayment oc-
curs whenever the fiduciaries of a corporation cause the en-
tity to “exchange assets at a loss.” In re TerraForm Power,
Inc. S’holders Litig., No. 2019-0757-SG, 2020 WL 6375859,
at *9 (Del. Ch. Oct. 30, 2020), rev’d on other grounds,
Brookfield, 261 A.3d 1251. Here, shareholders’ direct con-
stitutional allegations describe how the net worth sweep
resulted in an overpayment: in exchange for FHFA’s con-
servatorship, both the Enterprises and shareholders were
forced to pay Treasury at a loss. Fairholme, for example,
alleged in its direct Fifth Amendment takings claim:
At the outset of conservatorship, FHFA’s Director
confirmed that both the preferred and common
shareholders of Fannie and Freddie retained an
economic interest in the [Enterprises]. As equity
shareholders, that economic interest took the form
of a claim on the [Enterprises’] equity that could be
paid out in the form of dividends or a liquidation
payment. Plaintiffs had both a property interest
and a reasonable, investment-backed expectation
in the economic interest in the [Enterprises] they
held due to their ownership of Common and
Case: 20-1912 Document: 95 Page: 21 Filed: 02/22/2022
FAIRHOLME FUNDS, INC. v. US 21
Preferred Stock. The Net Worth Sweep expropri-
ated this economic interest by assigning the right to
all of Fannie’s and Freddie’s equity to Treasury.
J.A. 461 (¶ 169) (emphasis added). Fairholme employed
this same language in its directly pled illegal exaction
claim. See J.A. 466 (¶ 195). The other appellants similarly
allege in their direct takings and illegal exaction claims
that the government expropriated their economic interest
by paying the Treasury the Enterprises’ entire net worth.
See, e.g., J.A. 526 (¶ 115); J.A. 528 (¶ 119); J.A. 790 (¶ 133);
J.A. 792 (¶ 141); J.A. 808 (¶ 13); J.A. 852 (¶ 128); J.A. 855
(¶ 144).
Because shareholders’ complaints describe a species of
corporate overpayment, they fail both prongs of Tooley’s
test. As the Delaware Supreme Court noted in the portion
of Gentile that has not since been overruled, overpayment
claims are normally regarded as derivative because:
[T]he corporation is both the party that suffers the
injury (a reduction in its assets or their value) as
well as the party to whom the remedy (a restora-
tion of the improperly reduced value) would
flow. . . . Such claims are not normally regarded as
direct, because any dilution in value of the corpora-
tion’s stock is merely the unavoidable result (from
an accounting standpoint) of the reduction in the
value of the entire corporate entity, of which each
share of equity represents an equal fraction. In the
eyes of the law, such equal ‘‘injury’’ to the shares
resulting from a corporate overpayment is not
viewed as, or equated with, harm to specific share-
holders individually.
906 A.2d at 99.
Despite this seemingly clear authority, shareholders
claim that several federal cases still require that we clas-
sify their claims as sufficiently direct for standing
Case: 20-1912 Document: 95 Page: 22 Filed: 02/22/2022
22 FAIRHOLME FUNDS, INC. v. US
purposes. They cite to our own decision in Starr, to the
Perry II decision from the D.C. Circuit, and to the Supreme
Court’s decisions in Alleghany Corp. v. Breswick & Co.,
353 U.S. 151 (1957) and Collins. 8
In Starr, we considered a claim by shareholders of
American International Group (AIG) relating to the gov-
ernment’s 2008 loan to AIG in return for, among other
things, the issuance of new equity which placed the govern-
ment in control of 79% of AIG’s shares. The AIG sharehold-
ers claimed that the government’s equity acquisition
constituted a taking of their individual shareholder value
by dramatically diluting that value. We concluded that the
injuries the shareholders alleged with respect to the acqui-
sition of AIG equity were “quintessentially ‘dependent on
an injury to the corporation’” and were, thus, “exclusively
derivative in nature.” Starr, 856 F.3d at 967 (quoting
Tooley, 845 A.2d at 1036). That holding would seem to ap-
ply equally to the shareholders’ claims here. Shareholders
8 Shareholders also rely on one sentence from a dis-
sent by Justice Felix Frankfurter in Swanson v. Traer,
354 U.S. 91 (1957). There, Justice Frankfurter said, with
no citation to other authority, that “[i]f a corporation rear-
ranges the relationship of different classes of security hold-
ers to the detriment of one class, a stockholder in the
disadvantaged class may proceed against the corporation
as a defendant to protect his own legal interest.” Swanson,
354 U.S. at 99. Putting aside the fact that musings in dis-
sents, even from well-respected jurists, create no prece-
dents, the majority only discussed whether federal
diversity jurisdiction can be asserted in shareholder deriv-
ative claims and refused to consider “whether it is a proper
case for assertion by a stockholder of that cause of ac-
tion . . . .” Smith v. Sperling, 354 U.S. 91, 94 (1957) (pub-
lishing the majority opinion under this case name and the
dissent under the Swanson case name).
Case: 20-1912 Document: 95 Page: 23 Filed: 02/22/2022
FAIRHOLME FUNDS, INC. v. US 23
claim it does just the opposite. They cite to a section of the
opinion in which we declined to equate the issuance of new
equity with “the ‘separate harm’ that results from ‘an ex-
traction from the public shareholders and a redistribution
to the controlling shareholder, of a portion of the economic
value and voting power embodied in the minority interest.’”
Id. (quoting Gentile, 906 A.2d at 100). We said that the
latter might constitute a “separate harm” that could give
rise to a direct claim. Id.The shareholders claim that, by acknowledging the
possible existence of a “separate harm” arising from the re-
distribution of existing share value, we held, in that prece-
dential decision, that allegations of such harm are
actionable as direct claims. We did no such thing. While
we acknowledged the possibility of a “separate harm”
where shares of existing stock are physically taken away,
that discussion related to our consideration of whether the
AIG shareholder claims fell into the dual nature exception
to the Tooley doctrine created by Gentile. But, as noted,
that exception no longer exists. Indeed, the portion of Starr
on which the shareholders rely cites to the portions of Gen-
tile that were expressly overruled in Brookfield. We see
nothing in Starr that compels the conclusion that share-
holders’ direct claims are anything but derivative.
Shareholders’ reliance on Perry II is similarly unhelp-
ful. Shareholders’ attempts to parallel their property
rights in the Enterprises to the “obviously direct” breach of
their contractual rights in Perry II are unpersuasive. The
fact that shareholders possess a property interest in their
shares of the Enterprises does not answer the question of
whether they are asserting direct or indirect harm to that
property right. Shareholders clearly allege a corporate
overpayment by the Enterprises which, in turn, indirectly
diluted the value of their shares. As explained above, as-
sertions of corporate overpayment are substantively deriv-
ative claims.
Case: 20-1912 Document: 95 Page: 24 Filed: 02/22/2022
24 FAIRHOLME FUNDS, INC. v. US
Shareholders’ reliance on Alleghany fares no better.
Shareholders claim that Alleghany supports their proposi-
tion that, whenever rights are shifted from one class of
shareholders to another, the disadvantaged shareholders
may assert a direct claim. But, as we explained in Starr,
Alleghany did not create a new doctrine of direct standing
which would allow shareholders to bypass the requirement
that harms to a corporation may only be challenged via de-
rivative claims. See Starr, 856 F.3d at 971. Because the
action in Alleghany was one between the shareholders and
the corporation—and not one asserting harm to the corpo-
ration, as is the case with corporate overpayment claims—
the court “had no occasion to address principles of third-
party standing or the distinction between derivative and
direct shareholder actions.” Id. at 970–71. Indeed, the Al-
leghany court made clear it was not considering claims
which would need to be asserted derivatively. See Alle-
ghany, 353 U.S. at 159–60 (“This is not a case where . . . the
injury feared is the indirect harm which may result to
every stockholder from harm to the corporation.” (internal
quotation marks omitted) (citation omitted)). The facts
here are meaningfully distinguishable from those in Alle-
ghany. We are unpersuaded that Alleghany changes the
analysis where, as here, the complaints assert claims of
corporate overpayment. We conclude that, though directly
styled, shareholders’ claims are substantively derivative
under Delaware law.
Finally, we turn to shareholders’ contention in supple-
mental briefing addressing the impact of Collins on these
appeals. Shareholders contend that Collins not only con-
firms that, when acting as conservator, the FHFA was act-
ing in its governmental capacity, it also confirms that
shareholders have standing to assert their constitutional
claims against the government. According to shareholders,
because the Collins court held that the shareholders there
had Article III standing to pursue separation-of-powers
Case: 20-1912 Document: 95 Page: 25 Filed: 02/22/2022
FAIRHOLME FUNDS, INC. v. US 25
claims, the shareholders in this appeal must also possess
standing to pursue their direct claims.
We are not persuaded by shareholders’ reading of Col-
lins. The shareholders’ complaint in Collins alleged that
HERA’s statutory restriction on the President’s power to
remove the FHFA’s Director constituted a separation-of-
powers (i.e., Appointments Clause) violation. Collins,
141 S. Ct. at 1778. As the Court explained, that claim only
required shareholders to establish Article III’s minimum
standing requirements—injury, causation, and redress.
Id. at 1779. In concluding that these threshold standing
requirements were satisfied in Collins, the Court explained
that the unique claims at issue there did not derive from
the plaintiffs’ status as shareholders. Instead, the separa-
tion-of-powers claim asserted a right “shared by everyone
in the country.” Id. at 1781.
Here, by contrast, shareholders’ claims implicate areas
of corporate law that require them to go beyond Article III’s
standing requirements and establish the right to assert de-
rivative third-party claims on behalf of the corporation. As
explained above, only “shareholder[s] with a direct, per-
sonal interest in a cause of action,” rather than “injuries
[that] are entirely derivative of their ownership interests”
in a corporation, may bring a direct shareholder action.
Franchise Tax Bd., 493 U.S. at 336–37. Collins did not
change those legal principles. As the Delaware Supreme
Court has made clear, moreover, a claim must be asserted
derivatively whenever the alleged harm to the sharehold-
ers is not “independent” of harm to the corporation.
Brookfield, 261 A.3d at 1272 (emphasis in original). Thus,
although the Claims Court dismissed shareholders’ claims
on standing grounds and we find that shareholders’ com-
plaints do not adequately state a claim upon which relief
may be granted, we find the Claims Court’s reliance on this
incorrect ground of dismissal harmless and affirm. See
Harmonia Holdings Grp., LLC v. United States, 999 F.3d
1397, 1403–04 (Fed. Cir. 2021).
Case: 20-1912 Document: 95 Page: 26 Filed: 02/22/2022
26 FAIRHOLME FUNDS, INC. v. US
2. Cacciapalle’s separate takings claim
As described below, the D.C. Circuit held in Perry II
that HERA’s Anti-Injunction Clause 9 barred shareholders’
claims for equitable relief, see Perry II, 864 F.3d at 613–14,
and that HERA’s Succession Clause barred all non-consti-
tutional shareholder derivative suits, see id. at 624. In
Count II of his complaint before the Claims Court, Caccia-
palle (a shareholder of the Enterprises) contended that
Perry II’s ruling constituted a direct taking of private prop-
erty without just compensation:
As holders of Preferred Stock, [shareholders] had
the right to protect their investment by filing cer-
tain causes of action, including derivative lawsuits
and claims seeking injunctive and declaratory re-
lief. . . . These causes of action constitute property
rights protected by the Fifth Amendment. . . . To
the extent Plaintiffs are prevented from receiving
a full remedy for the harm caused by the [net worth
sweep] by virtue of any court’s holding that certain
HERA provisions block legal actions needed to fully
remedy the harm caused by the [net worth sweep],
the application of those provisions to [Caccia-
palle’s] challenges to the [net worth sweep] consti-
tute a taking of private property without payment
of just compensation.
J.A. 853–54 (¶ 134–37).
The Claims Court dismissed Count II of Cacciapalle’s
complaint, reasoning that it impermissibly collaterally at-
tacked Perry II’s holding. See Cacciapalle, 148 Fed. Cl. at
772 (citing, inter alia, Campbell v. United States, 932 F.3d
9 HERA’s Anti-Injunction Clause reads: “no court
may take any action to restrain or affect the exercise of
powers or function of the [FHFA] as a conservator or re-
ceiver.” 12 U.S.C. § 4617(f).
Case: 20-1912 Document: 95 Page: 27 Filed: 02/22/2022
FAIRHOLME FUNDS, INC. v. US 27
1331, 1340 (Fed. Cir. 2019) for the proposition that the
Claims Court cannot entertain a constitutional claim that
requires scrutinizing the actions of another tribunal). Cac-
ciapalle appeals this decision, arguing that the Claims
Court mischaracterized his claim as a collateral attack on
Perry II, as well as a judicial taking. See Cacciapalle Suppl.
Opening Br. 16–17. According to Cacciapalle, Count II in-
stead asserts a direct takings claim under the Fifth
Amendment because it contends that, as interpreted in
Perry II, HERA is a regulatory taking of shareholders’
rights to assert derivative claims and seek injunctive relief
in connection with such claims. See id. at 18. In other
words, Cacciapalle says he agrees with Perry II’s conclu-
sion that the Succession Clause bars the assertion of deriv-
ative claims on behalf of the Enterprises. He says that
because HERA clearly does that, it operates as a taking of
his property right to assert derivative claims on behalf of
the Enterprises.
However characterized, Count II of Cacciapalle’s com-
plaint must still be dismissed. First, Perry II did not hold
that the Succession Clause is broad enough to bar deriva-
tive constitutional claims. See Perry II, 864 F.3d at 614
(“[HERA] does not prevent either constitutional claims
(none are raised here) or judicial review through cognizable
actions for damages like breach of contract.”). Thus, to the
extent Cacciapalle purports to sweep his constitutional de-
rivative claims into Count II, by his own reasoning he has
failed to assert a claim upon which relief may be granted.
Second, even assuming that the right to assert non-consti-
tutional derivative claims is a property right for Fifth
Amendment purposes, the corporation on whose behalf a
shareholder wishes to bring such a claim must itself pos-
sess an underlying cause of action that it could plausibly
assert. While Count II is silent regarding the nature of the
claim Cacciapalle would assert on behalf of the Enterprises
if he could, the only one identified in his complaint or any
of his briefing is a claim that the FHFA breached its
Case: 20-1912 Document: 95 Page: 28 Filed: 02/22/2022
28 FAIRHOLME FUNDS, INC. v. US
fiduciary duties to the Enterprises when it implemented
the net worth sweep. The problem for Cacciapalle is that
Perry II, the very case he says he “do[es] not challenge” and
is both “correct and final,” Cacciapalle Suppl. Opening Br.
18, concluded that the FHFA owed no fiduciary duties to
the Enterprises, as conservator or otherwise, Perry II, 864
F.3d at 625. As we explained above, moreover, the Su-
preme Court has since confirmed that the FHFA was au-
thorized to adopt the net worth sweep without regard to
the interests of the Enterprises or its shareholders. See
Collins, 141 S. Ct. at 1777. Thus, even if the Claims Court
was wrong to characterize Count II of Cacciapalle’s com-
plaint as a collateral attack on the reasoning in Perry II, it
was correct to dismiss that claim. There is simply no claim
embedded in that count upon which relief may be granted.
C. Shareholders’ direct non-constitutional claims
1. Breach of implied-in-fact contract
Shareholders again proffer both joint and individual
arguments on appeal as to why we should overturn the
Claims Court’s dismissal of their direct breach of contract
claims. We address each in turn.
a. Joint arguments regarding the contract claims
Under the Tucker Act, the Claims Court has jurisdic-
tion “to render judgment upon any claim against the
United States founded . . . upon any express or implied
contract with the United States.” 28 U.S.C. § 1491(a)(1).
The Claims Court dismissed shareholders’ direct breach of
implied-in-fact contract claims, holding that it lacked sub-
ject matter jurisdiction under the Tucker Act. See, e.g.,
Fairholme, 147 Fed. Cl. at 41. The Claims Court explained
that, even if an implied-in-fact contract existed between
the FHFA and the Enterprises where—despite its statu-
tory authority not to do so—the FHFA chose to agree to
operate the Enterprises for the shareholders’ benefit, the
shareholders failed to sufficiently allege their status as
Case: 20-1912 Document: 95 Page: 29 Filed: 02/22/2022
FAIRHOLME FUNDS, INC. v. US 29
third-party beneficiaries of that alleged contract. Id. at 42.
On appeal, the shareholders contend that the Claims Court
erred in this finding and urge us to reinstate this directly
pled claim. We decline to do so.
An implied-in-fact contract is one “founded upon a
meeting of the minds, which, although not embodied in an
express contract, is inferred, as a fact, from conduct of the
parties showing, in the light of the surrounding circum-
stances, their tacit understanding.” City of Cincinnati v.
United States, 153 F.3d 1375, 1377 (Fed. Cir. 1998) (quot-
ing Balt. & Ohio R.R. Co. v. United States, 261 U.S. 592,
597 (1923)). Like an express contract, an implied-in-fact
contract requires: (1) mutuality of intent to contract;
(2) consideration; and (3) unambiguous offer and ac-
ceptance. City of El Centro v. United States, 922 F.2d 816,
820 (Fed. Cir. 1990). When the government is a party, an
implied-in-fact contract also requires that (4) the govern-
ment representative whose conduct is relied upon must
have actual authority to bind the government in contract.
Id.As a general rule, for purposes of Tucker Act jurisdic-
tion, the government consents to be sued only by those with
whom it has privity of contract. Fid. & Guar. Ins. Under-
writers, Inc. v. United States, 805 F.3d 1082, 1087 (Fed. Cir.
2015). There are exceptions to this general rule, including
that intended third-party beneficiaries may bring suits
against the government. First Hartford, 194 F.3d at 1289.
“Third party beneficiary status is an ‘exceptional privi-
lege.’” Glass v. United States, 258 F.3d 1349, 1354
(Fed. Cir. 2001) (quoting German All. Ins. Co. v. Home Wa-
ter Supply Co., 226 U.S. 220, 230 (1912)). The require-
ments for establishing such status are “stringent.”
Anderson v. United States, 344 F.3d 1343, 1352 (Fed. Cir.
2003). “[S]hareholders seeking status to sue as third-party
beneficiaries of an allegedly breached contract must
‘demonstrate that the contract not only reflects the express
or implied intention to benefit the party, but that it reflects
Case: 20-1912 Document: 95 Page: 30 Filed: 02/22/2022
30 FAIRHOLME FUNDS, INC. v. US
an intention to benefit the party directly.’” Castle v. United
States, 301 F.3d 1328, 1338 (Fed. Cir. 2002) (quoting Glass,
258 F.3d at 1354). Specifically, “the contract must express
the intent of the [promisor] to benefit the shareholder per-
sonally, independently of his or her status as shareholder.”
Glass, 258 F.3d at 1353–54. One way to ascertain the pres-
ence of that intent is to determine “whether the beneficiary
would be reasonable in relying on the promise as manifest-
ing an intention to confer a right” on her. Montana v.
United States, 124 F.3d 1269, 1273 (Fed. Cir. 1997) (citing
Restatement (Second) of Contracts § 302(1)(b) & cmt. d (Am.
L. Inst. 1981)).
Here, even assuming shareholders have sufficiently al-
leged the requisite facts to establish an implied-in-fact con-
tract with the Enterprises, their complaints still do not
establish third-party beneficiary status. As the complaints
state, the FHFA and the Enterprises did not enter into the
implied-in-fact contract to benefit shareholders; they, in-
stead, entered the conservatorship to “‘preserve and con-
serve the [Enterprises’] assets and property’ and restore
the [Enterprises] to a ‘sound and solvent condition.’” J.A.
478 (¶ 260); J.A. 530 (¶ 132); J.A. 796 (¶ 163). Although
shareholders may indirectly benefit from the terms of the
alleged implied-in-fact contract, that alone is not enough to
establish third-party beneficiary status. See FDIC v.
United States, 342 F.3d 1313, 1320 (Fed. Cir. 2003) (hold-
ing that indirect benefits resulting solely from being a
shareholder, without more, are insufficient to establish
third-party beneficiary status). As we explained supra,
moreover, in Collins, at the time of the alleged contract,
HERA expressly authorized the FHFA, as conservator, to
act in ways which were not designed to benefit either the
Enterprises or its shareholders. See supra, at 15–16. We
therefore affirm the Claims Court’s decision to dismiss
shareholders’ direct breach of contract claims. Again, alt-
hough the Claims Court dismissed on jurisdictional
grounds and we find that the complaints do not state a
Case: 20-1912 Document: 95 Page: 31 Filed: 02/22/2022
FAIRHOLME FUNDS, INC. v. US 31
claim upon which relief may be granted, we find this alter-
native ground for dismissal harmless. See Harmonia Hold-
ings Grp., 999 F.3d at 1403–04.
b. Cacciapalle contract claim
Cacciapalle’s breach of contract claim alleges that his
stock certificates established a contract between share-
holders and the Enterprises guaranteeing him certain
rights to dividends, liquidation preferences, and voting
rights, and contained an implied covenant of good faith and
fair dealing. See J.A. 855–57. Once the FHFA assumed its
role as conservator, Cacciapalle contends that these con-
tracts became contracts between shareholders and the
United States. Id. Before the Claims Court, Cacciapalle
argued that the FHFA breached these contracts by execut-
ing the net worth sweep. See Cacciapalle, 148 Fed. Cl. at
779.
The Claims Court held that Cacciapalle lacked stand-
ing to pursue these allegations because he failed to estab-
lish that he was in contractual privity with the United
States. Id. The Claims Court declined Cacciapalle’s invi-
tation to find that First Hartford established any applica-
ble exception to the general requirement that, to pursue a
claim for breach of contract against the United States, a
party must first establish that it is in privity with the
United States. Id. Noting that the unifying principle be-
hind the privity exceptions on which Cacciapalle relied re-
quires “the party standing outside of privity by contractual
obligation [to] stand[] in the shoes of a party within priv-
ity,” the Claims Court found that Cacciapalle had cited no
legal authority to support his assertion that the FHFA, as
conservator, stood in the shoes of the Enterprises. Id. at
780 (citing First Hartford, 194 F.3d at 1289).
Cacciapalle contends on appeal that the Claims Court
misunderstood the basis of his argument. Rather than
analogize the facts of his complaint to those in First Hart-
ford to assert that the FHFA as conservator stepped into
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32 FAIRHOLME FUNDS, INC. v. US
the Enterprises’ shoes, Cacciapalle now insists that he re-
lies on HERA’s Succession Clause for this proposition. Be-
cause HERA states that the FHFA “shall, as conservator
or receiver, and by operation of law, immediately succeed
to . . . all rights, titles, powers, and privileges of [the Enter-
prises],” Cacciapalle argues that the conservatorship
caused the FHFA to succeed to the Enterprises’ contractual
obligations. Cacciapalle Suppl. Opening Br. 26–27. And,
because the FHFA “retains [its] government character” as
conservator, Cacciapalle argues that he has established
privity of contract with the United States. Id. at 28.
Though creative, we disagree that Cacciapalle may
pursue his contract claim. HERA establishes that the
FHFA may act in a governmental capacity:
“the [FHFA] . . . shall be an independent agency of the
Federal Government.” 12 U.S.C. § 4511(a). As discussed
above, Collins made clear that the FHFA retains its gov-
ernmental character whenever it interprets federal law to
undertake an action (such as interpreting HERA’s Best In-
terests clause when adopting the net worth sweep). See
supra, at 15–16 (citing Collins, 141 S. Ct. at 1776–77,
1785–86). But, in cases involving hybrid entities exercising
traditional governmental functions and private commer-
cial ones, the Supreme Court has also held that “suits
based on a public corporation’s commercial activity may
proceed as they would against a private company.”
Thacker v. Tenn. Valley Auth., 139 S. Ct. 1435, 1439, 1443
(2019) (emphasis in original); see also Montilla, 999 F.3d at
757 (holding that the FHFA as conservator did not act in
any governmental capacity when it succeeded to the Enter-
prises’ private contractual rights and nonjudicially fore-
closed on certain properties).
In succeeding to the Enterprises’ private contractual
agreement with Cacciapalle, we conclude the FHFA does
not retain its governmental character. Unlike the FHFA’s
adoption of the net worth sweep—which, as discussed
above, necessarily required the FHFA to exercise its
Case: 20-1912 Document: 95 Page: 33 Filed: 02/22/2022
FAIRHOLME FUNDS, INC. v. US 33
statutory power to subordinate the Enterprises’ and share-
holders’ best interests to its own, see supra, at 15–16—suc-
ceeding to the preexisting contracts between the
Enterprises and Cacciapalle does not implicate any such
governmental activity. To be sure, Cacciapalle’s complaint
makes clear that the FHFA’s succession to the Enterprises’
obligations only involves interpreting contractual terms,
not federal law. See J.A. 856 (¶ 153) (“FHFA assumed the
responsibility to act consistently with the [Enterprises’]
contractual obligations when it became the [Enterprises’]
conservator.”). Because Cacciapalle’s breach of contract
claim fails to implicate any governmental activity on the
FHFA’s part, the requisite privity of contract with the
United States is absent. See Erickson Air Crane Co. of
Wash. v. United States, 731 F.2d 810, 813 (Fed. Cir. 1984)
(holding that the “government consents to be sued only by
those with whom it has privity of contract”). We, thus, af-
firm the Claims Court’s decision to dismiss these claims on
standing (privity) grounds. To the extent Cacciapalle has
a contract claim, it cannot be asserted against the United
States.
2. Breach of fiduciary duty
The Tucker Act also provides the Claims Court with
subject matter jurisdiction over claims “against the United
States founded . . . upon . . . liquidated or unliquidated
damages in cases not sounding in tort.” 28 U.S.C.
§ 1491(a)(1). Although a claim for breach of fiduciary duty
is normally classified as a tort, see Newby v. United States,
57 Fed. Cl. 382, 294 (2003), the Claims Court has jurisdic-
tion over claims alleging the breach of a fiduciary duty that
the government “specifically accepts by statute or regula-
tion.” Hopi Tribe v. United States, 782 F.3d 662, 667
(Fed. Cir. 2015). The Claims Court also has jurisdiction
over a plaintiff’s breach of fiduciary duty claim “grounded
in a contractually based obligation” to the plaintiff. Cleve-
land Chair Co. v. United States, 557 F.2d 244, 246 (Ct. Cl.
1977).
Case: 20-1912 Document: 95 Page: 34 Filed: 02/22/2022
34 FAIRHOLME FUNDS, INC. v. US
The Claims Court held that it lacked subject matter ju-
risdiction under the Tucker Act to hear shareholders’ di-
rectly pled fiduciary duty claims because they sounded in
tort. The Claims Court first reasoned that HERA was not
a statutory source for any fiduciary duties of the FHFA to
shareholders because it provides that, as conservator, the
FHFA was only required to act in the interests of itself or
the Enterprises. Fairholme, 147 Fed. Cl. at 38 (citing
12 U.S.C. § 4617(b)(2)(J)). The court explained that
12 U.S.C. § 4617(b)(2)(J) “reflects a clear intent:
the FHFA [as conservator] does not owe a fiduciary duty to
shareholders because the conservator is not required to
consider shareholders’ interests.” Id. Similarly, although
Congress directed the Treasury Secretary to consider, e.g.,
the need to maintain the Enterprises as privately owned
companies before purchasing securities under HERA, the
court declined to find a fiduciary relationship between
Treasury and the shareholders “based on any incidental
benefit shareholders may derive” from the consideration of
that need. Id. at 39.
The Claims Court also reasoned that the PSPAs did not
confer a fiduciary duty on Treasury—as the controlling
shareholder—to the other shareholders. The Claims Court
noted that shareholders’ allegations are “not founded on a
contract within the meaning of the Tucker Act” but prem-
ised on “the application of state-law principles.” Id. The
court further noted that the shareholders failed to explain
why it should or could draw on state-law tort principles
here. Id.Shareholders appeal the Claims Court’s holding. First,
they argue that the FHFA has fiduciary duties to share-
holders because, under HERA, the FHFA is a conservator
that “obtains total control of an entity, with a view to pre-
serving and conserving its assets, making it sound and sol-
vent, and carrying on its business.” Appellants’ Joint
Opening Br. 73 (citing 12 U.S.C. § 4617(b)(2)(A), (B), (D)).
Shareholders analogize HERA to FIRREA and cite to other
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FAIRHOLME FUNDS, INC. v. US 35
cases where courts have recognized that the FDIC owes fi-
duciary duties to the creditors and shareholders of the
banks for whom it is a receiver. Shareholders contend that
the provision in HERA permitting the FHFA to take any
action that is in the best interest of the Enterprises or the
agency is an additional requirement that is “entirely con-
sistent with recognizing that [the agency] has a fiduciary
duty to shareholders.” Id. at 75–76. Second, shareholders
argue that, because the PSPAs made Treasury a control-
ling shareholder of the Enterprises, the Treasury owes fi-
duciary duties to the remaining shareholders, even if the
FHFA as conservator does not. They contend that the
Tucker Act’s jurisdictional grant is broad and that the al-
legedly breached fiduciary duty need not be stated in the
terms of the contract but can arise from contract terms as
a matter of law. They also contend that the court should
have looked to state-law principles to inform the terms of
the contract arising from the PSPAs.
We do not find shareholders’ arguments that HERA
provides a source of fiduciary duty availing. The Supreme
Court’s analysis of HERA in Collins is highly instructive.
Notably, the Supreme Court held that, because HERA au-
thorizes the FHFA to act in the best interests of the Enter-
prises or itself, the agency “may aim to rehabilitate the
[Enterprises] in a way that, while not in the best interests
of the [Enterprises], is beneficial to the [FHFA] and, by ex-
tension, the public it serves.” Collins, 141 S. Ct. at 1776;
see 12 U.S.C. § 4617(b)(2)(J)(ii). The Court added that the
FHFA lawfully adopted the net worth sweep, “[w]hether or
not this new arrangement was in the best interests of the
companies or their shareholders.” Collins, 141 S. Ct. at
1777 (emphasis added). Because the FHFA could adopt the
net worth sweep without regard for the interests of the
shareholders, we hold that the agency owed no fiduciary
duties to the shareholders under HERA.
We disagree with the shareholders that 12 U.S.C.
§ 4617(b)(2)(A), (B), and (D) gave rise to fiduciary duties
Case: 20-1912 Document: 95 Page: 36 Filed: 02/22/2022
36 FAIRHOLME FUNDS, INC. v. US
owed by the FHFA to shareholders. Those provisions—
which outline the FHFA’s powers and duties as conservator
and empower the FHFA to preserve and conserve the as-
sets and property of the Enterprises or to carry on the busi-
ness of the Enterprises—are permissive, not mandatory:
“[t]he [FHFA] may, as conservator, take such action as may
be . . . appropriate to carry on the business of the [Enter-
prises] and preserve and conserve the assets and property
of the [Enterprises].” 12 U.S.C. § 4617(b)(2)(D)(ii) (empha-
sis added). This precatory language cannot fairly be said
to establish a fiduciary duty owed to shareholders. As the
D.C. Circuit concluded in Perry II, “the most natural read-
ing of [HERA] is that it permits FHFA, but does not compel
it in any judicially enforceable sense, to preserve and con-
serve [the Enterprises’] assets and to return the [Enter-
prises] to private operation.” 864 F.3d at 607. We are also
not persuaded by case law recognizing fiduciary duties in
the context of the FDIC when acting as receiver under
FIRREA. The Supreme Court’s analysis in Collins is more
persuasive authority because it both dealt with HERA and
considered the FHFA’s rights and obligations as conserva-
tor. And the Court’s conclusion that 12 U.S.C.
§ 4617(b)(2)(J) permits the FHFA to act without regard to
the best interests of the shareholders refutes the share-
holders’ argument that the provision is an additional re-
quirement consistent with the creation of a fiduciary duty
to shareholders; it, in fact, negates such a duty. See Col-
lins, 141 S. Ct. at 1777; see also Perry II, 864 F.3d at 608
(distinguishing HERA from FIRREA because FIRREA per-
mits the FDIC to consider the interests of depositors while
HERA refers only to the best interests of the Enterprises
and the FHFA).
We are also unpersuaded by shareholders’ contentions
that the PSPAs imposed on the Treasury a fiduciary duty
to the shareholders. Instead, we agree with the D.C. Cir-
cuit’s analysis and reasoning in Perry II. There, the court
considered whether the Administrative Procedure Act
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FAIRHOLME FUNDS, INC. v. US 37
(APA) waived sovereign immunity for the plaintiffs’ claims
that the Treasury, as a controlling shareholder of the En-
terprises, violated its fiduciary duties to the shareholders
by executing the net worth sweep. 10 Perry II, 864 F.3d at
617. The D.C. Circuit found that subject matter jurisdic-
tion over the plaintiffs’ claims was proper because they
were not founded upon a contract. Id. at 619–21 (“These
claims against Treasury . . . do not seek to enforce any duty
imposed upon Treasury by the [PSPAs].”). The court spe-
cifically rejected the view that “any case requiring some ref-
erence to . . . a contract is necessarily . . . on the contract
and therefore directly within the Tucker Act.” Id. (quoting
Megapulse, Inc. v. Lewis, 672 F.2d 959, 967–68 (D.C. Cir.
1982)).
The D.C. Circuit’s reasoning in Perry II is helpful here;
the shareholders’ direct breach of fiduciary duty claims are
substantively similar to the claims in Perry II. Here, the
shareholders contend that the Treasury, as a controlling
shareholder of the Enterprises, breached its fiduciary du-
ties to the shareholders by entering into the net worth
sweep. E.g., J.A. 528–29 (¶¶ 125–26). They invoke the
PSPAs only to establish that the Treasury owns warrants
to 79.9% of the Enterprises’ common stock and therefore is
a controlling shareholder. This reference to the impact of
the PSPAs does not change the fact that their breach of fi-
duciary duty claims are founded on state common-law ob-
ligations that a controlling shareholder generally owes to
minority shareholders, not the PSPAs. The Claims Court
correctly recognized that shareholders failed to allege a
breach of fiduciary duty claim against Treasury founded on
10 The APA’s waiver provision does not apply “if any
other statute that grants consent to suit,” including the
Tucker Act, “expressly or impliedly forbids the relief which
is sought.” Perry II, 864 F.3d at 617 (quoting 5 U.S.C.
§ 702).
Case: 20-1912 Document: 95 Page: 38 Filed: 02/22/2022
38 FAIRHOLME FUNDS, INC. v. US
a contract. 11 We hold that the Claims Court correctly dis-
missed all the shareholders’ direct fiduciary duty claims for
lack of subject matter jurisdiction.
IV. BARRETT’S DERIVATIVE CLAIMS
A. The derivative non-constitutional claims
As mentioned above, shareholders of the Enterprises
challenged the net worth sweep in various other fora. One
such challenge involved a class action against the FHFA
and Treasury over the net worth sweep in the United
States District Court for the District of Columbia. See
Perry I, 70 F. Supp. 3d 208. Relevant here, class plaintiffs
derivatively pled that the FHFA had breached its fiduciary
duties to the Enterprises. Id. at 218. The district court
dismissed class plaintiffs’ derivative claims, reasoning that
HERA’s Succession Clause unambiguously bars share-
holder derivative suits because it transferred all the share-
holders’ rights, including their rights to assert claims on
behalf of the Enterprises, to the FHFA. Id. at 229–30 (cit-
ing 12 U.S.C. § 4617(b)(2)(A)(i)). The district court
11 We see no inconsistency between the Claims
Court’s treatment of state-law principles here and its anal-
ysis of state-law principles to determine whether the share-
holders’ direct takings and illegal exaction claims are
substantively derivative. As to the breach of fiduciary duty
claims, the Claims Court addressed an issue of subject mat-
ter jurisdiction—whether the claims were founded on a
contract with the United States or were for liquidated or
unliquidated damages in cases not sounding in tort. By
contrast, as to the takings and illegal exaction claims, the
Claims Court addressed the distinct issue of third-party
standing. For those claims, there was no dispute that the
Claims Court had subject matter jurisdiction; the claims
were founded upon the Constitution. References to state
law there were to inform the third-party standing inquiry.
Case: 20-1912 Document: 95 Page: 39 Filed: 02/22/2022
FAIRHOLME FUNDS, INC. v. US 39
declined class plaintiffs’ invitation to read a conflict-of-in-
terest exception into HERA’s Succession Clause. See id. at
230 (citing Kellmer v. Raines, 674 F.3d 848, 850 (D.C. Cir.
2012)).
Class plaintiffs appealed, inter alia, this portion of the
district court’s ruling in Perry I. See Perry II, 864 F.3d 591.
The Perry II court affirmed, holding that, without excep-
tion, HERA’s Succession Clause barred non-constitutional
derivative shareholder suits. See id. at 623–25. The D.C.
Circuit disagreed with class plaintiffs that the Succession
Clause contained an implicit conflict-of-interest exception,
reasoning that “it makes little sense to base an exception
to the rule against derivative suits in the Succession
Clause on the purpose of the derivative suit mechanism,
rather than the plain statutory text to the contrary.” Id. at
625 (internal quotation marks and citation omitted). In do-
ing so, it acknowledged, but refused to follow, our conclu-
sion in First Hartford that an identical succession clause in
FIRREA was subject to a conflict-of-interest exception. Id.
Before the Claims Court, the government argued that
Barrett was collaterally estopped from pursuing his deriv-
ative claims because Perry I and II dealt with the same is-
sue before the Claims Court: whether the class of
shareholders had standing to pursue non-constitutional de-
rivative claims. See Fairholme, 147 Fed. Cl. at 47. The
Claims Court disagreed, noting that, because shareholders
in Perry I and II could not assert derivative claims due to
HERA’s Succession Clause, they did not adequately repre-
sent Barrett’s interests in this case. Id. at 48.
In its cross-appeal, the government contends that the
Claims Court erroneously ignored the fact that the Perry
line of cases resolved a threshold question that extends to
any plaintiff who tries to bring a derivative suit on the En-
terprises’ behalf. Gov’t Resp. Br. 76–78. Barrett responds
by arguing that, because Perry II held that HERA’s Succes-
sion Clause barred derivative shareholder suits, the
Case: 20-1912 Document: 95 Page: 40 Filed: 02/22/2022
40 FAIRHOLME FUNDS, INC. v. US
decision was tantamount to dismissing the class plaintiffs’
suit “on the ground that the shareholders who sued lacked
the legal capacity to represent the [Enterprises].” Appel-
lants’ Joint Reply Br. 92 (citing Fairholme, 147 Fed. Cl. at
47–48). This incapacity to represent the Enterprises, Bar-
rett reasons, leads to the conclusion that Barrett is not col-
laterally estopped because his interests were not
adequately represented in Perry II. Appellants’ Joint Re-
ply Br. 92; see also Appellants’ Joint Reply Br. 94 (“When a
putative shareholder derivative suit is dismissed on the
theory that the plaintiff is legally prohibited from repre-
senting the corporation in litigation, the judgment cannot
bind the corporation or its other shareholders.”). Barrett
also contends that the issues are not identical: Perry II only
involved derivatively pled breach of fiduciary duty claims,
whereas here, Barrett pled both a breach of fiduciary duty
and breach of contract claim, as well as derivative consti-
tutional claims. Appellants’ Joint Reply Br. 95–96. Share-
holders also jointly argue that, because the Supreme Court
in Collins found standing for plaintiffs asserting constitu-
tional rights notwithstanding HERA’s Succession Clause,
we should find standing here. See Fairholme Suppl. Br. on
Collins 13–14.
We agree with the government that Barrett is collater-
ally estopped from re-litigating whether HERA’s Succes-
sion Clause bars his non-constitutional derivative claims.
Issue preclusion bars successive litigation when the follow-
ing elements are met: (1) “[t]he issue previously decided is
identical with the one presented in the action in question”;
(2) “[t]he prior action has been finally adjudicated on the
merits”; (3) “[t]he party against whom the doctrine is in-
voked was a party, or in privity with a party, to the prior
adjudication”; and (4) “[t]he party against whom the doc-
trine is raised had a full and fair opportunity to litigate the
issue in the prior action.” Jones v. United States, 846 F.3d
1343, 1361 (Fed. Cir. 2017).
Case: 20-1912 Document: 95 Page: 41 Filed: 02/22/2022
FAIRHOLME FUNDS, INC. v. US 41
We first disagree with both the shareholders and the
Claims Court that, because Perry II concluded that HERA
bars shareholders from bringing derivative claims, the
class plaintiffs there did not adequately represent the in-
terests of all shareholders. The Supreme Court in Taylor
v. Sturgell, 553 U.S. 880 (2008) held that “[a] party’s rep-
resentation of a nonparty is adequate for preclusion pur-
poses only if, at a minimum: (1) [t]he interests of the
nonparty and her representative are aligned . . . and (2) ei-
ther the party understood herself to be acting in a repre-
sentative capacity or the original court took care to protect
the interests of the nonparty.” Id. at 900 (internal quota-
tion marks and citations omitted).
Here, the Perry II court affirmatively answered the
question of whether HERA’s Succession Clause bars all
non-constitutional derivative shareholder suits. On this is-
sue, the interests of the Perry II class plaintiffs and Barrett
are “aligned.” See id. The class plaintiffs and Barrett both
sought to bring derivative state law claims on the Enter-
prises’ behalf to challenge the net worth sweep. And they
both advocated for an interpretation of the Succession
Clause that recognizes a conflict-of-interest exception. See,
e.g., Perry II, 864 F.3d at 625; Fairholme, 147 Fed. Cl. at
49.
In litigating the applicability of HERA’s Succession
Clause to derivative claims, the class plaintiffs in Perry I
and II also understood themselves to be “acting in a repre-
sentative capacity.” As the court in Perry I noted, “[t]he
purported class plaintiffs consist of private individual and
institutional investors who own either preferred or com-
mon stock in the [Enterprises].” Perry I, 70 F. Supp. 3d at
214. Because shareholders’ complaints note that Barrett
“has continuously owned shares of [the Enterprises] since
September 2008,” we find that Barrett falls under the class
described in the Perry cases. J.A. 398 (¶ 31). And the pure
legal question of whether HERA’s Succession Clause bars
all non-constitutional derivative shareholder claims is not
Case: 20-1912 Document: 95 Page: 42 Filed: 02/22/2022
42 FAIRHOLME FUNDS, INC. v. US
applicable only to certain shareholders. It, instead, applies
to any shareholder attempting to bring a derivative claim
on the Enterprises’ behalf. Indeed, while the particular
named shareholders pursuing derivative lawsuits that
challenge the net worth sweep may change from case to
case, HERA’s statutory text does not. Barrett was, thus,
adequately represented by the class plaintiffs in Perry I
and II. The fact that the plaintiffs in Perry I and Perry II
failed to convince the D.C. courts that their non-constitu-
tional claims were not barred by the Succession Clause
does not mean they failed to represent Barrett’s interests
on that point. See In re Sonus Networks, Inc, S’holder De-
rivative Litig., 499 F.3d 47, 64 (1st Cir. 2007).
We are also unconvinced by shareholders’ contentions
that collateral estoppel does not apply here because Bar-
rett’s derivative non-constitutional claims do not perfectly
coincide with the derivative breach of fiduciary duty claims
at issue in Perry II. 12 The Supreme Court has held that
collateral estoppel applies, “even if the issue recurs in the
context of a different claim.” Taylor, 553 U.S. at 892. Here,
regardless of what the derivative non-constitutional claims
entail, the issue subject to collateral estoppel remains
whether HERA bars those claims vis à vis its Succession
Clause. Because the class plaintiffs in Perry II, who ade-
quately represented Barrett’s interests, already litigated
this question, we find that issue preclusion principles mil-
itate in favor of collaterally estopping Barrett from re-liti-
gating it. The four issue-preclusion elements outlined in
Jones are met. The Claims Court, therefore, erred by not
finding collateral estoppel applicable here.
12 To the extent shareholders contend that issue pre-
clusion does not apply to their derivative constitutional
claims, we agree. As detailed in the next section, however,
we hold that shareholders’ derivative constitutional claims
fail for independent reasons.
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FAIRHOLME FUNDS, INC. v. US 43
Shareholders’ joint arguments based on Collins do not
require a different result. As discussed above, in response
to a separation-of-powers challenge to HERA’s restrictions
on the President’s ability to remove the FHFA Director, the
Supreme Court found that the shareholders had standing
to litigate those claims, despite HERA’s Succession Clause,
because “the right asserted . . . is a right shared by every-
one in this country.” Collins, 141 S. Ct. at 1781. That is
not the case here, where Barrett is attempting to deriva-
tively sue on behalf of the Enterprises’ rights to assert its
interests in its net worth.
B. Barrett’s constitutional derivative claims
We finally turn to Barrett’s constitutional derivative
claims. Because the Perry II court never decided any con-
stitutional claims and expressly pointed out that it had no
occasion to do so, we decline to dismiss these claims on the
ground that Barrett is collaterally estopped from asserting
them. See Perry II, 864 F.3d at 606 n.7. That leaves us to
decide whether Barrett’s claims are barred by the Succes-
sion Clause or are subject to dismissal on other grounds.
The Claims Court held that Barrett had standing to
pursue his constitutional claims, despite the Succession
Clause. See Fairholme, 147 Fed. Cl. at 47. To arrive at
that conclusion, the Claims Court relied on our precedent
in First Hartford. Id. at 49. Reasoning that a conflict of
interest would arise if the FHFA were to decide whether to
sue itself over the net worth sweep in a direct suit, the
Claims Court applied the conflict-of-interest exception that
our court established in First Hartford to conclude that
HERA’s Succession Clause did not deprive Barrett of
standing to bring his constitutional derivative claims. See
id. at 49–51.
The government cross-appeals the Claims Court’s reli-
ance on First Hartford and argues that Barrett lacks stand-
ing to assert his derivative claims. Among other things,
the government argues that First Hartford must be limited
Case: 20-1912 Document: 95 Page: 44 Filed: 02/22/2022
44 FAIRHOLME FUNDS, INC. v. US
to the specific FIRREA context in which it arose. It con-
tends that HERA’s statutory construct makes clear that its
Succession Clause “admits of no exceptions.” Gov’t Resp.
Br. 79. Because we conclude that, as a matter of law, Bar-
rett failed to state a claim upon which relief may be granted
in either his takings or illegal exaction derivative claims,
we reverse the Claims Court on those issues, without the
need to address First Hartford. 13
1. Barrett’s takings claims
The Fifth Amendment provides that the United States
may not take private property for public use without just
compensation. See U.S. Const. amend. V. To adequately
plead a takings claim, claimants must identify an author-
ized government action that deprived them of their prop-
erty interest. Short v. United States, 50 F.3d 994, 1000
(Fed. Cir. 1995). Government action may result in a com-
pensable taking if it either involves the physical invasion
of property or an extensive restriction on the use of prop-
erty. See Loretto v. Teleprompter Manhattan CATV Corp.,
458 U.S. 419, 430 (1982). Relevant to this appeal, regula-
tory action constitutes a per se taking when it “completely
deprive[s] an owner of ‘all economically beneficial us[e]’ of
13 We note, however, that both the Collins court and
the Perry II court concluded that the FDIC’s authority as
receiver under FIRREA is very different from the FHFA’s
authority as conservator under HERA. See Collins,
141 S. Ct. at 1785 (“[A]s we have already men-
tioned, . . . the FHFA’s powers under [HERA] differ criti-
cally from those of most conservators and receivers.”); see
also Perry II, 864 F.3d at 608 (“Notably, while FIRREA ex-
plicitly permits FDIC to factor the best interests of deposi-
tors into its conservatorship judgments, [HERA] refers
only to the best interests of FHFA and the [Enterprises]—
and not those of the [Enterprises’] shareholders or credi-
tors.”).
Case: 20-1912 Document: 95 Page: 45 Filed: 02/22/2022
FAIRHOLME FUNDS, INC. v. US 45
her property.” Lingle v. Chevron U.S.A. Inc., 544 U.S. 528,
538 (2005) (quoting Lucas v. S.C. Coastal Council, 505 U.S.
1003, 1019 (1992)). The Supreme Court has explained that
whether a government action constitutes a taking involves
an ad hoc inquiry where several factors are relevant:
(1) the economic impact of the regulation; (2) the extent to
which the regulation interferes with investment-backed
expectations; and (3) the character of the governmental ac-
tion. Penn Cent. Transp. Co. v. City of New York, 438 U.S.
104, 124 (1978).
Here, Barrett’s derivative takings claims allege that
the net worth sweep constituted a regulatory taking be-
cause it deprived the Enterprises of “all economically ben-
eficial uses” of their net worth. J.A. 464 (¶ 181); J.A. 465
(¶ 190). As a matter of law, Barrett fails to state a claim
upon which relief may be granted. Supreme Court case law
has long held that the right to exclude is an essential ele-
ment of property ownership. See Loretto, 458 U.S. at
435–36 (“The power to exclude has traditionally been con-
sidered one of the most treasured strands in an owner’s
bundle of property rights.” (citation omitted)). And our
case law is clear that regulated financial entities lack the
fundamental right to exclude the government from their
property when the government could place the entities into
conservatorship or receivership. See Cal. Hous. Sec., Inc.
v. United States, 959 F.2d 955, 958 (Fed. Cir. 1992) (“Sara-
toga lacked the fundamental right to exclude the govern-
ment from its property at those times when the
government could legally impose a conservatorship or re-
ceivership on Saratoga.”); see also Golden Pac. Bancorp. v.
United States, 15 F.3d 1066, 1074 (Fed. Cir. 1994) (“At
those times when the Comptroller could legally inspect the
Bank or place it in receivership, the Bank . . . was unable
to exclude the government from its property.”).
When Congress passed HERA in 2008, it gave the
FHFA the unrestricted authority to place the Enterprises
into conservatorship or receivership. See 12 U.S.C.
Case: 20-1912 Document: 95 Page: 46 Filed: 02/22/2022
46 FAIRHOLME FUNDS, INC. v. US
§ 4617(a). And, as Collins explains, HERA gave the FHFA
very broad authority, as conservator, to act in ways that
are not in the best interests of the Enterprises. Collins,
141 S. Ct. at 1776. As of at least 2008, then, the Enter-
prises lost their right to exclude the government from their
property, including their net worth. They also lost the
right to complain if and when the FHFA chose to elevate
its interests, and the interests of the public, above the in-
terests of the Enterprises. Without this right to exclude,
the Enterprises lack any cognizable property interest on
which Barrett may base a derivative Fifth Amendment
takings claim. See Golden Pac., 15 F.3d at 1074. This con-
clusion is bolstered, moreover, by the fact that the Enter-
prises consented to the conservatorship, and consented to
one where the conservator had extremely broad statutory
powers. Because the Enterprises lacked the right to ex-
clude the government from their net worth after the pas-
sage of HERA, and especially after the imposition of the
conservatorship, they had no investment-backed expecta-
tion that the FHFA would protect their interests and not
dilute their equity. We find, accordingly, that the Claims
Court erred in failing to dismiss Barrett’s derivative tak-
ings claim under Rule of the Court of Federal Claims
12(b)(6). While this logic applies equally to Barrett’s deriv-
atively pled illegal exaction claims, there are additional
reasons his illegal exaction claim fails, which we address
below. 14
14 Because the plaintiffs in Golden Pacific included
the bank’s shareholders (as well as the regulated entity),
our reasoning here would apply to the shareholders’ direct
takings claims—including those asserted by Fairholme
and Cacciapalle. Because we affirm dismissal of those
claims on independent grounds, we need not rely on their
lack of a cognizable property interest to do so.
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FAIRHOLME FUNDS, INC. v. US 47
2. Barrett’s illegal exaction claim
Unlike a Fifth Amendment takings allegation, which
involves lawful government action, illegal exaction claims
“involve[] money that was ‘improperly paid, exacted, or
taken from the claimant in contravention of the Constitu-
tion, a statute, or a regulation.’” Norman v. United States,
429 F.3d 1081, 1095 (Fed. Cir. 2005) (citation omitted).
Barrett’s complaint alleges that HERA did not authorize
the “FHFA or Treasury to expropriate [the Enterprises’]
net worth for the benefit of the Government.” J.A. 468
(¶ 206); see also J.A. 470 (¶ 216). In other words, he claims
the FHFA exceeded the bounds of its statutory authority in
connection with the net worth sweep. The Claims Court
denied the government’s motion to dismiss Barrett’s
claims, reasoning that he had stated enough facts in his
complaint to sufficiently allege an illegal exaction. See
Fairholme, 147 Fed. Cl. at 51–52. After the Supreme
Court’s recent ruling in Collins, it is clear that Barrett fails
to state a plausible derivative illegal exaction claim. We
therefore reverse the Claims Court’s holding to the con-
trary.
Barrett fails to state a plausible illegal exaction claim
under the theory that the FHFA’s adoption of the net worth
sweep exceeded the agency’s statutory authority. In Col-
lins, shareholders of the Enterprises also alleged that the
FHFA exceeded its statutory authority under HERA by
agreeing to the net worth sweep. 141 S. Ct. at 1775. The
Supreme Court disagreed. Id. Citing HERA’s grant of au-
thority to the FHFA to act “in the best interests of the [En-
terprises] or the [FHFA],” the Supreme Court reasoned
that, “when the FHFA acts as a conservator, it may aim to
rehabilitate the [Enterprises] in a way that, while not in
the best interests of the [Enterprises], is beneficial to the
[FHFA] and, by extension, the public it serves.” Id. at 1776.
Because “the FHFA could have reasonably concluded that
it was in the best interests of members of the public who
rely on a stable secondary mortgage market” to adopt the
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48 FAIRHOLME FUNDS, INC. v. US
net worth sweep, the Court concluded that the net worth
sweep was well within the FHFA’s statutory authority un-
der HERA. Id. at 1777; accord Perry II, 864 F.3d at 607
(“FHFA’s execution of the [net worth sweep] falls squarely
within its statutory authority . . . .”). Collins makes clear
that Barrett cannot plausibly allege an illegal exaction
claim predicated on his contention that adopting the net
worth sweep fell outside the FHFA’s statutory authority.
We, thus, reverse the Claims Court’s refusal to dismiss
Barrett’s illegal exaction claim to the extent that that claim
is predicated on his contention that the net worth sweep
was beyond the scope of the FHFA’s authority under
HERA.
3. Barrett’s separation-of-powers claim
The final issue we must address is whether the Claims
Court erred in allowing Barrett’s separation-of-powers
claim to proceed. 15 The Claims Court was correct that Bar-
rett had standing to allege a separation-of-powers viola-
tion. Collins answers that question for us. Collins, 141 S.
Ct. at 1781. And the Claims Court was correct to the extent
it concluded that Barrett asserted a plausible separation-
of-powers violation. Indeed, the Collins court decided that
the for-cause removal provision relating to removal of the
Director of the FHFA violates separation-of-powers princi-
ples. But that does not end our inquiry.
15 Barrett included his objection to the fact that the
Director of the FHFA was not removable at will when the
net worth sweep was both implemented and remained in
place within his illegal exaction claim. While that charac-
terization of a separation-of-powers cause of action is incor-
rect, we do not find that the label placed on his separation-
of-powers claim changes our analysis regarding Barrett’s
ability to assert it.
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FAIRHOLME FUNDS, INC. v. US 49
The problem for Barrett is that there is no viable rem-
edy available to him relating to this structural defect.
First, as the Supreme Court pointed out in Collins, the
FHFA and Treasury entered into a fourth amendment in
2019 which eliminated the variable dividend formula the
shareholders claim caused their injury. That amendment
eliminated any claim for prospective relief which share-
holders could assert with respect to the net worth sweep.
Second, the Collins court also explained that, because the
net worth sweep was implemented under the direction of
an acting Director, rather than a permanent, congression-
ally-confirmed Director, the original implementation of the
net worth sweep could not be attacked. In other words, be-
cause the acting Director was removable at will, his actions
were not constitutionally infirm. That means the only pos-
sible remedy other than severance of the unconstitutional
for-cause discharge provision—which the Collins court has
already effectuated—would be possible relief for retroac-
tive harm caused by any confirmed Director’s actions in not
undoing the net worth sweep. That extremely limited po-
tential harm is even more minimized by the fact that, while
there were confirmed Directors under both Presidents
Obama and Trump, their terms were limited, with an act-
ing Director serving between the two (whose implementa-
tion decisions are as unassailable as those of the acting
Director who implemented the net worth sweep). And, as
the Fifth Circuit concluded, we may take judicial notice of
the fact that the acting Director under President Obama
filed multiple court filings approving of the net worth
sweep with no opposition from the President, and the con-
firmed Director under President Trump never filed any-
thing indicating opposition to it, which the President could
have asked him to do. See Collins v. Mnuchin, 938 F.3d
553, 594–95 (5th Cir. 2019).
Finally, and most importantly, there was adequate
presidential oversight over the actions of all FHFA Direc-
tors regarding the net worth sweep by virtue of the fact
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50 FAIRHOLME FUNDS, INC. v. US
that all the FHFA’s policies relating to its actions as con-
servator of the Enterprises were “jointly created by the
FHFA and Treasury” and the latter’s Secretary was remov-
able at will. Id. at 594; see also Collins, 141 S. Ct. at 1802
(Kagan, J., concurring-in-part and concurring in the judg-
ment) (noting that, because the Fifth Circuit in Collins “al-
ready considered and decided the issue remanded today,”
the “lower court proceedings [on remand] may be brief in-
deed”). Presidents Obama and Trump could have directed
the Treasury Secretary to refuse to continue the net worth
sweep at any time, but did not do so.
Given all these realities, especially the Supreme
Court’s description of the extreme limits on the possible re-
lief available to similarly situated shareholders, we agree
with the Fifth Circuit that the shareholders have already
been afforded the only possible remedy available for Bar-
rett’s alleged separation-of-powers violation. We thus con-
clude that Barrett no longer can assert such a claim on
which relief can be granted and that his separation-of-pow-
ers claim must also be dismissed under Rule 12(b)(6).
V. CONCLUSION
For the reasons discussed above, we affirm-in-part be-
cause the Claims Court did not err in dismissing share-
holders’ direct claims and reverse-in-part because the
Claims Court improperly failed to dismiss the remaining
derivative claims.
AFFIRMED;
CROSS-APPEAL REVERSED
COSTS
No costs.