March 6, 2014
Reiss on Fannie/Freddie Suits
Bloomberg BNA quoted me in No Basis for Discovery by GSE Investors, Treasury Department, FHFA Memos Say. It reads
[Reproduced with permission from BNA’s Banking Report, 102 BBR 417, 3/11/14. Copyright 2014 by The Bureau
of National Affairs, Inc. (800-372-1033) https://www.bna.com]
The Treasury Department and the Federal Housing Finance Agency March 4 said a federal judge should deny a motion for discovery in lawsuits by Fannie Mae and Freddie Mac investors, citing an agreed-upon schedule and saying the motion would do nothing to address legal questions at the core of the case (Fairholme Funds v. Federal Housing Finance Agency, D.D.C., No. 13-cv-01053, 3/4/14).
In its memo filed in the U.S. District Court for the District of Columbia, Treasury said Fairholme’s Feb. 12 motion for discovery (31 DER EE-6, 2/14/14) would be “improper” under a November scheduling order, and urged the court to dismiss the Fairholme suit and related cases.
“These cases should proceed on the agreed briefing schedule, which already provided ample time to the plaintiffs to file their substantive briefs, and the Court, upon review of a completed set of briefing with respect to the defendants’ dispositive motions, should dismiss these cases,” Treasury said March 4.
In its March 4 filing, the FHFA memo said “no discovery is necessary to assess the purely legal arguments” before the court, adding the Housing and Economic Recovery Act of 2008 (HERA) bars second-guessing of the FHFA’s actions as conservator of Fannie Mae and Freddie Mac.
The suit is one of several in at least two district courts and the U.S. Court of Federal Claims that challenge Treasury and FHFA action in August 2012 that restructured contracts governing preferred stock issued by the two government-sponsored enterprises.
Fairholme and other investors say the August 2012 amendment amounted to an expropriation of their assets and have variously sought damages and compensation in response.
The government has sought to dismiss the Fairholme case and others, but in its Feb. 12 motion, Fairholme said the government’s motion to dismiss was too expansive and raised questions that require access to government documents, e-mails and other materials.
Arrowood Indemnity Co., the plaintiff in a related case in the district court and a separate case in the Claims Court, Feb. 20 sought to link its own bid for discovery to Fairholme’s (36 DER EE-8, 2/24/14).
Fairholme has already prevailed on its discovery motion in the Claims Court. In a Feb. 26 order, Judge Margaret M. Sweeney granted Fairholme’s motion for a continuance to pursue discovery in that case.
March Reply Scheduled
In the district court, Fairholme is scheduled to respond to the government’s March 4 memos by mid-March.
“We are reviewing the opposition briefs filed by the defendants just yesterday, and we will respond to them in our reply brief, due on March 14,” a spokesman for Fairholme told Bloomberg BNA March 5.
High Stakes Seen
Professor David Reiss of Brooklyn Law School in New York March 5 said discovery usually occurs after motions to dismiss have been decided.
In this case, he said, “the stakes are so high and the quality of lawyering so high that there is litigation over the scheduling order itself.”
“This is a hard-fought battle and the issues are incredibly complex,” Reiss told Bloomberg BNA. “Each side characterizes their arguments as relatively straightforward, but I think the judge will have a hard time parsing out the issues, because there are different statutory regimes, policy issues and the like that must be rationalized with each other. I think this is just the beginning of a long slog,” he said.| Permalink