Perry Capital LLC v. Steven Mnuchin

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 15, 2016 Decided February 21, 2017

No. 14-5243

PERRY CAPITAL LLC, FOR AND ON BEHALF OF INVESTMENT

FUNDS FOR WHICH IT ACTS AS INVESTMENT MANAGER,

APPELLANT

v.

STEVEN T. MNUCHIN, IN HIS OFFICIAL CAPACITY AS THE

SECRETARY OF THE DEPARTMENT OF THE TREASURY, ET AL.,

APPELLEES

Consolidated with 14-5254, 14-5260, 14-5262

Appeals from the United States District Court

for the District of Columbia

(No. 1:13-cv-01025)

(No. 1:13-cv-01053)

(No. 1:13-cv-01439)

(No. 1:13-cv-01288)

Theodore B. Olson argued the cause for Perry Capital

LLC, et al. With him on the briefs were Douglas R. Cox,

Matthew D. McGill, Charles J. Cooper, David H. Thompson,

Peter A. Patterson, Brian W. Barnes, Drew W. Marrocco,

Michael H. Barr, Richard M. Zuckerman, Sandra Hauser, and

Janet M. Weiss.

2

Hamish P.M. Hume argued the cause for American

European Insurance Company, et al. With him on the briefs

were Matthew A. Goldstein, David R. Kaplan, and Geoffrey C.

Jarvis.

Thomas P. Vartanian, Steven G. Bradbury, Robert L.

Ledig, and Robert J. Rhatigan were on the brief for amici

curiae the Independent Community Bankers of America, the

Association of Mortgage Investors, Mr. William M. Isaac, and

Mr. Robert H. Hartheimer in support of appellants.

Thomas F. Cullen, Jr., Michael A. Carvin, James E.

Gauch, Lawrence D. Rosenberg, and Paul V. Lettow were on

the brief for amici curiae Louise Rafter, Josephine and Stephen

Rattien, and Pershing Square Capital Management, L.P. in

support of appellants and reversal.

Jerrold J. Ganzfried and Bruce S. Ross were on the brief

for amici curiae 60 Plus Association, Inc. in support of

reversal.

Eric Grant was on the brief for amicus curiae Jonathan R.

Macey in support of appellants and reversal.

Thomas R. McCarthy was on the brief for amici curiae

Timothy Howard and The Coalition for Mortgage Security in

support of appellants.

Myron T. Steele was on the brief for amicus curiae Center

for Individual Freedom in support of appellants.

Michael H. Krimminger was on the brief for amicus curiae

Investors Unite in support of appellants for reversal.

3

Howard N. Cayne argued the cause for appellees Federal

Housing Finance Agency, et al. With him on the brief were

Paul D. Clement, D. Zachary Hudson, Michael J. Ciatti,

Graciela Maria Rodriguez, David B. Bergman, Michael A.F.

Johnson, Dirk C. Phillips, and Ian S. Hoffman.

Mark B. Stern, Attorney, U.S. Department of Justice,

argued the cause for appellee Steven T. Mnuchin. With him on

the brief were Benjamin C. Mizer, Principal Deputy Assistant

Attorney General, Beth S. Brinkmann, Deputy Assistant

Attorney General, Alisa B. Klein, Abby C. Wright, and Gerard

Sinzdak, Attorneys.

Dennis M. Kelleher was on the brief for amicus curiae

Better Markets, Inc. in support of appellees and affirmance.

Pierre H. Bergeron was on the brief for amicus curiae

Black Chamber of Commerce in support of neither party.

Before: BROWN and MILLETT, Circuit Judges, and

GINSBURG, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge MILLETT and

Senior Circuit Judge GINSBURG.

Dissenting opinion filed by Circuit Judge BROWN.

MILLETT, Circuit Judge, and GINSBURG, Senior Circuit

Judge: In 2007–2008, the national economy went into a severe

recession due in significant part to a dramatic decline in the

housing market. That downturn pushed two central players in

the United States’ housing mortgage market—the Federal

National Mortgage Association (“Fannie Mae” or “Fannie”)

and the Federal Home Loan Mortgage Corporation (“Freddie

Mac” or “Freddie”)—to the brink of collapse. Congress

4

concluded that resuscitating Fannie Mae and Freddie Mac was

vital for the Nation’s economic health, and to that end passed

the Housing and Economic Recovery Act of 2008 (“Recovery

Act”), Pub. L. No. 110-289, 122 Stat. 2654 (codified, as

relevant here, in various sections of 12 U.S.C.). Under the

Recovery Act, the Federal Housing Finance Agency (“FHFA”)

became the conservator of Fannie Mae and Freddie Mac.

In an effort to keep Fannie Mae and Freddie Mac afloat,

FHFA promptly concluded on their behalf a stock purchase

agreement with the Treasury Department, under which

Treasury made billions of dollars in emergency capital

available to Fannie Mae and Freddie Mac (collectively, “the

Companies”) in exchange for preferred shares of their stock.

In return, Fannie and Freddie agreed to pay Treasury a

quarterly dividend in the amount of 10% of the total amount of

funds drawn from Treasury. Fannie’s and Freddie’s frequent

inability to make those dividend payments, however, meant

that they often borrowed more cash from Treasury just to pay

the dividends, which in turn increased the dividends that Fannie

and Freddie were obligated to pay in future quarters. In 2012,

FHFA and Treasury adopted the Third Amendment to their

stock purchase agreement, which replaced the fixed 10%

dividend with a formula by which Fannie and Freddie just paid

to Treasury an amount (roughly) equal to their quarterly net

worth, however much or little that may be.

A number of Fannie Mae and Freddie Mac stockholders

filed suit alleging that FHFA’s and Treasury’s alteration of the

dividend formula through the Third Amendment exceeded

their statutory authority under the Recovery Act, and

constituted arbitrary and capricious agency action in violation

of the Administrative Procedure Act, 5 U.S.C. § 706(2)(A).

They also claimed that FHFA, Treasury, and the Companies

5

committed various common-law torts and breaches of contract

by restructuring the dividend formula.

We hold that the stockholders’ statutory claims are barred

by the Recovery Act’s strict limitation on judicial review. See

12 U.S.C. § 4617(f). We also reject most of the stockholders’

common-law claims. Insofar as we have subject matter

jurisdiction over the stockholders’ common-law claims against

Treasury, and Congress has waived the agency’s immunity

from suit, those claims, too, are barred by the Recovery Act’s

limitation on judicial review. Id. As for the claims against

FHFA and the Companies, some are barred because FHFA

succeeded to all rights, powers, and privileges of the

stockholders under the Recovery Act, id. § 4617(b)(2)(A);

others fail to state a claim upon which relief can be granted.

The remaining claims, which are contract-based claims

regarding liquidation preferences and dividend rights, are

remanded to the district court for further proceedings.

I. Background

A. Statutory Framework

1. The Origins of Fannie Mae and Freddie Mac

Created by federal statute in 1938, Fannie Mae originated

as a government-owned entity designed to “provide stability in

the secondary market for residential mortgages,” to “increas[e]

the liquidity of mortgage investments,” and to “promote access

to mortgage credit throughout the Nation.” 12 U.S.C. § 1716;

see id. § 1717. To accomplish those goals, Fannie Mae (i)

purchases mortgage loans from commercial banks, which frees

up those lenders to make additional loans, (ii) finances those

purchases by packaging the mortgage loans into mortgage-

backed securities, and (iii) then sells those securities to

investors. In 1968, Congress made Fannie Mae a publicly

6

traded, stockholder-owned corporation. See Housing and

Urban Development Act, Pub. L. No. 90-448, § 801, 82 Stat.

476, 536 (1968) (codified at 12 U.S.C. § 1716b).

Congress created Freddie Mac in 1970 to “increase the

availability of mortgage credit for the financing of urgently

needed housing.” Federal Home Loan Mortgage Corporation

Act, Pub. L. No. 91-351, preamble, 84 Stat. 450 (1970). Much

like Fannie Mae, Freddie Mac buys mortgage loans from a

broad variety of lenders, bundles them together into mortgage-

backed securities, and then sells those mortgage-backed

securities to investors. In 1989, Freddie Mac became a publicly

traded, stockholder-owned corporation. See Financial

Institutions Reform, Recovery, and Enforcement Act of 1989,

Pub. L. No. 101-73, § 731, 103 Stat. 183, 429–436.

Fannie Mae and Freddie Mac became major players in the

United States’ housing market. Indeed, in the lead up to 2008,

Fannie Mae’s and Freddie Mac’s mortgage portfolios had a

combined value of $5 trillion and accounted for nearly half of

the United States mortgage market. But in 2008, the United

States economy fell into a severe recession, in large part due to

a sharp decline in the national housing market. Fannie Mae

and Freddie Mac suffered a precipitous drop in the value of

their mortgage portfolios, pushing the Companies to the brink

of default.

2. The 2008 Housing and Economic Recovery Act

Concerned that a default by Fannie and Freddie would

imperil the already fragile national economy, Congress enacted

the Recovery Act, which established FHFA and authorized it

to undertake extraordinary economic measures to resuscitate

the Companies. To begin with, the Recovery Act denominated

Fannie and Freddie “regulated entit[ies]” subject to the direct

“supervision” of FHFA, 12 U.S.C. § 4511(b)(1), and the

7

“general regulatory authority” of FHFA’s Director, id.

§ 4511(b)(1), (2). The Recovery Act charged FHFA’s Director

with “oversee[ing] the prudential operations” of Fannie Mae

and Freddie Mac and “ensur[ing] that” they “operate[] in a safe

and sound manner,” “consistent with the public interest.” Id.

§ 4513(a)(1)(A), (B)(i), (B)(v).

The Recovery Act further authorized the Director of

FHFA to appoint FHFA as either conservator or receiver for

Fannie Mae and Freddie Mac “for the purpose of reorganizing,

rehabilitating, or winding up the[ir] affairs.” 12 U.S.C.

§ 4617(a)(2). The Recovery Act invests FHFA as conservator

with broad authority and discretion over the operation of

Fannie Mae and Freddie Mac. For example, upon appointment

as conservator, FHFA “shall * * * immediately succeed

to * * * all rights, titles, powers, and privileges of the regulated

entity, and of any stockholder, officer, or director of such

regulated entity with respect to the regulated entity and the

assets of the regulated entity.” Id. § 4617(b)(2)(A). In

addition, FHFA “may * * * take over the assets of and operate

the regulated entity,” and “may * * * preserve and conserve the

assets and property of the regulated entity.” Id.

§ 4617(b)(2)(B)(i), (iv).

The Recovery Act further invests FHFA with expansive

“[g]eneral powers,” explaining that FHFA “may,” among other

things, “take such action as may be * * * necessary to put the

regulated entity in a sound and solvent condition” and

“appropriate to carry on the business of the regulated entity and

preserve and conserve [its] assets and property[.]” 12 U.S.C.

§ 4617(b)(2), (2)(D). FHFA’s powers also include the

discretion to “transfer or sell any asset or liability of the

regulated entity in default * * * without any approval,

assignment, or consent,” id. § 4617(b)(2)(G), and to “disaffirm

or repudiate [certain] contract[s] or lease[s],” id. § 4617(d)(1).

8

See also id. § 4617(b)(2)(H) (power to pay the regulated

entity’s obligations); id. § 4617(b)(2)(I) (investing the

conservator with subpoena power).

Consistent with Congress’s mandate that FHFA’s Director

protect the “public interest,” 12 U.S.C. § 4513(a)(1)(B)(v), the

Recovery Act invested FHFA as conservator with the authority

to exercise its statutory authority and any “necessary”

“incidental powers” in the manner that “the Agency [FHFA]

determines is in the best interests of the regulated entity or the

Agency.” Id. § 4617(b)(2)(J) (emphasis added).

The Recovery Act separately granted the Treasury

Department “temporary” authority to “purchase any

obligations and other securities issued by” Fannie and Freddie.

12 U.S.C. §§ 1455(l)(1)(A), 1719. That provision made it

possible for Treasury to buy large amounts of Fannie and

Freddie stock, and thereby infuse them with massive amounts

of capital to ensure their continued liquidity and stability.

Continuing Congress’s concern for protecting the public

interest, however, the Recovery Act conditioned such

purchases on Treasury’s specific determination that the terms

of the purchase would “protect the taxpayer,” 12 U.S.C.

§ 1719(g)(1)(B)(iii), and to that end specifically authorized

“limitations on the payment of dividends,” id.

§ 1719(g)(1)(C)(vi). A sunset provision terminated Treasury’s

authority to purchase such securities after December 31, 2009.

Id. § 1719(g)(4). After that, Treasury was authorized only “to

hold, exercise any rights received in connection with, or sell,

any obligations or securities purchased.” Id. § 1719(g)(2)(D).

Lastly, the Recovery Act sharply limits judicial review of

FHFA’s conservatorship activities, directing that “no court

may take any action to restrain or affect the exercise of powers

9

or functions of the Agency as a conservator.” 12 U.S.C.

§ 4617(f).

B. Factual Background

On September 6, 2008, FHFA’s Director placed both

Fannie Mae and Freddie Mac into conservatorship. The next

day, Treasury entered into Senior Preferred Stock Purchase

Agreements (“Stock Agreements”) with Fannie and Freddie,

under which Treasury committed to promptly invest billions of

dollars in Fannie and Freddie to keep them from defaulting.

Fannie and Freddie had been “unable to access [private] capital

markets” to shore up their financial condition, “and the only

way they could [raise capital] was with Treasury support.”

Oversight Hearing to Examine Recent Treasury and FHFA

Actions Regarding the Housing GSEs Before the H. Comm. on

Fin. Servs., 110th Cong. 12 (2008) (Statement of James B.

Lockhart III, Director, FHFA).

In exchange for that extraordinary capital infusion,

Treasury received one million senior preferred shares in each

company. Those shares entitled Treasury to: (i) a $1 billion

senior liquidation preference—a priority right above all other

stockholders, whether preferred or otherwise, to receive

distributions from assets if the entities were dissolved; (ii) a

dollar-for-dollar increase in that liquidation preference each

time Fannie and Freddie drew upon Treasury’s funding

commitment; (iii) quarterly dividends that the Companies

could either pay at a rate of 10% of Treasury’s liquidation

preference or a commitment to increase the liquidation

preference by 12%; (iv) warrants allowing Treasury to

purchase up to 79.9% of Fannie’s and Freddie’s common stock;

10

and (v) the possibility of periodic commitment fees over and

above any dividends. 1

The Stock Agreements also included a variety of

covenants. Of most relevance here, the Stock Agreements

included a flat prohibition on Fannie and Freddie “declar[ing]

or pay[ing] any dividend (preferred or otherwise) or mak[ing]

any other distribution (by reduction of capital or otherwise),

whether in cash, property, securities or a combination thereof”

without Treasury’s advance consent (unless the dividend or

distribution was for Treasury’s Senior Preferred Stock or

warrants). J.A. 2451.

The Stock Agreements initially capped Treasury’s

commitment to invest capital at $100 billion per company. It

quickly became clear, however, that Fannie and Freddie were

in a deeper financial quagmire than first anticipated. So their

survival would require even greater capital infusions by

Treasury, as sufficient private investors were still nowhere to

be found. Consequently, FHFA and Treasury adopted the First

Amendment to the Stock Agreements in May 2009, under

which Treasury agreed to double the funding commitment to

$200 billion for each company.

Seven months later, in a Second Amendment to the Stock

Agreements, FHFA and Treasury again agreed to raise the cap,

this time to an adjustable figure determined in part by the

amount of Fannie’s and Freddie’s quarterly cumulative losses

between 2010 and 2012. As of June 30, 2012, Fannie and

Freddie together had drawn $187.5 billion from Treasury’s

funding commitment.

1

Thus far, Treasury has not asked Fannie and Freddie to pay any

commitment fees.

11

Through the first quarter of 2012, Fannie and Freddie

repeatedly struggled to generate enough capital to pay the 10%

dividend they owed to Treasury under the amended Stock

Agreements. 2 FHFA and Treasury stated publicly that they

worried about perpetuating the “circular practice of the

Treasury advancing funds to [Fannie and Freddie] simply to

pay dividends back to Treasury,” and thereby increasing their

debt loads in the process. 3

Accordingly, FHFA and Treasury adopted the Third

Amendment to the Stock Agreements on August 17, 2012. The

Third Amendment to the Stock Agreements replaced the

previous quarterly 10% dividend formula with a requirement

that Fannie and Freddie pay as dividends only the amount, if

any, by which their net worth for the quarter exceeded a capital

buffer of $3 billion, with that buffer decreasing annually down

to zero by 2018. In simple terms, the Third Amendment

requires Fannie and Freddie to pay quarterly to Treasury a

dividend equal to their net worth—however much or little that

might be. Through that new dividend formula, Fannie and

Freddie would never again incur more debt just to make their

quarterly dividend payments, thereby precluding any dividend-

driven downward debt spiral. But neither would Fannie or

Freddie be able to accrue capital in good quarters.

Under the Third Amendment, Fannie Mae and Freddie

Mac together paid Treasury $130 billion in dividends in 2013,

2

Neither company drew upon Treasury’s commitment in the second

quarter of 2012 though.

3

Press Release, United States Dep’t of the Treasury, Treasury

Department Announces Further Steps to Expedite Wind Down of

Fannie Mae and Freddie Mac (August 17, 2012),

https://www.treasury.gov/press-center/press-releases/Pages/tg 1684.

aspx (“Treasury Press Release”).

12

and another $40 billion in 2014. The next year, however,

Fannie’s and Freddie’s quarterly net worth was far lower:

Fannie paid Treasury $10.3 billion and Freddie paid Treasury

$5.5 billion. See FANNIE MAE, FORM 10-K FOR THE FISCAL

YEAR ENDED DECEMBER 31, 2015 (Feb. 19, 2016); FREDDIE

MAC, FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31,

2015 (Feb. 18, 2016). By comparison, without the Third

Amendment, Fannie and Freddie together would have had to

pay Treasury $19 billion in 2015 or else draw once again on

Treasury’s commitment of funds and thereby increase

Treasury’s liquidation preference. In the first quarter of 2016,

Fannie paid Treasury $2.9 billion and Freddie paid Treasury no

dividend at all. See FANNIE MAE, FORM 10-Q FOR THE

QUARTERLY PERIOD ENDED MARCH 31, 2016 (May 5, 2016);

FREDDIE MAC, FORM 10-Q FOR THE QUARTERLY PERIOD

ENDED MARCH 31, 2016 (May 3, 2016).

Under the Third Amendment, and FHFA’s

conservatorship, Fannie and Freddie have continued their

operations for more than four years. During that time, Fannie

and Freddie, among other things, collectively purchased at least

11 million mortgages on single-family owner-occupied

properties, and Fannie issued over $1.5 trillion in single-family

mortgage-backed securities. 4

4

See FANNIE MAE, FORM 10-K FOR THE FISCAL YEAR ENDED

DECEMBER 31, 2015 (Feb. 19, 2016); FREDDIE MAC, ANNUAL

HOUSING ACTIVITIES REPORT FOR 2015, at 1 (March 15, 2016);

FANNIE MAE, 2015 ANNUAL HOUSING ACTIVITIES REPORT AND

ANNUAL MORTGAGE REPORT, tbl. 1A (March 14, 2016); FANNIE

MAE, 2014 ANNUAL HOUSING ACTIVITIES REPORT AND ANNUAL

MORTGAGE REPORT, tbl. 1A (March 13, 2015); FREDDIE MAC,

ANNUAL HOUSING ACTIVITIES REPORT FOR 2014, at 1 (March 11,

2015); FANNIE MAE, 2013 ANNUAL HOUSING ACTIVITIES REPORT

AND ANNUAL MORTGAGE REPORT, tbl. 1A (March 13, 2014);

13

C. Procedural History

In 2013, a number of Fannie Mae and Freddie Mac

stockholders filed suit challenging the Third Amendment.

Different groups of plaintiffs have pressed different claims.

First, various hedge funds, mutual funds, and insurance

companies (collectively, “institutional stockholders”) argued

that (i) FHFA’s and Treasury’s adoption of the Third

Amendment exceeded their authority under the Recovery Act,

and (ii) FHFA and Treasury each engaged in arbitrary and

capricious conduct, in violation of the Administrative

Procedure Act (“APA”). The institutional stockholders

requested declaratory and injunctive relief, but no damages. 5

Second, a class of stockholders (“class plaintiffs”) and a

few of the institutional stockholders alleged that, in adopting

the Third Amendment, FHFA and the Companies breached the

terms governing dividends, liquidation preferences, and voting

rights in the stock certificates for Freddie’s Common Stock and

for both Fannie’s and Freddie’s Preferred Stock. They further

alleged that those defendants breached the implied covenants

of good faith and fair dealing in those certificates. The class

plaintiffs also alleged that FHFA and Treasury breached state-

law fiduciary duties owed by a corporation’s management and

FREDDIE MAC, ANNUAL HOUSING ACTIVITIES REPORT FOR 2013, at

1 (March 12, 2014).

5

One of the institutional stockholders—Arrowood—does not

identify the claims for which it seeks damages in its prayer for relief.

However, looking at the description of each claim, Arrowood alleges

that it sustained damages only in its breach of contract and breach of

implied covenant claims. For the Recovery Act and APA claims,

Arrowood alleges only that it is entitled to relief “under 5 U.S.C.

§§ 702, 706(2)(C),” J.A. 208, provisions of the APA that do not

authorize money damages.

14

controlling shareholder, respectively. Some of the institutional

stockholders asserted similar claims against FHFA. The class

plaintiffs asked the court to declare their lawsuit a “proper

derivative action,” J.A. 277, and to award damages as well as

injunctive and declaratory relief.

The district court granted FHFA’s and Treasury’s motions

to dismiss both complaints for failure to state a claim under

Federal Rule of Civil Procedure 12(b)(6). See Perry Capital

LLC v. Lew, 70 F. Supp. 3d 208, 246 (D.D.C. 2014).

Specifically, the court dismissed the Recovery Act and APA

claims as barred by the Recovery Act’s express limitation on

judicial review, 12 U.S.C. § 4617(f). The court dismissed the

APA claims against Treasury on the same statutory ground,

reasoning that Treasury’s “interdependent, contractual conduct

is directly connected to FHFA’s activities as a conservator.”

Id. at 222. The district court explained that “enjoining Treasury

from partaking in the Third Amendment would restrain

FHFA’s uncontested authority to determine how to conserve

the viability of [Fannie and Freddie].” Id. at 222–223.

Turning to the class plaintiffs’ claims for breach of

fiduciary duty, the court dismissed those as barred by FHFA’s

statutory succession to all rights and interests held by Fannie’s

and Freddie’s stockholders, 12 U.S.C. § 4617(b)(2)(A). The

court then dismissed the breach of contract and breach of the

implied covenant of good faith and fair dealing claims based

on liquidation preferences as not ripe because Fannie and

Freddie had not been liquidated. Finally, the district court

dismissed the dividend-rights claims, reasoning that no such

rights exist. 6

6

The class plaintiffs had also alleged that the failure of FHFA and

Treasury to provide just compensation for taking private property

violated the Takings Clause of the Fifth Amendment. The district

15

II. Jurisdiction

Before delving into the merits, we pause to assure

ourselves of our jurisdiction, as is our duty. See Steel Co. v.

Citizens for a Better Environment, 523 U.S. 83, 94 (1998) (“On

every writ of error or appeal, the first and fundamental question

is that of jurisdiction[.]”) (citation omitted). A provision of the

Recovery Act deprives courts of jurisdiction “to affect, by

injunction or otherwise, the issuance or effectiveness of any

classification or action of the Director under this

subchapter * * * or to review, modify, suspend, terminate, or

set aside such classification or action.” 12 U.S.C. § 4623(d).

That language does not strip this court of jurisdiction to

hear this case. By its terms, Section 4623(d) applies only to

“any classification or action of the Director.” 12 U.S.C.

§ 4623(d). Thus, Section 4623(d) prohibits review of the

Director’s establishment of “risk-based capital

requirements * * * to ensure that the enterprises operate in a

safe and sound manner, maintaining sufficient capital and

reserves to support the risks that arise in the operations and

management of the enterprises.” Id. § 4611(a)(1). In

particular, Section 4614 requires “the Director” to “classify”

Fannie and Freddie as “adequately capitalized,”

“undercapitalized,” “significantly undercapitalized,” or

“critically undercapitalized.” Id. § 4614(a). Classification as

undercapitalized or significantly undercapitalized in turn

subjects Fannie and Freddie to a host of supervisory actions by

“the Director.” See id. §§ 4615–4616. It is those capital-

court dismissed that challenge for failure to state a legally cognizable

claim, Fed. R. Civ. P. 12(b)(6), and the class plaintiffs have not

challenged that ruling on appeal.

16

classification decisions that Section 4623(d) insulates from

judicial review.

The Third Amendment was not a “classification or action

of the Director” of FHFA. Rather, it was an action taken by

FHFA acting as Fannie’s and Freddie’s conservator. Judicial

review of the actions of the agency as conservator is addressed

by Section 4617(f), not by Section 4623(d)’s particular focus

on the Director’s own actions. Compare 12 U.S.C. § 4617(f)

(referencing “powers or functions of the Agency”) (emphasis

added), with id. § 4623(d) (referencing “any classification or

action of the Director”) (emphasis added).

FHFA argues that the Director’s decision in 2008 to

suspend capital classifications of Fannie Mae and Freddie Mac

during the conservatorship could be a “classification or action

of the Director.” FHFA Suppl. Br. at 6–8 (quoting 12 U.S.C.

§ 4623(d)). Perhaps. But those are not the actions that the

institutional stockholders and the class plaintiffs challenge.

Instead, they challenge FHFA’s decision as conservator to

agree to changes in the Stock Agreement and to how Fannie

and Freddie will compensate Treasury for its extensive past and

promised future infusions of needed capital. Those actions do

not fall within Section 4623(d)’s jurisdictional bar for Director-

specific actions.

17

III. Statutory Challenges to the Third Amendment

Turning to the merits, we address first the institutional

stockholders’ claims that FHFA’s and Treasury’s adoption of

the Third Amendment violated both the Recovery Act and the

APA. Both of those statutory claims founder on the Recovery

Act’s far-reaching limitation on judicial review. Congress was

explicit in Section 4617(f) that “no court” can take “any action”

that would “restrain or affect” FHFA’s exercise of its “powers

or functions * * * as a conservator or a receiver.” 12 U.S.C.

§ 4617(f). We take that law at its word, and affirm dismissal

of the institutional stockholders’ claims for injunctive and

declaratory relief designed to unravel FHFA’s adoption of the

Third Amendment.

A. Section 4617(f) Bars the Challenges to

FHFA Based on the Recovery Act

1. Section 4617(f)’s Textual Barrier to Plaintiffs’

Claims for Relief

The institutional stockholders’ complaints ask the district

court to declare the Third Amendment invalid, to vacate the

Third Amendment, and to enjoin FHFA from implementing it.

Those prayers for relief fall squarely within Section 4617(f)’s

plain textual compass. The institutional stockholders seek to

“restrain [and] affect” FHFA’s “exercise of powers” “as a

conservator” in amending the terms of Fannie’s and Freddie’s

contractual funding agreement with Treasury to guarantee the

Companies’ continued access to taxpayer-financed capital

without risk of incurring new debt just to pay dividends to

Treasury. Such management of Fannie’s and Freddie’s assets,

debt load, and contractual dividend obligations during their

ongoing business operation sits at the core of FHFA’s

conservatorship function.

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This court has interpreted a nearly identical statutory

limitation on judicial review to prohibit claims for declaratory,

injunctive, and other forms of equitable relief as long as the

agency is acting within its statutory conservatorship authority.

The Financial Institutions Reform, Recovery, and Enforcement

Act of 1989 (“FIRREA”), Pub. L. No. 101-73, 103 Stat. 183,

governs the Federal Deposit Insurance Corporation (“FDIC”)

when it serves as a conservator or receiver for troubled

financial institutions. Section 1821(j) of that Act prohibits

courts from “tak[ing] any action * * * to restrain or affect the

exercise of powers or functions of [the FDIC] as a conservator

or a receiver.” 12 U.S.C. § 1821(j).

In multiple decisions, we have held that Section 1821(j)

shields from a court’s declaratory and other equitable powers a

broad swath of the FDIC’s conduct as conservator or receiver

when exercising its statutory authority. To start with, in

National Trust for Historic Preservation in the United States v.

FDIC (National Trust I), 995 F.2d 238 (D.C. Cir. 1993) (per

curiam), aff’d in relevant part, 21 F.3d 469 (D.C. Cir. 1994),

we held that Section 1821(j) “bars the [plaintiff’s] suit for

injunctive relief” seeking to halt the sale of a building as

violating the National Historic Preservation Act, 16 U.S.C.

§ 470 et seq. (repealed December 19, 2014). See 995 F.2d at

239. We explained that, because “the powers and functions the

FDIC is exercising are, by statute, deemed to be those of a

receiver,” an injunction against the sale “would surely ‘restrain

or affect’ the FDIC’s exercise of those powers or functions.”

Id. Given Section 1821(j)’s “strong language,” we continued,

it would be “[im]possible * * * to interpret the FDIC’s

‘powers’ and ‘authorities’ to include the limitation that those

powers be subject to—and hence enjoinable for non-

compliance with—any and all other federal laws.” Id. at 240.

Indeed, “given the breadth of the statutory language,” Section

1821(j) “would appear to bar a court from acting”

19

notwithstanding a “parade of possible violations of existing

laws.” National Trust for Historic Preservation in the United

States v. FDIC (National Trust II), 21 F.3d 469, 472 (D.C. Cir.

1994) (per curiam) (Wald, J., joined by Silberman, J.,

concurring).

Again in Freeman v. FDIC, 56 F.3d 1394 (D.C. Cir. 1995),

this court rejected the plaintiffs’ attempt to enjoin the FDIC, as

receiver of a bank, from foreclosing on their home, id. at 1396.

We acknowledged that Section 1821(j)’s stringent limitation

on judicial review “may appear drastic,” but that “it fully

accords with the intent of Congress at the time it enacted

FIRREA in the midst of the savings and loan insolvency crisis

to enable the FDIC” to act “expeditiously” in its role as

conservator or receiver. Id. at 1398. Given those exigent

financial circumstances, “Section 1821(j) does indeed effect a

sweeping ouster of courts’ power to grant equitable

remedies[.]” Id. at 1399; see also MBIA Ins. Corp. v. FDIC,

708 F.3d 234, 247 (D.C. Cir. 2013) (In Section 1821(j),

“Congress placed ‘drastic’ restrictions on a court’s ability to

institute equitable remedies[.]”) (quoting Freeman, 56 F.3d at

1398).

The rationale of those decisions applies with equal force

to Section 4617(f)’s indistinguishable operative language. The

plain statutory text draws a sharp line in the sand against

litigative interference—through judicial injunctions,

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

statutorily permitted actions as conservator or receiver. And,

as with FIRREA, Congress adopted Section 4617(f) to protect

FHFA as it addressed a critical aspect of one of the greatest

financial crises in the Nation’s modern history.

20

2. FHFA’s Actions Fall Within its Statutory

Authority

The institutional stockholders cite language in National

Trust I, which states that FIRREA’s—and by analogy the

Recovery Act’s—prohibition on injunctive and declaratory

relief would not apply if the agency “has acted or proposes to

act beyond, or contrary to, its statutorily prescribed,

constitutionally permitted, powers or functions,” National

Trust I, 995 F.2d at 240. They then argue that FHFA’s adoption

of the Third Amendment was out of bounds because, in their

view, the Recovery Act “requires FHFA as conservator to act

independently to conserve and preserve the Companies’ assets,

to put the Companies in a sound and solvent condition, and to

rehabilitate them.” Institutional Pls. Br. at 26 (emphasis

added). As the institutional stockholders see it, by committing

Fannie’s and Freddie’s quarterly net worth—if any—to

Treasury in exchange for continued access to Treasury’s

taxpayer-funded financial lifelines, FHFA acted like a de facto

receiver functionally liquidating Fannie’s and Freddie’s

businesses. And FHFA did so, they add, without following the

procedural preconditions that the Recovery Act imposes on a

receivership, such as publishing notice and providing an

alternative dispute resolution process to resolve liquidation

claims, see 12 U.S.C. § 4617(b)(3)(B)(i), (b)(7)(A)(i). 7

That exception to the bar on judicial review has no

application here because adoption of the Third Amendment

falls within FHFA’s statutory conservatorship powers, for four

reasons.

7

The institutional stockholders do not argue that FHFA or Treasury

transgressed constitutional bounds in any respect.

21

(i) The Recovery Act endows FHFA with extraordinarily

broad flexibility to carry out its role as conservator. Upon

appointment as conservator, FHFA “immediately succeed[ed]

to * * * all rights, titles, powers, and privileges” not only of

Fannie Mae and Freddie Mac, but also “of any stockholder,

officer, or director of such regulated entit[ies] with respect to

the regulated entit[ies] and the assets of the regulated

entit[ies.]” 12 U.S.C. § 4617(b)(2)(A)(i). In addition, among

FHFA’s many “[g]eneral powers” is its authority to “[o]perate

the regulated entity,” pursuant to which FHFA “may, as

conservator or receiver * * * take over the assets of and

operate * * * and conduct all business of the regulated

entity; * * * collect all obligations and money due the

regulated entity; * * * perform all functions of the regulated

entity * * * ; preserve and conserve the assets and property of

the regulated entity; and * * * provide by contract for

assistance in fulfilling any function, activity, action, or duty of

the Agency as conservator or receiver.” Id. § 4617(b)(2),

(2)(B) (emphasis added). The Recovery Act further provides

that FHFA “may, as conservator, take such action as may

be * * * necessary to put the regulated entity in a sound and

solvent condition; and * * * appropriate to carry on the

business of the regulated entity and preserve and conserve the

assets and property of the regulated entity.” Id.

§ 4617(b)(2)(D) (emphasis added). FHFA also “may disaffirm

or repudiate [certain] contract[s] or lease[s].” Id. § 4617(d)(1)

(emphasis added); see also id. § 4617(b)(2)(G) (providing that

FHFA “may, as conservator or receiver, transfer or sell any

asset or liability of the regulated entity in default” without

consent) (emphasis added).

Accordingly, time and again, the Act outlines what FHFA

as conservator “may” do and what actions it “may” take. The

statute is thus framed in terms of expansive grants of

permissive, discretionary authority for FHFA to exercise as the

22

“Agency determines is in the best interests of the regulated

entity or the Agency.” 12 U.S.C. § 4617(b)(2)(J). “It should

go without saying that ‘may means may.’” United States Sugar

Corp. v. EPA, 830 F.3d 579, 608 (D.C. Cir. 2016) (quoting

McCreary v. Offner, 172 F.3d 76, 83 (D.C. Cir. 1999)). And

“may” is, of course, “permissive rather than obligatory.”

Baptist Memorial Hosp. v. Sebelius, 603 F.3d 57, 63 (D.C. Cir.

2010).

Entirely absent from the Recovery Act’s text is any

mandate, command, or directive to build up capital for the

financial benefit of the Companies’ stockholders. That is

noteworthy because, when Congress wanted to compel FHFA

to take specific measures as conservator or receiver, it switched

to language of command, employing “shall” rather than “may.”

Compare 12 U.S.C. § 4617(b)(2)(B) (listing actions that FHFA

“may” take “as conservator or receiver” to “[o]perate the

regulated entity”), and id. § 4617(b)(2)(D) (specifying actions

that FHFA “may, as conservator” take), with id.

§ 4617(b)(2)(E) (specifying actions that FHFA “shall” take

when “acting as receiver”), and id. § 4617(b)(14)(A)

(specifying that FHFA as conservator or receiver

“shall * * * maintain a full accounting”). “[W]hen a statute

uses both ‘may’ and ‘shall,’ the normal inference is that each is

used in its usual sense—the one act being permissive, the other

mandatory.” Sierra Club v. Jackson, 648 F.3d 848, 856 (D.C.

Cir. 2011) (internal quotation marks and citation omitted).

In short, the most natural reading of the Recovery Act is

that it permits FHFA, but does not compel it in any judicially

enforceable sense, to preserve and conserve Fannie’s and

Freddie’s assets and to return the Companies to private

operation. And, more to the point, the Act imposes no precise

order in which FHFA must exercise its multi-faceted

conservatorship powers.

23

FHFA’s execution of the Third Amendment falls squarely

within its statutory authority to “[o]perate the [Companies],”

12 U.S.C. § 4617(b)(2)(B); to “reorganiz[e]” their affairs, id.

§ 4617(a)(2); and to “take such action as may

be * * * appropriate to carry on the[ir] business,” id.

§ 4617(b)(2)(D)(ii). Renegotiating dividend agreements,

managing heavy debt and other financial obligations, and

ensuring ongoing access to vital yet hard-to-come-by capital

are quintessential conservatorship tasks designed to keep the

Companies operational. The institutional stockholders no

doubt disagree about the necessity and fiscal wisdom of the

Third Amendment. But Congress could not have been clearer

about leaving those hard operational calls to FHFA’s

managerial judgment.

That, indeed, is why Congress provided that, in exercising

its statutory authority, FHFA “may” “take any

action * * * which the Agency determines is in the best

interests of the regulated entity or the Agency.” 12 U.S.C.

§ 4617(b)(2)(J) (emphasis added). Notably, while FIRREA

explicitly permits FDIC to factor the best interests of depositors

into its conservatorship judgments, id. § 1821(d)(2)(J)(ii), the

Recovery Act refers only to the best interests of FHFA and the

Companies—and not those of the Companies’ shareholders or

creditors. Congress, consistent with its concern to protect the

public interest, thus made a deliberate choice in the Recovery

Act to permit FHFA to act in its own best governmental

interests, which may include the taxpaying public’s interest.

The dissenting opinion (at 8) views Sections

4617(b)(2)(D) and (E) as “mark[ing] the bounds of FHFA’s

conservator or receiver powers.” Not so. As a plain textual

matter, the Recovery Act expressly provides FHFA many

“[g]eneral powers” “as conservator or receiver,” 12 U.S.C.

§ 4617(b)(2), that are not delineated in Section 4617(b)(2)(D)

24

or (E). See id. § 4617(b)(2)(A) (assuming “all rights, titles,

powers, and privileges of the regulated entity, and of any

stockholder, officer, or director of such regulated entity with

respect to the regulated entity and the assets of the regulated

entity”); id. § 4617(b)(2)(B) (power to “[o]perate the regulated

entity”); id. § 4617(b)(2)(C) (power to “provide for the

exercise of any function by any stockholder, director, or officer

of any regulated entity”); id. § 4617(b)(2)(G) (power to

“transfer or sell any asset or liability of the regulated entity in

default”); id. § 4617(b)(2)(H) (power to “pay [certain] valid

obligations of the regulated entity”); id. § 4617(b)(2)(I) (power

to issue subpoenas and take testimony under oath). See also id.

§ 4617(d)(1) (granting FHFA as the conservator or receiver the

power to “repudiate [certain] contract[s] or lease[s]”).

The institutional stockholders also argue that, because

Section 4617(b)(2)(D) describes FHFA’s “[p]owers as

conservator” by providing that FHFA “may * * * take such

action as may be” “necessary to put the [Companies] in a sound

and solvent condition” and “appropriate to * * * preserve and

conserve [their] assets,” FHFA may act only when those two

conditions are satisfied. Institutional Pls. Reply Br. at 13. In

their view, FHFA “does not have other powers as conservator.”

Id.

The short answer is that the Recovery Act says nothing

like that. It contains no such language of precondition or

mandate. Indeed, if that is what Congress meant, it would have

said FHFA “may only” act as necessary or appropriate to those

tasks. Not only is that language missing from the Recovery

Act, but Congress did not even say that FHFA “should”—let

alone, “should first”—preserve and conserve assets or “should”

first put the Companies in a sound and solvent condition. Nor

did it articulate FHFA’s power directly in terms of asset

preservation or sound and solvent company operations. What

25

the statute says is that FHFA “may * * * take such action as

may be” “necessary to put the [Companies] in a sound and

solvent condition” and “may be” “appropriate to * * * preserve

or conserve [the Companies’] assets.” 12 U.S.C.

§ 4617(b)(2)(D) (emphases added). So at most, the Recovery

Act empowers FHFA to “take such action” as may be necessary

or appropriate to fulfill several goals. That is how Congress

wrote the law, and that is the law we must apply. See Barnhart

v. Sigmon Coal Co., 534 U.S. 438, 461–462 (2002) (“[C]ourts

must presume that a legislature says in a statute what it means

and means in a statute what it says there.”) (quoting

Connecticut Nat’l Bank v. Germain, 503 U.S. 249, 253–254

(1992)); Klayman v. Zuckerberg, 753 F.3d 1354, 1358 (D.C.

Cir. 2014) (“[I]t is this court’s obligation to enforce statutes as

Congress wrote them.”). 8

(ii) Even if the Recovery Act did impose a primary duty to

preserve and conserve assets, nothing in the Recovery Act says

that FHFA must do that in a manner that returns them to their

prior private, capital-accumulating, and dividend-paying

condition for all stockholders. See Institutional Pls. Br. at 44.

Tellingly, the institutional stockholders and dissenting opinion

accept that the original Stock Agreements and the First and

Second Amendments fit comfortably within FHFA’s statutory

authority as conservator. See Dissenting Op. at 21

(acknowledging that FHFA “manage[d] the Companies within

8

The dissenting opinion suggests that Congress’s use of permissive

“may” terminology is “a simple concession to the practical reality

that a conservator may not always succeed in rehabilitating its ward.”

Dissenting Op. at 9 n.1. Not so. Even with the hypothesized addition

of mandatory terms to the statute, the Act would at most command

FHFA to take actions “necessary to put the [Companies] in a sound

and solvent condition” and “appropriate to * * * preserve and

conserve [their] assets.” 12 U.S.C. § 4617(b)(2)(D). FHFA’s

compliance thus would turn on its actions, not on their outcome.

26

the conservator role” until “the tide turned * * * with the Third

Amendment”). But the Stock Agreements and First and

Second Amendments themselves both obligated the

Companies to pay large dividends to Treasury and prohibited

them, without Treasury’s approval, from “declar[ing] or

pay[ing] any dividend (preferred or otherwise) or mak[ing] any

other distribution (by reduction of capital or otherwise),

whether in cash, property, securities or a combination thereof.”

E.g., J.A. 2451; cf. 12 U.S.C. § 1719(g)(1)(C)(vi) (“To protect

the taxpayers, the Secretary of the Treasury shall take into

consideration,” inter alia, “[r]estrictions on the use of

corporation resources, including limitations on the payment of

dividends[.]”).

That means that FHFA’s ability as conservator to give

Treasury (and, by extension, the taxpayers) a preferential right

to dividends, to the effective exclusion of other stockholders,

was already put in place by the unchallenged and thus

presumptively proper Stock Agreements and Amendments that

predated the Third Amendment. The Third Amendment just

locked in an exclusive allocation of dividends to Treasury that

was already made possible by—and had been in practice

under—the previous agreements, in exchange for continuing

the Companies’ unprecedented access to guaranteed capital.

The institutional stockholders point to Section 4617(a)(2)

as a purported source of FHFA’s mandatory duty to return the

Companies to their old financial ways. But that Section

provides only that FHFA’s Director has the power to appoint

FHFA as “conservator or receiver for the purpose of

reorganizing, rehabilitating, or winding up the affairs of a

regulated entity.” 12 U.S.C. § 4617(a)(2). It is then the multi-

paged remaining portion of Section 4617 that details at

substantial length FHFA’s many “[g]eneral powers” as

conservator or receiver. Id. § 4617(b)(2).

27

Furthermore, that explicit power to “reorganiz[e]”

supports FHFA’s action because the Third Amendment

reorganized the Companies’ financial operations in a manner

that ensures that quarterly dividend obligations are met without

drawing upon Treasury’s commitment and thereby increasing

Treasury’s liquidation preference. FHFA’s textual authority to

reorganize and rehabilitate the Companies, in other words,

forecloses any argument that the Recovery Act made the status

quo ante a statutorily compelled end game.

In addition, the Recovery Act openly recognizes that

sometimes conservatorship will involve managing the

regulated entity in the lead up to the appointment of a

liquidating receiver. See 12 U.S.C. § 4617(a)(4)(D) (providing

that appointment of FHFA as a receiver automatically

terminates a conservatorship under the Act). The authority

accorded FHFA as a conservator to reorganize or rehabilitate

the affairs of a regulated entity thus must include taking

measures to prepare a company for a variety of financial

scenarios, including possible liquidation. Contrary to the

dissenting opinion (at 11), that does not make FHFA a “hybrid”

conservator-receiver. It makes FHFA a fully armed

conservator empowered to address all potential aspects of the

Companies’ financial condition and operations at all stages

when confronting a threatened business collapse of truly

unprecedented magnitude and with national economic

repercussions.

The institutional stockholders nonetheless argue that,

rather than adopt the Third Amendment’s dividend allocation,

FHFA could instead have adopted a payment-in-kind dividend

option that would have increased Treasury’s liquidation

preference by 12% in return for avoiding a 10% dividend

payment. Perhaps. But the Recovery Act does not compel that

choice over the variable dividend to Treasury put in place by

28

the Third Amendment. Either way, Section 4617(f) flatly

forbids declaratory and injunctive relief aimed at

superintending to that degree FHFA’s conservatorship or

receivership judgments. 9

The dissenting opinion claims that the Third Amendment’s

prevention of capital accumulation went too far because it

constitutes a “de facto receiver[ship]” or “de facto liquidation,”

and thus could not possibly constitute a permissible

“conservator” measure. See Dissenting Op. at 10, 17, 25. That

position presumes the existence of a rigid boundary between

the conservator and receiver roles that even the dissenting

opinion seems to admit may not exist. See Dissenting Op. at 7

(acknowledging that “the line between a conservator and a

receiver may not be completely impermeable”). Wherever that

line may be, it is not crossed just because an agreement that

ensures continued access to vital capital diverts all dividends to

the lender, who had singlehandedly saved the Companies from

collapse, even if the dividend payments under that agreement

may at times be greater than the dividend payments under

9

The institutional stockholders also contend that FHFA’s adoption

of the Third Amendment violated Section 4617(a)(7), which

provides that FHFA “shall not be subject to the direction or

supervision of any other agency.” 12 U.S.C. § 4617(a)(7). The

institutional stockholders pleaded, however, only that “on

information and belief, FHFA agreed to the [Third

Amendment] * * * at the insistence and under the direction and

supervision of Treasury.” J.A. 122, ¶ 70. On a motion to dismiss for

failure to state a claim, we are not required to credit a bald legal

conclusion that is devoid of factual allegations and that simply

parrots the terms of the statute. See Ashcroft v. Iqbal, 556 U.S. 662,

678 (2009) (“A pleading that offers labels and conclusions or a

formulaic recitation of the elements of a cause of action will not do.

Nor does a complaint suffice if it tenders naked assertions devoid of

further factual enhancement.”) (citations, internal quotation marks,

and alterations omitted).

29

previous agreements. The proof that no de facto liquidation

occurred is in the pudding: non-capital-accumulating entities

that continue to operate long-term, purchasing more than 11

million mortgages and issuing more than $1.5 trillion in single-

family mortgage-backed securities over four years, are not the

same thing as liquidating entities.

The argument also overlooks that the Third Amendment’s

redirection of dividends to Treasury came in exchange for a

promise of continued access to necessary capital free of the

preexisting risk of accumulating more debt simply to pay

dividends to Treasury. Now, after more than eight years of

conservatorship—four of which have been under the Third

Amendment—Fannie and Freddie have gone from a state of

near-collapse to fluctuating levels of profitability. FHFA thus

has “carr[ied] on the business of” Fannie and Freddie, 12

U.S.C. § 4617(b)(2)(D)(ii), in that they remain fully

operational entities with combined operating assets of $5

trillion, see Treasury Resp. Br. at 35. While the dissenting

opinion worries that the Companies have “no hope of survival

past 2018,” Dissenting Op. at 27, the Third Amendment allows

the Companies after 2018 to draw upon Treasury’s remaining

funding commitment if needed to remedy any negative net

worth. 10

(iii) The institutional stockholders argue that the Third

Amendment violated FHFA’s “fiduciary and statutory

obligations to * * * rehabilitate [the Companies] to normal

10

The dissenting opinion comments that the dividend payments

under the Third Amendment did not go towards paying off what the

Companies borrowed from Treasury. See Dissenting Op. at 21, 23.

Yet the Stock Agreements and the First and Second Amendments,

which the dissenting opinion acknowledges were lawful, id. at 21,

similarly did not provide for the Companies’ dividends to pay down

Treasury’s liquidation preference.

30

business operations,” Institutional Pls. Br. at 34, because the

Amendment was as a factual matter not needed to prevent

further indebtedness, and was instead intended to secure a

windfall for Treasury (and indirectly taxpayers) at the expense

of the stockholders. They likewise contend that FHFA’s

motivation for adopting the Third Amendment all along has

been to liquidate the Companies. They rest those arguments on

factual allegations that FHFA and Treasury knew Fannie and

Freddie had just turned an economic corner, and had

experienced substantial increases in their net worth. In that

regard, the institutional stockholders cite evidence that FHFA

and Treasury were aware before they adopted the Third

Amendment that Fannie and Freddie might each experience a

substantial one-time increase in net worth in 2013 and 2014 due

to the realization of certain deferred tax assets. They also point

to presentations Fannie Mae made to FHFA and Treasury in

July and August before the Third Amendment was executed,

predicting that Fannie Mae and Freddie Mac would need only

small draws from Treasury’s commitment (totaling less than $9

billion) to pay Treasury its dividend through the year 2022. In

the institutional stockholders’ view, FHFA’s alleged

knowledge that rosier days were dawning shows that FHFA

had no legitimate conservatorship reason to adopt the Third

Amendment rather than to pursue measures that would allow

the Companies to accumulate capital and return to the

dividend-paying status quo ante.

To be clear, though, the institutional stockholders argue

that the Third Amendment would be just as flawed in their view

even if Fannie and Freddie had made no profits, were badly

hemorrhaging money in 2013 and 2014, and thus were in dire

need of the Third Amendment’s promise of continued access

to capital, free from dividend obligations that would have

increased still further Treasury’s liquidation preference. See

Oral Arg. Tr. 22–24 (Q: “[D]oes the argument that they were

31

not acting as a proper conservator depend on the fact that they

were in fact profitable? A: “[N]o, it doesn’t.”). 11

Treasury argues, by contrast, that FHFA was taking a

broader and longer-term view of the Companies’ financial

condition. In almost every quarter before the Third

Amendment was adopted, Fannie and Freddie had been unable

to make their dividend payments to Treasury without taking on

more debt to Treasury. In SEC filings, Fannie and Freddie

themselves predicted that they would be unable to pay the 10%

dividend over the long term. See, e.g., J.A. 1983 (Fannie Mae

statement that it “do[es] not expect to generate net income or

comprehensive income in excess of [its] annual dividend

obligation to Treasury over the long term[,]” so its “dividend

obligation to Treasury will increasingly drive [its] future draws

under the senior [Stock Agreement]”); id. at 2160 (similar for

Freddie Mac). Other market participants shared that view. See,

e.g., id. at 655 (Moody’s report).

According to Treasury, the Third Amendment put a

structural end to “the circular practice of the Treasury

advancing funds to [Fannie and Freddie] simply to pay

dividends back to Treasury.” Treasury Press Release, supra.

Said another way, the Third Amendment changed the dividend

formula to require Fannie and Freddie to pay whatever

dividend they could afford—however little, however much—

to prevent them from ever again having to fruitlessly borrow

11

After the large dividends in 2013 and 2014, Fannie and Freddie

made a far smaller dividend payment—a combined $15.8 billion—

in 2015. In the first quarter of 2016, Freddie Mac had a

comprehensive loss of $200 million and paid no dividend at all. See

FREDDIE MAC, FORM 10-Q FOR THE QUARTERLY PERIOD ENDED

MARCH 31, 2016 (May 3, 2016). That loss was due to market forces

such as interest-rate volatility and widening spreads between interest

rates and benchmark rates. Id. at 1–2.

32

from Treasury to pay Treasury. If Fannie and Freddie made

profits, Treasury would reap the rewards; if they suffered

losses, Treasury would have to forgo payment entirely.

The problem with the institutional stockholders’ argument

is that the factual question of whether FHFA adopted the Third

Amendment to arrest a “debt spiral” or whether it was intended

to be a step in furthering the Companies’ return to “normal

business operations” is not dispositive of FHFA’s authority to

adopt the Third Amendment. Nothing in the Recovery Act

confines FHFA’s conservatorship judgments to those measures

that are driven by financial necessity. And for purposes of

applying Section 4617(f)’s strict limitation on judicial relief,

allegations of motive are neither here nor there, as the

dissenting opinion agrees (at 20). The stockholders cite

nothing—nor can we find anything—in the Recovery Act that

hinges FHFA’s exercise of its conservatorship discretion on

particular motivations. See Leon County, Fla. v. FHFA, 816 F.

Supp. 2d 1205, 1208 (N.D. Fla. 2011) (“Congress barred

judicial review of the conservator’s actions without making an

exception for actions said to be taken from an improper

motive.”).

Likewise, the duty that the Recovery Act imposes on

FHFA to comply with receivership procedural protections

textually turns on FHFA actually liquidating the Companies.

See, e.g., 12 U.S.C. § 4617(b)(3)(B) (“The receiver, in any case

involving the liquidation or winding up of the affairs of [Fannie

or Freddie], shall * * * promptly publish a notice to the

creditors of the regulated entity to present their claims, together

with proof, to the receiver[.]”). Undertaking permissible

conservatorship measures even with a receivership mind would

not be out of statutory bounds.

33

The institutional stockholders’ burden instead is to show

that FHFA’s actions were frolicking outside of statutory limits

as a matter of law. What matters then is the substantive

measures that FHFA took, and nothing in the Recovery Act

mandated that FHFA take steps to return Fannie Mae and

Freddie Mac at the first sign of financial improvement to the

old economic model that got them into so much trouble in the

first place. Nor did anything in the Recovery Act forbid FHFA

from adopting measures that took a more comprehensive, wait-

and-see view of the Companies’ long-term financial condition,

or simply kept the Companies’ heads above water while FHFA

observed their economic performance over time and through

ever-changing market conditions. See, e.g., supra note 11. 12

(iv) The institutional stockholders cite state-law and

historical sources to suggest that FHFA was not acting as a

common-law conservator normally would when it adopted the

Third Amendment. See Institutional Pls. Br. at 29–33. The

problem for the plaintiffs is that arguments about the contours

of common-law conservatorship do nothing to show that FHFA

exceeded statutory bounds, which is what National Trust I

referenced. Under the Recovery Act, FHFA as conservator

may “take any action authorized by this section, which the

Agency determines is in the best interests of the regulated

entity or the Agency.” 12 U.S.C. § 4617(b)(2)(J)(ii) (emphasis

added). That explicit statutory authority to take

12

We grant the plaintiffs’ various motions to supplement the record

with evidence of what FHFA and Treasury officials knew about the

Companies’ predicted financial performance and when. That

evidence does not affect our analysis, and we see no need to remand

the claims for the district court to consider a fuller administrative

record because the Recovery Act simply does not impose upon

FHFA the precise duties that the institutional plaintiffs’ factual

arguments suppose.

34

conservatorship actions in the conservator’s own interest,

which here includes the public and governmental interests,

directly undermines the dissenting opinion’s supposition that

Congress intended FHFA to be nothing more than a common-

law conservator. See Dissenting Op. at 16 (asserting that, in

the common-law probate context, a conservator is generally

“forbid[den] * * * from acting for the benefit of the

conservator himself or a third party”).

On top of that, Congress in the Recovery Act gave FHFA

the ability to obtain from Treasury capital infusions of

unprecedented proportions, as long as the deal FHFA struck

with Treasury “protect[ed] the taxpayer” and “provide[d]

stability to the financial markets.” 12 U.S.C. §§ 1455,

1719(g)(1)(B)(i), (iii). That $200 billion-plus lifeline is what

saved the Companies—none of the institutional stockholders

were willing to infuse that kind of capital during desperate

economic times—and bears no resemblance to the type of

conservatorship measures that a private common-law

conservator would be able to undertake. Indeed, the dissenting

opinion acknowledges that FHFA “operating as a conservator

may act in its own interests to protect both the Companies and

the taxpayers from whom [FHFA] was ultimately forced to

borrow[.]” Dissenting Op. at 19. To paraphrase the dissenting

opinion (at 27), Congress made clear in the Recovery Act that

FHFA is not your grandparents’ conservator. For good reason.

The dissenting opinion asserts that our reading of Section

4617(b)(2)(J)(ii) effectively “forecloses any opportunity for

meaningful judicial review of FHFA’s actions,” Dissenting Op.

at 18, and decries the abandonment of the “rule of law,” see id.

at 2. That is quite surprising to hear. As the balance of our

opinion makes clear—much of which the dissenting opinion

joins—the Recovery Act only limits judicial remedies (banning

injunctive, declaratory, and other equitable relief) after a court

35

determines that the actions taken fall within the scope of

statutory authority. The Act does not prevent either

constitutional claims (none are raised here) or judicial review

through cognizable actions for damages like breach of contract.

The dissenting opinion also argues that the court’s holding

is inconsistent with Congress’s provision of judicial review for

FHFA’s actions in Section 4617(a)(5). Dissenting Op. at 18.

But Section 4617(a)(5) permits judicial review only at the

behest of a regulated entity itself and even then only of the

Director’s decision to appoint FHFA as a conservator or

receiver. 13 That narrow focus of the provision is underscored

by the requirement that the lawsuit must be promptly filed

within thirty days of the appointment decision (a deadline that

none of the plaintiffs here met). We thus beg to differ with the

dissenting opinion’s claim (at 18, 22) that Section 4617(a)(5)

provides more intrusive judicial review for actions FHFA takes

when acting as a receiver, many of which would presumably

occur outside of that thirty-day filing window. Cf. James

Madison Ltd. by Hecht v. Ludwig, 82 F.3d 1085, 1092–1094

13

Section 4617(a)(5) provides in full:

(A) In general

If the Agency is appointed conservator or receiver under this

section, the regulated entity may, within 30 days of such

appointment, bring an action in the United States district

court for the judicial district in which the home office of such

regulated entity is located, or in the United States District

Court for the District of Columbia, for an order requiring the

Agency to remove itself as conservator or receiver.

(B) Review

Upon the filing of an action under subparagraph (A), the

court shall, upon the merits, dismiss such action or direct the

Agency to remove itself as such conservator or receiver.

12 U.S.C. § 4617(a)(5).

36

(D.C. Cir. 1996) (distinguishing between provisions in

FIRREA for judicial review of the appointment of FDIC as

conservator or receiver and those governing judicial review of

the FDIC’s exercise of its powers as conservator or receiver).

Nothing in our reading of Section 4617(b)(2)(J)(ii), which

governs what decisions a properly appointed conservator or

receiver makes, undermines the sharply cabined opportunity

for early-stage judicial review of the appointment decision

itself.

* * * * *

In short, for all of their arguments that FHFA has exceeded

the bounds of conservatorship, the institutional stockholders

have no textual hook on which to hang their hats. Indeed, they

do not dispute that FHFA had the authority as conservator to

enter the Companies into the Stock Agreements with Treasury

to raise vitally needed capital, to agree to pay dividends to

Treasury on the stocks sold as part of that capital-raising

bargain, to foreclose dividend payments to private stockholders

in that process, cf. 12 U.S.C. § 1719(g)(1)(C)(vi), or to amend

the terms of the Stock Agreements. The dissenting opinion

even admits that FHFA’s actions prior to the Third

Amendment—which include the debt-inducing dividends paid

under the First and Second Amendments as well as the original

Stock Agreements—were “within the conservator role.” See

Dissenting Op. at 21.

What the institutional stockholders and dissenting opinion

take issue with, then, is the allocated amount of dividends that

FHFA negotiated to pay its financial-lifeline stockholder—

Treasury—to the exclusion of other stockholders, and that

decision’s feared impact on business operations in the future.

But Section 4617(f) prohibits us from wielding our equitable

relief to second-guess either the dividend-allocating terms that

37

FHFA negotiated on behalf of the Companies, or FHFA’s

business judgment that the Third Amendment better balances

the interests of all parties involved, including the taxpaying

public, than earlier approaches had. See County of Sonoma v.

FHFA, 710 F.3d 987, 993 (9th Cir. 2013) (“[I]t is not our place

to substitute our judgment for FHFA’s[.]”). Because the Third

Amendment falls within FHFA’s broad conservatorship

authority under the Recovery Act, we must enforce Section

4617(f)’s explicit prohibition on the equitable relief that the

institutional stockholders seek.

B. Section 4617(f) Bars the Challenges to FHFA’s

Compliance with the APA

The institutional stockholders also claim that FHFA’s

adoption of the Third Amendment amounted to arbitrary and

capricious agency action in violation of the APA. That

argument cannot surmount Section 4617(f)’s barrier to

equitable relief—the only form of relief statutorily authorized

for an APA violation. See 5 U.S.C. § 702 (allowing “action in

a court * * * seeking relief other than money damages”); Cohen

v. United States, 650 F.3d 717, 723 (D.C. Cir. 2011) (en banc).

Indeed, Section 4617(f)’s strict limitation on judicial review

would be an empty promise if it evaporated upon the assertion

that FHFA’s actions ran afoul of some other statute.

We accordingly “do not think it possible, in light of the

strong language of” Section 4617(f) to read the Recovery Act’s

grant of “‘powers’ and ‘authorities’ to include the limitation

that those powers be subject to—and hence enjoinable for non-

compliance with—any and all other federal laws.” See

National Trust I, 995 F.2d at 240. Just as we cannot second-

guess FHFA’s conservatorship decisions under the Recovery

Act, we cannot quarterback those actions under the APA either.

38

C. Section 4617(f) Bars the Challenges to Treasury’s

Compliance with the Recovery Act and the APA

Lastly, the institutional stockholders argue that

declaratory and injunctive relief should be available against

Treasury because its own actions in signing on to the Third

Amendment both violated the Recovery Act and were arbitrary

and capricious in violation of the APA. Those claims fall

within Section 4617(f)’s sweep as well.

To be sure, Section 4617(f) most explicitly bars judicial

relief against FHFA, and not Treasury. But Section 4617(f)

also forecloses judicial relief that would “affect” the exercise

of FHFA’s “powers or functions” as conservator or receiver.

12 U.S.C. § 4617(f). An action “can ‘affect’ the exercise of

powers by an agency without being aimed directly at [that

agency].” Hindes v. FDIC, 137 F.3d 148, 160 (3d Cir. 1998);

see also Telematics Int’l, Inc. v. NEMLC Leasing Corp., 967

F.2d 703, 707 (1st Cir. 1992) (Enjoining a third party “would

have the same effect, from the FDIC’s perspective, as directly

enjoining the FDIC[.]”).

In this case, the effect of any injunction or declaratory

judgment aimed at Treasury’s adoption of the Third

Amendment would have just as direct and immediate an effect

as if the injunction operated directly on FHFA. After all, it

takes (at least) two to contract, and the Companies, under

FHFA’s conservatorship, are just as much parties to the Third

Amendment as Treasury. One side of the agreement cannot

exist without the other.

Accordingly, Section 4617(f)’s prohibition on relief that

“affect[s]” FHFA applies here because the requested

injunction’s operation would have exactly the same force and

effect as enjoining FHFA directly. See Dittmer Properties,

39

L.P. v. FDIC, 708 F.3d 1011, 1017 (8th Cir. 2013) (“Dittmer’s

request for injunctive relief is barred by § 1821(j), even though

the FDIC is no longer the holder of the note, because the relief

requested—a declaration that the note is void as to Dittmer—

affects the FDIC’s ability to function as receiver in th[is]

case.”). 14

The institutional stockholders argue that this case is

different because they claim Treasury “violated a provision of

federal law unrelated to the conduct of a receivership.”

Institutional Pls. Reply Br. at 25. But Section 4617(f)’s plain

language focuses on the “[e]ffect” of “any action” on FHFA’s

exercise of its powers; the cause of that effect is textually

irrelevant. What matters here is that the institutional

stockholders’ claims against Treasury are integrally and

inextricably interwoven with FHFA’s conduct as conservator.

Specifically, the complaint alleges that Treasury violated a

provision of the Recovery Act—the very same law that governs

FHFA’s conservatorship activities—and that the Recovery Act

prevented Treasury from entering into the Third Amendment

with the Companies, operating at the direction of FHFA as

conservator. Such a holding would just be another way of

declaring that the Recovery Act barred FHFA from entering the

Companies into the Third Amendment with Treasury.

Treasury’s action thus cannot be enjoined without

simultaneously unraveling FHFA’s own exercise of its powers

and functions.

14

See also Kuriakose v. Federal Home Loan Mortgage Corp., 674

F. Supp. 2d 483, 494 (S.D.N.Y. 2009) (“By moving to declare

unenforceable the non-participation clause in Freddie Mac severance

agreements, in essence Plaintiffs are seeking an order which restrains

the FHFA from enforcing this contractual provision in the

future. * * * [The Recovery Act] clearly provides that this Court

does not have the jurisdiction to interfere with such authority.”).

40

In so holding, we have no occasion to decide whether or

how Section 4617(f) might apply to “an order against a third

party [that] would be of little consequence to [FHFA’s] overall

functioning as receiver” or conservator, Hindes, 137 F.3d at

161, or to third-party activities that are by their nature less

interwoven with FHFA’s judgments as conservator or receiver.

It is enough that, in this case, the direct and unavoidable effect

of invalidating Treasury’s contract with the Companies would

be to void the contract with Treasury that FHFA concluded on

the Companies’ behalf. That would be a “dramatic and

fundamental” incursion on FHFA’s exercise of its

conservatorship authority. Id. 15

IV. The Class Plaintiffs’ Claims

The class plaintiffs appeal the dismissal of their claims

against Treasury, the FHFA, and the Companies (as nominal

defendants) for breach of fiduciary duty, 16 and against the

FHFA and the Companies for breach of contract and for breach

15

None of the cases that plaintiffs cite has anything to do with third-

party claims that would directly restrain or affect the actions of a

conservator. See, e.g., Ecco Plains, LLC v. United States, 728 F.3d

1190, 1202 n.17 (10th Cir. 2013) (stating that Section 1821(j) does

not apply to a claim for money damages); National Trust II, 995 F.2d

at 241 (characterizing Section 1821(j) as “[t]he prohibition against

restraining the FDIC” in a case that only sought to restrain the FDIC

itself).

16

The class plaintiffs named the Companies as nominal defendants

to their derivative claims on behalf of the Companies for breach of

fiduciary duty because “the corporation in a shareholder derivative

suit should be aligned as a defendant when the corporation is under

the control of officers who are the target of the derivative suit.” Knop

v. Mackall, 645 F.3d 381, 382 (D.C. Cir. 2011).

41

of the implied covenant of good faith and fair dealing. 17 Two

groups of institutional shareholders – namely, the Arrowood

plaintiffs and the Fairholme plaintiffs – likewise asserted

common-law claims in district court (in addition to their APA

claims), but they did not preserve their appeal against the

dismissal of those claims: They did not raise in their opening

brief their claims for breach of contract. The Fairholme

plaintiffs also forfeited their claim for breach of fiduciary duty

against the FHFA by failing to raise in their opening brief the

district court’s alternative holding that the “claim is derivative

. . . and, therefore, barred under § 4617(b)(2)(A)(i),” Perry

Capital LLC, 70 F. Supp. 3d at 229 n.24. See Jankovic v. Int’l

Crisis Grp., 494 F.3d 1080, 1086 (D.C. Cir. 2007).

A. The Claims Against Treasury

The class plaintiffs alleged that by executing the Third

Amendment Treasury violated fiduciary duties to the

Companies and their shareholders that are imposed by state

corporate law because it is a controlling shareholder in the

Companies. We have subject matter jurisdiction over the class

plaintiffs’ claims for breach of fiduciary duty against Treasury

because “all civil actions to which [Freddie Mac] is a party

shall be deemed to arise under the laws of the United States,

and the district courts of the United States shall have original

jurisdiction of all such actions.” 12 U.S.C. § 1452(f); see also

Lackey v. Wells Fargo Bank, N.A., 747 F.3d 1033, 1035 n.2

(8th Cir. 2014) (“Because Freddie Mac is a party to this case,

17

The FHFA and the Companies submitted a joint brief. When

describing their arguments on appeal, therefore, we will refer to them

collectively as the FHFA.

42

the district court had original jurisdiction pursuant to 12 U.S.C.

§ 1452(f)”). 18

18

We previously have interpreted a so-called “Deemer Clause” to

provide jurisdiction under 28 U.S.C. § 1331, Auction Co. of Am. v.

FDIC, 132 F.3d 746, 751 (D.C. Cir. 1997), clarified on denial of

reh’g, 141 F.3d 1198 (1998), but have also held a Deemer Clause

instead grants jurisdiction “directly” under Article III, § 2 of the

Constitution, A.I. Trade Fin., Inc. v. Petra Int’l Banking Corp., 62

F.3d 1454, 1460 (D.C. Cir. 1995). Although we need not decide

which is the correct approach, we must assure ourselves the Congress

has “not expand[ed] the jurisdiction of the federal courts beyond the

bounds established by the Constitution.” Verlinden B.V. v. Cent.

Bank of Nigeria, 461 U.S. 480, 491 (1983). For federally chartered

organizations such as Freddie Mac, the Congress may grant federal

jurisdiction “so long as the legislature does more than merely confer

a new jurisdiction,” but also “ensure[s] the proper administration of

some federal law (although the disputed issues in any specific case

may be confined to matters of state law).” A.I. Trade, 62 F.3d at

1461-62 (internal quotation marks and brackets omitted).

Whether the Deemer Clause is constitutional depends upon the

substantive law anchoring that grant of federal jurisdiction today, not

just the legislation extant when the clause was enacted, viz., the

Emergency Home Finance Act of 1970, Pub. L. No. 91-351,

§ 303(e)(2), 84 Stat. 450, 453. Federal law today governs the

composition and election of Freddie Mac’s board of directors, 12

U.S.C. § 1452(a)(2), limits its capital distributions, § 1452(b), sets

forth in detail both the powers of and limitations upon Freddie Mac

with respect to its purchase and disposition of mortgages, §§ 1452(c),

1454(a), exempts the company from certain taxes, § 1452(e), and

provides for conservatorship or receivership by the FHFA, § 4617.

Cf. A.I. Trade, 62 F.3d at 1463. An issue of federal law may well

arise in a suit involving Freddie Mac and “the potential application

of that law provides a sufficient predicate for the exercise of the

federal judicial power.” Id. at 1462. The Congress may, “by

bringing all such disputes within the unifying jurisdiction of the

43

Whether sovereign immunity shields Treasury from suit is

a trickier question because the class plaintiffs forfeited any

argument under the Federal Tort Claims Act, 28 U.S.C.

§ 1346(b), by failing to respond to Treasury’s contention that

the FTCA is inapplicable. Cf. NetworkIP, LLC v. FCC, 548

F.3d 116, 120 (D.C. Cir. 2008) (“[A]rguments in favor of

subject matter jurisdiction can be waived by inattention or

deliberate choice”). The class plaintiffs argue the APA

provides an alternate waiver of sovereign immunity for their

claims for breach of fiduciary duty against Treasury. Under 5

U.S.C. § 702,

An action in a court of the United States seeking

relief other than money damages and stating a

claim that an agency or an officer or employee

thereof acted or failed to act in an official

capacity or under color of legal authority shall

not be dismissed nor relief therein be denied on

the ground that it is against the United States

....

We agree with the class plaintiffs with respect to their pleas for

declaratory relief against Treasury for several reasons.

First, the class plaintiffs sought “relief other than money

damages,” to which the waiver of § 702 is limited, by

requesting a declaration that Treasury breached its fiduciary

duties. Bowen v. Massachusetts, 487 U.S. 879, 892 (1988)

federal courts,” avoid or ameliorate the potential for “diverse

interpretations of those substantive provisions” that may prove

“vexing to the very commerce” the provisions were undoubtedly

“enacted to promote.” Id. at 1463.

44

(holding declaratory relief is not “money damages”). 19

Therefore, § 702 waives immunity for the class plaintiffs’

claims for breach of fiduciary duty insofar as they seek

declaratory relief.

Second, § 702 waives Treasury’s immunity for the claims

for breach of fiduciary duty because they are not founded upon

a contract. The waiver in § 702 does not apply “if any other

statute that grants consent to suit expressly or impliedly forbids

the relief which is sought.” See also Albrecht v. Comm. on

Emp. Benefits, 357 F.3d 62, 67-68 (D.C. Cir. 2004). We have

interpreted the Tucker Act, 28 U.S.C. § 1491(a)(1), which

waives sovereign immunity for some claims “founded . . .

upon” a contract and brought in the U.S. Court of Federal

Claims, to “impliedly forbid[]” contract claims against the

Government from being brought in district court under the

waiver in the APA. Albrecht, 357 F.3d at 67-68. Treasury on

appeal does not dispute the class plaintiffs’ characterization of

their claims as not contractual, though the agency argued in

district court that the claims were in essence a contract action

because it “assumed [any fiduciary duties] in entering into the

19

Contrary to the class plaintiffs’ assertions, however, their request

for “[s]uch other and further relief as the Court may deem just and

proper” does not qualify as non-monetary relief. J.A. 279 ¶ 12. Such

boilerplate requests – which refer to the proviso of Federal Rule of

Civil Procedure 54(c) that a “final judgment should grant the relief

to which each party is entitled, even if the party has not demanded

that relief in its pleadings” – “come[] into play only after the court

determines it has jurisdiction.” See Hedgepeth ex rel. Hedgepeth v.

Wash. Metro. Area Transit Auth., 386 F.3d 1148, 1152 n.2 (D.C. Cir.

2004) (Roberts, J.). The class plaintiffs do not argue that their

request for “disgorgement,” J.A. 278 ¶ 5, is not “money damages.”

Nor do they invoke the request for rescission of the Third

Amendment that appears outside of the prayer for relief in their

complaint.

45

[Stock Agreements]” with Fannie Mae and Freddie Mac.

Treasury Defs. Mem. in Support of Mot. To Dismiss or for

Summ. J., Doc. No. 19-1, at 44 In re Fannie Mae/Freddie Mac

Senior Preferred Stock Purchase Agreement Class Action

Litigs., 1:13-mc-01288 (Jan. 17, 2014). That Treasury has not

briefed the issue on appeal does not, however, relieve us of our

obligation to assure ourselves we have jurisdiction, see Steel

Co., 523 U.S. at 94; this obligation extends to sovereign

immunity because it is “jurisdictional in nature,” FDIC v.

Meyer, 510 U.S. 471, 475 (1994), and may not be waived by

an agency’s conduct of a lawsuit, Dep’t of the Army v. FLRA,

56 F.3d 273, 275 (D.C. Cir. 1995).

In order to determine whether an action is in “its essence”

contractual, we examine “the source of the rights upon which

the plaintiff bases its claims” and “the type of relief sought (or

appropriate).” Megapulse, Inc. v. Lewis, 672 F.2d 959, 968

(D.C. Cir. 1982); see also Albrecht, 357 F.3d at 68-69. The

class plaintiffs claim that, because it is the controlling

shareholder, Treasury owes the Companies and their

shareholders “fiduciary duties of due care, good faith, loyalty,

and candor.” J.A. 275 ¶ 177; see also Derivative Compl., Doc.

No. 39, at 27 ¶ 74 In re Fannie Mae/Freddie Mac, 1:13-mc-

01288 (July 30, 2014). These claims against Treasury are not

“a disguised contract action,” Megapulse, Inc., 672 F.2d at 968,

because they do not seek to enforce any duty imposed upon

Treasury by the Stock Agreements – the only relevant contracts

to which Treasury is a party. Although any fiduciary duty

allegedly owed by Treasury as a controlling shareholder in the

Companies arose from its purchase of shares pursuant to the

Stock Agreements, we do not think that “any case requiring

some reference to . . . a contract is necessarily on the contract

and therefore directly within the Tucker Act.” Id. at 967-68.

The class plaintiffs do not contend Treasury breached the terms

46

of the Stock Agreements nor otherwise invoke them except to

establish that Treasury is a controlling shareholder.

The relief the class plaintiffs seek does not further

illuminate whether their claims are essentially contractual. In

Megapulse, we held the action was not founded upon a contract

in part because the plaintiffs sought no specific performance of

the contract and no damages, 672 F.2d at 969, presumably

because specific performance is an explicitly contractual

remedy and because “damages are a prototypical contract

remedy,” A & S Council Oil Co. v. Lader, 56 F.3d 234, 240

(D.C. Cir. 1995). Here, the class plaintiffs seek a declaration

that Treasury breached its fiduciary duties and an award of

“compensatory damages” in favor of the Companies. These

forms of relief are not specific to actions that sound in contract,

cf. Spectrum Leasing Corp. v. United States, 764 F.2d 891,

894-95 (D.C. Cir. 1985) (concluding a claim was essentially

contractual in part because the relief sought amounted to “the

classic contractual remedy of specific performance”), and any

relief would not be determined by reference to the terms of the

contract, cf. Albrecht, 357 F.3d at 69 (concluding a claim was

essentially contractual in part because a contract would

“determine whether the relief sought . . . is available”). 20 The

plaintiffs also seek rescission with respect to their claim

20

The class plaintiffs also request “disgorgement” in favor of the

Companies, but they do not explain further what measure of relief

they seek and on appeal they appear to characterize the plea as one

for damages. We do not take the class plaintiffs to seek more than

restitution of the dividends paid to Treasury pursuant to the Third

Amendment and in excess of the 10% dividend, because they have

not alleged that Treasury has otherwise profited from its execution

of the Third Amendment. Restitution of the benefits conferred by a

plaintiff is not specific to claims for breach of contract, 1 DAN B.

DOBBS, LAW OF REMEDIES § 4.1(1), pp. 552-53 (2d ed. 1993), so the

plea for disgorgement does not alter our analysis.

47

regarding Fannie Mae. This plea does not render the claim

essentially contractual even though rescission is typically a

remedy for breach of contract because there is no question that

any breach of contract claim would concern the Purchase

Agreement and the class plaintiffs seek rescission of only the

Third Amendment. In sum, the Tucker Act does not “impliedly

forbid[]” us from awarding relief against Treasury based on the

waiver of immunity in § 702 because the class plaintiffs’

claims are not founded upon a contract.

Third, Treasury’s argument that § 702 does not waive its

immunity from suit for state law claims is foreclosed by our

precedent. We have “repeatedly” and “expressly” held in the

broadest terms that “the APA’s waiver of sovereign immunity

applies to any suit whether under the APA or not.” Trudeau v.

FTC, 456 F.3d 178, 186 (D.C. Cir. 2006) (internal quotation

marks omitted). Furthermore, we concluded in United States

Information Agency v. Krc, 989 F.2d 1211 (D.C. Cir. 1993),

that § 702 waived sovereign immunity for a (presumably) state

tort claim against the Government because the FTCA did not

“impliedly forbid” the non-monetary relief the plaintiff sought.

Id. at 1216 (citing § 702).

Fourth, the class plaintiffs forthrightly point out that we

have held “the waiver of sovereign immunity under § 702 is

limited by the ‘adequate remedy’ bar of § 704,” Nat’l Wrestling

Coaches Ass’n v. Dep’t of Educ., 366 F.3d 930, 947 (D.C. Cir.

2004) (quoting 5 U.S.C. § 704); see also Transohio Sav. Bank

v. Dir., OTS, 967 F.2d 598, 607 (D.C. Cir. 1992), and go on to

argue we should look to more recent authority that contradicts

those holdings, see Trudeau, 456 F.3d at 187-89. Again, that

Treasury has no response to this point does not relieve us of our

duty to ascertain whether Treasury’s immunity has been

waived. We agree with the class plaintiffs that the holdings in

48

National Wrestling and Transohio Savings are no longer good

law.

Section 704 provides that “final agency action for which

there is no other adequate remedy in a court [is] subject to

judicial review.” 5 U.S.C. § 704. In Cohen v. United States,

650 F.3d 717 (D.C. Cir. 2011) (en banc), after first concluding

that immunity from suit was waived by § 702 with nary a

mention of the adequate remedy bar of § 704, id. at 722-31, we

held that whether there is an “other adequate remedy” for the

purpose of § 704 determines whether a litigant states “a valid

cause of action” under the APA. Id. at 731. We did not

expressly speak to whether the adequate remedy bar limits

immunity, but it strains credulity to think the choice to address

the adequate remedy bar not as a condition of immunity, but

instead as a requirement for a cause of action, was not

deliberate in that case.

A further reason for this reading of Cohen is that we there

cited approvingly, id. at 723, our prior holding in Trudeau, 456

F.3d 178, that the requirement of final agency action in § 704

is not a condition of the waiver of immunity in § 702, but

instead limits the cause of action created by the APA, id. at

187-89. The holding of Trudeau and its endorsement in Cohen

clearly override National Wrestling and Transohio Savings:

We see no textual or logical basis for construing § 704 – which

limits judicial review to “final agency action for which there is

no other adequate remedy” – to condition a waiver of sovereign

immunity on the absence of an adequate remedy but not on the

presence of final agency action. In Trudeau we concluded the

finality requirement does not bear upon the waiver of immunity

in § 702 because the waiver “is not limited to APA cases – and

hence . . . it applies regardless of whether the elements of an

APA cause of action [under § 704] are satisfied.” Id. at 187.

This reasoning applies equally to the adequate remedy bar. See

49

Viet. Veterans of Am. v. Shinseki, 599 F.3d 654, 661 (D.C. Cir.

2010) (relying in part upon our holding that the finality

requirement no longer limits a court’s subject matter

jurisdiction to reach the same conclusion for the adequate

remedy bar and referring to them collectively as the “the APA’s

reviewability provisions”).

Furthermore, in a departure from prior cases, we have

several times recognized that the finality requirement and

adequate remedy bar of § 704 determine whether there is a

cause of action under the APA, not whether there is federal

subject matter jurisdiction. Cent. for Auto Safety v. Nat’l

Highway Traffic Safety Admin., 452 F.3d 798, 805-06 (D.C.

Cir. 2006); Trudeau, 456 F.3d at 183-85; Shinseki, 599 F.3d at

661; Cohen, 650 F.3d at 731 & n.10. Reading § 704 to limit

only the cause of action that may be brought under the APA

and not the grant of immunity in § 702 is in line with our new

understanding of § 704 as narrowly focused upon the

requirements for the APA cause of action. We therefore hold

that § 702 waives Treasury’s immunity regardless whether

there is another adequate remedy under § 704 because the

absence of such a remedy is instead an element of the cause of

action created by the APA.

In sum, pursuant to 12 U.S.C. § 1452(f) and 28 U.S.C.

§ 1291, we have subject matter jurisdiction over the class

plaintiffs’ claims against Treasury for breach of fiduciary duty,

and the Congress waived the agency’s immunity from suit for

these claims, insofar as they are for declaratory relief, in the

APA, 5 U.S.C. § 702. We nonetheless affirm the district

court’s dismissal of the claims for a declaratory judgment. As

discussed in greater detail above, supra at 38-40, 12 U.S.C.

§ 4617(f) bars us from awarding equitable relief against

Treasury with respect to the Third Amendment because doing

50

so would impermissibly “restrain or affect the exercise of

powers or functions of the [FHFA] as a conservator.”

B. The Claims Against the FHFA and the Companies

The class plaintiffs sued the FHFA (and the Companies, as

nominal defendants) for breach of fiduciary duties imposed on

a corporation’s management under state law. They also alleged

claims against the FHFA and the Companies for breach of

contract and breach of the implied covenant of good faith and

fair dealing. We have subject matter jurisdiction over the class

plaintiffs’ claims under 12 U.S.C. § 1452(f). As mentioned

above, our obligation to assure ourselves we have jurisdiction,

see Steel Co., 523 U.S. at 94, extends to sovereign immunity

because it is jurisdictional, Meyer, 510 U.S. at 475. “A waiver

. . . must be unequivocally expressed in statutory text,” Lane v.

Pena, 518 U.S. 187, 192 (1996), so the Government may not

waive immunity merely by its conduct in a lawsuit, Dep’t of

the Army, 56 F.3d at 275. We therefore disregard FHFA’s

point that the agency, “in its capacity as Conservator, has not

asserted sovereign immunity with respect to [its] execution of

the Third Amendment.” FHFA July 2016 Supp. Br. at 4.

Assuming the FHFA has sovereign immunity when it acts

on behalf of the Companies as conservator, cf. Auction Co. of

Am. v. FDIC, 141 F.3d 1198, 1201-02 (D.C. Cir. 1998)

(holding a suit against the FDIC was a suit against the United

States for purposes of jurisdiction and sovereign immunity

where the FDIC “did not act as receiver for any particular

depository”), the Congress has waived the agency’s immunity

by consenting to suit. The Congress has granted Freddie Mac

“power . . . to sue and be sued . . . in any State, Federal, or other

court,” 12 U.S.C. § 1452(c)(7), and has granted Fannie Mae the

same “power . . . to sue and to be sued . . . in any court of

competent jurisdiction, State or Federal,” id. § 1723a(a). The

51

FHFA “by operation of law[] immediately succeed[ed] to . . .

all . . . powers” of the Companies upon its appointment as

conservator – including the Companies’ power to sue and be

sued – under the so-called Succession Clause of the Recovery

Act. Id. § 4617(b)(2)(A)(i). Such a statutory grant of power to

“sue and be sued” constitutes an “unequivocally expressed”

waiver of sovereign immunity. United States v. Nordic Vill.

Inc., 503 U.S. 30, 33-34 (1992); see also Meyer, 510 U.S. at

475. 21

By providing for the FHFA to succeed to the Companies’

power to sue and be sued, the Congress has given its express

consent that the FHFA is subject to suit in the same way the

Companies would otherwise be when the agency acts on their

behalf as conservator. This understanding is borne out by the

FHFA’s other functions under the Succession Clause, which

further provides that the FHFA succeeds to “all rights, titles,

powers, and privileges of the regulated entity.”

§ 4617(b)(2)(A)(i). The Supreme Court interpreted the nearly

identical provision in FIRREA to “place[] the FDIC in the

shoes of the [entity in receivership], to work out its claims

under state law.” O’Melveny & Myers v. FDIC, 512 U.S. 79,

86-87 (1994) (interpreting 12 U.S.C. § 1821(d)(2)(A)(i)). The

Recovery Act further empowers the FHFA, as conservator, to

“take over the assets of and operate the [Companies] with all

the powers of [their] shareholders, . . . directors, and . . .

officers” and to “perform all functions of the [Companies] in

the name of the [Companies].” 12 U.S.C. § 4617(b)(2)(B)(i),

(iii).

21

We need not reach the question whether the FHFA’s

conservatorship of Fannie Mae and Freddie Mac endows the

Companies with sovereign immunity because their “sue and be sued”

clauses would waive any immunity.

52

What if the class plaintiffs’ claims for breach of fiduciary

duty are cognizable under the FTCA, 28 U.S.C. § 1346(b)?

The FTCA does not withdraw the Congress’s waiver of

immunity in this case, for the FTCA provides:

The authority of any federal agency to sue and

be sued in its own name shall not be construed

to authorize suits against such federal agency on

claims which are cognizable under [the FTCA],

and the remedies provided by this title in such

cases shall be exclusive.

28 U.S.C. § 2679(a). The Congress has not, however,

authorized the FHFA to be sued “in its own name” by enacting

a “sue and be sued” clause specifically for the agency. Instead,

the Congress has granted the FHFA the power to be sued just

as the Companies would be absent a conservatorship insofar as

the agency steps into the shoes of the Companies and acts on

their behalf to defend alleged breaches of their obligations.

Because the Companies, pre-conservatorship, were not

affected by the FTCA proviso cited above, neither is the FHFA

when it is sued for an action taken on their behalf – in this case,

the Third Amendment. 22 Nor would the Tucker Act, 28 U.S.C.

22

It follows that the FTCA does not apply to Fannie Mae or Freddie

Mac either, even though the FHFA, as conservator, exercises

complete control over the Companies. The statute provides that the

remedies set forth in the FTCA “shall be exclusive” despite any “sue

and be sued” clause of a “federal agency,” 28 U.S.C. § 2679(a),

which includes “corporations primarily acting as instrumentalities or

agencies of the United States, but does not include any contractor

with the United States,” id. § 2671. Generally, we determine

whether a defendant is such a corporation that is subject to the FTCA

by examining whether the Federal Government has the power “‘to

control the detailed physical performance of the [corporation].’”

Macharia v. United States, 334 F.3d 61, 68 (D.C. Cir. 2003) (quoting

53

§ 1491(a)(1), require the class plaintiffs to file their claims for

breach of contract in the Court of Federal Claims. “If a separate

waiver of sovereign immunity and grant of jurisdiction exist,

district courts may hear cases over which, under the Tucker Act

alone, the Court of Federal Claims would have exclusive

jurisdiction.” Auction Co. of Am. v. FDIC, 132 F.3d 746, 752

n.4 (D.C. Cir. 1997) (suit for breach of contract), clarified on

denial of reh’g, 141 F.3d 1198 (1998).

1. The Succession Clause

The FHFA and the class plaintiffs dispute whether the

common-law claims against the agency are barred by the so-

called Succession Clause, which provides that the FHFA, as

conservator, “succeed[s] to” the stockholders’ rights “with

respect to” the Companies and their assets, 12 U.S.C.

§ 4617(b)(2)(A)(i). In Kellmer v. Raines, 674 F.3d 848 (D.C.

Cir. 2012), we held the Succession Clause “plainly transfers [to

the FHFA the] shareholders’ ability to bring derivative suits”

on behalf of the Companies, but left open whether it transfers

claims as to which the FHFA would face a manifest conflict of

interest. Id. at 850.

The class plaintiffs argue the Succession Clause should not

be read to bar their derivative claims for breach of fiduciary

duty because the FHFA would face a conflict of interest in

pursuing, on behalf of the Companies, claims against itself.

They also argue the Succession Clause does not apply to their

United States v. Orleans, 425 U.S. 807, 814 (1976)). As we have

just concluded, however, the Recovery Act evinces the Congress’s

intention to “place[]” the FHFA “in the shoes” of the Companies,

O’Melveny & Myers, 512 U.S. at 86-87, which become wards of the

Government. The Companies therefore remain subject to suit as

private corporations for violations of state law just as they were

before the FHFA was appointed conservator.

54

direct claims for breach of contract and for breach of fiduciary

duty. The FHFA responds that the Succession Clause transfers

to it the right to bring derivative suits without exception, that

all the claims of the class plaintiffs are derivative, and that the

Succession Clause also transfers any direct claims to the

agency.

The district court held the statute bars all the class

plaintiffs’ claims and dismissed them “pursuant to [Federal

Rule of Civil Procedure] 12(b)(1) for lack of standing,” Perry

Capital LLC, 70 F. Supp. 3d at 233, 235 n.39, 239 n.45, but

whether the Succession Clause bars the claims has no bearing

upon standing under Article III of the Constitution of the

United States. See Lujan v. Defs. of Wildlife, 504 U.S. 555,

560-61 (1992). The district court’s error, however, is of no

moment; we simply examine the issue under Rule 12(b)(6).

EEOC v. St. Francis Xavier Parochial Sch., 117 F.3d 621, 624

(D.C. Cir. 1997) (“Although the district court erroneously

dismissed the action pursuant to Rule 12(b)(1), we could

nonetheless affirm the dismissal if dismissal were otherwise

proper based on failure to state a claim under Federal Rule of

Civil Procedure 12(b)(6)”).

We conclude the Succession Clause transfers to the FHFA

without exception the right to bring derivative suits but not

direct suits. The class plaintiffs’ claims for breach of fiduciary

duty are derivative and therefore barred, but their contract-

based claims are direct and may therefore proceed.

a. The Succession Clause bars derivative suits,

but not direct suits

The Recovery Act transfers some of the shareholders’

rights to the FHFA during conservatorship and receivership

and provides that others are retained by the shareholders during

55

conservatorship but terminated during receivership.

Specifically, the Succession Clause provides that “as

conservator or receiver” the FHFA “shall . . . by operation of

law, immediately succeed to . . . all rights, titles, powers, and

privileges of the regulated entity, and of any stockholder . . .

with respect to the regulated entity and [its] assets.”

§ 4617(b)(2)(A)(i). The Recovery Act further limits

shareholders’ rights during receivership by providing that the

FHFA’s appointment as receiver and consequent succession to

the shareholders’ rights “terminate[s] all rights and claims that

the stockholders . . . of the regulated entity may have against

the assets or charter of the regulated entity or the [FHFA] . . .

except for their right to payment, resolution, or other

satisfaction of their claims” in the administrative claims

process. § 4617(b)(2)(K)(i).

The Recovery Act thereby transfers to the FHFA all claims

a shareholder may bring derivatively on behalf of a Company

whilst claims a shareholder may lodge directly against the

Company are retained by the shareholder in conservatorship

but terminated during receivership. The Act distinguishes

between the transfer of rights “with respect to the regulated

entity and [its] assets” in the Succession Clause and the

termination of rights “against the assets or charter of the

regulated entity” in § 4617(b)(2)(K)(i). Rights “with respect

to” a Company and its assets are only those an investor asserts

derivatively on the Company’s behalf. Cf. Levin v. Miller, 763

F.3d 667, 672 (7th Cir. 2014) (so interpreting the analogous

provision of FIRREA, 12 U.S.C. § 1821(d)(2)(A)(i)). Rights

and claims “against the assets or charter of the regulated entity”

are an investor’s direct claims against and rights to the assets

of the Company once it is placed in receivership in order to be

liquidated, see 12 U.S.C. § 4617(b)(2)(E); that the Recovery

Act terminates such rights and claims in receivership indicates

56

that shareholders’ direct claims against and rights in the

Companies survive during conservatorship. 23

This reading is borne out by the statutory context. If the

Succession Clause transferred all of the stockholders’ rights to

the FHFA in conservatorship and receivership, as the FHFA

contends, then they would have no rights left to assert during

the administrative claims process should a Company be

liquidated. That result is plainly precluded by

§ 4617(b)(2)(K)(i), which excepts from termination upon the

FHFA’s appointment as receiver a shareholder’s “right to

payment, resolution, or other satisfaction of [his or her]

claims.” Furthermore, we see the logic in permitting the

shareholders to retain their rights to bring suit against a

Company during conservatorship and terminating those rights

when the Agency institutes an administrative claims process as

required when it becomes a receiver. See 12 U.S.C.

§ 4617(b)(3)-(5). We note that the Federal Circuit recently

held, albeit without considering the Succession Clause, that

Fannie Mae’s former Chief Financial Officer had no takings

claim based on the company’s failure – pursuant to FHFA’s

regulations – to pay severance benefits as mandated by his

employment contract because the CFO “was left with the right

to enforce his contract against Freddie Mac in a breach of

23

The FHFA argues that “[b]ecause the Conservator already can

pursue derivative claims belonging to the Enterprises, the statutory

phrase ‘rights . . . of any stockholder’ only has meaning if it

encompasses direct claims.” FHFA Br. at 48. This argument is

foreclosed by Kellmer, where we determined the Succession Clause

“plainly transfers [to the FHFA the] shareholders’ ability to bring

derivative suits,” 674 F.3d at 850, and it overlooks that, when the

Companies are in conservatorship, the Succession Clause functions

not only to grant the FHFA powers, but also to take powers from the

shareholders.

57

contract action . . . under state contract law.” Piszel v. United

States, 833 F.3d 1366, 1377 (Fed. Cir. 2016).

The class plaintiffs argue that because, as shareholders,

they retain rights in the Companies during a conservatorship,

the Succession Clause should be read to permit them to sue

derivatively to protect those rights when the FHFA has a

conflict of interest. They point to the decisions of two other

circuits interpreting 12 U.S.C. § 1821(d)(2)(A), a nearly

identical provision in FIRREA, to permit such an

exception. See First Hartford Corp. Pension Plan & Tr. v.

United States, 194 F.3d 1279, 1295 (Fed. Cir. 1999); Delta Sav.

Bank v. United States, 265 F.3d 1017, 1022-23 (9th Cir. 2001).

Contrary to the class plaintiffs’ assertions, two circuit court

decisions do not so clearly “settle[] the meaning of [the]

existing statutory provision” in FIRREA that we must conclude

the Congress intended sub silentio to incorporate those rulings

into the Recovery Act. Merrill Lynch v. Dabit, 547 U.S. 71, 85

(2006).

Nor are we convinced by the reasoning of those two cases

that the Succession Clause implicitly excepts derivative suits

where the FHFA would have a conflict of interest. The courts

in those cases thought it would be irrational to transfer to an

agency the right to sue itself derivatively because “the very

object of the derivative suit mechanism is to permit

shareholders to file suit on behalf of a corporation when the

managers or directors of the corporation, perhaps due to a

conflict of interest, are unable or unwilling to do so.” First

Hartford, 194 F.3d at 1295; see also Delta Sav., 265 F.3d at

1022-23 (extending the exception to suits against certain

agencies with which the conservator or receiver has an

“interdependent” relationship and “managerial and operational

overlap”). As the district court in this case noted, however, it

makes little sense to base an exception to the rule against

58

derivative suits in the Succession Clause “on the purpose of the

‘derivative suit mechanism,’” rather than the plain statutory

text to the contrary. See Perry Capital LLC, 70 F. Supp. 3d at

230-31. We therefore conclude the Succession Clause does not

permit shareholders to bring derivative suits on behalf of the

Companies even where the FHFA will not bring a derivative

suit due to a conflict of interest.

b. The class plaintiffs’ claims for breach of

fiduciary duty are derivative but their

contract-based claims are direct and may

proceed

Having concluded the Succession Clause extends to

derivative, but not direct, claims, it follows that the class

plaintiffs’ claims for breach of fiduciary duty are barred but

their contract-based claims may proceed. The class plaintiffs

contend they asserted both direct and derivative claims for

breach of fiduciary duty, alleging a direct claim against the

FHFA “with respect to . . . Fannie Mae” under Delaware law. 24

24

The district court applied Delaware law to the class plaintiffs’

common-law claims. See Perry Capital LLC, 70 F. Supp. 3d at 235

n.39, 236, 238, 239 n.45. On appeal, all parties agree we should

apply Delaware law to claims regarding Fannie Mae and Virginia

law to those regarding Freddie Mac. The parties have thereby

waived any objection to the district court’s application of Delaware

law to claims regarding Fannie Mae. See A-L Assocs., Inc. v. Jorden,

963 F.2d 1529, 1530 (D.C. Cir. 1992) (applying law “[t]he court

below held, and the parties agree,” was applicable); Patton Boggs

LLP v. Chevron Corp., 683 F.3d 397, 403 (D.C. Cir. 2012);

Jannenga v. Nationwide Life Ins. Co., 288 F.2d 169, 172 (D.C. Cir.

1961); cf. Milanovich v. Costa Crociere, S.p.A., 954 F.2d 763, 766

(D.C. Cir. 1992) (applying U.S. contract principles to determine

whether a contractual choice-of-law provision was valid where the

district court had applied those principles because “both parties here

59

Class Pls. Br. at 21-22. In order to determine whether these

claims are direct or derivative, we must examine (1) “[w]ho

suffered the alleged harm” and (2) “who would receive the

benefit of the recovery.” Tooley v. Donaldson, Lufkin &

have assumed that American contract law principles control”).

Accord, e.g., Williams v. BASF Catalysts LLC, 765 F.3d 306, 316 (3d

Cir. 2014) (holding that “parties may waive choice-of-law issues” in

part because “choice-of-law questions do not go to the court’s

jurisdiction”). We have occasionally held a party forfeited any

objection to the district court’s choice of law in part because we

could detect no “error,” Wash. Metro. Area Transit Auth. v.

Georgetown Univ., 347 F.3d 941, 945 (D.C. Cir. 2003); Nello L. Teer

Co. v. Wash. Metro. Area Transit Auth., 921 F.2d 300, 302 n.2 (D.C.

Cir. 1990), or “apparent error” in the district court’s choice, Burke v.

Air Serv Int’l, Inc., 685 F.3d 1102, 1105 (D.C. Cir. 2012). We do

not read these cases to have established a standard for forfeiture or

waiver particular to choice of law, especially considering none

indicated that the absence of an error or “apparent” error was

necessary to the outcome. In this case, we see no reason to deviate

from the district court’s selection of Delaware law for the claims

regarding Fannie Mae.

We need not address whether the district court should have applied

Virginia law to the claims regarding Freddie Mac because, for

purposes of this appeal, Delaware and Virginia law dictate the same

result, see Aref v. Lynch, 833 F.3d 242, 262 (D.C. Cir. 2016) (“We

need not determine which state’s law applies . . . because the result

is the same under all three” potentially applicable laws); Skirlick v.

Fid. & Deposit Co. of Md., 852 F.2d 1376, 1377 (D.C. Cir. 1988)

(same), and the parties have waived any contention that yet another

law should displace the district court’s choice. The district court also

cited federal case law in evaluating whether the class plaintiffs had a

contractual right to dividends, Perry Capital LLC, 70 F. Supp. 3d at

237 & n.41, but the cited federal decisions do not displace state

contract law, cf. O’Melveny & Myers, 512 U.S. at 85-89 (rejecting

the argument that federal common law should govern tort claims

lodged by the FDIC).

60

Jenrette, Inc., 845 A.2d 1031, 1035 (Del. 2004); see also

Gentile v. Rossette, 906 A.2d 91, 99-101 (Del. 2006). A suit is

direct if “[t]he stockholder . . . demonstrate[s] that the duty

breached was owed to the stockholder” and that “[t]he

stockholder’s claimed direct injury [is] independent of any

alleged injury to the corporation.” Tooley, 845 A.2d at 1039.

The class plaintiffs did not plead a direct claim for breach

of fiduciary duty because they did not seek relief that would

accrue directly to them. They instead requested a declaration

that, “through the Third Amendment, Defendant[] FHFA ...

breached [its] ... fiduciary dut[y] to Fannie Mae,” and sought

an award of “compensatory damages and disgorgement in

favor of Fannie Mae.” J.A. 278 ¶¶ 4-5. Both forms of relief

would benefit Fannie Mae directly and the shareholders only

derivatively. See Tooley, 845 A.2d at 1035. The class

plaintiffs also asked the district court to declare the Third

Amendment was not “in the best interests of Fannie Mae or its

shareholders, and constituted waste and a gross abuse of

discretion,” J.A. 278 ¶ 3, but a declaration that only partially

resolves a cause of action does not remedy any injury. Cf.

Calderon v. Ashmus, 523 U.S. 740, 746-47 (1998) (holding that

the case or controversy requirement of Article III was not

satisfied where a prisoner sought a declaratory judgment as to

the validity of a defense a state was likely to raise in his habeas

action). In the introductory portion of their complaint, the class

plaintiffs also sought rescission of the Third Amendment to

remedy the alleged breach of fiduciary duty, but the class

plaintiffs requested this relief only for their derivative claim.

J.A. 215 ¶ 3 (“This is also a derivative action brought by

Plaintiffs on behalf of Fannie Mae, seeking . . . equitable relief,

including rescission, for breach of fiduciary duty”), 226 ¶ 27

(“[T]his action also seeks, derivatively on behalf of Fannie

Mae, an award of . . . equitable relief with respect to such

breach, including rescission of the Third Amendment”).

61

In any event, the class plaintiffs forfeited in district court

any argument that their claim for breach of fiduciary duty is

direct. In its motion to dismiss, the FHFA contended the class

plaintiffs’ claims for breach of fiduciary duty were derivative,

but the class plaintiffs did not respond by arguing they asserted

a direct claim. Although they occasionally referred to the

FHFA’s fiduciary duties to the shareholders, the class plaintiffs

did not develop any argument that the claims are direct and

instead discussed separately why the Succession Clause does

not bar “Their Direct Contract-Based Claims,” Mem. in Opp’n

to Mot. to Dismiss, Doc. No. 33 at 25 In re Fannie

Mae/Freddie Mac, 1:13-mc-01288 (Mar. 21, 2014)

(hereinafter Class Pls. Opp’n to Mot. to Dismiss), and “Their

Derivative Claims” for breach of fiduciary duty, id. at 32. The

class plaintiffs then characterize their only count of breach of

fiduciary duty as asserting “derivative claims.” Id.

The class plaintiffs ask for a “remand to allow [them] to

pursue their direct fiduciary breach claims regarding the Fannie

Mae Third Amendment.” Class Pls. Br. at 23. At oral

argument they cited DKT Memorial Fund v. Agency for

International Development, 810 F.2d 1236 (D.C. Cir. 1987), in

which this court, “in the interest of justice,” granted counsel’s

motion at oral argument to amend the complaint in order to

correct an inadvertent error and then ruled the claims, as

amended, were not subject to dismissal upon the grounds

asserted by the defendants. Id. at 1239. In this case the class

plaintiffs ask us to grant them leave to amend the complaint to

add a new claim they are not asking us to rule on but instead

want to pursue in district court. We see no reason to oust the

district judge from making that decision in the first instance

when the case returns to district court for further proceedings

on certain of the plaintiffs’ contract-based claims.

62

The district court also held the class plaintiffs’ contract-

based claims were derivative. Perry Capital LLC, 70 F. Supp.

3d at 235 & n.39, 239 n.45. Contrary to the FHFA’s assertions,

the class plaintiffs sufficiently appealed this ruling. Their

statement of issues on appeal comprises whether the

Succession Clause “bars any of Appellants’ claims in this

action.” Furthermore, that the class plaintiffs’ contract-based

claims are direct is apparent from their extensive discussion of

the FHFA’s alleged breach of their contractual rights and the

harm the alleged breach caused them.

Indeed, the contract-based claims are obviously direct

“because they belong to” the class plaintiffs “and are ones that

only [the class plaintiffs] can assert.” Citigroup Inc. v. AHW

Inv. P’ship, 140 A.3d 1125, 1138 (Del. 2016). These are “not

claims that could plausibly belong to” the Companies because

they assert that the Companies breached contractual duties

owed to the class plaintiffs by virtue of their stock certificates.

Id. We therefore do not subject them to the two-part test set

forth in Tooley, which determines “when a cause of action for

breach of fiduciary duty or to enforce rights belonging to the

corporation itself must be asserted derivatively.” NAF

Holdings, LLC v. Li & Fung (Trading) Ltd., 118 A.3d 175, 176

(Del. 2015). The two-part test is necessary “[b]ecause directors

owe fiduciary duties to the corporation and its stockholders,

[and] there must be some way of determining whether

stockholders can bring a claim for breach of fiduciary duty

directly, or whether a particular fiduciary duty claim must be

brought derivatively.” Citigroup Inc., 140 A.3d at 1139

(footnote omitted). Tooley has no application “when a plaintiff

asserts a claim based on the plaintiff’s own right.” Id. at 1139-

40; El Paso Pipeline GP Co. v. Brinckerhoff, 2016 WL

7380418, at *9 (Del. Dec. 20, 2016) (“[W]hen a plaintiff asserts

63

a claim based upon the plaintiff's own right . . . Tooley does

not apply”). 25

2. The Class Plaintiffs’ contract-based claims

As a preliminary matter, the class plaintiffs assert the bar

to equitable relief of 12 U.S.C. § 4617(f), discussed above,

does not apply “to equitable claims related to contractual

breaches,” Class Pls. Br. at 34-35, but this argument is forfeit

because it was not raised in district court. Bennett v. Islamic

Republic of Iran, 618 F.3d 19, 22 (D.C. Cir. 2010).

Accordingly, we evaluate the class plaintiffs’ contract-based

claims only insofar as they seek damages. As discussed in

greater detail above, supra at 17-37, an award of equitable

relief against the FHFA with respect to the Third Amendment

would impermissibly “restrain or affect the exercise of powers

or functions of the [FHFA] as a conservator,” § 4617(f), and a

similar award against the Companies would plainly achieve the

same result. The class plaintiffs next challenge the district

court’s dismissal under Rules 12(b)(1) and (6) of their claims

against the FHFA and the Companies for breach of contract and

breach of the implied covenant as to the provisions in the stock

25

The class plaintiffs (the only party to address on the merits whether

the contract-based claims are direct or derivative) cite only Delaware

law in addressing the claims for breach of contract as to both Fannie

Mae and Freddie Mac despite their assumption that Virginia law

governs claims against Freddie Mac. The issue need detain us no

further because we have found no indication Virginia would classify

the breach of contract claims as derivative. Cf. Simmons v. Miller,

261 Va. 561, 573, 544 S.E.2d 666, 674 (2001) (“A derivative action

is an equitable proceeding in which a shareholder asserts, on behalf

of the corporation, a claim that belongs to the corporation rather than

the shareholder . . . . [A]n action for injuries to a corporation cannot

be maintained by a shareholder on an individual basis and must be

brought derivatively.”).

64

certificates dealing with voting and dividend rights and

liquidation preferences. Upon de novo review, Kim v. United

States, 632 F.3d 713, 715 (D.C. Cir. 2011), we affirm the

dismissal of all claims except for those regarding the

liquidation preferences and the claim for breach of implied

covenant regarding dividend rights.

a. Voting rights

The class plaintiffs contend the Third Amendment violates

their stock certificates that, with some variations not relevant

here, provide that a vote of two thirds of the stockholders is

required “to authoriz[e], effect[] or validat[e] the amendment,

alteration, supplementation or repeal of any of the provisions

of [the] Certificate if such [action] would materially and

adversely affect the . . . terms or conditions of the [stock].” J.A.

251. The class plaintiffs claim they were entitled to vote on the

Third Amendment because it “nullif[ied] their right ever to

receive a dividend or liquidation distribution,” and thereby

“materially and adversely affect[ed]” them. Class Pls. Reply

Br. at 11. The FHFA does not respond to this argument on

appeal, and the district court nowhere addressed it in

dismissing the contract-based claims. We nonetheless affirm

the district court’s dismissal. Although the Third Amendment

makes it impossible for the class plaintiffs to receive dividends

or a liquidation preference, it was not an “alteration,

supplementation or repeal of . . . provisions” in the certificates.

Those provisions guarantee only the right to vote on certain

changes to the certificates, not on any corporate action that

affects the rights guaranteed by the certificates.

b. Dividend rights

The class plaintiffs’ various stock certificates provide

(with irrelevant variations in wording) that stockholders will

65

“be entitled to receive, ratably, when, as and if declared by the

Board of Directors, in its sole discretion . . . [,] non-cumulative

cash dividends,” J.A. 248, or “shall be entitled to receive,

ratably, dividends . . . when, as and if declared by the Board,”

J.A. 250. According to the class plaintiffs, the certificates

thereby guarantee them a right to dividends, discretionary

though they may be. We agree with the FHFA’s response that

the class plaintiffs have no enforceable right to dividends

because the certificates accord the Companies complete

discretion to declare or withhold dividends.

The class plaintiffs argue they nonetheless have a

contractual right to discretionary dividends because Delaware

and Virginia limit directors’ discretion to withhold dividends.

This limit upon a board’s discretion stems from its fiduciary

duties to shareholders, not from the terms of their stock

certificates. See Gabelli & Co. v. Liggett Grp. Inc., 479 A.2d

276, 280 (Del. 1984) (Dividends may not be withheld as a

result of “fraud or gross abuse of discretion”); Penn v.

Pemberton & Penn, Inc., 189 Va. 649, 658, 53 S.E.2d 823, 828

(Va. 1949) (Failure to declare dividends is actionable if it “is

so arbitrary, or so unreasonable, as to amount to a breach of

trust”). Such fiduciary duties have no bearing upon whether

the terms of the contracts imposed a duty to declare dividends,

as the class plaintiffs alleged.

Lastly, the class plaintiffs advance a convoluted argument

that the Third Amendment violated their rights to receive

mandatory dividends (1) for their preferred stock before any

distributions on common stock, and (2) for their common stock

“ratably,” along with other holders of such stock. Before the

Third Amendment, the class plaintiffs assert, Treasury could

have received a dividend exceeding the 10% coupon on its

liquidation preference only by exercising its option to purchase

up to 79.9% of the Companies’ common stock, and the

66

payment of any dividend on that common stock would have

required distributions to the class plaintiffs as well. To the

class plaintiffs, it follows that their right to mandatory

dividends was breached by the provision of the Third

Amendment for dividends to be paid to Treasury that could

(and at times did) exceed the 10% coupon. This argument fails

because the plaintiffs have not shown their certificates

guarantee that more senior shareholders will not exhaust the

funds available for distribution as dividends. The class

plaintiffs contend the Third Amendment “was a fiduciary

breach, and hence cannot be relied on as the basis for nullifying

the mandatory priority and ratability rights,” Class Pls. Br. at

39, but this argument goes to their claims for breach of

fiduciary duty, addressed above.

The class plaintiffs next challenge the district court’s

dismissal of their claim that the implied covenant prohibited

the FHFA from depriving them of the opportunity to receive

dividends. The class plaintiffs argue the district court wrongly

concluded the FHFA did not breach the implied covenant

because it acted within its statutory authority. See Perry

Capital LLC, 70 F. Supp. 3d at 238-39. The FHFA contends

the plaintiffs “try to impose fiduciary and other duties on the

Conservator to always act in the best interests of shareholders,

when [the Recovery Act] instead authorizes the Conservator to

‘[act] in the best interests of the [Companies] or the Agency,’”

FHFA Br. at 18 (citing § 4617(b)(2)(J)(ii)) (second alteration

in original), and that “the Conservator’s discretion to declare

dividends, unlike that of a corporate board, is without

limitation,” id. at 56 n.21. Insofar as the FHFA argues (and the

district court held) that the Recovery Act preempts state law

imposing an implied covenant, this approach is foreclosed by

the plain text of the Recovery Act and by our precedent.

67

Virginia and Delaware law imposing an implied covenant

of good faith and fair dealing is not “an obstacle to the

accomplishment and execution of the full purposes and

objectives of Congress,” Hillman v. Maretta, 133 S. Ct. 1943,

1949-50 (2013), and is therefore not preempted by the

Recovery Act. The Recovery Act provides that the FHFA, as

conservator, “may disaffirm or repudiate any contract” the

Companies executed before the conservatorship “the

performance of which the conservator . . . determines to be

burdensome,” 12 U.S.C. § 4617(d)(1), “within a reasonable

period following” the agency’s appointment as conservator, id.

§ 4617(d)(2). That the Recovery Act permits the FHFA in

some circumstances to repudiate contracts the Companies

concluded before the conservatorship indicates that the

Companies’ contractual obligations otherwise remain in force.

Cf. Waterview Mgmt. Co. v. FDIC, 105 F.3d 696, 700-01 (D.C.

Cir. 1997) (so interpreting a nearly identical provision in

FIRREA, 12 U.S.C. § 1821(e)). Furthermore, by providing for

the FHFA to succeed to “all rights, titles, powers, and

privileges of the [Companies],” 12 U.S.C. § 4617(b)(2)(A)(i),

the Recovery Act places the FHFA “‘in the shoes’” of the

Companies and “does not permit [the agency] to increase the

value of the [contract] in its hands by simply ‘preempting’ out

of existence pre-receivership contractual obligations.”

Waterview Mgmt. Co., 105 F.3d at 701 (quoting O’Melveny &

Myers, 512 U.S. at 87, in reaching the same conclusion for the

Succession Clause of FIRREA, 12 U.S.C. § 1821(d)(2)(A)(i)).

The class plaintiffs next challenge the district court’s

conclusion that they failed to state a claim for breach of the

implied covenant, which they contend required the Companies

– and, therefore, their conservator – to act reasonably and not

to deprive them of the fruits of their bargain, namely the

opportunity to receive dividends. The FHFA urges us to affirm

the district court’s determination that the class plaintiffs’ lack

68

of an enforceable contractual right to dividends foreclosed the

claim that the implied covenant instead provided such a right.

See Perry Capital LLC, 70 F. Supp. 3d at 238.

Under Delaware law, “[e]xpress contractual provisions

always supersede the implied covenant,” Gerber v. Enter.

Prod. Holdings, LLC, 67 A.3d 400, 419 (Del. 2013), overruled

on other grounds by Winshall v. Viacom Int’l Inc., 76 A.3d 808,

815 n.13 (Del. 2013), and “one generally cannot base a claim

for breach of the implied covenant on conduct authorized by

the terms of the agreement,” Dunlap v. State Farm Fire & Cas.

Co., 878 A.2d 434, 441 (Del. 2005). Here, however, the stock

certificates upon which the class plaintiffs rely provide for

dividends “if declared by the Board of Directors, in its sole

discretion.” J.A. 248. A party to a contract providing for such

discretion violates the implied covenant if it “act[s] arbitrarily

or unreasonably.” Nemec v. Shrader, 991 A.2d 1120, 1126

(Del. 2010); see also Gerber, 67 A.3d at 419 (“When

exercising a discretionary right, a party to the contract must

exercise its discretion reasonably” (emphasis omitted)). What

is arbitrary or unreasonable depends upon “the parties’

reasonable expectations at the time of contracting.” Nemec,

991 A.2d at 1126; see also Gerber, 67 A.3d at 419. Virginia

law similarly provides “where discretion is lodged in one of

two parties to a contract . . . such discretion must, of course, be

exercised in good faith.” Historic Green Springs, Inc. v.

Brandy Farm, Ltd., 32 Va. Cir. 98, at *3 (Va. Cir. 1993)

(alteration in original); see also Va. Vermiculite, Ltd. v. W.R.

Grace & Co.- Conn., 156 F.3d 535, 542 (4th Cir. 1998).

We remand this claim, insofar as it seeks damages, for the

district court to evaluate it under the correct legal standard,

namely, whether the Third Amendment violated the reasonable

expectations of the parties at the various times the class

plaintiffs purchased their shares. We note that the class

69

plaintiffs specifically allege that some class members

purchased their shares before the Recovery Act was enacted in

July 2008 and the FHFA was appointed conservator the

following September, while others purchased their shares later,

but the class plaintiffs define their class action to include more

broadly “all persons and entities who held shares . . . and who

were damaged thereby,” J.A. 262-63. The district court may

need to redefine or subdivide the class depending upon what

the various plaintiffs could reasonably have expected when

they purchased their shares. For those who purchased their

shares after the enactment of the Recovery Act and the FHFA’s

appointment as conservator, the analysis should consider, inter

alia, (1) Section 4617(b)(2)(J)(ii) (authorizing the FHFA to act

“in the best interests of the [Companies] or the Agency”), (2)

Provision 5.1 of the Stock Agreements, J.A. 2451, 2465

(permitting the Companies to declare dividends and make other

distributions only with Treasury’s consent), and (3) pertinent

statements by the FHFA, e.g., J.A. 217 ¶ 8, referencing

Statement of FHFA Director James B. Lockhart at News

Conference Announcing Conservatorship of Fannie Mae and

Freddie Mac (Sept. 7, 2008) (The “FHFA has placed Fannie

Mae and Freddie Mac into conservatorship. That is a statutory

process designed to stabilize a troubled institution with the

objective of returning the entities to normal business

operations. FHFA will act as the conservator to operate the

Enterprises until they are stabilized.”).

The district court also held the class plaintiffs “fail to plead

claims of breach of the implied covenant against the

[Companies]” because they allege only that the FHFA’s actions

were arbitrary and unreasonable. Perry Capital LLC, 70 F.

Supp. 3d at 239. This is a distinction without a difference

because the action they challenge – the FHFA’s adoption of the

Third Amendment – was taken on behalf of the Companies.

70

The Companies and the FHFA are thus identically situated for

purposes of this claim.

c. Liquidation preferences

The class plaintiffs also allege the FHFA, by adopting the

Third Amendment, breached the guarantees in their stock

certificates and in the implied covenant to a share of the

Companies’ assets upon liquidation because it ensured there

would be no assets to distribute. The FHFA urges us to affirm

the district court’s dismissal of these claims as unripe. See

Perry Capital LLC, 70 F. Supp. 3d at 234-35.

“The ripeness doctrine generally deals with when a federal

court can or should decide a case,” Am. Petrol. Inst. v. EPA,

683 F.3d 382, 386 (D.C. Cir. 2012), and has both constitutional

and prudential facets. Ripeness “shares the constitutional

requirement of standing that an injury in fact be certainly

impending.” Nat’l Treasury Emps. Union v. United States, 101

F.3d 1423, 1427 (D.C. Cir. 1996). We decide whether to defer

resolving a case for prudential reasons by “evaluat[ing] (1) the

fitness of the issues for judicial decision and (2) the hardship to

the parties of withholding court consideration.” Nat’l Park

Hosp. Ass’n v. Dep’t of Interior, 538 U.S. 803, 808 (2003); see

Am. Petrol., 683 F.3d at 386.

These claims satisfy the constitutional requirement

because the class plaintiffs allege not only that the Third

Amendment poses a “certainly impending” injury, Nat’l

Treasury, 101 F.3d at 1427, but that it immediately harmed

them by diminishing the value of their shares. Cf. State Nat’l

Bank v. Lew, 795 F.3d 48, 56 (D.C. Cir. 2015) (holding unripe

a claim seeking recovery for a present loss in share-price in part

because the plaintiffs failed to allege “their current investments

are worth less now, or have been otherwise adversely affected

71

now”). The class plaintiffs allege the Third Amendment, by

depriving them of their right to share in the Companies’ assets

when and if they are liquidated, immediately diminished the

value of their shares. The case or controversy requirement of

Article III of the U.S. Constitution is therefore met.

The FHFA (like the district court) says the claims are not

prudentially ripe because there can be no breach of any

contractual obligation to distribute assets until the Companies

are required to perform, namely, upon liquidation. Not so.

Under the doctrine of anticipatory breach, “a voluntary

affirmative act which renders the obligor unable . . . to

perform” is a repudiation, RESTATEMENT (SECOND) OF

CONTRACTS § 250(b), that “ripens into a breach prior to the

time for performance . . . if the promisee elects to treat it as

such” by, for instance, suing for damages, Franconia Assocs.

v. United States, 536 U.S. 129, 143 (2002) (internal quotation

marks omitted); RESTATEMENT (SECOND) OF CONTRACTS

§§ 253(1), 256 cmt. c. Accord Lenders Fin. Corp. v. Talton,

249 Va. 182, 189, 455 S.E.2d 232, 236 (Va. 1995); W. Willow-

Bay Court, LLC v. Robino-Bay Court Plaza, LLC, C.A. No.

2742-VCN, 2009 WL 458779, at *5 & n.37 (Del. Ch. Feb. 23,

2009). An anticipatory breach satisfies prudential ripeness and

therefore enables the promisee to seek damages immediately

upon repudiation, Sys. Council EM-3 v. AT&T Corp., 159 F.3d

1376, 1383 (D.C. Cir. 1998) (“[I]f a performing party

unequivocally signifies its intent to breach a contract, the other

party may seek damages immediately under the doctrine of

anticipatory repudiation”). In other words, anticipatory breach

is “a doctrine of accelerated ripeness” because it “gives the

plaintiff the option to have the law treat the promise to breach

[or the act rendering performance impossible] as a breach

itself.” Homeland Training Ctr., LLC v. Summit Point Auto.

Research Ctr., 594 F.3d 285, 294 (4th Cir. 2010) (citing

Franconia Assocs., 536 U.S. at 143).

72

The class plaintiffs’ claims for breach of contract with

respect to liquidation preferences are better understood as

claims for anticipatory breach, so there is no prudential reason

to defer their resolution. 26 Nor do we see any prudential

obstacle to adjudicating the class plaintiffs’ claim that

repudiating the guarantee of liquidation preferences constitutes

a breach of the implied covenant. Our holding that the

claims are ripe sheds no light on the merit of those claims and,

contrary to the assertions in the dissenting opinion (at 17), has

no bearing upon the scope of the FHFA's statutory authority as

conservator under the Recovery Act. Whether the class

plaintiffs stated claims for breach of contract and breach of the

implied covenant is best addressed by the district court in the

26

Although the class plaintiffs do not describe the Third Amendment

as “an anticipatory repudiation” until their reply brief, Class Pls.

Reply Br. at 13, they have emphasized throughout this litigation that

it “nullified – and thereby breached – the contractual rights to a

liquidation distribution” by rendering performance impossible.

Class Pls. Br. at 40-41; see also, e.g., J.A. 223 ¶ 22 (alleging the

Third Amendment “effectively eliminated the property and

contractual rights of Plaintiffs and the Classes to receive their

liquidation preference upon the dissolution, liquidation or winding

up of Fannie Mae and Freddie Mac”); Class Pls. Opp’n to Mot. to

Dismiss at 37 (“[T]he Third Amendment has made it impossible for

[the Companies] ever to have . . . assets available for distribution to

stockholders other than Treasury” and thereby “eliminated Plaintiffs’

present . . . liquidation rights in breach of the Certificates” (internal

quotation marks omitted)). The class plaintiffs allege they “paid

valuable consideration in exchange for these contractual rights,”

which rights “had substantial market value . . . that [was] swiftly

dissipated in the wake of the Third Amendment,” J.A. 224 ¶ 23,

causing the class plaintiffs to “suffer[] damages,” e.g., J.A. 269

¶ 144.

73

first instance. 27 That court’s earlier conclusion in the negative

was made for “largely the same reasons” that it had held the

claims unripe, Perry Capital LLC, 70 F. Supp. 3d at 236, and

so must be reconsidered in light of our reversal of the court’s

holding on ripeness.

V. Conclusion

We affirm the judgment of the district court that the

institutional plaintiffs’ claims against the FHFA and Treasury

alleging arbitrary and capricious conduct and conduct in excess

of their statutory authority are barred by 12 U.S.C.

§ 4617(f). We affirm the district court’s dismissal of their

common-law claims because they were not properly

appealed. With respect to the class plaintiffs’ claims, we affirm

the judgment of the district court on all claims except for the

claims alleging breach of contract and breach of the implied

covenant of good faith and fair dealing regarding liquidation

preferences and the claim for breach of the implied covenant

27

We remand the contract-based claims only insofar as they seek

damages because the pleas for equitable relief are barred by 12

U.S.C. § 4617(f). “Because ripeness is a justiciability doctrine that

is drawn both from Article III limitations on judicial power and from

prudential reasons for refusing to exercise jurisdiction, we consider

it first.” La. Pub. Serv. Comm’n v. FERC, 522 F.3d 378, 397 (D.C.

Cir. 2008) (internal quotation marks and brackets omitted); see also

In re Aiken Cty., 645 F.3d 428, 434 (D.C. Cir. 2011) (“The ripeness

doctrine, even in its prudential aspect, is a threshold inquiry that does

not involve adjudication on the merits”). We therefore first

determined the claims are ripe, supra at 70-73, and only then

concluded the requests for equitable relief are barred by § 4617(f).

74

with respect to dividend rights, which claims we remand for

further proceedings consistent with this opinion.

So ordered.

BROWN, Circuit Judge, dissenting in part:

One critic has called it “wrecking-ball benevolence,”

James Bovard, Editorial, Nothing Down: The Bush

Administration’s Wrecking-Ball Benevolence, BARRON’S,

Aug. 23, 2004, http://tinyurl.com/Barrons-Bovard; while

another, dismissing the compassionate rhetoric, dubs it “crony

capitalism,” Gerald P. O’Driscoll, Jr., Commentary,

Fannie/Freddie Bailout Baloney, CATO INST.,

http://tinyurl.com/Cato-O-Driscoll (last visited Feb. 13,

2017). But whether the road was paved with good intentions

or greased by greed and indifference, affordable housing

turned out to be the path to perdition for the U.S. mortgage

market. And, because of the dominance of two so-called

Government Sponsored Entities (“GSE”s)—the Federal

National Mortgage Association (“Fannie Mae” or “Fannie”)

and the Federal Home Loan Mortgage Corporation (“Freddie

Mac” or “Freddie,” collectively with Fannie Mae, the

“Companies”)—the trouble that began in the subprime

mortgage market metastasized until it began to affect most

debt markets, both domestic and international.

By 2008, the melt-down had become a crisis. A decade

earlier, government policies and regulations encouraging

greater home ownership pushed banks to underwrite

mortgages to allow low-income borrowers with poor credit

history to purchase homes they could not afford. Banks then

used these risky mortgages to underwrite highly-profitable

mortgage-backed securities—bundled mortgages—which

hedge funds and other investors later bought and sold, further

stoking demand for ever-riskier mortgages at ever-higher

interest rates. Despite repeated warnings from regulators and

economists, the GSEs’ eagerness to buy these loans meant

lenders had a strong incentive to make risky loans and then

pass the risk off to Fannie and Freddie. By 2007, Fannie and

Freddie had acquired roughly a trillion dollars’ worth of

subprime and nontraditional mortgages—approximately 40

2

percent of the value of all mortgages purchased. And since

more risk meant more profit and the GSEs knew they could

count on the federal government to cover their losses, their

appetite for riskier mortgages was entirely rational.

The housing boom generated tremendous profit for

Fannie and Freddie. But then the bubble burst. Individuals

began to default on their loans, wrecking neighborhoods,

wiping out the equity of prudent homeowners, and threatening

the stability of banks and those who held or guaranteed

mortgage-backed assets. In March 2008, Bear Sterns

collapsed, requiring government funds to finance a takeover

by J.P. Morgan Chase. In July, the Federal Deposit Insurance

Corporation (the “FDIC”) seized IndyMac. But Bear Sterns

and IndyMac—huge companies, to be sure—paled in

comparison to Fannie and Freddie, which together backed $5

trillion in outstanding mortgages, or nearly half of the $12

trillion U.S. mortgage market. In late-July 2008, Congress

passed and President Bush signed the Housing and Economic

Recovery Act of 2008, authorizing a new government agency,

the Federal Housing Finance Agency (“FHFA” or the

“Agency”), to serve as conservator or receiver for Fannie and

Freddie if certain conditions were met; Fannie and Freddie

were placed into FHFA conservatorship the following month.

Only weeks thereafter, Lehman Brothers failed, the

government bailed out A.I.G., Washington Mutual declared

bankruptcy, and Wells Fargo obtained government assistance

for its buy-out of Wachovia.

There is no question that FHFA was created to confront a

serious problem for U.S. financial markets. The Court

apparently concludes a crisis of this magnitude justifies

extraordinary actions by Congress. Perhaps it might. But

even in a time of exigency, a nation governed by the rule of

law cannot transfer broad and unreviewable power to a

3

government entity to do whatsoever it wishes with the assets

of these Companies. Moreover, to remain within

constitutional parameters, even a less-sweeping delegation of

authority would require an explicit and comprehensive

framework. See Whitman v. Am. Trucking Ass’ns, Inc., 531

U.S. 457, 468 (2001) (“Congress . . . does not alter the

fundamental details of a regulatory scheme in vague terms or

ancillary provisions—it does not, one might say, hide

elephants in mouseholes.”) Here, Congress did not endow

FHFA with unlimited authority to pursue its own ends; rather,

it seized upon the statutory text that had governed the FDIC

for decades and adapted it ever so slightly to confront the new

challenge posed by Fannie and Freddie.

Perhaps this was a bad idea. The perils of massive GSEs

had been indisputably demonstrated. Congress could have

faced up to the mess forthrightly. Had both Companies been

placed into immediate receivership, the machinations that led

to this litigation might have been avoided. See Thomas H.

Stanton, The Failure of Fannie Mae and Freddie Mac and the

Future of Government Support for the Housing Finance

System, 14–15 (Brooklyn L. Sch., Conference Draft, Mar. 27,

2009), http://tinyurl.com/Stanton-Conference (arguing Fannie

and Freddie could have been converted into wholly owned

government corporations with limited lifespans in order to

stabilize the mortgage market). But the question before the

Court is not whether the good guys have stumbled upon a

solution. There are no good guys. The question is whether

the government has violated the legal limits imposed on its

own authority.

Regardless of whether Congress had many options or

very few, it chose a well-understood and clearly-defined

statutory framework—one that drew upon the common law to

clearly delineate the outer boundaries of the Agency’s

4

conservator or, alternatively, receiver powers. FHFA pole

vaulted over those boundaries, disregarding the plain text of

its authorizing statute and engaging in ultra vires conduct.

Even now, FHFA continues to insist its authority is entirely

without limit and argues for a complete ouster of federal

courts’ power to grant injunctive relief to redress any action it

takes while purporting to serve in the conservator role. See

FHFA Br. 21. While I agree with much of the Court’s

reasoning, I cannot conclude the anti-injunction provision

protects FHFA’s actions here or, more generally, endorses

FHFA’s stunningly broad view of its own power. Plaintiffs—

not all innocent and ill-informed investors, to be sure—are

betting the rule of law will prevail. In this country, everyone

is entitled to win that bet. Therefore, I respectfully dissent

from the portion of the Court’s opinion rejecting the

Institutional and Class Plaintiffs’ claims as barred by the anti-

injunction provision and all resulting legal conclusions.

I.

The Housing and Economic Recovery Act of 2008

(“HERA” or the “Act”), Pub. L. No. 110-289, 122 Stat. 2654

(codified at 12 U.S.C. § 4511, et seq.), established a new

financial regulator, FHFA, and endowed it with the authority

to act as conservator or receiver for Fannie and Freddie. The

Act also temporarily expanded the United States Treasury’s

(“Treasury”) authority to extend credit to Fannie and Freddie

as well as purchase stock or debt from the Companies. My

disagreement with the Court turns entirely on its interpretation

of HERA’s text.

Pursuant to HERA, FHFA may supervise and, if needed,

operate Fannie and Freddie in a “safe and sound manner,”

“consistent with the public interest,” while “foster[ing] liquid,

efficient, competitive, and resilient national housing finance

5

markets.” 12 U.S.C. § 4513(a)(1)(B). The statute further

authorizes the FHFA Director to “appoint [FHFA] as

conservator or receiver” for Fannie and Freddie “for the

purpose of reorganizing, rehabilitating, or winding up [their]

affairs.” Id. § 4617(a)(1), (2) (emphasis added). In order to

ensure FHFA would be able to act quickly to prevent the

effects of the subprime mortgage crisis from cascading further

through the United States and global economies, HERA also

provided “no court may take any action to restrain or affect

the exercise of powers or functions of [FHFA] as a

conservator or a receiver.” Id. § 4617(f) (emphasis added).

By its plain terms, HERA’s broad anti-injunction

provision bars equitable relief against FHFA only when the

Agency acts within its statutory authority—i.e. when it

performs its “powers or functions.” See New York v. FERC,

535 U.S. 1, 18 (2002) (“[A]n agency literally has no power to

act . . . unless and until Congress confers power upon it.”).

Accordingly, having been appointed as “conservator” for the

Companies, FHFA was obligated to behave in a manner

consistent with the conservator role as it is defined in HERA

or risk intervention by courts. Indeed, this conclusion is

consistent with judicial interpretations of HERA’s sister

statute and, more broadly, with the common law.

A.

FHFA’s general authorization to act appears in HERA’s

“[d]iscretionary appointment” provision, which states, “The

Agency may, at the discretion of the Director, be appointed

conservator or receiver” for Fannie and Freddie. 12 U.S.C.

§ 4617(a)(2) (emphasis added). The disjunctive “or” clearly

indicates FHFA may choose to behave either as a conservator

or as a receiver, but it may not do both simultaneously. See

also id. § 4617(a)(4)(D) (“The appointment of the Agency as

6

receiver of a regulated entity under this section shall

immediately terminate any conservatorship established for the

regulated entity under this chapter.”). The Agency chose the

first option, publicly announcing it had placed Fannie and

Freddie into conservatorship on September 6, 2008 after a

series of unsuccessful efforts to capitalize the Companies.

They remain in FHFA conservatorship today. Accordingly,

we must determine the statutory boundaries of power, if any,

placed on FHFA when it functions as a conservator and

determine whether FHFA stepped out of bounds.

The Court emphasizes Subsection 4617(b)(2)(B)’s

general overview of the Agency’s purview:

The Agency may, as conservator or receiver—

(i) take over the assets of and operate the

regulated entity with all the powers of the

shareholders, the directors, and the officers of

the regulated entity and conduct all business of

the regulated entity;

(ii) collect all obligations and money due the

regulated entity;

(iii) perform all functions of the regulated entity

in the name of the regulated entity which are

consistent with the appointment as conservator

or receiver;

(iv) preserve and conserve the assets and

property of the regulated entity; and

(v) provide by contract for assistance in

fulfilling any function, activity, action, or duty

of the Agency as conservator or receiver.

Id. § 4617(b)(2)(B). From this text, the Court intuits a general

statutory mission to behave as a “conservator” in virtually all

corporate actions, presumably transitioning to a “receiver”

7

only at the moment of liquidation. Op. 27 (“[HERA] openly

recognizes that sometimes conservatorship will involve

managing the regulated entity in the lead up to the

appointment of a liquidating receiver.”); 32 (“[T]he duty that

[HERA] imposes on FHFA to comply with receivership

procedural protections textually turns on FHFA actually

liquidating the Companies.”). In essence, the Court’s position

holds that because there was a financial crisis and only

Treasury offered to serve as White Knight, both FHFA and

Treasury may take any action they wish, apart from formal

liquidation, without judicial oversight. This analysis is

dangerously far-reaching. See generally 2 James Wilson, Of

the Natural Rights of Individuals, in THE WORKS OF JAMES

WILSON 587 (1967) (warning it is not “part of natural liberty

. . . to do mischief to anyone” and suggesting such a

nonexistent right can hardly be given to the state to impose by

fiat). While the line between a conservator and a receiver

may not be completely impermeable, the roles’ heartlands are

discrete, well-anchored, and authorize essentially distinct and

specific conduct.

For clarification of the general mission statement

appearing in Subsection (B), the reader need only continue to

read through Subsection 4617(b)(2). See Kellmer v. Raines,

674 F.3d 848, 850 (D.C. Cir. 2012) (“[T]o resolve this

[statutory interpretation of HERA] issue, we need only heed

Professor Frankfurter’s timeless advice: ‘(1) Read the statute;

(2) read the statute; (3) read the statute!’” (quoting Henry J.

Friendly, Mr. Justice Frankfurter and the Reading of Statutes,

in BENCHMARKS 196, 202 (1967))).

A mere two subsections later, HERA helpfully lists the

specific “powers” that FHFA possesses once appointed

conservator:

8

The Agency may, as conservator, take such action as

may be—

(i) necessary to put the regulated entity in a

sound and solvent condition; and

(ii) appropriate to carry on the business of the

regulated entity and preserve and conserve the

assets and property of the regulated entity.

12 U.S.C. § 4617(b)(2)(D) (emphasis added). The next

subsection defines FHFA’s “[a]dditional powers as receiver:”

In any case in which the Agency is acting as

receiver, the Agency shall place the regulated entity

in liquidation and proceed to realize upon the assets

of the regulated entity in such manner as the Agency

deems appropriate, including through the sale of

assets, the transfer of assets to a limited-life

regulated entity[,] . . . or the exercise of any other

rights or privileges granted to the Agency under this

paragraph.

Id. § 4617(b)(2)(E) (emphasis added). Apparently, when the

Court asserts “for all of their arguments that FHFA has

exceeded the bounds of conservatorship, the institutional

stockholders have no textual hook on which to hang their

hats,” Op. 36, it refers solely to the limited confines of

Subsection 4617(b)(2)(B).

Plainly the text of Subsections 4617(b)(2)(D) and

(b)(2)(E) mark the bounds of FHFA’s conservator or receiver

powers, respectively, if and when the Agency chooses to

exercise them in a manner consistent with its general

authority to “operate the regulated entity” appearing in

9

Subsection 4617(b)(2)(B). 1 Of course, this is not to say

FHFA may take action if and only if the preconditions listed

in the statute are met. Indeed, in provisions following the

specific articulation of powers contained in Subsections (D)

and (E), and thus drafted in contemplation of the distinctions

articulated in those earlier subsections, the statute lists certain

powers that may be exercised by FHFA as either a

“conservator or receiver.” 12 U.S.C. § 4617(b)(2)(G) (power

to “transfer or sell any asset or liability of the regulated entity

in default” without prior approval by the regulated entity); id.

§ 4617(b)(2)(H) (power to “pay [certain] valid obligations of

1

The Court makes much of the statute’s statement that a

conservator “may” take action to operate the company in a sound

and solvent condition and preserve and conserve its assets while a

receiver “shall” liquidate the company. It concludes the statute

permits, but does not compel in any judicially enforceable sense,

FHFA to preserve and conserve Fannie’s and Freddie’s assets

however it sees fit. See Op. 21–25. I disagree. Rather, read in the

context of the larger statute—especially the specifically defined

powers of a conservator and receiver set forth in Subsections

4617(b)(2)(D) and (b)(2)(E)—Congress’s decision to use

permissive language with respect to a conservator’s duties is best

understood as a simple concession to the practical reality that a

conservator may not always succeed in rehabilitating its ward. The

statute wisely acknowledges that it is “not in the power of any man

to command success” and does not convert failure into a legal

wrong. See Letter from George Washington to Benedict Arnold

(Dec. 5, 1775), in 3 THE WRITINGS OF GEORGE WASHINGTON, 192

(Jared Sparks, ed., 1834). Of course, this does not mean the

Agency may affirmatively sabotage the Companies’ recovery by

confiscating their assets quarterly to ensure they cannot pay off

their crippling indebtedness. There is a vast difference between

recognizing that flexibility is necessary to permit a conservator to

address evolving circumstances and authorizing a conservator to

undermine the interests and destroy the assets of its ward without

meaningful limit.

10

the regulated entity”). Indeed, each of these powers is

entirely consistent with either the Subsection (D) conservator

role or the Subsection (E) receiver role, and they do not

override the distinctions between them. Congress cannot be

expected to specifically address an entire universe of possible

actions in its enacted text—assigning each to a “conservator,”

a “receiver,” or both. See, e.g., id. § 4617(b)(2)(C) (joint

conservator/receiver power to “provide for the exercise of any

function by any stockholder, director, or officer of any

regulated entity”). But if a power is enumerated as that of a

“receiver” (or fairly read to be a “receiver” power), FHFA

cannot exercise that power while calling itself a

“conservator.” The statute confirms as much: the Agency “as

conservator or receiver” may “exercise all powers and

authorities specifically granted to conservators or receivers,

respectively, under [Section 4617], and such incidental

powers as shall be necessary to carry out such powers.” Id.

§ 4617(J)(i) (emphasis added).

A conservator endeavors to “put the regulated entity in a

sound and solvent condition” by “reorganizing [and]

rehabilitating” it, and a receiver takes steps towards

“liquidat[ing]” the regulated entity by “winding up [its]

affairs.” 12 U.S.C. § 4617(a)(2), (b)(2)(D)–(E). 2 In short,

FHFA may choose whether it intends to serve as a

conservator or receiver; once the choice is made, however, its

“hard operational calls” consistent with its “managerial

judgment” are statutorily confined to acts within its chosen

2

The Director’s discretion to appoint FHFA as “‘conservator or receiver

for the purpose of reorganizing, rehabilitating, or winding up the affairs of

a regulated entity’” does not suggest slippage between the roles. See

FHFA Br. 41 (quoting 12 U.S.C. § 4617(a)(2)). Between the conservator

and receiver roles, FHFA surely has the power to accomplish each of the

enumerated functions; nonetheless, a conservator can no more “wind[] up”

a company than a receiver can “rehabilitat[e]” it. See 12 U.S.C.

§ 4617(b)(3)(B) (using “liquidation” and “winding up” as synonyms).

11

role. See Op. 23. There is no such thing as a hybrid

conservator-receiver capable of governing the Companies in

any manner it chooses up to the very moment of liquidation.

See Op. 55–56 (noting HERA “terminates [shareholders]

rights and claims” in receivership and acknowledging

shareholders’ direct claims against and rights in the

Companies survive during conservatorship). 3

Moreover, it is the proper role of courts to determine

whether FHFA’s challenged actions fell within its statutorily-

defined conservator role. In County of Sonoma v. FHFA, for

example, when our sister circuit undertook this inquiry, it

observed, “If the [relevant] directive falls within FHFA’s

conservator powers, it is insulated from review and this case

must be dismissed,” but “[c]onversely, the anti-judicial

review provision is inapplicable when FHFA acts beyond the

scope of its conservator power.” 710 F.3d 987, 992 (9th Cir.

2013); see also Leon Cty. v. FHFA, 700 F.3d 1273, 1278

(11th Cir. 2012) (“FHFA cannot evade judicial scrutiny by

merely labeling its actions with a conservator stamp.”). Here,

the Court abdicates this crucial responsibility, blessing FHFA

with unreviewable discretion over any action—short of

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