explaining that the plaintiffs asserted “classic derivative claims” when they alleged that “the [PSPA Amendments] illegally dissipated corporate assets by transferring them to Treasury”
How later courts described this case
- explaining that the plaintiffs asserted “classic derivative claims” when they alleged that “the [PSPA Amendments] illegally dissipated corporate assets by transferring them to Treasury”
- concluding that Section 4617(f) “bars declaratory or injunctive relief against the [FHFA] unless it acted ultra vires or in a role other than as conservator or receiver”
- stating that, in interpreting a statute, courts should “avoid a reading that would render its provisions inconsistent or redundant”
- holding, based on Tooley, that shareholder claims against the FHFA under the Administrative Procedure Act (APA) are derivative
Written by the judges who cited it.
The opinion
In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 17‐1880
CHRISTOPHER ROBERTS, et al.,
Plaintiffs‐Appellants,
v.
FEDERAL HOUSING FINANCE AGENCY, et al.,
Defendants‐Appellees.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 16 C 2107 — Edmond E. Chang, Judge.
____________________
ARGUED OCTOBER 30, 2017 — DECIDED MAY 3, 2018
____________________
Before WOOD, Chief Judge, and BAUER and EASTERBROOK,
Circuit Judges.
WOOD, Chief Judge. At the height of the 2008 financial cri‐
sis, Congress created the Federal Housing Finance Agency
(the Agency) and authorized it to place into conservatorship
two critical government‐sponsored enterprises—the Federal
National Mortgage Association and the Federal Home Loan
Mortgage Corporation, commonly known as Fannie Mae and
2 No. 17‐1880
Freddie Mac. 12 U.S.C. § 4617(a). To stabilize Fannie and Fred‐
die, along with the broader financial markets, Congress em‐
powered the U.S. Treasury to purchase their “obligations and
other securities” through the end of 2009. 12 U.S.C.
§§ 1455(l)(1)(A), 1719(g)(1)(A). The Agency and Treasury
acted quickly. In exchange for a cash infusion and fixed fund‐
ing commitment for each enterprise, Treasury received senior
preferred shares. Its shares gave it extraordinary governance
and economic rights, including the right to receive dividends
tied to the amount of Treasury’s payments. But the stabiliza‐
tion effort proved to be more difficult than was initially ex‐
pected. As Fannie and Freddie’s capital needs mounted,
Treasury agreed three times to modify the original stock pur‐
chase agreements. The First and Second Amendments pri‐
marily increased Treasury’s funding commitment. The third
modification—which, unlike the first two, was made after
Treasury’s purchasing authority had expired—introduced a
variable dividend under which Treasury’s dividend rights
were set equal to the companies’ outstanding net worth.
That net‐worth dividend, sometimes called the Net Worth
Sweep, is at the heart of this litigation. The plaintiffs are pri‐
vate shareholders of Fannie and Freddie. They sued Treasury
and the Agency, claiming that the Agency violated its duties
in two ways: by agreeing to the net‐worth dividend and by
unlawfully succumbing to the direction of Treasury. They
fault Treasury both for exceeding its statutory authority and
failing to follow proper procedures. The district court dis‐
missed the complaint for failure to state a claim. See 12 U.S.C.
§ 4617(f). We affirm.
No. 17‐1880 3
I
Fannie Mae and Freddie Mac are mammoth institutions.
Although they were chartered by Congress to increase home‐
loan lending by injecting liquidity into mortgage markets,
they have long operated as publicly traded corporations. By
2008, they had come to play an integral role in the United
States economy, backing mortgages valued at trillions of dol‐
lars and representing a substantial portion of all home loans.
As the 2008 financial crisis intensified and the national hous‐
ing market hovered on the verge of collapse, fears mounted
about their vitality. Congress responded by passing the Hous‐
ing and Economic Recovery Act of 2008 (HERA).
HERA authorizes the director of the Agency to appoint the
Agency as conservator or receiver for Fannie or Freddie for a
variety of reasons. 12 U.S.C. § 4617(a)(1)–(3). In either of those
capacities, the Agency “may” then:
(i) take over the assets of and operate the regulated en‐
tity with all the powers of the shareholders, the direc‐
tors, and the officers of the regulated entity and con‐
duct 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
4 No. 17‐1880
(v) provide by contract for assistance in fulfilling any
function, activity, action, or duty of the Agency as con‐
servator or receiver.
Id. § 4617(b)(B). Additional provisions of HERA apply sepa‐
rately to each of the Agency’s two possible roles. The Agency
“may, as a conservator, take such action as may be (i) neces‐
sary to put the regulated entity in a sound and solvent condi‐
tion; and (ii) appropriate to carry on the business of the regu‐
lated entity and preserve and conserve the assets and prop‐
erty of the regulated entity.” Id. § 4617(b)(D). In contrast,
“when acting as receiver,” the Agency “shall place the regu‐
lated entity in liquidation.” Id. § 4617(b)(E). Finally, the
Agency may exercise “such incidental powers as shall be nec‐
essary to carry out” powers granted to it in either role, and it
may “take any action authorized … which the Agency deter‐
mines is in the best interests of the regulated entity or the
Agency.” Id. § 4617(b)(J). In exercising any of these powers,
the Agency “shall not be subject to the direction or supervi‐
sion of any other agency of the United States.” Id. § 4617(a)(7).
At the same time as HERA broadly empowers the Agency,
it disempowers courts and existing stockholders, directors,
and officers. Unless otherwise permitted by the statute or re‐
quested by the Agency’s director, “no court may take any ac‐
tion to restrain or affect the exercise of powers or functions of
the Agency as a conservator or a receiver.” Id. § 4617(f). The
law also provides that the Agency “shall, as conservator or
receiver, and by operation of law, 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 [its] assets … .”
Id. § 4617(b)(2)(A); see also id. § 4617(b)(2)(K)(i).
No. 17‐1880 5
Finally, HERA authorized Treasury to purchase securities
in Fannie and Freddie “on such terms and conditions … and
amounts as the Secretary [of the Treasury] may determine.”
Id. §§ 1455(l)(1)(A), 1719(g)(1)(A). Treasury’s purchasing au‐
thority continued through December 31, 2009, 12 U.S.C.
§ 1719(g)(4), after which Treasury could only “hold, exercise
any rights received in connection with, or sell, any” of the se‐
curities it had purchased, 12 U.S.C. § 1719(g)(2)(D).
After Congress passed HERA, the Agency promptly
placed Fannie and Freddie into conservatorship and entered
into agreements with Treasury for the sale of senior preferred
shares. Treasury initially invested $1 billion in each company
and extended $100 billion funding commitments to each. Pur‐
suant to Preferred Stock Purchase Agreements, Treasury re‐
ceived a) an initial liquidation preference in each company of
$1 billion, to be increased dollar‐for‐dollar as each company
drew on its $100 billion funding commitment, b) a quarterly
cumulative dividend, c) an annual commitment fee waivable
at Treasury’s discretion, and d) warrants to purchase approx‐
imately 80 percent of each company’s common stock. The
companies could elect to pay the dividend in cash at an annu‐
alized rate equal to ten percent of Treasury’s outstanding liq‐
uidation preference or by increasing that preference by twelve
percent. The Purchase Agreements required Treasury’s con‐
sent before terminating the companies’ conservatorships, en‐
gaging in fundamental transactions, or taking on significant
debt.
Freddie and Fannie continued to burn through cash,
prompting the parties to execute a First Amendment to the
Purchase Agreements. That amendment increased Treasury’s
6 No. 17‐1880
funding commitment to $200 billion per company. On De‐
cember 24, 2009, days before Treasury’s purchase authority
expired, a set of Second Amendments allowed the companies
to draw funds from Treasury in excess of that $200 billion to
cover losses incurred through the end of 2012. Thereafter, the
funding commitments would again become fixed based upon
the sums actually drawn. Fannie and Freddie eventually drew
more than $187 billion from Treasury. Treasury and the
Agency agreed to a Third Amendment to each Purchase
Agreement in August 2012. This replaced Treasury’s fixed
dividend with a variable dividend equal to an amount
slightly less than each company’s net worth. In other words,
it funneled substantially all profits (if any) to the federal gov‐
ernment. The Third Amendment also eliminated Treasury’s
right to an annual commitment fee.
The plaintiffs complain that the Third Amendment was
adopted just as Freddie and Fannie were returning to profita‐
bility in order to capture all anticipated upside for Treasury
to the detriment of the corporations and their private share‐
holders. The Agency and Treasury counter that the net‐worth
dividend served to prevent the companies from running up
against the soon‐to‐be fixed funding commitment. They note
that Freddie and Fannie had consistently borrowed from
Treasury to pay the fixed‐rate dividends—a practice that re‐
sulted in a spiral of ever greater liquidation preferences and
dividends.
The plaintiffs sued Treasury and the Agency under the
Administrative Procedure Act, 5 U.S.C. §§ 702 and 706(2)(A),
(C), and (D). They argue first that the Agency exceeded its
statutory authority as a conservator by agreeing to both the
original Purchase Agreements and the Third Amendment.
No. 17‐1880 7
Second, they asserted that the Third Amendment amounted
to a purchase of new securities by Treasury after its purchas‐
ing authority had expired and without having made findings
required by HERA. Finally, they claim that Treasury acted ar‐
bitrarily and capriciously in agreeing to the Third Amend‐
ment. They sought declaratory and injunctive relief, includ‐
ing the rescission of the Third Amendment and return of all
resulting dividend payments made to Treasury.
The district court granted both defendants’ motion to dis‐
miss the complaint, finding that 12 U.S.C. § 4617(f) precluded
the relief requested. We examine that ruling de novo, looking
first at the Agency and then at Treasury.
II
With regard to the Agency, our review is squarely fore‐
closed by 12 U.S.C. § 4617(f). That provision bars judicial in‐
terference with the Agency’s statutorily authorized role as
conservator. Because the Agency acted within its powers as
conservator in agreeing to the Preferred Stock Purchase
Agreements and the Third Amendment, declaratory and in‐
junctive relief cannot run against it.
Section 4617(f) bars “any” judicial interference with the
“exercise of powers or functions of the Agency as a conservator
or a receiver.” 12 U.S.C. § 4617(f) (emphases added). This shel‐
ter is sweeping, but its scope is not boundless. Section 4617(f)
will not protect the Agency if it acts either ultra vires or in
some third capacity. See Perry Capital LLC v. Mnuchin,
864 F.3d 591, 606 (D.C. Cir. 2017); id. at 636 (Brown, J., dissent‐
ing in part); Robinson v. Fed. Hous. Fin. Agency, 876 F.3d 220,
227–28 (6th Cir. 2017); see also, e.g., Cnty. of Sonoma v. Fed.
Hous. Fin. Agency, 710 F.3d 987, 992 (9th Cir. 2013); Leon Cnty.,
8 No. 17‐1880
Fla. v. Fed. Hous. Fin. Agency, 700 F.3d 1273, 1278 (11th Cir.
2012). That is, for section 4617(f) to bar judicial relief, the
Agency must have acted a) pursuant to its “powers or func‐
tions” and b) “as a conservator or a receiver.”
In so construing section 4617(f), we have taken guidance
from our interpretation of 12 U.S.C. § 1821(j), a materially
identical provision in the Financial Institutions Reform, Re‐
covery, and Enforcement Act (FIRREA). That statute limits re‐
course against the Federal Deposit Insurance Corporation
(FDIC) and, formerly, the Resolution Trust Corporation. We
have also considered FIRREA’s predecessor, which appeared
in the Financial Institutions Supervisory Act of 1966, formerly
codified at 12 U.S.C. § 1464(d)(6)(C). “[W]hen Congress uses
the same language in two statutes having similar purposes,”
as do these acts, “it is appropriate to presume that Congress
intended that text to have the same meaning” in each statute.
Smith v. City of Jackson, 544 U.S. 228, 233 (2005). Thus, inter‐
pretations of that language in one statute may provide “prec‐
edent of compelling importance” when construing the other.
Id.; see also Perry Capital LLC, 864 F.3d at 605–06 (interpreting
section 4617(f) in light of section 1821(j)); Robinson, 876 F.3d at
227 (same).
Although section 1821(j) works a “sweeping ouster of
courts’ power to grant equitable remedies,” Veluchamy v.
F.D.I.C., 706 F.3d 810, 817 (7th Cir. 2013) (quoting Courtney v.
Halleran, 485 F.3d 942, 948 (7th Cir. 2007)), we have under‐
stood that ouster to apply only insofar as the FDIC exercises
powers granted to it as a conservator or a receiver, see id. at
818. Circuits that have had to confront the issue head‐on have
agreed. E.g., Gross v. Bell Sav. Holdings, Inc. Money Purchase
Plan, 974 F.2d 403, 408 (3d Cir. 1992); see also Coit Indep. Joint
No. 17‐1880 9
Venture v. Fed. Sav. & Loan Ins. Co., 489 U.S. 561, 574 (1989)
(applying Financial Institutions Supervisory Act). Section
1821(j) thus reaffirms our view that 12 U.S.C. § 4617(f) bars
declaratory or injunctive relief against the Agency unless it
acted ultra vires or in a role other than as conservator or re‐
ceiver.
In the present case, the Agency neither exceeded its pow‐
ers nor acted as other than a conservator in agreeing to the
Third Amendment. The plaintiffs’ argument to the contrary
rests primarily on their assertion that the Third Amendment
dissipated corporate assets in violation of the Agency’s pur‐
portedly mandatory duties as a conservator to “preserve and
conserve the assets and property” of Freddie and Fannie and
to place the companies in a “sound and solvent condition.”
12 U.S.C. § 4617(b)(2)(D); see also 12 U.S.C. § 4617(b)(2)(B)(iv).
The problem with this contention is two‐fold: first, HERA
does not impose such mandatory duties on conservators; and
second, the factual assertions in the plaintiffs’ complaint
could not establish that agreeing to the Third Amendment
necessarily contravened those duties.
In fact, section 4617(b)(2)(D) does not require the Agency
to do anything. It uses the permissive “may,” rather than the
mandatory “shall” or “must,” to introduce the Agency’s
power as conservator to “preserve and conserve” Freddie’s
and Fannie’s assets and to restore their solvency. 12 U.S.C.
§ 4617(b)(2)(D); see also Kingdomware Techs., Inc. v. United
States, 136 S. Ct. 1969, 1977 (2016) (“Unlike the word ‘may,’
which implies discretion, the word ‘shall’ usually connotes a
requirement.”). Congress’s choice of “may” in this part of
HERA does not strike us as accidental. The statute consist‐
ently distinguishes between “shall” and “may” with the latter
10 No. 17‐1880
term reserved for situations in which one would expect the
exercise of discretion. For example, the Agency “may, at the
discretion of the Director, be appointed conservator or re‐
ceiver” if Fannie’s or Freddie’s obligations exceed its assets
for a brief period of time, 12 U.S.C. § 4617(a)(2) (emphasis
added); see also id. § 4617(a)(3)(A), but the Director “shall ap‐
point the [Agency] as receiver” if Fannie or Freddie’s obliga‐
tions exceed their assets for 60 days, id. § 4617(a)(4)(A)(i) (em‐
phasis added). Likewise, the Agency “may, as conservator or
receiver, transfer or sell any asset or liability” of the compa‐
nies, id. § 4617(b)(2)(G), but it “shall” utilize the proceeds
from any such sale to pay their debts, id. § 4617(b)(2)(H). That
distinction between the Agency’s powers and duties makes
sense: A conservatorship that required liquidation would be,
in effect, a receivership. See id. § 4617(b)(2)(E).
We have also considered the context of section
4617(b)(2)(D) in concluding that the provision grants discre‐
tion to the Agency. In interpreting HERA, as with any statute,
we avoid a reading that would render its provisions incon‐
sistent or redundant. United States v. Miscellaneous Firearms,
Explosives, Destructive Devices & Ammunition, 376 F.3d 709, 712
(7th Cir. 2004). Section 4617(b)(2)(D) is part of a broader list‐
ing of the Agency’s powers. Thus, section 4617(b)(2)(B) con‐
cerns the Agency’s authority as either receiver or conservator,
12 U.S.C. § 4617(b)(2)(B), while section 4617(b)(2)(E) ad‐
dresses its powers as a receiver, id. § 4617(b)(2)(E), and section
4617(b)(2)(D) concerns its powers as a conservator, id.
§ 4617(b)(2)(D). Section 4617(b)(2)(B) already allows a conser‐
vator or receiver to “preserve and conserve the assets and
property” of the companies. Id. § 4617(b)(2)(B)(iv). This grant
of authority in section 4617(b)(2)(B) must be treated as discre‐
tionary to avoid creating a conflict with section 4617(b)(2)(E),
No. 17‐1880 11
which empowers the Agency as receiver to liquidate the com‐
panies “through the sale of assets.” Id. § 4617(b)(2)(E). There‐
fore, section 4617(b)(2)(D) cannot require the Agency to “pre‐
serve and conserve” the companies’ assets as a conservator,
or else it would conflict with the discretionary grant of the
same authority in section 4617(b)(2)(B) or render it superflu‐
ous.
Instead, section 4617(b)(2)(D) grants additional authority to
the Agency. Apart from the powers granted to it elsewhere in
HERA, the Agency has the authority as conservator to under‐
take any additional action or means “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” its assets. Id.
§ 4617(b)(2)(D). The preservation and conservation of assets
does impose a limitation of sorts—but only when the Agency
has to rely on section 4617(b)(2)(D) because it can find no
other source of power in HERA. In the present case, however,
the Agency can point to several independent sources of au‐
thority to enter into the Third Amendment, including its
power to “operate” Fannie and Freddie “with all the powers”
of their shareholders, directors, and officers. Id.
§ 4617(b)(2)(B)(i).
Thus, by agreeing to the Third Amendment, the Agency
did not violate its duty to conserve Fannie and Freddie’s as‐
sets, because it had no rigid duty to do so. The plaintiffs’ fun‐
damental error is to mistake the point of an Agency conserva‐
torship: its “purpose [is the] reorganizing, rehabilitation, or
winding up” of the companies’ affairs, id. § 4617(a)(2), not just
the preservation of assets.
12 No. 17‐1880
Even accepting for the sake of argument the plaintiffs’
construction of section 4617(b)(2)(D) as imposing a manda‐
tory duty, their complaint does not establish that the Third
Amendment contravened this obligation. The question under
section 4617(f) is not whether the Agency made a poor busi‐
ness judgment, but rather whether it took an action funda‐
mentally inconsistent with its powers as a conservator. Perry
Capital LLC, 864 F.3d at 607 (“The [appellants] no doubt disa‐
gree about the necessity and fiscal wisdom of the Third
Amendment. But Congress could not have been clearer about
leaving those hard operational calls to the Agency’s manage‐
rial judgment.”).
While the dividend terms under the Third Amendment
may initially have proven more profitable to Treasury than to
Fannie and Freddie, a conservator could have believed that
the amendment’s terms would further the conservation of the
companies’ assets better than either the ten‐percent cash div‐
idend or the twelve‐percent increases in liquidation prefer‐
ence. The plaintiffs admit that the earlier cash dividend had
necessitated drawing on Treasury’s funding commitment,
leading to increased liquidation preferences and, in turn, fu‐
ture dividends owed to Treasury. The prior arrangement also
reduced the Treasury funds available for future draws. The
plaintiffs themselves said in their complaint that paying cash
dividends “contravene[d the Agency’s] obligations as conser‐
vator,” a view reiterated in their brief. The Third Amendment
permanently eliminated the risk that cash‐dividend payments
would consume the companies’ financial lifeline, and it for‐
ever prevented Treasury from demanding payment of com‐
mitment fees.
No. 17‐1880 13
The alternative of adding to the liquidation preference,
though preferred by the plaintiffs, came with its own prob‐
lems. While this option would have obviated the need to draw
down Treasury’s funding commitment, it would have in‐
creased Treasury’s liquidation preference at a faster rate. (Re‐
call that the liquidation preference increases dollar‐for‐dollar
with draws on Treasury’s funding commitment. Therefore, a
fully financed cash dividend would have increased the liqui‐
dation preference by ten—rather than twelve—percent.)
While the plaintiffs seem to treat growth of the liquidation
preference as a harmless accounting quirk, that preference
places real constraints on the companies’ future. First, a liqui‐
dation preference is, most immediately, a claim on the assets
of the corporation. Pursuing a policy that would eventually
shift assets to Treasury would seem to go to the heart of the
plaintiffs’ complaint that the Agency adopted policies that
dissipated corporate assets. Second, the companies can poten‐
tially redeem Treasury’s preferred shares by paying down the
liquidation preference. Redemption thus becomes more ex‐
pensive and difficult as the liquidation preference increases.
Yet, redeeming Treasury’s shares would create real benefits
for the companies: for example, the outstanding shares create
dividend obligations, they limit the companies’ ability to raise
capital and debt, and, as the plaintiffs complain, the cove‐
nants in the Purchase Agreements limit the companies’ inde‐
pendence. An ever‐increasing liquidation preference also
makes it more costly for the companies to pay cash dividends
in the future, creating a vicious cycle of paying liquidation‐
preference dividends. Against this backdrop, adopting the
net‐worth dividend in the Third Amendment was not neces‐
sarily an unjustifiable dissipation of corporate assets.
14 No. 17‐1880
Finally, the plaintiffs fail to appreciate that the Agency’s
conservatorship of the companies has no fixed expiration
date. Even if the Amendment has benefited Treasury thus
far—and the Agency could anticipate its having done so—
that does not establish that the Amendment will ultimately
place the companies in a worse financial position than they
would have been in under prior versions of the agreement.
The Agency could not know for how long the companies
might remain profitable or to what extent. While Treasury re‐
alized additional dividend earnings in 2013 and 2014 (as com‐
pared to the situation before the Third Amendment), it actu‐
ally fared worse under the net‐worth dividend in 2015 than it
would have under the old cash dividend. (Though not part of
the record on which we resolve this appeal, we note that fluc‐
tuations continue. Under the new tax law, the net‐worth for‐
mula has produced a loss in the fourth quarter 2017 of $6.7 bil‐
lion at Fannie and will likely require the company to draw
$3.7 billion from Treasury to eliminate its resulting net‐worth
deficit. Federal National Mortgage Association, Annual Re‐
port for 2017 (Form 10‐K) (Feb. 14, 2018) at 2–3. Freddie,
meanwhile, will draw $312 million from Treasury to cure its
negative net worth. Federal Home Loan Mortgage Corpora‐
tion, Annual Report 2017 (Form 10‐K) (Feb. 15, 2018) at 2, 117.)
In short, the plaintiffs have failed—both as a matter of statu‐
tory interpretation and as a matter of facts alleged—to state a
claim that the Agency acted outside its authority as a conser‐
vator and thereby lost the protection of section 4617(f).
We also reject the plaintiffs’ alternate argument that the
Agency acted contrary to its statutory authority by deferring
to Treasury in violation of 12 U.S.C. § 4617(a)(7). Section
4617(a)(7) bars the Agency from being “subject to the direc‐
tion or supervision of any other agency” when exercising its
No. 17‐1880 15
“rights, powers, and privileges” as conservator. 12 U.S.C.
§ 4617(a)(7). The plaintiffs alleged that the Agency breached
this prohibition by ceding significant control to Treasury in
various covenants in the original Purchase Agreements and
again by entering into the Third Amendment at Treasury’s
behest.
This argument fails, however, to read section 4617(a)(7) in
harmony with HERA as a whole. See Davis v. Mich. Dep’t of
Treasury, 489 U.S. 803, 809 (1989). The same HERA that bars
another agency from exercising “direction or control” over
the Agency authorized Treasury to acquire securities in Fan‐
nie and Freddie “on such terms and conditions” as Treasury
“may determine.” 12 U.S.C. § 1455(l)(1)(A). It also says that
Treasury could not force Fannie and Freddie to issue securi‐
ties “without mutual agreement between” Treasury and the
Agency. Id. § 1455(l)(1)(A). We read these provisions to mean
that, so long as the Agency remained free to reject the terms
offered by Treasury and to exercise its independent judg‐
ment, nothing prevented the Agency from taking Treasury’s
advice or agreeing to its terms. Even if, as the complaint al‐
leges, Treasury officials made statements suggesting that
Treasury was in the driver’s seat and had to convince the
Agency to come along for the ride, such behavior alone would
not violate section 4617(a)(7).
Two other statutory provisions also preclude the plain‐
tiffs’ absolutist reading of section 4617(a)(7), at least insofar as
it concerns their attack on the original Purchase Agreements.
First, the Agency may “contract for assistance in fulfilling any
function, activity, action, or duty of the Agency as conservator
or receiver.” 12 U.S.C. § 4617(b)(2)(B)(v). Thus, to the extent
that the Agency agreed to Purchase Agreements permitting
16 No. 17‐1880
Treasury to exercise functions related to the Agency’s role as
conservator by, for example, giving Treasury a role in the ter‐
mination of conservatorship, transfer of assets, or assumption
of debt, the Agency acted within its statutory authority. Sec‐
ond, to the extent that the plaintiffs challenge the original Pur‐
chase Agreement, their claim is time‐barred by the six‐year
statute of limitations in the Administrative Procedure Act.
28 U.S.C. § 2401(a). Their attempt to avoid the statute of limi‐
tations through the discovery rule is unconvincing. The terms
of the original Purchase Agreements were apparent long be‐
fore the Third Amendment.
III
Just as section 4617(f) bars the plaintiffs’ claims against the
Agency, it prevents our granting declaratory and injunctive
relief against Treasury. Section 4617(f), once again, prevents
us from taking “any action to restrain or affect the exercise of
powers or functions of [the Agency] as a conservator.”
12 U.S.C. § 4617(f) (emphasis added). An injunction or declar‐
atory judgment preventing Treasury—the Agency’s counter‐
party—from honoring the terms of the Third Amendment
would fundamentally “affect” the Agency’s conservatorships
of Fannie and Freddie and so would run afoul of section
4617(f).
Our interpretation of section 4617(f) comports with past
applications of section 1821(j), the analogous provision in
FIRREA. In the latter context, the Third Circuit has refused to
grant injunctions against third parties if the relief would “dra‐
matic[ally] and fundamental[ly]” affect FDIC as a receiver.
Hindes v. Fed. Deposit Ins. Corp., 137 F.3d 148, 161 (3d Cir. 1998)
(“[S]ection 1821(j) precludes a court order against a third
party which would affect the FDIC as receiver, particularly
No. 17‐1880 17
where the relief would have the same practical result as an
order directed against the FDIC in that capacity.”); see also
Dittmer Properties, L.P. v. Fed. Deposit Ins. Corp., 708 F.3d 1011,
1017 (8th Cir. 2013). Thus, in Hindes, it declined to order re‐
scission of a “Notification to Primary Regulator” issued by
FDIC in its corporate capacity that precipitated a bank’s sei‐
zure, and to impose a constructive trust. Id. (We note that sec‐
tion 1821(j) directly immunizes FDIC only in its capacity as
receiver, not in its corporate capacity.) Those remedies, the
Third Circuit thought, would impermissibly “affect the
FDIC’s continued functioning as receiver and … throw into
question every act of FDIC‐Receiver.” Id. Similarly, wiping
out Treasury’s acceptance of the original Purchase Agree‐
ments or the Third Amendment in this case would undermine
the very foundations of the Agency’s conservatorships of Fan‐
nie and Freddie. Appellants effectively ask us to unwind
years of action by the Agency predicated on those agree‐
ments.
Contrary to the plaintiffs’ suggestion, 281–300 Joint Ven‐
ture v. Onion, 938 F.3d 35 (5th Cir. 1991), does not stand for the
broad proposition that “a third‐party federal agency that vio‐
lates its own obligations in connection with a conservatorship
or receivership” can be enjoined notwithstanding section
1821(j). Because that case concerned the failure of a savings
and loan association, section 1821(j) barred court actions that
“restrain[ed] or affect[ed]” the federal Resolution Trust Cor‐
poration, rather than FDIC. 12 U.S.C. § 1821(j). The Fifth Cir‐
cuit did declare the Federal Home Loan Bank Board’s deter‐
minations “regarding the worthlessness of unsecured creditor
claims … subject to review” by the courts, 281–300 Joint Ven‐
ture, 938 F.3d at 38. Those judgments, however, were akin to
18 No. 17‐1880
a decision by the Agency in our case to initiate a conserva‐
torship or receivership, and HERA expressly makes such a
decision reviewable. 12 U.S.C. § 4617(a)(5). 281–300 Joint Ven‐
ture says nothing about enjoining third parties dealing with
the Agency after its conservatorship begins. At that point, the
Agency acts as an immune conservator rather than as a non‐
immune regulator.
In any case, Treasury did not exceed its statutory authority
in agreeing to the Third Amendment. HERA permitted Treas‐
ury to purchase Fannie’s and Freddie’s securities “on such
terms and conditions as the Secretary may determine”
through December 31, 2009. 12 U.S.C. §§ 1719(g)(1)(A), (g)(4).
After that date, Treasury could continue to “hold, exercise
any rights received in connection with, or sell, any” of the se‐
curities it had purchased. Id. § 1719(g)(2)(D). Treasury negoti‐
ated modification rights as part of the terms of the original
Purchase Agreements, and it exercised those rights when it
agreed to the Third Amendment.
The plaintiffs’ unconvincing attempt to equate the Third
Amendment to the issuance of new securities relies heavily
on inapt analogies to securities law and IRS regulations and
rhetorical flourishes about expropriation. As for expropria‐
tion, all we need say is that this is the wrong place in which
to explore that subject. We were told at oral argument that the
plaintiffs are pursuing a takings claim in the Court of Federal
Claims, which is the proper forum for such a case. As for their
arguments relying on analogies to securities law, the short an‐
swer is that those laws use their own definition of the term
“security,” see 15 U.S.C. § 78c(a)(10). That definition includes
“any put, call, straddle, option, or privilege on any security.”
No. 17‐1880 19
Id. Judges have no authority to add or subtract from that lan‐
guage. See Landreth Timber Co. v. Landreth, 471 U.S. 681 (1985)
(rejecting a rule under which a sale of business accomplished
by selling 100% of a company’s stock was somehow not cov‐
ered by the securities laws). Any economic equivalence be‐
tween the Third Amendment and the issuance of new securi‐
ties does not manufacture new stock out of thin air.
Nothing in the Internal Revenue Code helps plaintiffs ei‐
ther. Their own brief asserts that the IRS treats “a significant
modification of a debt instrument” as an exchange of debt in‐
struments, 26 C.F.R. § 1.1001‐3(b), in order “[t]o prevent tax
evasion.” The desire to forestall fraud and abuse lies behind
the interpretation of the terms “sale” and “exchange” in the
tax and securities contexts; HERA has different goals and thus
must be read on its own.
The plaintiffs also argue that Treasury could not have ex‐
ercised a “right” in entering into the Third Amendment be‐
cause it could not amend the Purchase Agreements unilater‐
ally. We cannot accept such a cramped construction of the
term “right.” One need not invoke First Amendment associa‐
tional rights or the Lochner Era’s “right to contract” to spot the
weakness of this definition. Rights are often contingent. In the
corporate context, shareholders frequently cannot exercise
voting rights unless the board calls a meeting to consider the
matter at hand. Likewise, a poison pill may give stockholders
a right to purchase additional shares, but their ability to exer‐
cise that right (at least at an economically rational price) de‐
pends entirely on the purchases of a would‐be acquirer and
the unwillingness of the board to redeem the pill. Under the
Purchase Agreements and the Third Amendment, Treasury
20 No. 17‐1880
receives a payout of its liquidation preference if the compa‐
nies opt to pay it or to dissolve. The shareholders do not chal‐
lenge Treasury’s right to collect these benefits on the ground
that Treasury cannot unilaterally trigger their payment. Nor
do the shareholders contest Treasury’s right to receive divi‐
dends only if the companies’ boards declare them. Along the
same lines, the Purchase Agreements permit the amendments
as long as the parties comply with certain restrictions. In other
words, Treasury’s shares came with a right to amend the Pur‐
chase Agreements, even if that right required the participa‐
tion and consent of those who governed the companies.
IV
Our discussion thus far is enough to demonstrate why the
district court correctly dismissed this suit. For the sake of
completeness, we add that section 4617(b)(2)(A)(i) of HERA
independently supports that outcome. That provision names
the Agency the successor to “all rights, titles, powers, and
privileges of [Fannie and Freddie], and of any stockholder, of‐
ficer, or director … with respect to” the companies and their
assets. 12 U.S.C. § 4617(b)(2)(A)(i). Applying the analogous
provision of FIRREA, 12 U.S.C. § 1821(d)(2)(A)(i), we have
held that the FDIC thereby acquires the sole right to bring de‐
rivative actions on behalf of failed institutions, Levin v. Miller,
763 F.3d 667, 669 (7th Cir. 2014); see also Courtney v. Halleran,
485 F.3d 942, 950 (7th Cir. 2007). We must therefore consider
whether the shareholders have brought derivative claims. If
so, then they must yield to the Agency.
The law governing the companies’ internal affairs controls
whether a claim is direct or derivative for purposes of HERA,
just as it would for FIRREA. Id. at 670. Fannie and Freddie are
both federally chartered corporations, but each has selected a
No. 17‐1880 21
state law for its internal affairs: Fannie has chosen Delaware
corporate law, 12 C.F.R. § 1239.3(b); FANNIE MAE BYLAWS
(July 21, 2016), § 1.05; and Freddie has elected the law of Vir‐
ginia, 12 C.F.R. § 1239.3(b); BYLAWS OF THE FEDERAL HOME
LOAN MORTGAGE CORPORATION (July 7, 2016), § 11.3. In Dela‐
ware, whether a suit is direct or derivative “must
turn solely on … : (1) who suffered the alleged harm (the cor‐
poration or the suing stockholders, individually); and (2) who
would receive the benefit of any recovery or other remedy
(the corporation or the stockholders, individually).” Tooley v.
Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1033
(Del. 2004). While Virginia has not expressly decided whether
to adopt the Tooley test, Remora Invs., L.L.C. v. Orr, 673 S.E.2d
845, 848 (Va. 2009), its reasoning in past cases indicates a con‐
sistent approach. See, e.g., Simmons v. Miller, 544 S.E.2d 666,
674–75 (Va. 2001); Little v. Cooke, 652 S.E.2d 129, 136 (Va. 2007).
The present complaint states a derivative claim. The harm
the plaintiffs allege, for purposes of Tooley, is that the net‐
worth dividend illegally dissipated corporate assets by trans‐
ferring them to Treasury. They complain, in effect, of a com‐
bination of mismanagement and depletion of corporate assets
through overpayment, both of which are classic derivative
claims. See In re Massey Energy Co. Derivative & Class Action
Litig., 160 A.3d 484, 503 (Del. Ch. 2017) (mismanagement);
El Paso Pipeline GP Co., L.L.C. v. Brinckerhoff, 152 A.3d 1248
(Del. 2016) (overpayment).1 Turning to the benefit inquiry, the
1 Admittedly, a conflict between shareholders (or classes of sharehold‐
ers) can sometimes qualify as a direct action as well as derivative. These
situations, however, generally include allegations of an unlawful transfer
of control, see In re Activision Blizzard, Inc. Stockholder Litig., 124 A.3d 1025,
1052 (Del. Ch. 2015); El Paso Pipeline, 152 A.3d at 1263–64 (discussing Gen‐
tile v. Rossette, 906 A.2d 91 (Del. 2006)), or fraudulent efforts to induce the
22 No. 17‐1880
complaint seeks only benefits that would inure to the benefit
of the corporations, rather than individual stockholders. The
plaintiffs have demanded, for example, the effective rescis‐
sion of (at least elements of) a contract between the companies
and Treasury, the return of dividend payments to the corpo‐
rate treasuries, and the end of Treasury control over the com‐
panies through the Purchase Agreements’ covenants.
Finally, we do not see a conflict‐of‐interest exception im‐
plicit in section 4617(b)(2)(A)(i). Its language is clear and ab‐
solute, and HERA itself approves of the Agency’s taking ac‐
tions in its own interests as well as that of the companies.
12 U.S.C. § 4617(b)(2)(J)(ii). Only two circuits have apparently
recognized a conflict‐of‐interest exception in the FIRREA con‐
text, and those cases are easily distinguished. First Hartford
Corporate Pension Plan & Trust v. United States concerned
FDIC’s breach of a distinct contract entered into before the
bank entered FDIC receivership. 194 F.3d 1279, 1283–84 (Fed.
Cir. 1999). The Federal Circuit expressly limited its conflict‐
of‐interest exception to situations “in which a government
contractor with a putative claim of breach by a federal agency
is being operated by that very same federal agency.” Id. at
1295. First Hartford thus stands for the proposition that the ac‐
cident of receivership should not serve to extinguish an asset
(whether seen as a contractual right or chose in action) of the
sale or purchase of securities for personal gain, see In re Massey Energy,
160 A.3d at 504 (Del. Ch. 2017) (emphasis in original). Neither is the case
here. Treasury acquired no voting rights, and the complaint does not al‐
lege that any shareholders transferred their shares. Even in the case of a
controlling shareholder (which Treasury was not), the “extraction of
solely economic value from the minority” is not a direct injury if “not cou‐
pled with any voting rights dilution.” El Paso Pipeline, 152 A.3d at 1264.
No. 17‐1880 23
bank. Likewise, in the Ninth Circuit case of Delta Savings Bank
v. United States, the plaintiffs wished to sue the Office of Thrift
Supervision for racial discrimination in placing the bank into
receivership—not for operating the bank once in receivership.
265 F.3d 1017, 1020 (9th Cir. 2001). HERA already authorizes
derivative challenges to the decision to place the companies
into conservatorship or receivership. 12 U.S.C.
§ 4617(a)(5)(A). What section 4617(b)(2)(A)(i) does not author‐
ize are shareholder suits that would interfere with the
Agency’s decisions as conservator once that conservatorship
is underway. Otherwise, shareholders could challenge nearly
any business judgment of the Agency using a derivative suit,
by invoking a conflict‐of‐interest exception.
V
We therefore AFFIRM the decision of the district court to
dismiss this lawsuit. HERA prevents this court from granting
the relief requested against both the Agency and Treasury,
and it precludes the shareholders from requesting that relief
on behalf of the companies.