Amicus Curiae Brief — Patrick J. Collins, et al., Petitioners v. Janet L. Yellen, Secretary of the Treasury, et al.

Nos. 19-422, 19-563

================================================================================================================

In The

Supreme Court of the United States

---------------------------------♦--------------------------------PATRICK J. COLLINS, et al.,

Petitioners,

v.

STEVEN T. MNUCHIN,

Secretary of the Treasury, et al.,

Respondents.

---------------------------------♦--------------------------------STEVEN T. MNUCHIN,

Secretary of the Treasury, et al.,

Petitioners,

v.

PATRICK J. COLLINS, et al.,

Respondents.

---------------------------------♦--------------------------------On Writs Of Certiorari To The United States

Court Of Appeals For The Fifth Circuit

---------------------------------♦--------------------------------BRIEF OF AMICI CURIAE SCHOLARS

IN SUPPORT OF PATRICK J. COLLINS

---------------------------------♦--------------------------------MATTHEW CAVEDON

Counsel of Record

P.O. Box 390

Gainesville, GA 30503

(860) 538-9130

mcavedon@post.harvard.edu

STEVEN DAVIDOFF SOLOMON

Professor of Law

U.C. BERKELEY SCHOOL

OF LAW

693 Simon Hall

Berkeley, CA 94720

DAVID ZARING

ALEXANDER I. PLATT

Associate Professor of Law

Professor of Legal Studies

UNIVERSITY OF KANSAS

and Business Ethics

SCHOOL OF LAW

THE WHARTON SCHOOL

UNIVERSITY OF PENNSYLVANIA 404 Green Hall

662 Jon M. Huntsman Hall

1535 W. 15th Street

3730 Walnut Street

Lawrence, KS 66045

Philadelphia, PA 19104

================================================================================================================

COCKLE LEGAL BRIEFS (800) 225-6964

WWW.COCKLELEGALBRIEFS.COM

i

TABLE OF CONTENTS

Page

INTEREST OF AMICI CURIAE .........................

1

SUMMARY OF ARGUMENT ..............................

2

ARGUMENT ........................................................

4

I.

The Executive Branch Has Repeatedly Been

Called Upon To Engage In Extraordinary

Emergency Economic Rescues And Is

Likely To Continue To Serve In This Role

Going Forward ...........................................

4

A. The Currency Bailouts of the 1990s .....

5

B. “Regulation by Deal” in Response to

the Financial Crisis .............................

7

C. The Government’s Massive Response

to the COVID Crisis ............................ 10

II.

The Government’s Emergency Financial

Interventions Raise Special Risks of

Abuse ......................................................... 13

III.

Judicial Interpretation of Legal Guardrails

Like HERA’s Anti-Injunction Provision

Should Aim To Preserve Broad Discretion

for the Government To Act While Also

Protecting Against the Risk of Abuse .......... 17

CONCLUSION..................................................... 22

ii

TABLE OF AUTHORITIES

Page

CASES

Barr v. Am. Ass’n of Political Consultants, Inc.,

140 S. Ct. 2335 (2020) .............................................17

Cacciapalle v. United States, 148 Fed. Cl. 745

(2020) .......................................................................18

Collins v. Mnuchin, 938 F.3d 553 (5th Cir. 2019) ......19

Colonial Chevrolet Co. v. United States, 145 Fed.

Cl. 243 (2019) ............................................................9

County of Sonoma v. FHFA, 710 F.3d 987 (9th

Cir. 2013) ........................................................... 19, 20

Dep’t of Commerce v. New York, 139 S. Ct. 2551

(2019) .......................................................................21

Fairholme Funds, Inc. v. United States, 147 Fed.

Cl. 1 (2019) ........................................................ 18, 22

Fisher v. United States, 148 Fed. Cl. 478 (2020) ........18

Guerrero-Lasprilla v. Barr, 140 S. Ct. 1062

(2020) .......................................................................22

Haight v. Thompson, 763 F.3d 554 (6th Cir.

2014) ........................................................................21

James Madison Ltd. by Hecht v. Ludwig, 82 F.3d

1085 (D.C. Cir. 1996)............................................23

Jifry v. Fed. Aviation Admin., 370 F.3d 1174

(D.C. Cir. 2004) ........................................................13

Marbury v. Madison, 1 Cranch 137, 2 L. Ed. 60

(1803).................................................................... 22

iii

TABLE OF AUTHORITIES – Continued

Page

Perry Capital LLC v. Mnuchin, 864 F.3d 591

(D.C. Cir. 2017) .................................................. 17, 18

Roberts v. FHFA, 889 F.3d 397 (7th Cir. 2018) ..........19

Starr Int’l Co. v. United States, 121 Fed. Cl. 428

(2015) .........................................................................8

Starr Int’l Co. v. United States, 856 F.3d 953

(Fed. Cir. 2017) ..........................................................8

STATUTES

CARES Act, Pub. L. No. 116-136, § 4003 ...................11

12 U.S.C. § 4617(b)(2)(A)(i) .........................................17

12 U.S.C. § 4617(b)(2)(D) ............................................20

12 U.S.C. § 4617(f ) ...................................... 3, 17, 18, 19

31 U.S.C. § 5302 ............................................................5

OTHER AUTHORITIES

Abbigail J. Chiodo & Michael T. Owyang, A Case

Study of Currency Crisis: The Russian Default

of 1998, Fed. Reserve Bank of St. L. (Nov.–

Dec. 2002), https://research.stlouisfed.org/

publications/review/2002/11/01/a-case-study-ofa-currency-crisis-the-russian-default-of-1998 .........7

Ally Coll Steele, Note, Fannie, Freddie and Fairness, 53 HARV. J. ON LEGIS. 417 (2016) ...................22

iv

TABLE OF AUTHORITIES – Continued

Page

Axel Dreher & Nathan M. Jensen, Independent

Actor or Agent? An Empirical Analysis of the

Impact of U.S. Interests on International Monetary Fund Conditions, 50 J.L. & ECON. 105

(2007) .........................................................................6

Better Markets, Wall Street’s Six Biggest

Bailed-Out Banks: Their RAP Sheets & Their

Ongoing Crime Spree, April 2019, https://

bettermarkets.com/sites/default/files/Better%20

Markets%20-%20Wall%20Street%27s%20Six%20

Biggest%20Bailed-Out%20Banks%20FINAL.

pdf ..............................................................................9

C. Randall Henning, The Mexican Peso Crisis of

1995 and Its Aftermath, in THE EXCHANGE STABILIZATION FUND: SLUSH MONEY OR WAR

CHEST? (1999), https://piie.com/publications/

chapters_preview/43/6iie2717.pdf ............................6

CONG. RESEARCH SERV., R44185, FEDERAL RESERVE: EMERGENCY LANDING (2020), https://

fas.org/sgp/crs/misc/R44185.pdf ................................... 11

David Zaring, The Government’s Economic Response to the COVID Crisis, 40 REV. BANKING

& FIN. L. ___ (forthcoming 2021), available at

https://ssrn.com/abstract=3662049 or http://dx.

doi.org/10.2139/ssrn.3662049 ........................... 11, 12

David Zaring, Toward Separation of Powers Realism, 37 YALE J. ON REG. 708 (2020) .....................17

v

TABLE OF AUTHORITIES – Continued

Page

Fed. Reserve, Term Sheet: Primary Market Corporate Credit Facility, www.federalreserve.

gov/newsevents/pressreleases/files/monetary

20200323b1.pdf .......................................................10

Glenn Hubbard & Hal Scott, ‘Main Street’ Program Is Too Stingy to Banks and Borrowers,

WALL ST. J. (July 20, 2020), https://www.

wsj.com/articles/main-street-program-is-toostingy-to-banks-and-borrowers-11595284266 .......11

Henry T.C. Hu, Faith and Magic: Investor Beliefs

and Government Neutrality, 78 TEX. L. REV.

777 (2000) ..................................................................7

John Komkov, Do US Markets Really Need a

“Supercop”?, STANFORD REV. (April 2, 2008) ............7

Jonathan Weisman, U.S. Declares Bank and

Auto Bailouts Over, and Profitable, N.Y. TIMES

(Dec. 19, 2014) .........................................................14

Letter from 30 Climate Advocacy Groups to

Hon. Jerome Powell (Mar. 27, 2020) .......................15

Letter from Nine U.S. Senators to Hon. Jerome

Powell (Apr. 20, 2020)..............................................15

Letter from U.S. Senator Kevin Cramer et al. to

Hon. Jerome Powell (Apr. 7, 2020) ..........................16

Mark J. Roe & Joo-Hee Chung, How the Chrysler

Reorganization Differed from Prior Practice, 5

J. LEGAL ANAL. 399 (2013) .......................................15

vi

TABLE OF AUTHORITIES – Continued

Page

MICHAEL S. BARR, HOWELL E. JACKSON & MARGARET E. TAHYAR, FINANCIAL REGULATION: LAW

AND POLICY – SUPPLEMENT: THE FINANCIAL RESPONSE TO THE COVID-19 PANDEMIC 9 (Aug. 1,

2020), available at https://ssrn.com/abstract=

3666461 ...................................................................13

Nora Lustig, Mexico in Crisis, the U.S. to the

Rescue: The Financial Assistance Packages of

1982 and 1995, 2 UCLA J. INT’L L. & FOR. AFF.

25 (1997) ....................................................................5

Press Release, U.S. Dep’t of the Treasury, Treasury Sells Final Shares of AIG Common Stock,

Positive Return on Overall AIG Commitment

Reaches $22.7 Billion (Dec. 11, 2012), http://

www.treasury.gov/press-center/press-releases/

Pages/tg1796.aspx ...................................................14

Russell Dean Covey, Note, Adventures in the

Zone of Twilight: Separation of Powers and

National Economic Security in the Mexican

Bailout, 105 YALE L.J. 1311 (1996) ...........................5

STEVEN DAVIDOFF SOLOMON, GODS AT WAR: SHOTGUN TAKEOVERS, GOVERNMENT BY DEAL, AND

THE PRIVATE EQUITY IMPLOSION 248 (2010) ...............8

Steven Davidoff Solomon & David Zaring, After

the Deal: Fannie, Freddie, and the Financial

Crisis Aftermath, 95 B.U. L. REV. 371

(2015) ................................................... 1, 9, 18, 22, 23

Steven M. Davidoff & David Zaring, Regulation

by Deal: The Government’s Response to the Financial Crisis, 61 ADMIN. L. REV. 463 (2009) ..... 8, 10

vii

TABLE OF AUTHORITIES – Continued

Page

Steven Rattner, Auto Bailout: How Good Policy

Became Good Politics, POLITICO (Nov. 9, 2012),

https://www.politico.com/story/2012/11/autobailout-how-good-policy-became-good-politics083614 .....................................................................15

Temporary Halt in Residential Evictions to Prevent the Further Spread of COVID–19, 85 Fed.

Reg. 55,292 (Sep. 4, 2020) .......................................12

US-Mexico Framework Agreement for Mexican

Economic Stabilization, 1 NAFTA: L. & BUS.

REV. OF THE AMERICAS 185 (1995) ............................5

William K. Sjostrom, Jr., The AIG Bailout, 66

WASH. & LEE L. REV. 943 (2009) ...............................8

1

INTEREST OF AMICI CURIAE1

Amici are law professors who focus on the intersection of law and finance. They teach, write, and practice in the fields of administrative law, corporate law,

and securities regulation. Their scholarly work has

been published in leading law journals and national

media outlets.

David Zaring is a professor at the Wharton School

of the University of Pennsylvania. He is a scholar of

financial regulatory institutions and has written in

particular about the post-financial crisis litigation pursued by the shareholders of Fannie Mae and Freddie

Mac. See Steven Davidoff Solomon & David Zaring,

After the Deal: Fannie, Freddie, and the Financial Crisis Aftermath, 95 B.U. L. REV. 371 (2015).

Steven Davidoff Solomon is a professor at the University of California, Berkeley School of Law. He is one

of the nation’s most well-known authorities on corporate law and was a weekly contributor to The New York

Times as The Deal Professor.

Alexander I. Platt is a professor at the University

of Kansas School of Law. His scholarship focuses on the

intersection of securities regulation and administrative law.

1

All parties and petitioners have filed blanket consents to

the filing of amicus briefs. Counsel for a party has not authored

the brief in whole or in part, nor has such counsel or a party made

a monetary contribution intended to fund the preparation or submission of the brief.

2

None of the amici have any financial or other interest in this case.2

---------------------------------♦---------------------------------

SUMMARY OF ARGUMENT

Once per decade, the executive branch and independent agencies have been called upon to drop their

ordinary duties and take on the role of economic firefighter. During the 1990s, currency crises in Mexico,

Russia, and Asia required the Federal Reserve Board

(the “Fed”) and U.S. Department of the Treasury

(“Treasury”) to work together to stabilize the global

economy using stretched understandings of their statutory authority. In 2008 and 2009, the Fed and Treasury used a series of hasty deals and acquisitions to

rescue the financial sector, including the takeovers of

Fannie Mae and Freddie Mac (“the Companies”) that

eventually occasioned this litigation. And, as we write,

the Fed and Treasury, along with other agencies, are

once again acting in concert to rescue an unprecedented number of businesses that have been caught up

in the COVID pandemic.

These rescues have been dramatic. They were

probably necessary. But this recurring role of economic

2

Prior to entering into academia, Professor Platt represented

plaintiffs in related litigation challenging the Third Amendment,

but he has no continuing financial or other interest in that litigation and has had no communication with the attorneys or parties

involved in that matter regarding this case or this brief. This brief

does not reflect the views of any of the parties or attorneys in that

other litigation.

3

firefighter also brings new dangers. By design, the extraordinarily broad powers wielded by government

during these crises often come without many of the ordinary legal and institutional checks that limit government action. Transparency is often lacking over these

actions. And the legal authority claimed for these extraordinary measures – including, in the current crisis,

a nationwide moratorium on housing evictions announced by the Centers for Disease Control – is not always clear.

In this zone of limited accountability, there is a

heightened risk that the government will misuse or

abuse its powers. The government might yield to pressures to leverage its extraordinary interventions in the

economy to steer benefits to favored groups, to promote

policy priorities entirely unrelated to the economic crisis, or to score political points by maximizing the volume of funds flowing into the federal fisc, potentially

allocating serious losses and other harms along the

way – and all without many of the limits ordinarily imposed on government action.

Amici contend that the contested transaction at

the center of this case represents an alarming materialization of this risk. But it is precisely this risk that

HERA’s anti-injunction provision, 12 U.S.C. § 4617(f ),

was built to address. That provision gives FHFA free

rein and insulates it from judicial review so long as it

is acting within its statutory role as the Companies’

“conservator.” But once FHFA acts outside of that

role, these special protections fall away, and ordinary

tools of legal accountability for wrongful and abusive

4

executive actions, like the APA claims raised by Plaintiffs here, can and should be available.

Ultimately, it is up to courts to ensure that legal

guardrails like HERA’s anti-injunction provision are

properly constructed – to preserve the government’s

discretion to act in crisis without litigious interference,

while also ensuring that it is held accountable where

appropriate.

Amici believe the stakes of this case go beyond

particular issues of statutory interpretation or even

the specific constitutional questions raised by the parties. The issue before this Court is whether the executive, when it is acting as economic firefighter, will be

immune from any and all forms of legal accountability

even for actions taken long after the crisis has faded.

Our view is that the deal at issue in this litigation,

signed four years after the height of the financial crisis,

was deeply problematic. If any case merits an exception to the ordinarily broad deference accorded to the

executive branch’s financial rescues, this one does.

---------------------------------♦---------------------------------

ARGUMENT

I.

The Executive Branch Has Repeatedly Been

Called Upon To Engage In Extraordinary

Emergency Economic Rescues And Is Likely

To Continue To Serve In This Role Going

Forward.

It is no longer possible to pretend that the government will not be forced into dramatic action to respond

5

to economic emergencies, both domestic and international. During the past three decades, there have been

three such interventions (one of which could be characterized as a cascading series of interventions), each

more massive than the last. In each case, the government has stretched its legal authority and its actions

have produced both winners and losers.

A. The Currency Bailouts of the 1990s.

In the 1990s, the Fed and Treasury teamed up to

organize responses to collapses in the value of the Mexican peso, various Asian currencies, and the Russian

ruble. In the case of the Mexican peso, Treasury partnered with the IMF to provide loans and loan guarantees through the Exchange Stabilization Fund (ESF) –

an obscure revolving fund in the Treasury normally

used to stabilize the dollar on world currency markets.3

The U.S. ultimately contributed $20 billion through

the “US-Mexico Framework Agreement for Mexican

Economic Stabilization,” sourced from the ESF.4 The

bailout helped stabilize the Mexican economy, but was

3

31 U.S.C. § 5302. See Nora Lustig, Mexico in Crisis, the

U.S. to the Rescue: The Financial Assistance Packages of 1982 and

1995, 2 UCLA J. INT’L L. & FOR. AFF. 25 (1997); see also Russell

Dean Covey, Note, Adventures in the Zone of Twilight: Separation

of Powers and National Economic Security in the Mexican

Bailout, 105 YALE L.J. 1311 (1996) (challenging the legality of this

executive action).

4

US-Mexico Framework Agreement for Mexican Economic

Stabilization, 1 NAFTA: L. & BUS. REV. OF THE AMERICAS 185

(1995).

6

politically unpopular, both with the public and with the

legislature.5

Similarly, when several Asian currencies were collapsing, the U.S. government was forced to step in. Labelled the “Committee to Save the World” on the cover

of Time, Fed Chair Alan Greenspan, Treasury Secretary Robert Rubin, and his deputy Larry Summers

worked with the IMF to provide financing to a number

of Asian governments, conditioned on a series of economic reforms known as “structural adjustment packages.” These efforts imposed significant structural

changes across Asia, including corporate governance

requirements and enhanced regulatory authority.

Though successful in calming the markets, the design

and implementation of these heavy-handed interventions remains controversial.6

5

Congress subsequently imposed consultation requirements

on any loans made through the ESF through the annual appropriations process in fiscal years 1997 and 1998. See C. Randall

Henning, The Mexican Peso Crisis of 1995 and Its Aftermath, in

THE EXCHANGE STABILIZATION FUND: SLUSH MONEY OR WAR

CHEST? 62–64 (1999), https://piie.com/publications/chapters_preview/43/6iie2717.pdf.

6

“In the wake of the Asian financial crisis, scholars from

both outside and inside the IMF issued scathing criticisms of both

the organization’s inability to help avoid financial crisis and its

overly draconian policy prescriptions . . . attribut[ing] part of the

blame to the IMF’s major shareholders, specifically the United

States.” Axel Dreher & Nathan M. Jensen, Independent Actor or

Agent? An Empirical Analysis of the Impact of U.S. Interests on

International Monetary Fund Conditions, 50 J.L. & ECON. 105,

106 (2007).

7

Finally, when the Russian ruble was devalued, accompanied by a moratorium on paying foreign creditors, the Fed again stepped in.7 The devaluation

devastated the American hedge fund Long-Term Capital Management (home to two future winners of the

Nobel Prize in Economics), which had made a highly

leveraged bet on the direction of the ruble. The ruble’s

collapse and the simultaneous crises in the Asian markets brought the hedge fund to the brink of failure –

leading the Federal Reserve Bank of New York to organize a $3.625 billion bailout.8 The bailout worked –

markets stabilized. But commentators have recognized

that it generated a significant “moral hazard” problem:

Systemically important financial firms began to gain

confidence that if they got into too much trouble, the

government would be there to bail them out in order to

stem the fallout.9

B. “Regulation by Deal” in Response to the

Financial Crisis.

The second major rescue of the past three decades

took place in response to the 2008–09 financial crisis.

7

Abbigail J. Chiodo & Michael T. Owyang, A Case Study of

Currency Crisis: The Russian Default of 1998, Fed. Reserve Bank of

St. L. (Nov.–Dec. 2002), https://research.stlouisfed.org/publications/

review/2002/11/01/a-case-study-of-a-currency-crisis-the-russiandefault-of-1998.

8

John Komkov, Do US Markets Really Need a “Supercop”?,

STANFORD REV. (April 2, 2008).

9

E.g., Henry T.C. Hu, Faith and Magic: Investor Beliefs and

Government Neutrality, 78 TEX. L. REV. 777, 868 (2000).

8

Given the scale of the collapse, and the number of firms

affected, the government had to act with haste on

many fronts and with substantially more resources in

order to put out the fire.10 American International

Group, Inc. (AIG), the largest insurer in the world at

the time, initially received an $85 billion government

loan, and later ended up receiving a total of $182.5 billion.11 The government ultimately took over the insurance giant after engineering a vote over the objections

of shareholders.12 In a shareholder lawsuit challenging

the government’s action, the Court of Federal Claims

found an Illegal Exaction, but awarded no damages.13

This decision was vacated by the Federal Circuit on appeal, which found that the shareholders lacked standing.14

In the case of Fannie Mae and Freddie Mac (the

“Companies”), both firms were placed in conservatorship, but not entirely taken over; part of the Companies were left in the hands of their public

10

For a review, see Steven M. Davidoff & David Zaring, Regulation by Deal: The Government’s Response to the Financial Crisis, 61 ADMIN. L. REV. 463, 464 (2009).

11

STEVEN DAVIDOFF SOLOMON, GODS AT WAR: SHOTGUN TAKEOVERS, GOVERNMENT BY DEAL, AND THE PRIVATE EQUITY IMPLOSION

248 (2010).

12

William K. Sjostrom, Jr., The AIG Bailout, 66 WASH. & LEE

L. REV. 943 (2009).

13

Starr Int’l Co. v. United States, 121 Fed. Cl. 428 (2015).

14

Starr Int’l Co. v. United States, 856 F.3d 953 (Fed. Cir.

2017).

9

shareholders.15 That choice, of course, led to this litigation.

The government also bailed out two automobile

companies on the condition that they streamline their

dealerships, leading to litigation that continues to this

day.16 It quarterbacked a series of deals that ended up

transforming investment banking in the United

States. It organized the sales of Bear Stearns, Merrill

Lynch, and, post-bankruptcy, Lehman Brothers to commercial banks. And it required Goldman Sachs and

Morgan Stanley to become bank holding companies

regulated by the Fed as a condition of receiving government loans and other support that allegedly

amounted to $874 billion in the case of Goldman Sachs

and $2.28 trillion in the case of Morgan Stanley.17 The

government also bailed out the money market industry, again with resort to the ESF, and made other loans

and engineered other bank mergers.

15

See Steven Davidoff Solomon & David Zaring, After the

Deal: Fannie, Freddie, and the Financial Crisis Aftermath, 95

B.U. L. REV. 371, 374 (2015) (describing this litigation as “a new

front in the debate over how, and who should be able, to hold the

government accountable for its actions during and in the aftermath of an economic emergency”).

16

See Colonial Chevrolet Co. v. United States, 145 Fed. Cl.

243 (2019) (rejecting plaintiffs’ Takings claims following a bench

trial), appeal docketed sub nom. Mike Finnin Mot., Inc. v. United

States, No. 20-1205 (Fed. Cir.) (filed Dec. 4, 2019).

17

Better Markets, Wall Street’s Six Biggest Bailed-Out

Banks: Their RAP Sheets & Their Ongoing Crime Spree, April 2019,

https://bettermarkets.com/sites/default/files/Better%20Markets%20%20Wall%20Street%27s%20Six%20Biggest%20Bailed-Out%20

Banks%20FINAL.pdf.

10

Eventually, the crisis abated. But the effects of the

government’s intervention were remarkable, resulting

in a transformed financial sector and a government

that was institutionally reoriented towards extraordinary interventions in the economy.

C. The Government’s Massive Response to

the COVID Crisis.

In the government’s ongoing response to the

COVID crisis, we see the latest example of the executive branch and central bank riding to the economic

rescue. The Fed and Treasury have set up a number of

facilities – so-called special purpose vehicles, which

work a bit like corporate subsidiaries – that essentially

offer dollars for a variety of assets held by banks and

nonfinancial businesses. In the last crisis, the Fed also

created these sorts of facilities, though they were not

as well funded and not as directed at such a variety of

asset classes as this one.18

In this crisis, fourteen special purpose vehicles

have been created to provide dollars to nonbanks, most

notably by buying up commercial paper, corporate

bonds, and municipal commercial paper and bonds.19

That takes the Fed far out of its comfort zone of dealing

18

See Davidoff & Zaring, Regulation by Deal, supra at 524-

25.

19

Fed. Reserve, Term Sheet: Primary Market Corporate Credit

Facility, www.federalreserve.gov/newsevents/pressreleases/files/

monetary20200323b1.pdf.

11

with and regulating banks, and places it in a new role

– lender of last resort not just to financial institutions,

but to a much broader swath of the economy, including

local governments, corporations, and a panoply of other

institutions. Though the Fed started rolling out its facilities before any congressional action, this role of crisis lender to all was subsequently endorsed in the

CARES Act, when Congress appropriated funds for the

facilities and directed the government deploy them

pursuant to procedures applicable to the Fed’s nonbank lending power in section 13(3) of the Federal Reserve Act.20 As has become customary, the government’s lending decisions have been subject to criticism

from a variety of quarters, raising concerns about

whether Wall Street has been bailed out more comprehensively than Main Street, and whether the response

has been appropriate or disproportionate.21

The government’s response to the current crisis

has also had an international component. The Fed has

flooded the world with dollars through swap lines with

friendly foreign central banks and repo transactions

20

See CARES Act, Pub. L. No. 116-136, § 4003. For an overview, see CONG. RESEARCH SERV., R44185, FEDERAL RESERVE:

EMERGENCY LANDING (2020), https://fas.org/sgp/crs/misc/R44185.pdf.

21

See, e.g., Glenn Hubbard & Hal Scott, ‘Main Street’ Program Is Too Stingy to Banks and Borrowers, WALL ST. J. (July 20,

2020), https://www.wsj.com/articles/main-street-program-is-toostingy-to-banks-and-borrowers-11595284266. For a comprehensive review of the government’s response to the COVID crisis, see

David Zaring, The Government’s Economic Response to the

COVID Crisis, 40 REV. BANKING & FIN. L. ___ (forthcoming 2021),

available at https://ssrn.com/abstract=3662049 or http://dx.doi.org/

10.2139/ssrn.3662049.

12

with less friendly ones, although the authority to enter

into such lines has never been clearly established in

the Federal Reserve Act.22

Finally, the economic regulators have encouraged

banks to lend through an explicit and implicit program

of regulatory forbearance. This type of activity has

been discouraged by Congress, but is unlikely to be reviewable in court.23 The Fed and Treasury have not

acted alone. Other agencies have also taken unprecedented action, exemplified by the Centers for Disease

Control and Prevention’s recent promulgation of a nationwide moratorium on housing evictions for the remainder of 2020.24

***

The government’s role as economic firefighter has

become institutionalized. When crises strike, financial

and political actors now turn to the government, and

in particular to the Fed and Treasury, with an expectation that they will take extraordinary steps to intervene in the economy in order to rescue it from collapse.

But however necessary these dramatic interventions

have been, and however successful in restoring economic stability, these interventions also come with a

very real cost.

22

See Zaring, The Government’s Economic Response to the

COVID Crisis, supra.

23

See id.

24

Temporary Halt in Residential Evictions to Prevent the

Further Spread of COVID–19, 85 Fed. Reg. 55,292 (Sep. 4, 2020).

13

II.

The Government’s Emergency Financial Interventions Raise Special Risks of Abuse.

These extraordinary interventions may be necessary to save the economy from recurring crises, but the

powers that the government exercises during these

episodes also raise special risks of abuse. The government faces a challenging set of incentives when engaging in economic rescues that may push it towards

unfair, peremptory, and unjustified treatment of people

and institutions.

By design, ordinary legal guardrails on administrative action – like notice and comment rulemaking

and judicial review – are likely to be much more limited, or even absent altogether, when it comes to economic firefighting powers.25 Similarly, some of the

informal institutional guardrails that constrain administrative actions in normal times may not apply.

Critical decisions may take place outside of normal

well-governed channels without ordinary processes

and layers of review. Entirely new programs may be

assigned to agencies lacking the capacity to effectively

manage them.26 Or, as was the case here, Congress may

25

Cf. Jifry v. Fed. Aviation Admin., 370 F.3d 1174, 1179

(D.C. Cir. 2004) (discussing the APA’s “good cause” exception

which “excuses notice and comment in emergency situations . . .

or when delay could result in serious harm.”).

26

See, e.g., MICHAEL S. BARR, HOWELL E. JACKSON & MARGARET E. TAHYAR, FINANCIAL REGULATION: LAW AND POLICY – SUPPLEMENT: THE FINANCIAL RESPONSE TO THE COVID-19 PANDEMIC 9 (Aug.

1, 2020), available at https://ssrn.com/abstract=3666461 (noting

that one of the programs being implemented in the current crisis

has been hampered by “significant regulatory confusion and

14

set up a new agency and task it with urgent programmatic responsibilities.

In this context, where the ordinary guardrails on

administrative conduct are limited or absent altogether, Amici believe there is a seriously heightened

risk that the government may succumb to temptations

to misuse or abuse its emergency powers. For instance,

the government may face strong incentives to ensure

that the federal fisc is not only “protected” from losses

related to its extraordinary activities, but also receives

a maximum return on investment. During the last financial crisis, the government felt pressure to establish that the money it had used to bail out financial

institutions had not been wasted, but had actually

turned a profit.27

More generally, the government may be tempted

to use emergency actions to pursue policies it favors

that are unrelated to the mitigation of the emergency

– including by benefitting favored interest groups

and harming disfavored ones – and implement these

administrative disarray,” in part because it was assigned to be

administered by “a small agency that was ill-equipped to suddenly administer a half-trillion-dollar economic rescue program.”).

27

See Jonathan Weisman, U.S. Declares Bank and Auto

Bailouts Over, and Profitable, N.Y. TIMES (Dec. 19, 2014) (“[T]he

Obama administration on Friday declared a profitable end to the

sweeping federal interventions in Wall Street and Detroit. . . .”);

Press Release, U.S. Dep’t of the Treasury, Treasury Sells Final

Shares of AIG Common Stock, Positive Return on Overall AIG

Commitment Reaches $22.7 Billion (Dec. 11, 2012), http://www.

treasury.gov/press-center/press-releases/Pages/tg1796.aspx.

15

actions without being subject to the usual procedural

safeguards. During the financial crisis, the executive

branch came to the rescue of only one set of nonfinancial companies – America’s automobile manufacturers,

whose workers were disproportionately located in electoral swing states.28 There may have been good reasons

for this bailout, but political connections between the

unions seeking a rescue and the executive branch

raised speculation, as did the way that the bankruptcy

process for the automobile firms – another condition of

the government’s assistance – was managed.29 Similarly, during the present crisis, Treasury and the Fed

have faced criticism from climate activists and their

allies on Capitol Hill for using taxpayer dollars to rescue the fossil fuel industry.30

28

Steven Rattner, Auto Bailout: How Good Policy Became

Good Politics, POLITICO (Nov. 9, 2012), https://www.politico.com/

story/2012/11/auto-bailout-how-good-policy-became-good-politics083614.

29

See Mark J. Roe & Joo-Hee Chung, How the Chrysler Reorganization Differed from Prior Practice, 5 J. LEGAL ANAL. 399,

428 (2013) (analyzing the way the Chrysler reorganization plan

benefited labor unions and their pension plans).

30

See Letter from 30 Climate Advocacy Groups to Hon. Jerome Powell (Mar. 27, 2020) (“The Federal Reserve should not

prop up industry destroying the climate . . . ”), available at

https://d17a0173-b97b-4c08-a2e3-f8ea72c0874b.usrfiles.com/ugd/

d17a01_62f18f6e12614fddac890d692066aea8.pdf; Letter from

Nine U.S. Senators to Hon. Jerome Powell (Apr. 20, 2020) (expressing concern that the Fed’s COVID response will “use taxpayer dollars to help sustain industries that may drive a future

climate financial crisis”), available at https://www.schatz.senate.gov/

imo/media/doc/Letter%20to%20Fed%20on%20Corporate%20

Credit%20Facilities%2004.20.2020.pdf; Letter from Nine U.S.

16

All of government’s emergency financial interventions have the potential to impose costs on markets,

businesses, and individuals. As a country, we have chosen to embrace these interventions, judging that the

risks are worth the benefits. But this justification falls

away where the government has misused its emergency powers to pursue agendas unrelated to its economic firefighting role. In these circumstances – and

particularly long after the emergency conditions subside – courts have a vital role to play in ensuring that

the zone of limited accountability the government operates within during crises does not become a mask for

serious abuse of government power.

Because courts have recently shown an inclination

to deny review or, when they award it in separation of

powers cases such as this one, deny the plaintiffs any

meaningful remedy, the risk that no one will hold the

Representatives to Hon. Jerome Powell (“[B]ailouts for politically

connected fossil fuel companies leave our economy more vulnerable

to climate-related financial risk. . . .”), available at https://chuy

garcia.house.gov/sites/chuygarcia.house.gov/files/Congressional

%20Letter%20to%20Fed%20Treas%204_22.pdf. Compare Letter

from U.S. Senator Kevin Cramer et al. to Hon. Jerome Powell

(Apr. 7, 2020) (“Industries, like the energy and transportation sectors are facing significant economic challenges as the demand for

products and services have dropped with the constraints on the

economy. We urge you to ensure that the financial relief offered

under the CARES Act is fully available to companies throughout

the economy.”), available at https://www.cruz.senate.gov/files/

documents/Letters/2020.04.07%20-%20Letter%20to%20Powell%20

Mnuchin%20re%20CARES%20Act%20Implementation%20.pdf.

17

government accountable has only grown.31 After all,

“[w]hat is the point of fighting this long battle, through

many years and all the way to the Supreme Court, if

the prize for winning is no relief at all?” Barr v. Am.

Ass’n of Political Consultants, Inc., 140 S. Ct. 2335,

2366 (2020) (Gorsuch, J., concurring in part and dissenting in part). If that happens – if, as Judge Janice

Rogers Brown has put it, “allegations of regulatory

overreach are entirely insulated from judicial review,”

– then “private capital may even become sparse” and

[c]ertainly . . . more expensive, and potentially prohibitively expensive during times of financial distress.”

Perry Capital LLC v. Mnuchin, 864 F.3d 591, 647 (D.C.

Cir. 2017) (Brown, J., dissenting in part).

III. Judicial Interpretation of Legal Guardrails

Like HERA’s Anti-Injunction Provision

Should Aim To Preserve Broad Discretion

for the Government To Act While Also Protecting Against the Risk of Abuse.

HERA appropriately balances the need for broad

government discretion to act against the need to protect against government abuse. Enacted at the height

of the 2008 financial crisis, the two key provisions

at issue here – the anti-injunction provision, 12 U.S.C.

§ 4617(f ), and the succession clause, 12 U.S.C.

§ 4617(b)(2)(A)(i) – operate together to ensure that the

31

David Zaring, Toward Separation of Powers Realism, 37

YALE J. ON REG. 708, 735 (2020) (reviewing the separation of powers cases and observing that “[n]one of these outcomes come close

to giving plaintiffs the relief that they sought.”).

18

government has appropriately broad discretion to deal

with the Companies without litigious interference,

while also preserving critical avenues for litigation

against the FHFA in the event it abuses its emergency

powers.

Section 4617(f ) leaves open three types of litigation to challenge emergency government actions:

(1) constitutional claims; (2) damages claims; and

(3) claims seeking injunctive relief based on ultra vires

actions.32 Amici believe that the third category is

likely to be particularly important for ensuring legal

accountability for executive abuse.33

32

E.g., Perry Capital LLC v. Mnuchin, 864 F.3d 591, 613–14

(D.C. Cir. 2017).

33

See Solomon & Zaring, After the Deal, supra at 399–406.

Among other reasons, important classes of constitutional and

damages claims may prove to be categorically unavailable in this

context unless this Court endorses the “manifest conflict of interest” exception to the statutory succession clause. See Cacciapalle

v. United States, 148 Fed. Cl. 745 (2020) (holding that shareholders’ Takings and Illegal Exaction claims raised regarding the

Third Amendment were derivative not direct); Fairholme Funds,

Inc. v. United States, 147 Fed. Cl. 1, 49–51 (2019) (declining to

dismiss derivative Takings and Illegal Exaction claims based on

the Federal Circuit’s recognition of a “manifest conflict of interest”

exception to the statutory succession clause); Perry Capital, 864

F.3d at 624 (holding derivative claims for breach of fiduciary duty

barred by the succession clause and declining to recognize the

“manifest conflict of interest” exception); Fairholme Funds, Inc. v.

FHFA, 13-CV-1053, 2018 WL 4680197, at *14 (D.D.C. Sept. 28,

2018) (dismissing plaintiffs’ direct claims for breach of fiduciary

duty claims as preempted by HERA); cf. Fisher v. United States,

148 Fed. Cl. 478, 499 (2020) (declining to dismiss plaintiffs’ derivative claims for breach of fiduciary duty relying on the “manifest

19

Everyone agrees that § 4617(f ) allows such lawsuits if the FHFA has acted outside of its statutory

authority as conservator.34 It is certainly true that

Congress defined this conservatorship role very

broadly. For example, no one in this litigation doubts

that a conservator would have authority to enter into

the (extraordinary and unprecedented) original 2008

Preferred Stock Purchase Agreements with Treasury

where the Companies gained access to up to $100 billion each in exchange for issuing new Senior Preferred

Securities to Treasury granting it a host of highly valuable rights. See JA 56–57, 60–61.

However, while § 4617(f )’s “shelter is sweeping,

. . . its scope is not boundless.” Roberts v. FHFA, 889

F.3d 397, 402 (7th Cir. 2018). Conservatorship is not a

blank check, see County of Sonoma v. FHFA, 710 F.3d

987, 994 (9th Cir. 2013) (“FHFA cannot evade judicial

review and the APA’s requirements for rulemaking

simply by invoking its authority as conservator.”), and

Amici strongly disagree with the suggestion in the government’s brief that conservatorship licenses FHFA to

pursue any course of action that it finds to be in the

“public interest.” Br. for Federal Parties at 35–36. Rather, as the government concedes elsewhere in its

brief, the conservator’s statutory “mission” is to put

the Companies “in a sound and solvent condition,”

carry on their business, and “preserve and conserve”

conflict of interest” exception to the succession clause recognized

by the Federal Circuit).

34

Collins v. Mnuchin, 938 F.3d 553, 571 (5th Cir. 2019) (en

banc) (collecting citations).

20

their assets and property. Id. at 3–4 (quoting 12 U.S.C.

§ 4617(b)(2)(D)).

Drawing on Amici’s experience analyzing complex

corporate transactions and emergency government financial rescues, Amici believe that the Third Amendment was deeply problematic for three main reasons.

First, this deal was completely one-sided. The

Third Amendment required each Company to pay

Treasury a dividend of 100% of its net worth (less a

small buffer) each quarter in perpetuity – a change to

the existing terms that netted Treasury $124 billion

through the date this lawsuit was filed. JA 38–39. In

return, the Companies got basically nothing.

Second, the record shows this deal was done for

purposes that are inconsistent with conservatorship: namely, (1) to maximize returns for the federal fisc; (2) to ensure that the Companies’ private

shareholders – which includes some opportunistic

hedge funds as well as many other types of investors,

including ordinary retirement savers – were excluded

from any benefits derived from the Companies’ return

to profitability; and (3) to ensure that the Companies

could not return to their prior operating status. JA 81

(quoting Treasury official stating that the deal would

ensure that “every dollar of earnings that Fannie Mae

and Freddie Mac generate will be used to benefit taxpayers.”); JA 79 (quoting email from White House official to Treasury official stating that the purpose of the

Third Amendment was to “close[ ] off [the] possibility

that [the Companies] ever[ ] go (pretend) private

21

again.”); JA 81 (quoting testimony from Fannie Mae’s

CFO at the time of the Third Amendment, stating that

the purpose was “probably a desire not to allow capital

to build up within the enterprises and not to allow the

enterprises to recapitalize themselves,” and that Fannie “didn’t believe that Treasury would be too fond of a

significant amount of capital buildup inside the enterprises.”); see also JA 101 (quoting FHFA Director in

2014 stating that he focuses on “what is responsible for

the taxpayers” and does not “lay awake at night worrying about what’s fair to the shareholders”); JA 98

(quoting 2010 Treasury memorandum acknowledging

the “Administration’s commitment to ensure existing

common equity holders will not have access to any positive earnings from the [Companies] in the future.”).

The “innocent” rationale for the deal offered by the

government in this litigation is entirely unpersuasive.

The government has claimed that the Third Amendment was necessary to put a stop to a cycle of the Companies drawing more from the Treasury’s commitment

in order to pay dividends they owed back to Treasury.

JA 33-34. But the government was fully aware that

this cycle was over without any changes because the

Companies had already entered into a period of stable

profitability. JA 67-76. A pretextual rationale like this

should not shield the government from legal scrutiny.

See Dep’t of Commerce v. New York, 139 S. Ct. 2551,

2575 (2019) (rejecting as pretextual a proffered rationale where “the evidence tells a story that does not

match the explanation the Secretary gave for his decision”); Haight v. Thompson, 763 F.3d 554, 562 (6th Cir.

22

2014) (per Sutton, J.) (“[E]xplanations offered for the

first time in litigation ought to come with a truth-inlitigating label, requiring the official to disclose

whether the new explanations motivated the [relevant] officials at the time of decision or whether they

amount to post hoc rationalizations.”).

Third, this deal was quite apparently the result of

self-dealing by Treasury. Why would a conservator in

FHFA’s position enter into such an unfavorable agreement for the Companies? The tight relationship between FHFA and Treasury points towards the obvious

answer: FHFA agreed to the Third Amendment because it was acting in Treasury’s interest, not its

own.35

---------------------------------♦---------------------------------

CONCLUSION

While Congress defines the scope of executive conduct, the ultimate responsibility for enforcing its legal

guardrails on executive emergency powers falls to

courts. This Court has always upheld the strong presumption that administrative action is subject to judicial review. See Guerrero-Lasprilla v. Barr, 140 S. Ct.

1062, 1069 (2020); Marbury v. Madison, 1 Cranch 137,

2 L. Ed. 60 (1803) (“It is emphatically the province

35

E.g., Solomon & Zaring, After the Deal, supra at 397; Ally

Coll Steele, Note, Fannie, Freddie and Fairness, 53 HARV. J. ON

LEGIS. 417, 438–39 (2016); see also Fairholme Funds, Inc., 147

Fed. Cl. at 50-51 (finding that FHFA would face a manifest conflict of interest in deciding whether to sue the government).

23

and duty of the judicial department to say what the

law is.”). Courts have also policed financial rescues

carefully in the past. In James Madison Ltd. by Hecht

v. Ludwig, the court looked beyond a bar on judicial review to ensure that government takeovers are lawful.

82 F.3d 1085, 1092 (D.C. Cir. 1996) (“We thus read

section 1821(j) to prevent courts from interfering with

the FDIC only when the agency acts within the scope

of its authorized powers, not when the agency was

improperly appointed in the first place.”). Other courts

have held a government rescuer to account for “the way

it has timed the repudiation of contracts in failed

banks.”36

Amici respectfully suggest that this case is an opportunity for this Court to reaffirm that foundational

principle and send a message to lower courts – as well

as to citizens, markets, and the government itself –

36

See Solomon & Zaring, After the Deal, supra at 412 n.186

(collecting cases); Lexon Ins. Co. v. FDIC, No. CV 18-4245, 2019

WL 4690412, at *3–4 (E.D. La. Sept. 26, 2019) (reviewing the

FDIC’s powers to repudiate a contract after taking over as a receiver).

24

that the government is not above the law, even when it

is donning the helmet of economic firefighter.

Respectfully submitted,

MATTHEW CAVEDON

Counsel of Record

P.O. Box 390

Gainesville, GA 30503

(860) 538-9130

mcavedon@post.harvard.edu

STEVEN DAVIDOFF SOLOMON

Professor of Law

U.C. BERKELEY SCHOOL

OF LAW

693 Simon Hall

Berkeley, CA 94720

DAVID ZARING

Professor of Legal Studies

and Business Ethics

THE WHARTON SCHOOL

UNIVERSITY OF PENNSYLVANIA

662 Jon M. Huntsman Hall

3730 Walnut Street

Philadelphia, PA 19104

ALEXANDER I. PLATT

Associate Professor of Law

UNIVERSITY OF KANSAS

SCHOOL OF LAW

404 Green Hall

1535 W. 15th Street

Lawrence, KS 66045