Petition for Writ of Certiorari — Neris Montilla, et al., Petitioners v. Federal National Mortgage Association, et al.

Supreme Court briefNov 5, 2021

Ask Donna

What actually matters in this document.

Text

No. _____

In the

Supreme Court of the United States

__________________

NERIS MONTILLA AND MICHAEL KYRIAKAKIS,

Petitioners,

FEDERAL NATIONAL MORTGAGE ASSOCIATION AND

FEDERAL HOUSING FINANCE AGENCY,

Respondents.

__________________

On Petition for Writ of Certiorari

to the United States Court of Appeals

for the First Circuit

__________________

PETITION FOR WRIT OF CERTIORARI

__________________

TODD S. D ION

LAW OFFICES OF TODD S. DION

15 Cottage Avenue

Suite 202

Quincy, Massachusetts 02169

(401) 965-4131

toddsdion@msn.com

G ERARD V. M ANTESE

Counsel of Record

B RIAN P. M ARKHAM

M ANTESE H ONIGMAN, PC

1361 East Big Beaver Road

Troy, Michigan 48083

(248) 457-9200

gmantese@manteselaw.com

Becker Gallagher · Cincinnati, OH · Washington, D.C. · 800.890.5001

QUESTIONS PRESENTED

1. Whether the Federal National Mortgage

Association, when under the conservatorship of the

Federal Housing and Finance Agency, is a state actor

for purposes of constitutional claims.

2. Whether the Federal Housing and Finance

Agency, when acting as conservator for the Federal

National Mortgage Association, is a state actor for

purposes of constitutional claims.

PARTIES TO THE PROCEEDINGS

Petitioners Neris Montilla and Michael Kyriakakis

were plaintiffs in the District Court and plaintiffsappellants in the Court of Appeals. Plaintiffs Ruben

Velasquez and Roselia Montufar were voluntarily

dismissed at the District Court and did not take part in

the Court of Appeals proceedings.

Respondents Federal National Mortgage

Association (Fannie Mae or Fannie) and Federal

Housing Finance Agency (FHFA) were defendants at

the District Court and defendant-appellees at the Court

of Appeals. Defendant C.I.T. Bank, N.A. was a

defendant at the District Court and was voluntarily

dismissed at the Court of Appeals. Defendants Seterus,

Inc., and Mr. Cooper f/k/a Nationstar Mortgage, LLC,

were voluntarily dismissed at the District Court and

did not take part in the Court of Appeals proceedings.

STATEMENT OF RELATED PROCEEDINGS

• Montilla v. Federal National Mortgage

Association, No. 20-1673 (1st Cir.) (opinion and

judgment issued June 8, 2021).

• Montilla v. Federal National Mortgage

Association, No. 18-632 WES (D.R.I.)

(memorandum and order dismissing case issued

May 26, 2020).

iii

TABLE OF CONTENTS

QUESTIONS PRESENTED . . . . . . . . . . . . . . . . . . . i

PARTIES TO THE PROCEEDINGS. . . . . . . . . . . . . ii

STATEMENT OF RELATED PROCEEDINGS . . . . ii

TABLE OF AUTHORITIES . . . . . . . . . . . . . . . . . . vi

PETITION FOR A WRIT OF CERTIORARI . . . . . . 1

OPINIONS BELOW. . . . . . . . . . . . . . . . . . . . . . . . . . 1

JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

CONSTITUTIONAL

AND

STATUTORY

PROVISIONS INVOLVED. . . . . . . . . . . . . . . . . . 1

INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . 11

STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

The FHFA Appoints Itself Conservator of

Fannie Mae to the Significant Benefit of the

Treasury. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

II.

The FHFA Exercises Total and Limitless

Control over Fannie Mae . . . . . . . . . . . . . . . 20

III.

The FHFA Directs Fannie Mae to Perform

Non-Judicial Foreclosures. . . . . . . . . . . . . . . 22

IV.

Petitioners Challenge the Constitutionality

of the FHFA’s and Fannie Mae’s Foreclosure

Practices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

REASONS FOR GRANTING THE WRIT. . . . . . . . 25

This Court Should Grant Review to Correct

the First Circuit’s Misinterpretations of

Lebron and American Railroads and to

Confirm that Fannie Mae is a State Actor

when under the Conservatorship of the

FHFA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

A. The First Circuit’s Approach to this

Court’s Lebron Decision is in Conflict

with That Decision and this Court’s

American Railroads Decision . . . . . . . . . 26

B. Collins v. Yellen Is Exemplary of the First

Circuit’s Erroneous Approach to Lebron

and American Railroads . . . . . . . . . . . . . 33

II.

This Court Should Grant Review to Correct

the First Circuit’s Misinterpretation of

Meyer, to Resolve a Conflict Between its

Meyer and O’Melveny Decisions, and to

Confirm the that the FHFA is a State Actor

when Acting as Conservator over Fannie Mae

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

A. The First Circuit’s Application of

O’Melveny and Misinterpretation of Meyer

Reveal a Conflict Between Those

Decisions. . . . . . . . . . . . . . . . . . . . . . . . . . 37

B. This Court’s Recent Decision in Collins v.

Yellen Provides the Analytical

Framework by which This Court Can

Resolve the O’Melveny/Meyer Conflict . . 43

III.

This Case is a Good Vehicle for Resolving

these Conflicts . . . . . . . . . . . . . . . . . . . . . . . . 45

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

APPENDIX

Appendix A Opinion, Errata Sheet and Judgment

in the United States Court of Appeals

for the First Circuit

(June 8, 2021) . . . . . . . . . . . . . . . . App. 1

Appendix B Memorandum and Order in the

United States District Court for the

District of Rhode Island

(May 26, 2020) . . . . . . . . . . . . . . App. 25

Appendix C Judgment in the United States

District Court for the District of Rhode

Island

(June 9, 2020) . . . . . . . . . . . . . . . App. 35

Appendix D Order Denying Rehearing in the

United States Court of Appeals for the

First Circuit

(August 9, 2021) . . . . . . . . . . . . . App. 37

Appendix E Mandate in the United States Court of

Appeals for the First Circuit

(June 29, 2021) . . . . . . . . . . . . . . App. 39

TABLE OF AUTHORITIES

CASES

Atherton v. FDIC,

519 U.S. 213 (1997). . . . . . . . . . . . . . . . . . . . . . . 42

Bivens v. Six Unknown Named Agents of Fed.

Bureau of Narcotics, 403 U.S. 388 (1971) . . . . . 40

Collins v. Yellen,

__ U.S. at __, 141 S.Ct. 1761 (2021) . . . . . . passim

Dep’t of Transp. v. Ass’n of Am. Railroads,

575 U.S. 43 (2015). . . . . . . . . . . . . . . . . . . . passim

Edmonson v. Leesville Concrete Co.,

500 U.S. 614 (1991). . . . . . . . . . . . . . . . . . . . . . . 41

Ex parte Virginia,

100 U.S. 339 (1879). . . . . . . . . . . . . . . . . . . . . . . 30

F.D.I.C. v. Meyer,

510 U.S. 471 (1994). . . . . . . . . . . . . . . . . . . passim

Garcia v. Fed. Nat. Mortg. Ass’n,

782 F.3d 736 (6th Cir. 2015). . . . . . . . . . . . . . . . 28

Goss v. Lopez,

419 U.S. 565 (1975). . . . . . . . . . . . . . . . . . . . . . . 12

Herron v. Fannie Mae,

861 F.3d 160 (D.C. Cir. 2017). . . . . . . . . 28, 31, 38

Ingraham v. Wright,

430 U.S. 651 (1977). . . . . . . . . . . . . . . . . . . . . . . 11

Jackson v. Metro. Edison Co.,

419 U.S. 345 (1974). . . . . . . . . . . . . . . . . . . . . . . 14

vii

Lebron v. Nat’l R.R. Passenger Corp.,

513 U.S. 374 (1995). . . . . . . . . . . . . . . . . . . passim

Lugar v. Edmondson Oil Co.,

457 U.S. 922 (1982). . . . . . . . . . . . . . . . . . . . . . . 45

Meridian Invs., Inc. v. Fed. Home Loan

Mortg. Corp., 855 F.3d 573 (4th Cir. 2017) . . . . 38

O’Melveny & Myers v. F.D.I.C.,

512 U.S. 79 (1994). . . . . . . . . . . . . . . . . . . . passim

Steel Co. v. Citizens for a Better Env’t,

523 U.S. 83 (1998). . . . . . . . . . . . . . . . . . . . . 40, 41

U.S. ex rel. Adams v. Aurora Loan Servs., Inc.,

813 F.3d 1259 (9th Cir. 2016). . . . . . . . . . . . 28, 38

United States v. Ely,

142 F.3d 1113 (9th Cir. 1997). . . . . . . . . . . . . . . 42

United States v. Heffner,

85 F.3d 435 (9th Cir. 1996). . . . . . . . . . . . . . . . . 42

CONSTITUTION AND STATUTES

U.S. Const. article III. . . . . . . . . . . . . . . . . . . . . . . . . 1

U.S. Const. amend V . . . . . . . . . . . . . . . . . . . . . . . . . 2

12 U.S.C. § 1716b . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

12 U.S.C. § 1717 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

12 U.S.C. § 1723a(a). . . . . . . . . . . . . . . . . . . . . . . 9, 39

12 U.S.C. § 1821(d)(2)(A) . . . . . . . . . . . . . . . . . . . . . . 9

12 U.S.C. § 1821(d)(2)(A)(i) . . . . . . . . . . . . . . . . . . . 38

viii

12 U.S.C. § 4511 . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 19

12 U.S.C. § 4513(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . 3

12 U.S.C. § 4588 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

12 U.S.C. § 4588(a). . . . . . . . . . . . . . . . . . . . . . . . . . 20

12 U.S.C. § 4588(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 20

12 U.S.C. § 4617 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

12 U.S.C. § 4617(a)(1) . . . . . . . . . . . . . . . . . . . . 19, 20

12 U.S.C. § 4617(a)(2) . . . . . . . . . . . . . . . . . 21, 33, 35

12 U.S.C. § 4617(b)(2)(A)(i) . . . . . . . . . . . . . . . . 20, 38

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

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

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

12 U.S.C. § 4617(b)(2)(J)(ii) . . . . . . . . . . . . . . . . . . . 21

12 U.S.C. § 4617(f) . . . . . . . . . . . . . . . . . . . . . . . . . . 21

28 U.S.C. § 1254(1). . . . . . . . . . . . . . . . . . . . . . . . . . . 1

28 U.S.C. § 1331 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

34 R.I. Gen. Laws § 34-11-22 . . . . . . . . . . . . . . . 10, 23

34 R.I. Gen. Laws § 34-27-4 . . . . . . . . . . . . . . . . . 9, 23

49 U.S.C. § 24301(a)(2) . . . . . . . . . . . . . . . . . . . . 9, 26

OTHER AUTHORITIES

Christopher C. Ligatti, Max Weber Meets the Fair

Housing Act: “Life Chances” and the Need for

Expanded Lost Housing Opportunity Damages,

6 Belmont L. Rev. 78 (2018) . . . . . . . . . . . . . . . . 13

PETITION FOR A WRIT OF CERTIORARI

Petitioners respectfully seek a writ of certiorari to

review the judgment of the United States Court of

Appeals for the First Circuit.

OPINIONS BELOW

The opinion of the Court of Appeals is reported at

999 F.3d 751 and reproduced at App. 1. The opinion of

the District Court for the District of Rhode Island is

unreported but can be accessed at 2020 WL 9934769

and is reproduced at App. 25.

JURISDICTION

The Court of Appeals issued its judgment on June

8, 2021. By this Court’s order dated March 19, 2020,

the deadline for this Petition is extended 150 days from

the date of the lower court judgment, or through

November 5, 2021. This Court has jurisdiction under 28

U.S.C. § 1254(1).

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

Section 2, Clause 1 of Article III of the United State

Constitution provides in relevant part:

The judicial Power shall extend to all Cases, in

Law and Equity, arising under this Constitution,

the Laws of the United States, and Treaties

made, or which shall be made, under their

Authority;

Amendment V of the United State Constitution

provides in relevant part:

No person shall be . . . deprived of life, liberty, or

property, without due process of law;

Section 4511 of Title 12 of the United States Code

provides:

(a) Establishment

There is established the Federal Housing

Finance Agency, which shall be an independent

agency of the Federal Government.

(b) General supervisory and regulatory authority

(1) In general

Each regulated entity shall, to the extent

provided in this chapter, be subject to the

supervision and regulation of the Agency.

(2) Authority over Fannie Mae, Freddie Mac,

the Federal Home Loan Banks, and the

Office of Finance

The Director shall have general regulatory

authority over each regulated entity and the

Office of Finance, and shall exercise such

general regulatory authority, including such

duties and authorities set forth under section

4513 of this title, to ensure that the purposes

of this Act, the authorizing statutes, and any

other applicable law are carried out.

The authority of the Director to take actions

under subchapters II and III shall not in any

way limit the general supervisory and

regulatory authority granted to the Director

under subsection (b).

Section 4513(a)(1)(B) of Title 12 of the United States

Code provides in relevant part:

(iv) each regulated entity carries out its

statutory mission only through activities that

are authorized under and consistent with this

chapter and the authorizing statutes; and

(v) the activities of each regulated entity and the

manner in which such regulated entity is

operated are consistent with the public interest.

Section 4588 of Title 12 of the United States Code

provides in relevant part:

(a) In general

In the course of or in connection with any

administrative proceeding under this subpart,

the Director shall have the authority-(1) to administer oaths and affirmations;

(2) to take and preserve testimony under

oath;

(3) to issue subpoenas and subpoenas duces

tecum; and

(4) to revoke, quash, or modify subpoenas

and subpoenas duces tecum issued by the

Director.

(b) Witnesses and documents

The attendance of witnesses and the production

of documents provided for in this section may be

required from any place in any State at any

designated place where such proceeding is being

conducted.

The Director may bring an action or may request

the Attorney General of the United States to

bring an action in the United States district

court for the judicial district in which such

proceeding is being conducted, or where the

witness resides or conducts business, or the

United States District Court for the District of

Columbia, for enforcement of any subpoena or

subpoena duces tecum issued pursuant to this

section. Such courts shall have jurisdiction and

power to order and require compliance

therewith.

Section 4617 of Title 12 of the United States Code

provides in relevant part:

(a) Appointment of the Agency as conservator or

receiver

(1) In general

Notwithstanding any other provision of

Federal or State law, the Director may

appoint the Agency as conservator or receiver

for a regulated entity in the manner provided

under paragraph (2) or (4). All references to

the conservator or receiver under this section

are references to the Agency acting as

conservator or receiver.

(2) Discretionary appointment

The Agency may, at the discretion of the

Director, be appointed conservator or

receiver for the purpose of reorganizing,

rehabilitating, or winding up the affairs of a

regulated entity.

...

(b) Powers and duties of the Agency as

conservator or receiver

...

(2) General powers

(A) Successor to regulated entity

The Agency shall, as conservator or

receiver, and by operation of law,

immediately succeed to-(i) 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; and

(ii) title to the books, records, and

assets of any other legal custodian of

such regulated entity.

(B) Operate the regulated entity

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.

shareholders of a regulated entity

The Agency may, by regulation or order,

provide for the exercise of any function by

any stockholder, director, or officer of any

regulated entity for which the Agency has

been named conservator or receiver.

...

(G) Transfer or sale of assets and

liabilities

The Agency may, as conservator or

receiver, transfer or sell any asset or

liability of the regulated entity in default,

and may do so without any approval,

assignment, or consent with respect to

such transfer or sale.

...

(I) Subpoena authority

(i) In general

(I) Agency authority

The Agency may, as conservator or

receiver, and for purposes of

carrying out any power, authority,

or duty with respect to a regulated

entity (including determining any

claim against the regulated entity

and determining and realizing

upon any asset of any person in the

course of collecting money due the

regulated entity), exercise any

power established under section

4588 of this title.

...

(J) Incidental powers

The Agency may, as conservator or

receiver-...

(ii) take any action authorized by this

section, which the Agency determines

is in the best interests of the regulated

entity or the Agency.

...

(f) Limitation on court action

Except as provided in this section or at the

request of the Director, no court may take any

action to restrain or affect the exercise of powers

or functions of the Agency as a conservator or a

receiver.

Section 1716b of Title 12 of the United States Code

provides in relevant part:

The purposes of this title include the partition of

the Federal National Mortgage Association as

heretofore existing into two separate and

distinct corporations, each of which shall have

continuity and corporate succession as a

separated portion of the previously existing

corporation. One of such corporations, to be

known as Federal National Mortgage

Association, will be a Government-sponsored

private corporation, will retain the assets and

liabilities of the previously existing corporation

accounted for under section 1719 of this title,

and will continue to operate the secondary

market operations authorized by such section

1719.

Section 1717 of Title 12 of the United States Code

provides in relevant part:

(a) Creation; succession; principal and other

offices

(1) There is created a body corporate to be

known as the “Federal National Mortgage

Association”, which shall be in the

Department of Housing and Urban

Development. The Association shall have

succession until dissolved by Act of Congress.

...

(2) On September 1, 1968, the body corporate

described in the foregoing paragraph shall

cease to exist in that form and is hereby

partitioned into two separate and distinct

bodies corporate, each of which shall have

continuity and corporate succession as a

separated portion of the previously existing

body corporate, as follows:

...

(B) The other such separated portion shall

be a body corporate to be known as

Federal National Mortgage Association

....

Section 1723a(a) of Title 12 of the United States

Code provides in relevant part:

Each of the bodies corporate named in section

1717(a)(2) of this title shall have power . . . to

sue and to be sued, and to complain and to

defend, in any court of competent jurisdiction,

State or Federal . . . .

Section 1821(d)(2)(A) of Title 12 of the United States

Code provides in relevant part:

The Corporation shall, as conservator or

receiver, and by operation of law, succeed to-(i) all rights, titles, powers, and privileges of the

insured depository institution, and of any

stockholder, member, accountholder, depositor,

officer, or director of such institution with

respect to the institution and the assets of the

institution;

Section 24301(a)(2) of Title 49 of the United States

Code provides in relevant part:

(a) Status.--Amtrak-(2) shall be operated and managed as a forprofit corporation;

Section 4 of Chapter 27 of Title 34 of the General

Laws of Rhode Island provides in relevant part:

(a) Whenever any real estate shall be sold under

any power of sale mortgage . . . and the

mortgage shall provide for the giving of notice of

the sale by publication in some public newspaper

at least once a week for three (3) successive

weeks before the sale, the first publication of the

notice shall be at least twenty-one (21) days

before the day of sale, including the day of the

first publication in the computation, and the

third publication of the notice shall be no fewer

than seven (7) days before the original date of

sale listed in the advertisement, including the

day of the third publication in the computation,

and no more than fourteen (14) days before the

original date of sale listed in the advertisement.

The sale may take place no more than fourteen

(14) days from the date on which the third

successive notice is published . . .

(b) Provided, however, that no notice shall be

valid or effective unless the mortgagor has been

mailed written notice of the time and place of

sale by certified mail . . . at least twenty (20)

days . . . prior to the first publication, including

the day of mailing in the computation.

Section 22 of Chapter 11 of Title 34 of the General

Laws of Rhode Island provides in relevant part:

The following power shall be known as the

“statutory power of sale” and may be

incorporated in any mortgage by reference:

...

But if default shall be made in the performance

or observance of any of the foregoing or other

conditions, or if breach shall be made of the

covenant for insurance contained in this deed,

then it shall be lawful for the mortgagee . . . to

sell, together or in parcels, all and singular the

premises hereby granted or intended to be

granted, or any part or parts thereof, and the

benefit and equity of redemption of the

mortgagor and his, her or its heirs, executors,

administrators, successors and assigns therein,

at public auction . . . which sale or sales made as

aforesaid shall forever be a perpetual bar

against the mortgagor and his, her or its heirs,

executors, administrators, successors and

assigns, and all persons claiming the premises,

so sold, by, through or under him or her, them or

any of them.

INTRODUCTION

“Liberty requires accountability.” Dep’t of Transp. v.

Ass’n of Am. Railroads, 575 U.S. 43, 57 (2015)(Alito, J.,

concurring). However, “by passing off a Government

operation as an independent private concern,” the

Government can regulate without such accountability.

Id. This case provides the Court with an opportunity to

ensure that Executive agencies and any private entities

they control are held accountable to their constitutional

obligations. This Court’s review is required to uphold

the Judiciary’s role in checking the Executive branch

from constitutional overreach and defending the

individual liberties enshrined in our Constitution.

1. Petitioners have a meritorious claim that Fannie

Mae’s use of non-judicial foreclosures under the

direction of the FHFA violates the Fifth Amendment’s

prohibition against “any state deprivation of life,

liberty, or property without due process of law.”

Ingraham v. Wright, 430 U.S. 651, 672 (1977). The Due

Process Clause requires, at a minimum, that any such

state deprivation “be preceded by notice and

opportunity for hearing appropriate to the nature of the

case.” Goss v. Lopez, 419 U.S. 565, 579 (1975).

Petitioners allege that Fannie Mae’s and the

FHFA’s foreclosure practices lack these basic

safeguards. Petitioners received just over a month’s

notice prior to Fannie’s and the FHFA’s foreclosure on

their homes. Petitioners had no opportunity for a

hearing or to be represented by counsel at a hearing in

front of a neutral officer prior to foreclosure. Without a

hearing, Petitioners could not confront those

responsible for the foreclosure and present evidence

and arguments to dispute the allegations supporting

foreclosure. By providing inadequate notice and no

opportunity to be heard before foreclosing on

Petitioners’ homes, Fannie Mae and the FHFA have

deprived Petitioners of their constitutionally protected

interests in their homes without the constitutionally

required due process of law.

Petitioners’ allegations raise important due process

questions. Once ostensibly private corporations, Fannie

Mae and Freddie Mac1 have been operating since 2008

under the conservatorship of the FHFA, an

“independent” federal agency. Through these

conservatorships, the federal government is now the

dominant player in the home mortgage market,2 and as

Justice Alito recently observed, “there can be no

question that the FHFA’s control over Fannie Mae and

The Federal Home Loan Mortgage Corporation, or “Freddie Mac,”

is not a named defendant in this case.

Fannie and Freddie collectively own or guarantee nearly half of

all home mortgages in the U.S.

Freddie Mac can deeply impact the lives of millions of

Americans by affecting their ability to buy and keep

their homes.” Collins v. Yellen, __ U.S. at __, 141 S.Ct.

1761, 1786 (2021). Home ownership is a critical

component of an individual’s life, and affects mental

and physical health, educational performance,

employment, access to food, and safety. See generally

Christopher C. Ligatti, Max Weber Meets the Fair

Housing Act: “Life Chances” and the Need for Expanded

Lost Housing Opportunity Damages, 6 Belmont L. Rev.

78 (2018). Given the complete discretion the FHFA

holds over the conservatorships’ durations and the

immense financial benefit the government realizes

thereby, the FHFA’s dominance and impact on the U.S.

housing market and millions of individual homeowners

is likely to continue into the foreseeable future.

Although non-judicial foreclosures may be a

prevalent practice in the private home mortgage

market,3 the federal government “surely cannot . . .

evade the most solemn obligations imposed in the

Constitution by simply resorting to the corporate form.”

Lebron v. Nat’l R.R. Passenger Corp., 513 U.S. 374, 397

(1995). It is therefore a matter of great importance that

the Judiciary have the opportunity to measure the

government’s use of non-judicial foreclosures against

its constitutional obligations. However, the First

Circuit, by its holding that Fannie Mae and the FHFA

are private actors not subject to the Constitution’s

dictates, is preventing review of this important due

process issue.

At least thirty states plus Washington, D.C. currently allow for

such proceedings.

***

The First Circuit’s and other circuits’ state action

conclusions rest on faulty readings of this Court’s

decisions. This Court should grant certiorari to clarify

the state action doctrines at issue and allow this

important due process issue to be properly reviewed in

the lower courts. Without this Court’s review, the

circuit courts will continue to misapply the state action

precedents at issue to the detriment of millions of

homeowners.

2. The Fifth and Fourteenth Amendments’ Due

Process Clauses distinguish “between deprivation by

the State, subject to scrutiny under its provisions, and

private conduct, however discriminatory or wrongful,

against which [those Amendments offer] no shield.”

Jackson v. Metro. Edison Co., 419 U.S. 345, 349 (1974)

(quotation marks omitted). Therefore, a threshold

matter in any due process claim is whether the alleged

wrong was the result of “state action,” i.e., a

“deprivation by the State.” Though this dichotomy “is

well established and easily stated,” the answer to

whether particular conduct is attributable to the state

“frequently admits of no easy answer.” Id. at 349–50.

The instant case is no exception, as it presents state

action questions in two unique contexts.

3. The first state action issue here involves the

constitutional status (i.e., state actor or private actor)

of a “private” government-sponsored enterprise—in

this case, Fannie Mae. This Court has on two occasions

addressed this topic, both in connection with the

National Railroad Passenger Corporation (Amtrak).

Those cases involved the argument that because

Amtrak’s authorizing statute disclaimed agency status

and declared it to be a private entity, Amtrak could not

be a state actor.

The first case, Lebron v. Nat’l R.R. Passenger Corp.,

concerned a First Amendment claim over Amtrak’s

refusal to allow an artist to place a political

advertisement in Penn Station. There, the Court

considered the government’s relationship with Amtrak

and the government’s control thereover to determine

whether Amtrak was a state actor. The Lebron Court

concluded that because Amtrak was created by the

Legislature to achieve government objectives, and

because the government retained the permanent

authority to appoint a majority of its board, Amtrak

was a state actor for purposes of the First Amendment

claim. Lebron, 513 U.S. at 399.

The second case, Dep’t of Transp. v. Ass’n of Am.

Railroads, concerned a separation-of-powers challenge

to Amtrak’s regulatory authority. Looking to Lebron’s

analysis, the Court concluded that “Lebron teaches that

. . . the practical reality of federal control and

supervision prevails over Congress’ disclaimer of

Amtrak’s governmental status,” and Amtrak was

therefore a state actor. Am. Railroads, 575 U.S. at 55.

Thus, the challenge to its statutory authority to

regulate failed.

From Lebron, the courts of appeals have created a

three-prong test for determining whether a

government-sponsored enterprise is a state actor: (1) it

must be created by legislation; (2) it must be created

for the purpose of achieving governmental objectives;

and (3) the government must have permanent control

over it. Applying this test here, the First Circuit held

that as a conservator, the FHFA does not permanently

control Fannie Mae, and therefore Fannie Mae is not a

state actor. Petitioners argue that the First Circuit has

improperly read a “permanent control” requirement

into Lebron, and thus ignored this Court’s instruction

in American Railroads, which teaches that permanency

was merely a probative factor in Lebron.

When considered under the proper rubric, the

instant case satisfies Lebron’s analytical framework

more easily than Amtrak did in Lebron itself. This

Court should grant review to correct the erroneous

approach of the courts of appeals and clarify its

Lebron/American Railroads standard.

4. Even if the FHFA’s conservatorship does not

transform Fannie Mae into a state actor, the FHFA

itself remains a federal agency, and its actions as

conservator should be subject to constitutional

restrictions. However, the First Circuit held otherwise

based on a line of this Court’s opinions involving the

Federal Deposit Insurance Corporation (FDIC) acting

as receiver for failed savings and loans.

The chief opinion the panel relies on is O’Melveny &

Myers v. F.D.I.C., 512 U.S. 79 (1994), which concerned

a state tort claim brought by the FDIC on behalf of its

failed ward. On a question wholly unrelated to whether

the FDIC’s conduct comprised state action, the

O’Melveny Court found that by virtue of the succession

provision in its authorizing statute, “the FDIC as

receiver ‘steps into the shoes’ of the failed S & L.” Id. at

86. Because the FHFA’s authorizing statute contains

an identical succession clause, the First Circuit found

by analogy that as conservator, the FHFA steps into

the shoes of Fannie Mae, and therefore its actions as

conservator are not state action.

However, Petitioners pointed the First Circuit to

another FDIC-as-receiver case, F.D.I.C. v. Meyer, 510

U.S. 471 (1994), which involved a due process claim

brought against the FDIC as receiver (as is the claim

here against the FHFA as conservator). The Meyer

Court found that by virtue of the sue-and-be-sued

clause in its authorizing statute, the FDIC had waived

its sovereign immunity and was therefore subject to

constitutional claims. Because the FHFA holds Fannie

Mae’s power to sue and be sued via HERA’s succession

clause, Petitioners argued by analogy that the FHFA

has waived sovereign immunity and is therefore

subject to Petitioner’s due process claim (and is

necessarily a state actor). The First Circuit disagreed

based on its erroneous belief that a finding of private

action goes to the merits of a due process claim.

There is a conflict between the O’Melveny and Meyer

decisions: the FHFA cannot at the same time waive its

sovereign immunity and be subject to a constitutional

claim as Meyer provides and also step into the shoes of

Fannie Mae and be a private actor as O’Melveny

provides. Either both decisions are wrong, or one must

give way. This Court should grant review to resolve the

conflict and confirm that the FHFA is a state actor

when acting as conservator of Fannie Mae.

***

By virtue of the First Circuit’s misinterpretations of

and incorrect approaches to this Court’s decisions, the

Government has realized Justice Alito’s fear: the FHFA

has insulated itself from constitutional review by

assuming the corporate form of an ostensibly private

entity and is therefore free of any accountability to its

constitutional constraints. It is therefore of vital

importance that this Court answer the questions

presented to ensure that the Legislative and Executive

branches adhere to their constitutional obligations and

so that the Judiciary may perform its important

constitutional role of safeguarding individual liberties.

This Court should grant certiorari and reverse the

erroneous judgment of the First Circuit so that the

lower courts can review the merits of Petitioners’

important due process claims against Fannie and the

FHFA and remedy any violation found.

STATEMENT

The FHFA Appoints Itself Conservator of

Fannie Mae to the Significant Benefit of

the Treasury.

Fannie Mae is a government-sponsored enterprise

(GSE) that Congress chartered by statute for the

purpose of providing liquidity and stability to the home

mortgage market. Fannie Mae accomplishes this by

buying and selling mortgages in the secondary

mortgage market to help ensure that primary mortgage

sources have sufficient funds to lend to home buyers.

Originally established as a federal agency in 1938,

Congress chartered Fannie as a private, for-profit,

shareholder-owned corporation in 1968.

During the financial crisis of the late 2000's, Fannie

Mae, along with its brother company Freddie Mac,

suffered immense financial losses. In 2008 alone, the

two companies together lost $47 billion. To keep Fannie

and Freddie from collapsing and potentially taking the

entire U.S. economy with them, Congress passed the

Housing and Economic Recovery Act of 2008 (HERA),

which established the FHFA as an “independent”

federal agency to supervise and regulate Fannie and

Freddie. 12 U.S.C. § 4511.

In addition to providing supervisory and regulatory

powers, HERA also empowered the FHFA to appoint

itself as Fannie’s and Freddie’s conservator. 12 U.S.C.

§ 4617(a)(1). The FHFA Director exercised that power

over thirteen years ago, in September 2008. At that

time, the FHFA also entered Fannie and Freddie into

Preferred Stock Purchase Agreements (PSPAs) with

the United States Treasury.

Under the PSPAs, the Treasury provided Fannie

and Freddie a line of credit of $100 billion (which was

later increased) upon which they could draw to avoid

insolvency. In return, Fannie and Freddie issued

warrants to the Treasury for the purchase of 79.9% of

their common stock. Fannie and Freddie also issued

the Treasury a new class of senior preferred stock with

a $1 billion liquidation preference, which would

increase dollar-for-dollar with each draw Fannie and

Freddie made from the credit line. Fannie and Freddie

are not permitted to redeem the Senior Preferred Stock

or cancel the warrants without the consent of the

Treasury.

Initially, the PSPAs required Fannie and Freddie to

issue quarterly dividends to the Treasury on the

liquidation preference. This was amended in 2012 to

require Fannie and Freddie to send the Treasury

nearly all of their net worth in what is known as the

“Net Worth Sweep.” That arrangement ended by way

of an additional amendment to the PSPAs in January

2021, by which the Treasury’s liquidation preference on

its preferred stock would quarterly increase by

Fannie’s and Freddie’s increase in net worth in the

prior quarter, rather than quarterly divesting Fannie

and Freddie of all net worth.

II.

The FHFA Exercises Total and Limitless

Control over Fannie Mae.

The FHFA wields powers that are significantly

different than ordinary conservatorships. See Collins,

__ U.S. at __, 141 S.Ct. at 1776. These powers include

the power to:

• Appoint itself as conservator of Fannie Mae, 12

U.S.C. § 4617(a)(1);

• Hold all rights, titles, powers, and privileges of

Fannie Mae’s shareholders and board of

directors, 12 U.S.C. § 4617(b)(2)(A)(i);

• Take over Fannie Mae’s assets and operate it

with all the powers of its shareholders, directors,

and officers, 12 U.S.C. § 4617(b)(2)(B)(i);

• Require stockholders, directors, and officers to

exercise any function, 12 U.S.C. § 4617(b)(2)(C);

• Issue and enforce subpoenas, 12

§ 4617(b)(2)(I), § 4588(a) & (c); and

U.S.C.

• Take any action it determines is in its own

best interests regardless of Fannie’s best

interests, 12 U.S.C. § 4617(b)(2)(J)(ii).

By these powers, the FHFA determines the size of

Fannie Mae’s Board of Directors and has elected all of

its directors and officers since the conservatorship’s

inception. The FHFA also determines the scope of the

Board’s authority. While the FHFA has delegated

certain authority to the Board, it retains certain

significant authorities for itself and holds sole

discretion to claw back the Board’s authority at will.

The FHFA’s actions as conservator of Fannie Mae

are also shielded from judicial review. Unless HERA

provides otherwise, “no court may take any action to

restrain or affect the exercise of powers or functions of

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

§ 4617(f). This clause allows for judicial relief only

when the FHFA acts outside of its authority as

conservator. Collins, __ U.S. at __, 141 S.Ct. at 1776.

Importantly, the decision to end this powerful

conservatorship is at the FHFA Director’s sole

discretion and it thus has no ascertainable end point.

At its inception, the FHFA stated that there was no

exact timeframe for ending the conservatorship and

that it will end after the Director determines that the

FHFA has succeeded in restoring Fannie to a safe and

solvent condition. Nevertheless, the conservatorship’s

mission of “reorganizing, rehabilitating, or winding up

the affairs”4 of Fannie Mae is long since completed, but

12 U.S.C. § 4617(a)(2).

the Director has not exercised his power to end the

conservatorship. Despite statements from the Trump

Administration’s FHFA Director indicating the agency

was working toward ending the conservatorship, those

efforts are expected to stall with the Biden

Administration, which is expected to use its control of

Fannie and Freddie to advance affordable housing

goals. Given this expectation and the significant

financial benefit the conservatorship provides the

Treasury, the conservatorship will in all likelihood

continue to wield its plenipotentiary power over Fannie

Mae and the U.S. housing market without any

foreseeable end point.

III.

The FHFA Directs Fannie Mae to Perform

Non-Judicial Foreclosures.

In its ordinary course of business, Fannie Mae

provides liquidity to the home mortgage market by

purchasing mortgages from loan originators, which it

either retains or packages into mortgage-backed

securities for sale to investors. Fannie Mae engages

with third parties to service the loans it owns. Fannie’s

servicers must follow the rules and standards of its

“Servicing Guide,” including specific instructions on

mitigating losses after defaults and conducting

foreclosures on behalf of Fannie Mae.

After placing Fannie Mae into conservatorship, the

FHFA has continuously controlled and supervised

Fannie’s oversight of its servicers. The FHFA created

the “Servicer Alignment Initiative” (SAI) in April 2011,

by which the FHFA directs the actions of Fannie’s

servicers. Through the SAI, the FHFA directed Fannie

Mae to update its servicing guidelines to add new

standards and timelines for servicer management of

delinquent mortgages.

One SAI policy requires Fannie’s servicers to follow

specific state-level timelines for processing

foreclosures. Through that policy, the FHFA directs

Fannie Mae’s servicers to use non-judicial foreclosure

procedures. To carry out a non-judicial foreclosure in

Rhode Island, a mortgagee must: (1) send the

mortgagor written notice of the time and place of sale

at least thirty days prior to the first publication of

notice to the public; and (2) publish notice of the sale in

a public newspaper at least once a week for three

successive weeks before the sale. Once these conditions

are met, the mortgagee may sell the mortgaged

property. The mortgagor is provided no opportunity for

a hearing to challenge the foreclosure. See 34 R.I. Gen.

Laws § 34-27-4. Moreover, 34 R.I. Gen. Laws § 34-11-22

provides that a non-judicial foreclosure shall be a

perpetual bar to future claims by the mortgagor.

IV.

Petitioners Challenge the Constitutionality

of the FHFA’s and Fannie Mae’s

Foreclosure Practices.

Petitioners are representatives of a putative class of

former Fannie Mae mortgagors who sued the FHFA,

Fannie Mae, and certain mortgage servicers seeking

relief from mortgage practices that violate the FHFA’s

and Fannie Mae’s constitutional obligations. The

District Court had jurisdiction over this dispute under

28 U.S.C. § 1331. Petitioners alleged that the FHFA’s

foreclosure policy of requiring Fannie Mae’s mortgage

servicers to carry out non-judicial foreclosures violates

the Due Process Clause of the Fifth Amendment by

depriving homeowners, like the Petitioners and others

similarly situated, of their primary residences without

adequate notice or an opportunity for a prior hearing.

The District Court dismissed the complaint on grounds

that neither the FHFA nor Fannie Mae are state actors

and therefore are not subject to Petitioners’

constitutional claims. App. 32–34.

On appeal, the First Circuit affirmed. The panel

found that: (1) under this Court’s Lebron precedent, the

FHFA did not have the permanent control of Fannie

Mae allegedly necessary to convert Fannie into a state

actor; and (2) the FHFA, as conservator of Fannie,

steps into the shoes of the private Fannie Mae under

this Court’s O’Melveny precedent, and thus its actions

as conservator are not state action. App. 13–14. In so

holding, the panel rejected Petitioners’ arguments that

Lebron does not require permanent control and that

this Court’s Meyer precedent, rather than O’Melveny,

controls the determination of the FHFA’s constitutional

status.

Petitioners petitioned the First Circuit for rehearing

and rehearing en banc. The panel construed the

petition as a motion to recall mandate and denied the

motion. App. 37.

REASONS FOR GRANTING THE WRIT

This Court Should Grant Review to Correct

the First Circuit’s Misinterpretations of

Lebron and American Railroads and to

Confirm that Fannie Mae is a State Actor

when under the Conservatorship of the

FHFA.

The Court addressed the question of the

constitutional status of a “private” governmentsponsored enterprise in its Lebron v. Nat’l R.R.

Passenger Corp. and Dep’t of Transp. v. Ass’n of Am.

Railroads decisions. Because Fannie Mae is a creature

of statute, the First Circuit below looked to Lebron and

applied what is known as the “Lebron test,” by which it

determined that the FHFA’s conservatorship does not

convert Fannie Mae into a state actor because the

FHFA does not retain permanent control over it. This

holding is in error, as the “permanent control”

requirement of the “Lebron test” derives from the lower

courts’ consistent misreading of the Lebron and

American Railroads decisions.

This Court should grant certiorari to clarify its

Lebron and American Railroads decisions, correct the

erroneous approach of the courts of appeals to those

decisions, and ensure that the government cannot

evade its constitutional duties by embedding itself

within the corporate form. See Lebron, 513 U.S. at 397.

A. The First Circuit’s Approach to this

Court’s Lebron Decision is in Conflict

with That Decision and this Court’s

American Railroads Decision.

1. In Lebron, the Court considered whether Amtrak

could be subject to a First Amendment claim in view of

its authorizing statute’s directive that it “shall be

operated and managed as a for-profit corporation.” 49

U.S.C. § 24301(a)(2). There, the plaintiff filed suit on

First Amendment grounds after Amtrak refused his

request to place a political billboard in Penn Station.

After discounting Amtrak’s statutory label and

reviewing the nature of the government’s relationship

with and control over Amtrak, the Lebron Court

concluded that “where, as here, the Government

creates a corporation by special law, for the furtherance

of governmental objectives, and retains for itself

permanent authority to appoint a majority of the

directors of that corporation, the corporation is part of

the Government for purposes of the First Amendment.”

Lebron, 513 U.S. at 399. From this holding, the circuit

courts developed the three-prong “Lebron test” by

which an entity is a government actor where: (1) it is

created by special law; (2) it is meant to further

governmental objectives; and (3) the government

permanently controls it. See, e.g., App. 14.

In American Railroads, the Court was again

confronted with the argument that Amtrak could not

be a government actor because its authorizing statute

said so. Rather than an individual liberties challenge,

however, American Railroads concerned a separationof-powers challenge to Amtrak’s statutory authority to

issue “metrics and standards” on grounds that Amtrak,

as a private entity, could not exercise regulatory

authority. The American Railroads Court disagreed

with the challenge, finding that “the practical reality of

federal control and supervision prevails over Congress’

disclaimer of Amtrak’s governmental status.” Am.

Railroads, 575 U.S. at 55. The Court thus held that

Amtrak was a state actor. Significantly, the Court

there did not pin its holding on a finding that Amtrak

was under the government’s permanent control, nor did

it even discuss this as a factor. Nonetheless, the First

Circuit found that the “practical reality of federal

control” language had no effect on Lebron’s holding or

the panel’s implementation of the Lebron test. App. 18.

2. That Fannie Mae satisfied the first two prongs

of the Lebron test was not in dispute. App. 14 (“The

parties do not dispute that the first two prongs of the

Lebron test are satisfied.”). This left only the

“permanent control” prong at issue. The First Circuit

held that because a conservatorship is inherently

temporary, the FHFA did not have the permanent

control required to convert Fannie Mae into a state

actor under Lebron. App. 15.

A closer look at Lebron calls the circuit courts’

Lebron test into question. The First Circuit derived the

permanent control requirement from Lebron’s “retains

for itself permanent authority” language. App. 14

(quoting Lebron, 513 U.S. at 399) (“The issue before us

is whether, through FHFA’s conservatorship over the

GSEs, the government has ‘retain[ed] for itself

permanent authority’ over Fannie Mae and Freddie

Mac.”) (alteration in original). However, the panel

omitted the language immediately succeeding that

phrase: “where . . . the Government . . . retains for

itself permanent authority to appoint a majority of the

directors of that corporation.” Lebron, 513 U.S. at 399

(emphasis added). This is an important omission that

changes the character of Lebron’s actual holding from

a specific conclusion (“where . . . the Government . . .

retains for itself permanent authority to appoint a

majority of the directors of that corporation”), id., to a

nebulous “permanent authority” requirement (under

which the government must retain a general

permanent authority over an entity). Petitioners here

assert that Lebron did not hold that an entity must be

under the government’s permanent control in order to

be a state actor and indeed, that element could never

be possible, as the Legislature could always change the

legal relationship between the government and an

entity through subsequent legislation.

3. The circuit courts’ approach to Lebron

improperly limits Lebron’s scope by reading a

“permanent control” requirement into its holding.

Thus, under the First Circuit’s opinion, and those of

the other circuits to have addressed this issue,5 Fannie

See, e.g., Herron v. Fannie Mae, 861 F.3d 160, 169 (D.C. Cir.

2017) (“[T]he conservatorship over Fannie Mae did not create the

type of permanent government control that is required under

Lebron . . . .”); U.S. ex rel. Adams v. Aurora Loan Servs., Inc., 813

F.3d 1259, 1261 (9th Cir. 2016) (“[R]elators do not allege that the

conservatorship represents the federal government’s retention of

permanent authority to control Fannie Mae and Freddie Mac.”);

Garcia v. Fed. Nat. Mortg. Ass’n, 782 F.3d 736, 744 (6th Cir. 2015)

Mae is not a state actor solely because the FHFA’s

authorizing statute does not explicitly vest it with

permanent control over Fannie, despite the reality of

the FHFA’s plenary control over Fannie and complete

discretion over the length of the conservatorship.

This conflicts not only with the language and spirit

of Lebron, but also with American Railroads, which

renders Lebron’s permanency language extraneous to

the analytical framework described in that decision.

Lebron and American Railroads both dealt with

whether a nominally-private GSE is nonetheless a

government entity for constitutional purposes.6 In both

cases, the Court addressed the argument that because

of its statutory designation as a private entity, Amtrak

could not be a government agency. The Lebron Court

rejected this argument, with Justice Scalia forcefully

declaring that:

[I]t is not for Congress to make the final

determination of Amtrak’s status as a

Government entity for purposes of determining

the constitutional rights of citizens affected by

its actions. If Amtrak is, by its very nature, what

the Constitution regards as the Government,

(Bouie Donald, J., concurring) (“[A] necessary condition precedent

to consider a once-private entity a state actor is that the

government has ‘permanent’ control over the entity.”).

Lebron concerned a First Amendment claim; however, the Lebron

Court declared Amtrak to be a state actor “for the purpose of

individual rights guaranteed against the Government by the

Constitution,” and thus its analysis is applicable to the instant

case. Lebron, 513 U.S. at 394.

congressional pronouncement that it is not such

can no more relieve it of its First Amendment

restrictions than a similar pronouncement could

exempt the Federal Bureau of Investigation

from the Fourth Amendment. The Constitution

constrains governmental action “by whatever

instruments or in whatever modes that action

may be taken.” And under whatever

congressional label.

Lebron, 513 U.S. at 392–93 (quoting Ex parte Virginia,

100 U.S. 339, 346–347 (1879)) (internal citation

omitted).

The Lebron Court instead scrutinized Amtrak’s

constitutional status by looking at the relationship

between it and the government in light of the historical

legal treatment of “[g]overnment-created and controlled corporations.” Lebron, 513 U.S. at 394

(emphasis added). The Court noted: (1) the government

controlled Amtrak’s board of directors; (2) the

government was “not merely in temporary control” of

Amtrak; (3) Amtrak was established by federal law to

pursue federal objectives “under the direction and

control of federal governmental appointees,” and (4) the

government controlled Amtrak as a policymaker.

Lebron, 513 U.S. at 397–99. From that analysis, the

Court concluded: “We hold that where, as here, the

Government creates a corporation by special law, for

the furtherance of governmental objectives, and retains

for itself permanent authority to appoint a majority of

the directors of that corporation, the corporation is part

of the Government for purposes of the First

Amendment.” Lebron, 513 U.S. at 399.

4. The circuit courts’ Lebron test derives directly

from Lebron’s conclusion but completely ignores the

analysis that led to that conclusion. This is based on

the faulty notion that “[i]n Lebron, the Supreme Court

articulated a three-part test to determine when a

private corporation is a government actor for purposes

of certain constitutional claims against it.” App. 14.

Yet, any such test is notably absent in Lebron.7 Rather

than setting out a three-part test as the courts of

appeals have done, Lebron provides an analytical

framework for determining the constitutional status of

a private GSE. Under that framework, a GSE’s

constitutional status is determined by the nature of the

government’s relationship with and control over that

entity, rather than any congressional disclaimer

thereof. Consequently, the circuit courts’ approach to

Lebron, which requires “permanent” control, is in

conflict with its actual holding.

Remarkably, Herron, on which the First Circuit here relied,

treats Lebron as if it first created a test and then applied it. See

Herron, 861 F.3d at 167 (quoting Lebron, 513 U.S. at 399) (“The

Court then concluded that a corporation is ‘part of the

Government’ for constitutional purposes when: ‘(1) the

Government creates the corporation by special law, (2) for the

furtherance of governmental objectives, and (3) retains for itself

permanent authority to appoint a majority of the directors of that

corporation.’ Applying these criteria, the Court held that Amtrak

was a government actor . . . .”) (cleaned up). In reality, Lebron did

not set forth a test, let alone apply one. Instead, the Court

determined Amtrak’s constitutional status by considering the

nature of the government’s control over it and coming to a

conclusion therefrom, while refusing to defer to any legislative

declarations in that regard.

American Railroads reinforces this notion. Faced

with the same argument as in Lebron, the American

Railroads Court naturally looked to Lebron, but rather

than pointing to the rigid test that the courts of appeals

had created from that decision, American Railroads

instead followed Lebron’s analytical framework. First,

the American Railroads Court looked at the nature of

the government’s relationship with and control over

Amtrak and determined that because of its “unique

features and its significant ties to the Government,

Amtrak is not an autonomous private enterprise.” Am.

Railroads, 575 U.S. at 51–53. Justice Kennedy

concluded, “Lebron teaches that, for purposes of

Amtrak’s status as a federal actor or instrumentality

under the Constitution, the practical reality of

federal control and supervision prevails over Congress’

disclaimer of Amtrak’s governmental status.” Id. at 55

(emphasis added).

It is easy to understand how by focusing on Lebron’s

conclusion the courts of appeals have read a

permanency requirement into Lebron. However, this

conflicts with a proper reading of Lebron and American

Railroads, which together stand for the propositions

that: (1) it is the nature (i.e., practical reality) of the

government’s relationship with and control over a GSE

that determines that entity’s constitutional status; and

(2) a statutory disclaimer of agency status is not

dispositive. Permanent authority to appoint the board

of directors was merely one probative factor the Lebron

Court considered in its constitutional analysis of

Amtrak; by requiring permanent control, the courts of

appeals are in conflict with Lebron’s and American

Railroads’ analytical framework. This Court should

grant review to clarify that the Lebron and American

Railroads standard does not include a permanent

control requirement.

B. Collins v. Yellen Is Exemplary of the

First Circuit’s Erroneous Approach to

Lebron and American Railroads.

1. This Court’s recent Collins decision is instructive

of the fundamental errors in the circuit courts’

misinterpretations of Lebron and American Railroads

and the practical effect thereof. Collins v. Yellen

concerned a shareholder challenge to the Net Worth

Sweep, an agreement by which the Treasury would

receive quarterly payments from Fannie Mae and

Freddie Mac encompassing nearly all of their net

worth. Responding to the shareholders’ argument that

the FHFA was improperly moving to liquidate Fannie

and Freddie, Justice Alito looked at the characteristics

of the FHFA’s conservatorships and found that the

FHFA has much greater powers than ordinary

conservators, and that the reality of the situation did

not suggest impending liquidation.

In contrast, in Montilla, the First Circuit’s analysis

of the FHFA’s permanent control over Fannie Mae

focused on HERA’s language defining the purpose of an

FHFA conservatorship and found that the “FHFA

controls [Fannie Mae] for the limited purpose of

‘reorganizing, rehabilitating, or winding up [its]

affairs.” App. 14 (quoting 12 U.S.C. § 4617(a)(2)). This

limited statutory purpose confirmed to the First Circuit

panel that an FHFA conservatorship, like all

conservatorships, “has an inherently temporary

purpose.” App. 15 (quotation marks omitted). The panel

concluded that such temporary control does not meet

the permanent control requirement of the Lebron test.

App. 15.

By focusing on HERA’s language concerning an

FHFA conservatorship’s purpose, the First Circuit

made the same mistake of relying on a statutory label

as seen in Lebron and American Railroads. And, by

applying its analysis to a strict permanency

requirement that does not exist in Lebron, the First

Circuit ignored American Railroads’ instruction to look

to “the practical reality of federal control and

supervision[, which] prevails over Congress’ disclaimer”

of the FHFA’s “status as a federal actor or

instrumentality under the Constitution.” Am.

Railroads, 575 U.S. at 55.

2. These fundamental errors conflict with Lebron

and American Railroads, and Collins shows how they

led to the wrong result, with the consequence of the

federal government being free to deprive countless

Americans of their constitutional rights without any

constitutional scrutiny. Collins teaches that the

practical reality is that the FHFA’s control of Fannie

Mae as its conservator is at least equal to, if not more

than, the level of control Lebron found converted

Amtrak into a state actor. First, Collins notes that the

FHFA’s conservatorship is unlike most other

conservatorships, as “its authority stems from a special

statute, not the laws that generally govern

conservators and receivers.” Collins, __ U.S. at __, 141

S.Ct at 1785. Consequently, Montilla’s reliance on the

“inherently temporary purpose” of conservatorships is

inappropriate in a proper Lebron/American Railroads

analysis.

Second, and more importantly, Collins shows that

despite HERA limiting the FHFA’s powers of

conservancy to “reorganizing, rehabilitating, or

winding up [its] affairs,” 12 U.S.C. § 4617(a)(2), the

practical reality of the conservatorship shows no end in

sight. The Collins court found that under the

conservatorship, Fannie Mae has “operat[ed] at full

steam in the marketplace, . . . amassed over $200

billion in net worth [along with its brother entity

Freddie Mac] and, as of November 2020, [grown its]

mortgage portfolio [to] $163 billion.” Collins, __ U.S.

at __, 141 S.Ct at 1778. Per Justice Alito, “[t]his

evidence does not suggest that the companies were in

the process of winding down their affairs.” Id. Had the

First Circuit applied the correct standard and looked to

the practical reality of the FHFA’s control over Fannie

Mae rather than imposing a strict permanent control

requirement, it would have properly found Fannie Mae

to be a state actor.

***

In Lebron, Justice Scalia acknowledged that “our

cases deciding when private action might be deemed

that of the state have not been a model of consistency.”

Lebron, 513 U.S. at 378 (quotation marks omitted). The

courts of appeals have made that true of Lebron itself

by continuing to require permanent control despite

American Railroads making it clear that Lebron does

not require it. In doing so, the courts of appeals have

created a set of precedents that is in conflict with this

Court’s actual holdings in those cases and that gives

incorrect guidance and parameters to district courts

across the country. This Court should grant certiorari

to correct the circuit courts’ erroneous approach to

Lebron, clarify the Lebron/American Railroads

standard in this important area of law, and confirm

that Fannie Mae is a state actor when acting under the

FHFA’s conservatorship.

II.

This Court Should Grant Review to Correct

the First Circuit’s Misinterpretation of

Meyer, to Resolve a Conflict Between its

Meyer and O’Melveny Decisions, and to

Confirm the that the FHFA is a State Actor

when Acting as Conservator over Fannie

Mae.

In considering the constitutional status of the FHFA

in its conservatorship over Fannie Mae, the First

Circuit relied on a line of this Court’s decisions

involving the FDIC acting as receiver over failed

financial institutions. The panel’s finding that the

FHFA is not a state actor turned on its application of a

case from that line of decisions, O’Melveny & Myers v.

F.D.I.C., and its concomitant refusal to apply this

Court’s F.D.I.C. v. Meyer decision, which involved a due

process claim against the FDIC as a receiver.

Montilla misinterpreted Meyer’s actual holding.

When Meyer is correctly read and applied to the

FHFA’s conservatorship, Meyer and O’Melveny are in

clear conflict with each other. Coming in the wake of

the recent Collins decision, this case provides the

perfect opportunity to this Court to resolve the conflict

and declare that a federal agency cannot disclaim its

constitutional duties by acting through an ostensibly

private entity.

A. The First Circuit’s Application of

O’Melveny and Misinterpretation of

Meyer Reveal a Conflict Between Those

Decisions.

1. In O’Melveny, petitioner-defendant law firm was

counsel for a failed savings and loan (S&L) in

connection with two real estate syndications The S&L’s

officers had engaged in numerous acts of fraud, and

shortly after the two syndications closed, federal

regulators found the S&L to be insolvent due to

substantial losses resulting from its illegal and

unsound practices. After the FDIC took over as the

S&L’s receiver, the syndications’ deceived investors

began demanding refunds. The FDIC sued, alleging

that counsel was professionally negligent and breached

its fiduciary duties by not uncovering the bank’s fraud

and poor financial shape during its representation.

Counsel argued, inter alia, that knowledge of the

officers’ fraud was imputed to the S&L, and therefore,

as receiver, the FDIC stood in the S&L’s shoes and its

imputed knowledge estopped it from bringing its tort

claim.

The issue before the O’Melveny Court was whether

a federal common law rule preempted state common

law on imputed knowledge, both generally and

specifically on the question of “whether knowledge by

officers [acting against the corporation’s interests] will

be imputed to the FDIC when it sues as receiver of the

corporation.” O’Melveny, 512 U.S. at 83. The O’Melveny

Court held that there is no federal common law of

imputed knowledge. It also held that there was no

statutory preemption of the state common law because

“the FDIC as receiver ‘steps into the shoes’ of the failed

S & L” by virtue of the FDIC’s authorizing statute’s

succession clause. Id. at 86 (interpreting 12 U.S.C.

§ 1821(d)(2)(A)(i)). Therefore, when the FDIC asserted

claims on behalf of the S&L, any defense good against

the S&L, such as the imputed knowledge defense at

issue, was good against the FDIC as receiver.

The First Circuit below found this “steps into the

shoes” language to be dispositive of the question of the

FHFA’s constitutional status because HERA contains

a succession clause substantially identical to that of

§ 1821.8 App. 9. The panel found support for its

conclusion in the decisions of its sister circuits on the

same question. App. 9–10 (citing Herron v. Fannie Mae,

861 F.3d 160, 169 (D.C. Cir. 2017); Meridian Invs., Inc.

v. Fed. Home Loan Mortg. Corp., 855 F.3d 573, 579 (4th

Cir. 2017); and U.S. ex rel. Adams v. Aurora Loan

Servs., Inc., 813 F.3d 1259, 1261 (9th Cir. 2016)).

2. As noted, the First Circuit also considered

Petitioners’ claim that this Court’s Meyer decision is

determinative of the FHFA’s constitutional status. In

HERA’s succession clause provides that the FHFA “shall, as

conservator or receiver, and by operation of law, immediately

succeed to . . . all rights, titles, powers, and privileges of the

regulated entity.” 12 U.S.C. § 4617(b)(2)(A)(i). Likewise, the

Financial Institutions Reform, Recovery, and Enforcement Act’s

succession clause provides that the FDIC “shall, as conservator or

receiver, and by operation of law, succeed to . . . all rights, titles,

powers, and privileges of the insured depository institution.” 12

U.S.C. § 1821(d)(2)(A)(i).

that case, the FDIC’s predecessor9 took over a failed

S&L as its receiver. The FDIC immediately terminated

plaintiff-respondent, a senior officer of the S&L,

pursuant to its policy of terminating all senior

management when stepping in as receiver of a failed

S&L. The senior officer sued on grounds that his

summary termination deprived him of a property right

(continued employment under state law) without due

process of law. The FDIC argued that its sovereign

immunity precluded the Fifth Amendment claim. The

Court held that the FDIC, when acting as a receiver,

waived its sovereign immunity by virtue of its statutory

“sue-and-be-sued” clause10 and was accordingly subject

to the Fifth Amendment claim.

In other words, the FDIC, as a receiver, can be sued

as a state actor for a constitutional claim when it has

waived its immunity. Petitioners argued that by

analogy, the FHFA, which as conservator holds Fannie

Mae’s power to sue and be sued, is a state actor that

has waived immunity and therefore can be sued for

violating the Fifth Amendment. However, the First

Circuit rejected the idea that Meyer’s holding controlled

the FHFA’s constitutional status on grounds that its

holding is purely “jurisdictional” and therefore “did not

decide that a federal agency is a government actor

whenever it acts as a receiver or conservator.” App. 12.

The panel further reasoned that to so hold would be

This petition will refer to the defendant entity in Meyer as the

FDIC for simplicity’s sake.

The FDIC’s sue-and-be-sued provision is codified at 12 U.S.C.

§ 1723a(a).

inconsistent with post-Meyer opinions from this Court

and other circuits. App. 12–13.

3. The First Circuit’s interpretation of Meyer as it

relates to this case is in conflict with the Meyer Court’s

actual holding. This misinterpretation stems from the

panel’s distinguishment of Meyer and the state action

question here as the difference between “the absence of

a valid cause of action and subject-matter jurisdiction,

i.e., the courts’ statutory or constitutional power to

adjudicate the case.” App. 12 (quoting Steel Co. v.

Citizens for a Better Env’t, 523 U.S. 83, 89 (1998))

(quotation marks omitted) (alterations omitted). It

appears that the panel considered a finding of state

action as a finding on the merits, rather than a

jurisdictional finding. App. 12 (“Meyer never addressed

the merits of the plaintiff’s claim, including the

argument that his claim must fail because [the FDIC]

was not acting as the government.”). The First Circuit

supported this rationale by noting that the Meyer

decision acknowledged that it did “not reach the merits

of [the] due process claim.” App. 12 (quoting Meyer, 510

U.S. at 486 n.12).11

Despite the First Circuit’s suggestion to the

contrary, the district court here, like the Meyer Court,

did not reach the merits of Petitioners’ due process

claim. App. 28 n.2 (noting that the court did not need

to reach the due process claim by virtue of its findings

The Meyer Court did not reach the merits of the due process

claim because the Court found there is no Bivens cause of action

against federal agencies. See Meyer, 510 U.S. at 483–86 (discussing

Bivens v. Six Unknown Named Agents of Fed. Bureau of Narcotics,

403 U.S. 388 (1971)).

of private action). This is because the requirement of

state action for constitutional claims is jurisdictional,

just like the sovereign immunity claim considered in

Meyer, as “the conduct of private parties lies beyond

the Constitution’s scope in most instances.” Edmonson

v. Leesville Concrete Co., 500 U.S. 614, 620 (1991).

Consequently, a plaintiff has no standing to bring a

constitutional claim against a private actor, and the

federal courts do not have jurisdiction to entertain such

a claim. See Citizens for a Better Env’t, 523 U.S. at

109–10 (“[W]e must conclude that respondent lacks

standing to maintain this suit, and that we and the

lower courts lack jurisdiction to entertain it.”).

4. Thus, Meyer’s sovereign immunity holding

meant that the FDIC, when acting as receiver, was a

state actor that waived its immunity to suit and was

therefore subject to the constitutional claim brought

against it.12 Because the particulars of this holding

mirror those of the instant case, the conclusion logically

follows: the FHFA, when acting as conservator, is a

state actor that waived its immunity to suit and is

therefore subject to Petitioners’ constitutional claim.

The decisions the panel cites as inconsistent with this

“categorical reading of Meyer” are not inconsistent, but

inapposite, as they concerned issues connected to

claims brought by the FDIC as receiver, rather than

Indeed, Meyer’s holding logically requires that the FDIC be a

state actor despite acting as a receiver: if the FDIC was not a state

actor, it could not waive immunity because it would not have

immunity to waive; nor would it need to waive immunity because

it could not be the subject of a constitutional claim.

constitutional claims brought against the FDIC as

receiver.13 App. 12–13.

Accordingly, Montilla’s conclusion that “Meyer did

not decide that a federal agency is a government actor

whenever it acts as a receiver or conservator,” App. 12,

misses Meyer’s actual holding: when acting as a

receiver, a federal agency that has waived sovereign

immunity is a state actor for purposes of constitutional

claims. Had the First Circuit correctly interpreted

Meyer, it should have concluded that the FHFA waived

its sovereign immunity and therefore is a state actor.

5. However, assuming that the First Circuit here

correctly applied O’Melveny and that “after stepping

into the GSEs’ shoes . . . FHFA did not act as the

government,” App. 10, Meyer and O’Melveny are in

clear conflict. It cannot be that both decisions can be

correctly applied to the same situation and lead to

opposite results. Such malleability of precedent and the

judicial uncertainty it breeds are untenable, as they

result in ambiguity over which standards the FHFA’s

conduct are held to and when those standards would

apply. This Court should grant review to reconcile the

conflict between the O’Melveny and Meyer decisions

and confirm that a federal agency must be held to its

Atherton, 519 U.S. 213 (1997), involved whether there was a

body of federal common law providing the standard of care in a

breach of fiduciary duty case brought by the FDIC. United States

v. Ely, 142 F.3d 1113 (9th Cir. 1997), concerned a double jeopardy

challenge based in part on a civil action brought by the FDIC

against the defendants. United States v. Heffner, 85 F.3d 435 (9th

Cir. 1996), concerned a similar double jeopardy challenge.

constitutional obligations, even when acting in its

capacity as a conservator over a private entity.

B. This Court’s Recent Decision in Collins

v. Yellen Provides the Analytical

Framework by which This Court Can

Resolve the O’Melveny/Meyer Conflict.

This case provides a perfect opportunity for this

Court to resolve this conflict, as it comes on the heels of

its recent Collins decision, which provides the

analytical framework for doing so. In that case, one

column of the shareholders’ attack on the Net Worth

Sweep argued that HERA’s “for cause” provision for

removing the FHFA’s single director violated

separation-of-powers principles. The Collins Court

agreed and held the “for cause” removal provision

unconstitutional.

Important for purposes of the instant case is the

Collins Court’s rejection of an argument that because

the FHFA “steps into the shoes” of Fannie and Freddie

per O’Melveny, it does not wield executive power and

thus is not subject to the President’s removal powers.

The Court disagreed that O’Melveny had any relevance

to the separation-of-powers question before it, noting

that the O’Melveny “decision is far afield” because it

“held that state law, not federal common law, governed

an attribute of the FDIC’s status as receiver for an

insolvent savings bank.” Collins, __ U.S. at __, 141 S.Ct

at 1786 n.20. Per Justice Alito, “[t]he nature of the

FDIC’s authority in that capacity sheds no light on the

nature of the FHFA’s distinctive authority as

conservator under [HERA].” Id. Having deemed

O’Melveny inapplicable, the Collins Court compared the

FHFA’s conservatorship to traditional conservators and

receivers and found that in view of the FHFA

conservatorship’s unique attributes, “the FHFA clearly

exercises executive power” and is therefore not exempt

from the Executive’s removal power. Id. at 1785–86.

This reasoning naturally extends to the FHFA’s

conservatorship over Fannie Mae for purposes of its

vulnerability to constitutional claims and provides the

basis for resolving the conflict between Meyer and

O’Melveny revealed thereby. The First Circuit

determined that O’Melveny controls the FHFA’s

constitutional status by analogizing the FHFA’s

conservatorship over Fannie Mae to the FDIC’s

receivership of a failed trust on the basis of their

substantially identical statutory succession clauses.

But, as Collins held, O’Melveny is “far afield” and

therefore irrelevant to the FHFA’s conservatorship over

Fannie Mae. And, as Collins notes, O’Melveny involved

state law; this case, on the other hand, involves a

constitutional claim.

Accordingly, Collins instructs the resolution of the

Meyer/O’Melveny conflict by rendering O’Melveny

inapplicable. Moreover, Collins does not disturb

Meyer’s holding; that decision concerned whether a

federal agency that can sue and be sued has waived

immunity to constitutional claims, and the fact that the

agency at issue was acting as a receiver was ancillary

to its main holding. This Court should grant review to

confirm that Collins resolves the conflict and to confirm

that under a proper reading of the decisions, the FHFA,

when acting as conservator of Fannie Mae, is a state

actor for purposes of constitutional claims. This will

allow the judiciary to perform its proper function of

holding the FHFA accountable to its constitutional

obligations.

III.

This Case is a Good Vehicle for Resolving

these Conflicts.

This case is an excellent vehicle for reconciling

these conflicts and faulty approaches and for resolving

the state action questions presented. The First Circuit’s

handling of Meyers/O’Melveny and Lebron/American

Railroads presents the state action issues squarely,

and the dispute on appeal turns on pure questions of

law: whether the FHFA and Fannie Mae are state

actors. Though state action questions are “necessarily

fact-bound inquir[ies],” Lugar v. Edmondson Oil Co.,

457 U.S. 922, 939 (1982), the facts before this Court

involve the particulars of HERA and the FHFA’s

conservatorship over Fannie Mae, which are not in

dispute. The facts of the underlying dispute are

irrelevant to this Court’s disposition of the matter.

There is no obstacle to keep this Court from deciding

these important state action questions.

Furthermore, this case comes before the Court on

the heels of Collins, which both aids in reconciling the

conflict between the Meyer and O’Melveny decisions

and is instructive as to the First Circuit’s fundamental

errors in interpreting the Lebron/American Railroads

standard. However, further percolation in view of

Collins would be unhelpful, as Collins does not speak

to Lebron or American Railroads (nor did it have

reason to), and its instructive benefit is tied solely to

the particulars of the FHFA’s conservatorship over

Fannie. And because Collins’ holding resides in the

separation-of-powers context, the courts of appeals may

stick to their entrenched position that O’Melveny

precludes a claim to vindicate individual due process

rights.

At bottom, the unique structure of the FHFA and its

conservatorship over Fannie Mae and the vast

discretionary powers conferred to the FHFA thereby

highlight the importance of clarifying these state

actions concepts so that Fannie Mae, the FHFA, and

future GSEs and federal agencies may be properly held

to their constitutional obligations. Indeed, it is unlikely

that another case will better illustrate the conflicts in

this Court’s state action decisions and the lower courts’

misinterpretations of them. By their misuse of this

Court’s precedent, the lower courts have allowed the

FHFA and Fannie Mae to avoid their constitutional

obligations for nearly fifteen years. Unless this Court

grants certiorari, the FHFA’s and Fannie Mae’s

constitutional abuses will continue for the foreseeable

future.

CONCLUSION

This Court should grant the petition.

Respectfully submitted,

TODD S. D ION

LAW OFFICES OF TODD S. DION

15 Cottage Avenue

Suite 202

Quincy, Massachusetts 02169

(401) 965-4131

toddsdion@msn.com

G ERARD V. M ANTESE

Counsel of Record

B RIAN P. M ARKHAM

M ANTESE H ONIGMAN, PC

1361 East Big Beaver Road

Troy, Michigan 48083

(248) 457-9200

gmantese@manteselaw.com

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.