Those Shoes

Myron Steele, attorney for plaintiffs in the Jacobs v. FHFA case, sent a letter this week to Judge Sleet stating:

“…The Ninth Circuit issued its opinion after the parties completed briefing on the pending Motions to Dismiss. In Adams, the Ninth Circuit held that Fannie Mae and Freddie Mac are private companies, not federal instrumentalities, and that the conservatorship placed the Federal Housing Financing Agency (“FHFA”) “in the shoes of Fannie Mae and Freddie Mac, and gives the FHFA their rights and duties, not the other way around.” Id. at 6 (emphasis in original). This holding is contrary to Defendants’ arguments that federal law, not state law, governs the conservator’s power to implement the Net Worth Sweep as a term of preferred stock, and that FHFA has authority under HERA to act as it sees fit without regard to whether Fannie Mae and Freddie Mac themselves have power under state law to issue preferred stock having the terms of the Net Worth Sweep…” (emphasis added)

Click to access 15-00708-0036.pdf

In November 2014, I kicked off this blog with a rather long piece http://wp.me/p5jYux-2 which started by citing a federal case:

Caroline Herron vs. Fannie Mae, et al

http://www.gpo.gov/fdsys/pkg/USCOURTS-dcd-1_10-cv-00943/pdf/USCOURTS-dcd-1_10-cv-00943-0.pdf

In that case, United States District Judge Rosemary Collyer stated:

“Thus, like FDIC when it serves as a conservator or receiver of a private entity, FHFA when it serves as conservator “step[s] into the shoes” of the private corporation, Fannie Mae.”

and

“Similarly, Fannie Mae was not converted into a government entity when it was placed into conservatorship; instead, FHFA stepped into the shoes of Fannie Mae. FHFA as conservator for Fannie Mae is not a government actor.”

and

“As described above, a conservator or receiver steps into the shoes of the private entity — it assumes the private status of the entity.” (emphasis added in all three passages)

The basis and details of both cases are not at all similar, though that is irrelevant to both judges’ rulings. In both cases, these judges ruled that FHFA steps into the shoes of Fannie and Freddie as conservator and thus assumes its roles, duties and responsibilities.

Myron Steele makes the case to Judge Sleet that Fannie and Freddie are governed by their respective state laws, which in this case invalidates or otherwise makes the Net Worth Sweep illegal.

Equally important is the fact that in these two cases the US Government argued different positions in each case.

In Adams, Government lawyers argued that Fannie and Freddie were a part of the federal government while under conservatorship. However, in Herron Government lawyers argued that Fannie and Freddie were not a part of the federal government while under conservatorship.

There seems to be a clear pattern with Government lawyers of consistently trying to have things both ways… however, the 9^th Circuit Court and the DC District Court both rule that Fannie and Freddie continue as private companies even while in conservatorship.

If the shoe fits, wear it!