Argument Preview

Four cases that attracted amicus briefs are being argued at the Federal Circuit next week: Arrowood Indemnity Co. v. United States, Cacciapalle v. United States, Owl Creek Asia I, L.P. v. United States, Fairholme Funds, Inc. v. United States. In these cases, the plaintiffs asserted claims at the Court of Federal Claims based on government actions related to the 2008 financial crisis and ownership of shares of Fannie Mae and Freddie Mac. As explained by the Court of Federal Claims in one of the cases, the “plaintiffs seek the return of money illegally exacted, damages for breach of contract and breach of fiduciary duty, and compensation for a taking pursuant to the Fifth Amendment to the United States Constitution.” The Court of Federal Claims, however, dismissed these claims, finding it “lacks jurisdiction to entertain their fiduciary duty and implied-in-fact-contract claims, and plaintiffs lack standing to pursue any of their claims.” The plaintiffs have now appealed to the Federal Circuit, challenging the lower court’s holdings. The Federal Circuit consolidated these cases for purposes of oral argument. Here is our argument preview.

This case involves a dispute over the ownership of shares of Fannie Mae and Freddie Mac after the 2008 financial crisis. The plaintiffs argue the “government took . . . equity by zeroing out their rights to dividends and liquidation distributions and transferring those rights to itself” when it altered a dividend formula in 2012. The plaintiffs sued for “damages, bringing direct claims for, among other things, taking, illegal exaction (in the alternative), breach of fiduciary duty, and breach of implied-in-fact contracts.” As mentioned, the Court of Federal Claims granted motions to dismiss filed by the United States. The court did so in the cases filed by Arrowood Indemnity, Cacciapalle, and Owl Creek Asia I, and those parties appealed. Fairholme Fund’s claims, by contrast, are currently subject to an interlocutory appeal. In the four cases, the parties have filed joint briefs and identical arguments.

The plaintiffs in their opening brief assert that, “at the most basic level, the Private Shareholders plead that the government took their property (their shareholder rights) for itself, and they seek damages for themselves.” They make four arguments: (1) the shareholders have standing to assert direct claims for taking of property; (2) the lower court was correct to allow claims against the United States under the Tucker Act for an agreement between two Federal Agencies, the Federal Housing Finance Agency (FHFA) and the Treasury, for public good; (3) the United States had a fiduciary duty to the shareholders as conservator and this allows standing for breach of fiduciary duty claims; and (4) the plaintiffs were third-party beneficiaries of the contacts between the United States and companies, meaning the court has jurisdiction over their contract claims.

In its response brief, the United States argues that “[t]he Court of Federal Claims lacked jurisdiction over these claims for two threshold reasons that require dismissal of virtually all the claims at issue in plaintiffs’ appeals.” The United States first contends that, “unless FHFA’s actions as conservator can be attributed to the government, these are not claims ‘against the United States.’” The United States then maintains “that an asserted injury to the corporation, the remedy for which would require the return of funds to the enterprises,” is a derivative claim, and “plaintiffs lack standing to assert derivative claims belonging to the corporation on their own behalf.” The United States also makes additional arguments that the court lacks jurisdiction over implied-in-fact claims and that a breach of contract claim cannot be brought against the United States because the United States was not a party to any contract.

In their reply brief, the plaintiffs make five points. First, they argue the court is required to assume the truth of well-plead complaints. Second, they contend their claims are “against the United States and thus within the Court of Federal Claims jurisdiction.” Third, the plaintiffs argue they have standing to assert direct claims for taking of property. Fourth, they note the “United States had a fiduciary duty to the private shareholders that is ‘founded upon’ both a Federal Statute and a contract.” Finally, they claim the shareholders have shown to be third-party beneficiaries of implied-in-fact contracts between the United States and the companies. 

After the June 23 Supreme Court decision Collins v. Yellen, both parties filed supplemental briefs. The plaintiffs argue Collins confirms that they have “direct claims conferring standing” and that the “direct claims are ‘against the United States.’” The United States contends, by contrast, that “the Court rejected a series of contentions regarding the reasonableness and legitimacy of the conservator’s actions . . . that have formed the basis of plaintiffs’ narrative in the cases now before this Court.”

Bryndon Fisher, Bruce Reid, and Erick Shipmon–other shareholders of Fannie Mae and Freddie Mac who have asserted their own claims against the United States–filed identical amicus briefs supporting neither party in each case. Their initial amicus brief argues “the Court should decide that shareholder claims arising from the Third Amendment [the dividend altering action by the federal government in 2012] are derivative in nature” because HERA’s [Housing and Economic Recovery Act of 2008] succession clause does not displace established corporate law under which shareholders may pursue a derivative action.” Also, they claim “the Court of Federal Claims had jurisdiction to hear claims because the FHFA [Federal Housing Finance Authority] maintained its government character during the conservatorship.” Finally, in a supplemental amicus brief, Fisher, Reid, and Shipmon assert that, because “takings and illegal exaction claims arise from the Constitution, they cannot be eliminated by statute or by the FHFA’s actions.” They claim this means “the Court must, if at all possible, construe HERA not to deny a judicial remedy for any taking or illegal exaction.” And, they argue, if the court “concludes that the only permissible interpretation of HERA bars all derivative claims without exception, then the Court should rule that HERA is unconstitutional.”

The cases will be argued together on Wednesday, August 4, with 40 minutes allocated to each side. We will provide an argument recap and report on the Federal Circuit’s disposition of the case.