In 2012, the Treasury and the two GSEs revised their
agreements: Rather than pay a fixed dividend on the
Treasury’s preferred shares, Fannie Mae and Freddie Mac
began in 2013 to return almost all of their profits to the
Treasury. However, those payments do not reduce the
amount of preferred stock held by the Treasury, and the
GSEs are prohibited from buying back that stock under
their agreements with the Treasury and FHFA. Thus, the
terms of the agreements and the conservatorship ensure
that the federal government effectively retains complete
ownership and control of Fannie Mae and Freddie Mac.
https://www.cbo.gov/sites/default/files/cbofiles/attachments/49765-Housing_Finance.pdf
http://www.bloomberg.com/video/pershing-s-ackman-plans-stake-in-u-s-company-3KajpNtCQ6a8aMXuew~LXw.html
the judge weighed in on the takings claim even though it’s not even the court that handles takings claims and his arguments were principally the government is not allowed to take private property without just compensation, but if the shareholders retain a meaningful economically beneficial interest in the corporation then it’s not a taking and the judge cited the fact that the stock continues to trade in the market on the pink sheets in large volume as saying shareholders therefore continue to have a meaningful economic interest
https://timhoward717.files.wordpress.com/2014/09/93014-memorandum-opinion-perry-injunction-2.pdf
The
plaintiffs maintain “economically beneficial use” of their shares, since the stock very much
remains a tradable equity. Indeed, GSE shares are traded daily on public over-the-counter (OTC)
exchanges.55 And given the Court’s rejection of the plaintiffs’ alleged present rights to
dividends and liquidation payments, it is clear that the government has not “seized [the
plaintiffs’] private property and kept that property for itself
my lamberth notes:
1. lamberth says that the 12% PIK is a penalty payment.
2. lamberth says that there is no ripeness as long as the GSEs do not go into liquidation
3. so, is it possible to make the claim that once they pay more than 10% interest and principle that even though the businesses are not in liquidation, that a takings has occurred? is that the jist?
Given the Court’s ruling to grant the defendants’ motion to dismiss, there is no need to evaluate the merits of the
defendants’ decision to execute the Third Amendment instead of selecting other options in lieu of the cash dividend
that, under the PSPAs, was equal to 10% of Treasury’s liquidation preference. Nevertheless, the Court notes its
disagreement with the plaintiffs’ characterization of one purported alternative to the Third Amendment. The
plaintiffs claim that the GSEs “had no obligation to pay the 10 percent dividend in cash,” and instead could simply
opt to pay a 12% dividend that would be added to the outstanding liquidation preference rather than be paid in cash
each quarter. Individual Pls.’s Opp’n at 9, 66-67. However, the plaintiffs’ contention that paying 10% in cash or
adding 12% to the liquidation preference was merely a matter of choice, Class Pls.’s Opp’n at 11, directly
contravenes the unambiguous language of the contract. The relevant provisions, which are identical, in Treasury’s
respective stock certificates with each of the GSEs, state:
“‘Dividend Rate’ means 10.0%; provided, however, that if at any time the
[GSE] shall have for any reason failed to pay dividends in cash in a timely
manner as required by this Certificate, then immediately following such failure
and for all Dividend Periods thereafter until the Dividend Period following the
date on which the Company shall have paid in cash full cumulative dividends
(including any unpaid dividends added to the Liquidation Preference pursuant to
Section 8), the ‘Dividend Rate’ shall mean 12.0%.”
Treasury AR at 33, 67-68 (Treasury Senior Preferred Stock Certificates § 2(c)) (emphasis added). The provision
makes clear that 10% cash dividends were “required by” the stock certificates, and that 12% dividends deferred to
the liquidation preference were only triggered upon a “failure” to meet the 10% cash dividend requirement. Thus,
classifying the 12% dividend feature as a “penalty,” as Treasury does, is surely more accurate than classifying it as a
“right.” Compare Treasury Defs.’s Reply at 49-50 (D.D.C. May 2, 2014) (“Treasury Reply”), with Individual Pls.’s
Opp’n at 9. The plaintiffs cannot gloss over this distinction by repetitively using the phrase “in kind” to describe the
12% dividend feature. See Individual Pls.’s Opp’n at 9, 66-67, 80-81; Class Pls.’s Opp’n at 16. Inclusion of “in
kind” within § 2(c) would have slightly improved the plaintiffs’ argument that the contract expressly permitted the
GSEs to simply choose between a 10% cash dividend or 12% dividend deferred to the liquidation preference. But,
as plaintiffs are certainly aware, “in kind” appears nowhere within the stock certificates’ dividends provision. See
Treasury AR at 33, 67-68.
With regard to the two other hypothetical alternatives presented by the individual plaintiffs—Treasury accepting
lower dividends or allowing the GSEs to use excess profits to pay down the liquidation preference and, thus, the
basis for the 10% dividend—the Court has no occasion to determine whether the plaintiffs’ arguments demonstrate
arbitrary and capricious decisionmaking or only amount to second-guessing decisionmakers charged with exercising
predictive judgments.
The question for the Court cannot be whether the Third Amendment diminishes an
opportunity for liquidation preferences at some point in the future, but rather whether the
plaintiffs have suffered an injury to their right to a liquidation preference in fact and at present.
But, just as there was a Third Amendment, the Court cannot definitively say there
will be no Fourth or Fifth Amendment that will transform the current “opportunity to benefit
from the liquidation preferences in [the plaintiffs’] preferred stock.” A ripeness requirement
prevents the Court from deciding a case “contingent [on] future events that may not occur as
anticipated, or indeed may not occur at all.”
Thus, the plaintiffs’ liquidation preference claims are not fit for a
judicial decision until liquidation occurs.39
Given that the plaintiffs maintain no current right to a liquidation preference while the
GSEs are in conservatorship, the plaintiffs are no worse off today than they were before the
Third Amendment. Therefore, there is no hardship imposed on the plaintiffs by withholding
court consideration until this contingent right matures at the moment of liquidation.
But the plaintiffs cannot
overcome FHFA’s sweeping congressional mandate with conclusory statements regarding the
Third Amendment’s effect on the plaintiffs’ prospective—and not present—rights to dividends
and liquidation preferences
Whether the defendants executed the Third Amendment to generate profits for
taxpayers or to escape a “downward spiral” of the GSEs seeking funding in order to pay owed
dividends back to Treasury, it does not change the fact that it was executed during a period of
conservatorship and, thus, after the plaintiffs’ property interests—whatever they may have been
prior to the Third Amendment—were extinguished.
And here, the class plaintiffs only
plead that the Third Amendment was inconsistent with FHFA’s responsibilities as conservator—
not that FHFA lacked any legal right to be a conservator on August 17, 2012.
Given that the class plaintiffs cannot repair the overarching
threshold defect of having no cognizable property interest at stake, their takings claim must be
dismissed under Rule 12(b)(6).
At present, the Third Amendment has had no economic impact on the plaintiffs’ alleged
dividend or liquidation preference rights.
Additionally,
since liquidation preference rights only ripen during liquidation, any impact on such rights is, at
best, theoretical while the GSEs remain in conservatorship.