FNMA and FMCC preferreds. In search of the elusive 10 bagger.

[Guest cherzeca]

read pps. 11-12 of Ps collins reply in. connection with cert petition. https://www.supremecourt.gov/DocketPDF/19/19-422/122234/20191113112833296_19-422%20Reply%20Brief.pdf

 

"If the Court determines in Seila Law that the CFPB Direc- tor’s for-cause removal protection is unconstitutional and can be severed from the rest of the statute, it may go on to explain that this “remedy” is not meant to foreclose backward-looking relief for litigants who bring successful separation of powers suits based on violations of the President’s removal authority. Such a ruling would provide a compelling reason to send this case back to the Fifth Circuit for further consid- eration."

 

that clear language that severance doesnt foreclose backward relief is not in Seila, but I believe it is implicit.  and I believe a GVR would serve the purpose...though scotus doesnt usually explain its remand decisions so explicitly

[Guest cherzeca]

fwiw:  https://seekingalpha.com/article/4356651-interview-christian-herzeca-rule-of-law-guy-fannie-and-freddie?utm_medium=email&utm_source=seeking_alpha&mail_subject=fnma-fmcc-interview-with-christian-herzeca-the-rule-of-law-guy-about-fannie-and-freddie&utm_campaign=rta-stock-article&utm_content=link-0

 

[Luke 532]

fwiw:  https://seekingalpha.com/article/4356651-interview-christian-herzeca-rule-of-law-guy-fannie-and-freddie?utm_medium=email&utm_source=seeking_alpha&mail_subject=fnma-fmcc-interview-with-christian-herzeca-the-rule-of-law-guy-about-fannie-and-freddie&utm_campaign=rta-stock-article&utm_content=link-0

 

Excellent!

[SnarkyPuppy]

When is the legal update released today?

[SnarkyPuppy]

When is the legal update released today?

 

Looks like it was released w/ nothing on our cases - https://www.supremecourt.gov/orders/courtorders/070220zor_apl1.pdf

[Guest cherzeca]

Would that mean 'not denied' and no gvr and something else?

 

When is the legal update released today?

 

Looks like it was released w/ nothing on our cases - https://www.supremecourt.gov/orders/courtorders/070220zor_apl1.pdf

 

it means they did nothing.  when nothing works, Emily, do nothing.  sound advice.

[investorG]

Last year, the final opinion came on June 27.

 

Then, on Friday June 28 there was a 'miscellaneous order' that had a ton of grants and declines -- what scotusblog has called a cleanup order list.

 

After that, they went dormant for the summer break.

 

So maybe we have to wait for the final opinion to come out and then look for a clean up order list.  Or another day where there's a pre-announced order list incoming.

[Guest cherzeca]

Last year, the final opinion came on June 27.

 

Then, on Friday June 28 there was a 'miscellaneous order' that had a ton of grants and declines -- what scotusblog has called a cleanup order list.

 

After that, they went dormant for the summer break.

 

So maybe we have to wait for the final opinion to come out and then look for a clean up order list.  Or another day where there's a pre-announced order list incoming.

 

there will generally always be a final clean up order.  what I dont know is how many more conferences and order days they will have.  the scotus schedule calendar is blank

[Midas79]

Hannah Lang wrote an interesting article with some things I hadn't thought of.

https://www.americanbanker.com/news/fhfa-leadership-structure-on-shaky-ground-after-cfpb-ruling

 

Some even noted that a Biden administration could choose to rely on the Seila ruling to change the FHFA's leadership instead of waiting for a separate decision on the agency's structure.

 

...

 

Even if Calabria and the FHFA maintain that the Seila Law ruling does not affect the agency, he would be left with little choice if the president were to move to replace him, said Naimon.

 

“Calabria could try to resist being replaced by taking the position that he can only be fired for cause, but I think that is unlikely,” he said. “The Department of Justice would point to the Seila Law decision, but more importantly, any additional progress on his agenda would be impossible. Who would ever commit capital in that context? It has the effect of freezing everybody in place.”

 

Let's say SCOTUS goes the GVR route on Collins and Biden is elected, but when he takes office the Fifth Circuit hasn't ruled yet. What would the ramifications be if Biden just tells Calabria "you're fired"?

 

If Calabria just extends the middle finger and says "you can't do that", wouldn't recap and release be in trouble anyway because investors would have no idea what to expect from FHFA going forward? Presumably all this would happen before any re-IPO.

[orthopa]

Hannah Lang wrote an interesting article with some things I hadn't thought of.

https://www.americanbanker.com/news/fhfa-leadership-structure-on-shaky-ground-after-cfpb-ruling

 

Some even noted that a Biden administration could choose to rely on the Seila ruling to change the FHFA's leadership instead of waiting for a separate decision on the agency's structure.

 

...

 

Even if Calabria and the FHFA maintain that the Seila Law ruling does not affect the agency, he would be left with little choice if the president were to move to replace him, said Naimon.

 

“Calabria could try to resist being replaced by taking the position that he can only be fired for cause, but I think that is unlikely,” he said. “The Department of Justice would point to the Seila Law decision, but more importantly, any additional progress on his agenda would be impossible. Who would ever commit capital in that context? It has the effect of freezing everybody in place.”

 

Let's say SCOTUS goes the GVR route on Collins and Biden is elected, but when he takes office the Fifth Circuit hasn't ruled yet. What would the ramifications be if Biden just tells Calabria "you're fired"?

 

If Calabria just extends the middle finger and says "you can't do that", wouldn't recap and release be in trouble anyway because investors would have no idea what to expect from FHFA going forward? Presumably all this would happen before any re-IPO.

 

Doesnt the consent agreement take care of all of this? If Treasury is out of the picture and conservator enters into a consent agreement with FnF how can a new FHFA head alter the agreement and not follow the law as Calabria has said? That sound like a situation for more lawsuits.

[Guest cherzeca]

I don t have access to am banker but if any deal settling the senior prefs and exiting into consent decree involves the GSEs and cant be amended or terminated without all parties consent then you can imagine a flight path that cant be changed

[orthopa]

I don t have access to am banker but if any deal settling the senior prefs and exiting into consent decree involves the GSEs and cant be amended or terminated without all parties consent then you can imagine a flight path that cant be changed

 

At that point since all parties would have to agree the GSEs largest or majority shareholders would have say since the GSEs would be out of conservatorship correct?

[Guest cherzeca]

I don t have access to am banker but if any deal settling the senior prefs and exiting into consent decree involves the GSEs and cant be amended or terminated without all parties consent then you can imagine a flight path that cant be changed

 

At that point since all parties would have to agree the GSEs largest or majority shareholders would have say since the GSEs would be out of conservatorship correct?

 

right.  you have to believe the GSEs would like to get right for once and all

[Midas79]

Someone in the Twitter chat asked what we thought the chances were of SCOTUS just straight up overturning the NWS rather than just denying cert on the APA claims or upholding the Fifth's decision to remand that claim. Here is a repost of my response:

 

Until recently i would have said 1% also, if not less.

Now i'm no legal expert, but there is a distinct circuit split over the APA claims against the NWS, as to whether it was ultra vires or not. the Fifth said it was, all others said it wasn't. I don't think remand solves that.

 

So i'm gonna go with 5% that SCOTUS actually overturns the NWS because there has already been a split.

 

I thought for a while that SCOTUS would just not touch it, let the Fifth's decision to remand the APA claims back down to Atlas stand, and wait for that decision to come back up the pipeline before deciding (this is my base case, 95% chance).

 

But the Fifth's wording leaves no wiggle room for Atlas to deny the APA claims, so SCOTUS might not think it worth waiting for something they know is coming.

 

Is this line of thinking valid or have I made a mistake somewhere?

 

I suppose I haven't accounted for the possibility that SCOTUS overturns the Fifth majority's APA claim decision, which would solve the circuit split in the other direction (a final ruling that the NWS is not ultra vires). That's a chilling possibility.

[DRValue]

Is it easier for SCOTUS to do nothing this term and see if a settlement takes place?

[Guest cherzeca]

@midas

 

my 2 cents...the const claim will be GVRed back to 5th C, with typical language saying redo case in light of Seila.  leaving up to 5th C to i) determine whether fhfa=cfpb, and ii) provide backward relief (unless it can distinguish NWS from CID...courts do the damnedest things).

 

I dont know about APA claim...I expect it will remain in suspension at scotus until const claim is sorted out since Ps seek same relief from both.

[investorG]

Is it easier for SCOTUS to do nothing this term and see if a settlement takes place?

 

Possible but unlikely.  The collins case appeared on the conference distribution list for a 3rd time today.  I'll stick with a prediction of Yes on the ACA (split circuits and cleanest approach) and No on the constitutional (to avoid dangling calabria's status for a year plus). 

 

Good luck everyone.

[Guest cherzeca]

Is it easier for SCOTUS to do nothing this term and see if a settlement takes place?

 

Possible but unlikely.  The collins case appeared on the conference distribution list for a 3rd time today.  I'll stick with a prediction of Yes on the ACA (split circuits and cleanest approach) and No on the constitutional (to avoid dangling calabria's status for a year plus). 

 

Good luck everyone.

 

GVR on const; no action on APA.  what you betting IG?

[SnarkyPuppy]

Cert granted

[DRValue]

So we buy the inevitable dips right?

[investorG]

Is it easier for SCOTUS to do nothing this term and see if a settlement takes place?

 

Possible but unlikely.  The collins case appeared on the conference distribution list for a 3rd time today.  I'll stick with a prediction of Yes on the ACA (split circuits and cleanest approach) and No on the constitutional (to avoid dangling calabria's status for a year plus). 

 

Good luck everyone.

 

GVR on const; no action on APA.  what you betting IG?

 

Is this case even settle-able?  I could see the APA side settling if they had denied on the constitutional side but now that they have granted on both does it have to go thru to verdict next june so that the SC can rule on if the head of the FHFA is fire-able at will?  or could they settle the APA claim and still go thru with the constitutional side?

 

 

[Midas79]

@cherzeca

 

Great analysis of the Supreme Court proceedings, kudos.

 

I do disagree with one thing you said on Tim Howard's blog: "and maybe, without a severability provision in HERA to hang FHFA’s hat on, the existence of the fhfa itself."

 

From my read of the SCOTUS Selia opinion, Roberts justified his change of Dodd-Frank's CFPB director removal clause even had there been no severability clause. This is the bulk of the discussion on pages 33-35. If the existence of a severability clause is all he needed, I don't see why he would have included such an in-depth discussion at all. The main quote I use to justify my argument is on page 33:

 

In Free Enterprise Fund, we found a set of unconstitutional removal provisions severable even in the absence of an express severability clause because the surviving provisions were capable of “functioning independently” and “nothing in the statute’s text or historical context [made] it evident that Congress, faced with the limitations imposed by the Constitution, would have preferred no Board at all to a Board whose members are removable at will.” 561 U. S., at 509 (internal quotation marks omitted).

So too here.

 

While Dodd-Frank does have a severability clause, the statute in Free Enterprise didn't, and SCOTUS decided it was able to sever parts of it anyway. I also don't see how any parts of HERA necessarily fall (other than 4511(a)) if "for cause" removal is changed to "at will". I could be missing some, but I don't think they would cause the whole structure of HERA or FHFA to collapse, or invalidate any previous decisions made by then-Directors or Acting Directors.

[Guest cherzeca]

@cherzeca

 

Great analysis of the Supreme Court proceedings, kudos.

 

I do disagree with one thing you said on Tim Howard's blog: "and maybe, without a severability provision in HERA to hang FHFA’s hat on, the existence of the fhfa itself."

 

From my read of the SCOTUS Selia opinion, Roberts justified his change of Dodd-Frank's CFPB director removal clause even had there been no severability clause. This is the bulk of the discussion on pages 33-35. If the existence of a severability clause is all he needed, I don't see why he would have included such an in-depth discussion at all. The main quote I use to justify my argument is on page 33:

 

In Free Enterprise Fund, we found a set of unconstitutional removal provisions severable even in the absence of an express severability clause because the surviving provisions were capable of “functioning independently” and “nothing in the statute’s text or historical context [made] it evident that Congress, faced with the limitations imposed by the Constitution, would have preferred no Board at all to a Board whose members are removable at will.” 561 U. S., at 509 (internal quotation marks omitted).

So too here.

 

While Dodd-Frank does have a severability clause, the statute in Free Enterprise didn't, and SCOTUS decided it was able to sever parts of it anyway. I also don't see how any parts of HERA necessarily fall (other than 4511(a)) if "for cause" removal is changed to "at will". I could be missing some, but I don't think they would cause the whole structure of HERA or FHFA to collapse, or invalidate any previous decisions made by then-Directors or Acting Directors.

 

well stated midas.  I dont want to put too much emphasis on the lack of a sevarability provision, but it has to be something Calabria should be giving weight to...or that Milbank would have to advise him about, in giving good complete legal counsel.

 

I think it could be argued by Ps in front of Scotus that there is a big difference between the importance of the independence of the directors at FHFA and at CFPB.  there is a lot that CFPB does by way of investigations and adjudication that goes on below the director level. at FHFA, the director is much more prominent in his role vis a vis the entire agency.  so given the greater centrality of the FHFA director to the operation of the HERA statute, the lack of a severability provision is more evidence of the importance of his independence.

 

I will have a new SA article coming out soon where in part I speculate why scotus granted cert.  perhaps the four dissenting judges wanted to try to distinguish FHFA from CFPB.  hard to make that work. perhaps four judges in the majority wanted to expand upon Seila somehow...maybe Collins will give them a chance to just grant backward relief and say about severability, "we can't really tell", and leave it undecided.

 

 

[Guest cherzeca]

https://seekingalpha.com/article/4357864-boom-scotus-granting-cert-on-collins-claims-and-seila-scotus-decision-is-no-longer-when-for

 

[locutusoftexas]

https://seekingalpha.com/article/4357864-boom-scotus-granting-cert-on-collins-claims-and-seila-scotus-decision-is-no-longer-when-for

Thank you for your very helpful SA article (above) and for your insights over the years.