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

[Guest cherzeca]

Plantifs...below

 

https://www.scribd.com/doc/310127483/Boies-Brief-on-U-S-C-4623

 

Um, footnote 13 & 14 from the Class Plaintiffs' brief seem dispositive.

 

fn. 13 At oral argument, Class Plaintiffs’ counsel was unable to answer the Court’s question whether we raised the constitutional avoidance doctrine in our opening brief. We did raise it in our opening brief. Doc.1602879 at 28-29. It was raised with respect to Defendants’ argument that our derivative claims are barred. It was not raised with respect to FHFA’s argument that § 4617 bars direct claims because FHFA did not make that argument in the District Court, which is why the District Court never addressed it, instead addressing plaintiffs’ direct claims on the merits. JA347-56. After FHFA made that new argument, we rebutted it in reply, including with reference to the constitutional avoidance doctrine. Doc.1602880 at 5.

 

fn. 14 At argument, Defendants’ counsel made no effort to defend the District Court’s reasoning in dismissing our direct breach of contract claims, and never responded to our arguments showing the flaws in that decision and the merits of our claims.

 

So, if FHFA conceded that §4617 does not bar direct claims, and Ginsburg + Brown and/or Millett decide that a receivership (in everything but name) has occurred, then that's the end of the game right there. The only way Lamberth avoided this was to say that no liquidation had begun. (In the back of my mind, though, there's a nagging question about whether an appeals court can make that seemingly factual and/or fact-specific determination...)

 

Not sure what you mean by finding that a receivership had occurred. You suggesting that court will order receivership remedies?

[Steve_Berk]

I agree with this--I wish Olson had done a bit better job with this argument when Ginsburg was pressing him about the record and the intent point. I think Ginsburg at that point was making it seem like a complete record (further facts) could show a permissible intent, therefore undermining the argument to reverse instead of remanding for a full record. Olson does make the argument that he's got enough on the record to demonstrate that the conservator was not acting towards bringing the entity to a sound and solvent state, but he comes across like he's conceding that a full record could prove anything so let's get that first.

 

I still haven't completely sorted out a bunch of the arguments that Millet made about sound and solvent. She seems to sometimes concede in the premise of her questions that you could never reach that state if you're taking away all profits indefinitely; but then she also seems to get hung up on the point that the conservator is permitted to do whatever it needs to in order to act in the interests of the agency.

 

I've been running through decision scenarios in my mind and while I think there are many possible favorable outcomes that do not require further fact-finding I tend to think that would be this panel's preference (certainly if they try to get unanimity). The reason why there may be a willingness to reverse though is the difficulty of coming up with a standard of appropriate conservator conduct, which millett asked about 5 times. If g and b just conclude the conservator can't get to sound and solvent as a logical matter with NWS then what facts would be necessary beyond that?

[muscleman]

Plantifs...below

 

https://www.scribd.com/doc/310127483/Boies-Brief-on-U-S-C-4623

 

Um, footnote 13 & 14 from the Class Plaintiffs' brief seem dispositive.

 

fn. 13 At oral argument, Class Plaintiffs’ counsel was unable to answer the Court’s question whether we raised the constitutional avoidance doctrine in our opening brief. We did raise it in our opening brief. Doc.1602879 at 28-29. It was raised with respect to Defendants’ argument that our derivative claims are barred. It was not raised with respect to FHFA’s argument that § 4617 bars direct claims because FHFA did not make that argument in the District Court, which is why the District Court never addressed it, instead addressing plaintiffs’ direct claims on the merits. JA347-56. After FHFA made that new argument, we rebutted it in reply, including with reference to the constitutional avoidance doctrine. Doc.1602880 at 5.

 

fn. 14 At argument, Defendants’ counsel made no effort to defend the District Court’s reasoning in dismissing our direct breach of contract claims, and never responded to our arguments showing the flaws in that decision and the merits of our claims.

 

So, if FHFA conceded that §4617 does not bar direct claims, and Ginsburg + Brown and/or Millett decide that a receivership (in everything but name) has occurred, then that's the end of the game right there. The only way Lamberth avoided this was to say that no liquidation had begun. (In the back of my mind, though, there's a nagging question about whether an appeals court can make that seemingly factual and/or fact-specific determination...)

 

If receivership did occur legally, then there is still a question of how much money should go to junior preferred stock holders. In receivership, the senior bond holder can be paid at most up to principal plus interest. I don't think the senior bond holder can claim all assets regardless of the amount of its principal.

In this sense, the NWS is still illegal as it essentially gives all assets to the senior debtor.

 

So in this sense, common shareholders may be wiped out and junior preferreds may still have a shoot in the court.

[merkhet]

Plantifs...below

 

https://www.scribd.com/doc/310127483/Boies-Brief-on-U-S-C-4623

 

Um, footnote 13 & 14 from the Class Plaintiffs' brief seem dispositive.

 

fn. 13 At oral argument, Class Plaintiffs’ counsel was unable to answer the Court’s question whether we raised the constitutional avoidance doctrine in our opening brief. We did raise it in our opening brief. Doc.1602879 at 28-29. It was raised with respect to Defendants’ argument that our derivative claims are barred. It was not raised with respect to FHFA’s argument that § 4617 bars direct claims because FHFA did not make that argument in the District Court, which is why the District Court never addressed it, instead addressing plaintiffs’ direct claims on the merits. JA347-56. After FHFA made that new argument, we rebutted it in reply, including with reference to the constitutional avoidance doctrine. Doc.1602880 at 5.

 

fn. 14 At argument, Defendants’ counsel made no effort to defend the District Court’s reasoning in dismissing our direct breach of contract claims, and never responded to our arguments showing the flaws in that decision and the merits of our claims.

 

So, if FHFA conceded that §4617 does not bar direct claims, and Ginsburg + Brown and/or Millett decide that a receivership (in everything but name) has occurred, then that's the end of the game right there. The only way Lamberth avoided this was to say that no liquidation had begun. (In the back of my mind, though, there's a nagging question about whether an appeals court can make that seemingly factual and/or fact-specific determination...)

 

Not sure what you mean by finding that a receivership had occurred. You suggesting that court will order receivership remedies?

 

IIRC, Lamberth said that there was no liquidation and therefore no breach of K on the junior preferreds. However, if the appeals court decides a liquidation has already begun, without the benefit of receivership protections, then it would seem like breach of K is then in play.

[Guest cherzeca]

I agree with this--I wish Olson had done a bit better job with this argument when Ginsburg was pressing him about the record and the intent point. I think Ginsburg at that point was making it seem like a complete record (further facts) could show a permissible intent, therefore undermining the argument to reverse instead of remanding for a full record. Olson does make the argument that he's got enough on the record to demonstrate that the conservator was not acting towards bringing the entity to a sound and solvent state, but he comes across like he's conceding that a full record could prove anything so let's get that first.

 

I still haven't completely sorted out a bunch of the arguments that Millet made about sound and solvent. She seems to sometimes concede in the premise of her questions that you could never reach that state if you're taking away all profits indefinitely; but then she also seems to get hung up on the point that the conservator is permitted to do whatever it needs to in order to act in the interests of the agency.

 

I've been running through decision scenarios in my mind and while I think there are many possible favorable outcomes that do not require further fact-finding I tend to think that would be this panel's preference (certainly if they try to get unanimity). The reason why there may be a willingness to reverse though is the difficulty of coming up with a standard of appropriate conservator conduct, which millett asked about 5 times. If g and b just conclude the conservator can't get to sound and solvent as a logical matter with NWS then what facts would be necessary beyond that?

 

Thanks for input berk. You know class P's support brief re 4263 does well to distinguish between director and agency. When best interest of agency is used in statute why do people assume that means treasury or the govt generally (or taxpayer) and not simply FHFA?

[Guest cherzeca]

Now "or agency" was in fdic statute and fdic is funder under fdia but in Hera reference to the non-funder "agency" is unambiguous

[rros]

I agree with this--I wish Olson had done a bit better job with this argument when Ginsburg was pressing him about the record and the intent point. I think Ginsburg at that point was making it seem like a complete record (further facts) could show a permissible intent, therefore undermining the argument to reverse instead of remanding for a full record. Olson does make the argument that he's got enough on the record to demonstrate that the conservator was not acting towards bringing the entity to a sound and solvent state, but he comes across like he's conceding that a full record could prove anything so let's get that first.

 

I still haven't completely sorted out a bunch of the arguments that Millet made about sound and solvent. She seems to sometimes concede in the premise of her questions that you could never reach that state if you're taking away all profits indefinitely; but then she also seems to get hung up on the point that the conservator is permitted to do whatever it needs to in order to act in the interests of the agency.

 

// to do whatever it needs to in order to act in the interests of the agency.

 

whatever it needs within the confines of conservatorship or receivership.

 

Wouldn't that leave "limbo-ship" out of the picture? It is not anything-goes as she would like to believe. More like black and white and if restoring the companies back to health is not possible, then liquidation must follow.

 

According to Krimminger the word "Agency" denotes either conservatorship or receivership. So any and all actions must respond to the question: was the action within the precepts of a conservator or receiver?

[Guest cherzeca]

Also best interest of agency would make sense only when agency is receiver but not as conservator since no fiduciary duty is owed any longer to GSEs once move is made to receivership

[hardincap]

(In the back of my mind, though, there's a nagging question about whether an appeals court can make that seemingly factual and/or fact-specific determination...)

 

It seems a low bar for the judges to agree that the nws prevents fnma from becoming sound and solvent (g tipped his hand on this one). But does it necessarily follow from a statutory standpoint that they're in liquidation, and hence in receivership? i think millett was struggling with this and I'm not clear on it either

[rros]

(In the back of my mind, though, there's a nagging question about whether an appeals court can make that seemingly factual and/or fact-specific determination...)

 

It seems a low bar for the judges to agree that the nws prevents fnma from becoming sound and solvent (g tipped his hand on this one). But does it necessarily follow from a statutory standpoint that they're in liquidation, and hence in receivership? i think millett was struggling with this and I'm not clear on it either

 

J. Millet tried to find some comfort of mind explaining it as a "moving" state. In route, but not there yet. Ginsburg, in turn, tried a variation of Lamberth by explaining it was a shrinking prior to a full wind-down.

 

If judges have such a hard time trying to understand what the government did, it means they clearly never followed the black and white, crystal-clear statute. Either restore, or in the alternative liquidate. There is a huge Grand Canyon in the middle.

[Guest cherzeca]

(In the back of my mind, though, there's a nagging question about whether an appeals court can make that seemingly factual and/or fact-specific determination...)

 

It seems a low bar for the judges to agree that the nws prevents fnma from becoming sound and solvent (g tipped his hand on this one). But does it necessarily follow from a statutory standpoint that they're in liquidation, and hence in receivership? i think millett was struggling with this and I'm not clear on it either

 

You ask good questions hardincap. As far as I can see it is enough for nws to be incompatible with conservatorship. Not necessary to cross into receivership if it is invalid on its face as a conservator act

[hardincap]

You ask good questions hardincap. As far as I can see it is enough for nws to be incompatible with conservatorship. Not necessary to cross into receivership if it is invalid on its face as a conservator act

 

That's my sense as well. So then the question is, to follow millets line of thinking, what is the remedy? is incompatibility with conservatorship enough to order it to be vacated, or is there some other superficial remedy that goes against the plaintiffs? I suspect there are nuances here that I don't fully understand as a non lawyer. Also, have to look back at the transcript but I got the impression that Olson could have been more clear when she asked him that question

[merkhet]

I'm doing a read through of the transcript right now, and it crossed my mind that we have to be careful about the transcript. You lose a lot of the nuance/tone from just reading the transcript, and the mind naturally wants to backfill the nuance/tone favorably towards whatever biases you have.

[hardincap]

I'm doing a read through of the transcript right now, and it crossed my mind that we have to be careful about the transcript. You lose a lot of the nuance/tone from just reading the transcript, and the mind naturally wants to backfill the nuance/tone favorably towards whatever biases you have.

 

Goes the other way as well - one interprets the tone in a manner conforming to his biases

[merkhet]

I'm doing a read through of the transcript right now, and it crossed my mind that we have to be careful about the transcript. You lose a lot of the nuance/tone from just reading the transcript, and the mind naturally wants to backfill the nuance/tone favorably towards whatever biases you have.

 

Goes the other way as well - one interprets the tone in a manner conforming to his biases

 

I think it's a little harder to interpret tone in a way that it wasn't meant versus doing so reading just the words. While biases play into all data interpretation, I think the danger is more acute with the transcript.

[Steve_Berk]

I've been doing background reading and went back to the language of the statute. There's nothing there that directly supports this transitional conservator who is gearing the institution towards receivership. In fact, when you look at the statute, 4617 lays out pretty clearly the powers of the conservator, as distinguishable from receiver. And the powers of the conservator has the sound and solvent language in it.

 

Although the one thing that gives me pause is that I am looking at the statute and 4617 (b) (2) (D) talks about the power of the conservator and 4617 (b) (2) (E) says "ADDITIONAL" powers as receiver.  Why is the word "additional" there and has this been addressed? I would like for the statute to mean that you have to either act as a conservator or a receiver, and not both. But if the "additional powers" language means you can act as both, then the court could rule that there was just a notice problem. Am I missing something here? I hope so.

 

(In the back of my mind, though, there's a nagging question about whether an appeals court can make that seemingly factual and/or fact-specific determination...)

 

It seems a low bar for the judges to agree that the nws prevents fnma from becoming sound and solvent (g tipped his hand on this one). But does it necessarily follow from a statutory standpoint that they're in liquidation, and hence in receivership? i think millett was struggling with this and I'm not clear on it either

 

You ask good questions hardincap. As far as I can see it is enough for nws to be incompatible with conservatorship. Not necessary to cross into receivership if it is invalid on its face as a conservator act

[hardincap]

but even if it was "just a failure of notice", there's no debate that its cost investors billions. Goes back to, what's the remedy?

[merkhet]

@Steve_Berk & @hardincap, the section detailing additional powers is there because the conservator does not have the ability to liquidate the companies. Even FHFA & Treasury would accede to that limitation. As for the issue of notice, it's not a situation where notice might cure the issue because there weren't any adverse effects to the shareholders -- the adverse effect is that under a receivership, the shareholders would have various statutory protections (similar to bankruptcy court) under which they could have made claims on their liquidation preference, etc. Currently, there is not framework under which that can happen in a conservatorship, which is why Olson calls it a shell game.

 

In any case, having finished my review of the transcript, my sense is still that the breach of K claim is a very clear claim on which the court can rule and on which Stern didn't put up much of a fight. It's not barred by 4617(f) because that would bring up constitutional avoidance issues, and it has nothing to do with the designation of capital requirements under 4623. The breach of implied convenant is a little harder because it's less clear that they directly brought up the issue and the damages are harder to ascertain for common shareholders.

 

I know people have brought up the Treasury consent issue, and I'm not sure if this is explained as well through the transcript and/or whether the judges view it his way -- but my sense is that Hume was trying to say that the Treasury consent was not the thing that prevented them from getting either dividends or liquidation preference -- that was the Third Amendment. Now, pre-NWS if Treasury wanted to receive dividends above or in excess of their 10%, then they would have to exercise their common warrants for a nominal amount and share in the amount that remained after the senior preferred's 10% and the junior preferrer's X% with the common shareholders 80/20. But it would have been impossible for Treasury to get more than the 10% unless they agreed FIRST to pay out the junior preferreds -- because they wouldn't get the residual from their 80% common otherwise.

[deadspace]

Re Ugoletti

 

In the audio Ted Olson mentions Ugoletti as one individual who also saw that the companies were turning profitable.  Im not sure if I am missing something here or if this is just referring to transcripts which are not public.  I thought Ugoletti testified and signed off that they did not anticipate any profits nor did they anticipate the reversal of tax assets.  If thats the case then why was he mentioned by Olson as one of the individuals who DID see the situation turning positive?

[hardincap]

my sense is still that the breach of K claim is a very clear claim on which the court can rule and on which Stern didn't put up much of a fight. It's not barred by 4617(f) because that would bring up constitutional avoidance issues, and it has nothing to do with the designation of capital requirements under 4623. 

 

Is it clear that nws constitutes a liquidation though? Doesn't the breach of k claim depend on this?

 

In fact millett at one point states that liquidation hasn't started. And Stern was adamant the hasn't been any liquidation

[Guest cherzeca]

my sense is still that the breach of K claim is a very clear claim on which the court can rule and on which Stern didn't put up much of a fight. It's not barred by 4617(f) because that would bring up constitutional avoidance issues, and it has nothing to do with the designation of capital requirements under 4623. 

 

Is it clear that nws constitutes a liquidation though? Doesn't the breach of k claim depend on this?

 

In fact millett at one point states that liquidation hasn't started. And Stern was adamant the hasn't been any liquidation

 

App ct doesn't have to decide K breach claim on merits. Only hold that it is a valid claim that shouldn't have been dismissed. Which brings me to another point. We do not have judges versed in Corp or fin law but rather admin law. Which is why they wanted to talk about the APA claims. I think they focus on what HERA means i.e. What a conservator is and does

[doughishere]

Barron's Picked up Tim Pagliara.

 

Making Active Investing Work in a Passive Age

http://www.barrons.com/articles/making-active-investing-work-in-a-passive-age-1461387040

 

 

Value investing is such a simple concept that most people don't believe it cuz.....it's that easy.

[rros]

I would like for the statute to mean that you have to either act as a conservator or a receiver, and not both. But if the "additional powers" language means you can act as both,...

 

It is either / or, not both.

 

12 US Code 4617 -

(4)

(D) Receivership terminates conservatorship.

The appointment of the Agency as receiver of a regulated entity under this section shall immediately terminate any conservatorship established for the regulated entity under this chapter.

 

But also, specific scenarios should be present for determining receivership. Some of these scenarios (critical undercapitalization) have been frozen by the regulator via 4623 so the regulator can't deem the companies undercapitalized.

 

(3) Grounds for discretionary appointment of conservator or receiver

© Unsafe or unsound condition

An unsafe or unsound condition to transact business.

 

Remember, Kayne said re 4623 that Treasury's commitment in lieu of companies' capital made them sound and solvent. So if sound and solvent is equivalent to safe and sound then FHFA must terminate the conservatorship. Laughable.

 

Receivership is what happens once Conservatorship fails (companies can't be recapitalized). But you can't use Conservatorship to drive the companies to the ground and therefore justify a Receivership, neither force an unnatural depletion of capital. Anyway you look at the statute you are not going to find any justification for what the government has done. Unless you are Lamberth.

 

In this conservatorship saga there hasn't even been an attempt at restoration of capital, as outlined by law.

(12 U.S. Code § 4622 - Capital restoration plans.) Therefore, it is inconceivable that the regulator will receive the companies without a shot at trying to rebuild capital or explaining why this can't be done.

 

--

My layman view... what is wrong are these words "while in conservatorship" from Lockhart's action in 08'. Because it is precisely while in conservatorship that capital must be given a shot at being rebuilt. He issued a resolution that is contradictory in nature and both DeMarco and Watt followed suit. Court should untangle that original action first -as contrary to existing laws- and the rest will fall into place.

[merkhet]

Investors Unite Amicus Curiae on 4623 & Olson's Institutional Plaintiffs' Supplemental Brief on 4623

2016-04-22_Investors_Unite_Supplemental_Brief_of_Amicus_Curiae_on_4623.pdf

2016-04-22_Perry_Institutional_Plaintiffs_Supplemental_Brief_on_4623.pdf

[Guest cherzeca]

Investors Unite Amicus Curiae on 4623 & Olson's Institutional Plaintiffs' Supplemental Brief on 4623

 

I am still unclear of Genesis of argument. Isn't it that court asked parties to address it at orals at last moment?  If so it is hard for anyone to criticize this panel if it rules against govt given court went out of its way to raise a possible jurisdictional bar.

 

Having said that it seems the language and structure of stat heavily favors Ps.