[00:00:02] Speaker 03:
The United States Court of Appeals for the Federal Circuit is now open and in session.

[00:00:06] Speaker 03:
God save the United States, accountable court.

[00:00:12] Speaker 07:
We are hearing an echo again.

[00:00:16] Speaker 07:
But I will proceed and for the record, recite the cases we're hearing.

[00:00:23] Speaker 07:
Fair Home Funds versus United States 20-1912, Owl Creek Asia versus United States 20-1934, Arrowwood Indemnity versus United States 20-2020, and Catch Your Pally versus United States 20-2037.

[00:00:45] Speaker 07:
Mr. Bennett, please proceed.

[00:00:50] Speaker 04:
Thank you, Your Honor.

[00:00:51] Speaker 04:
For the record, it's Bruce Bennett of Jones Day on behalf of the Owl Creek plaintiffs.

[00:00:56] Speaker 04:
May it please the Court.

[00:00:57] Speaker 04:
The Court of Claims decision that it had jurisdiction over this case should be affirmed.

[00:01:02] Speaker 04:
The main reason is found in two parts of the Supreme Court's recent decision in Collins.

[00:01:08] Speaker 04:
It's not about whether the FHFA or the agency, I will use those terms interchangeably, is the government.

[00:01:14] Speaker 04:
It clearly is.

[00:01:16] Speaker 04:
In Collins, the majority opinion holds that it is the government and supplemental reply essentially concedes the same.

[00:01:23] Speaker 04:
The question is, does FHFA shed its governmental character when it becomes a conservator for a GSE?

[00:01:30] Speaker 04:
That issue was actually squarely decided in Collins as a matter of construction of the Recovery Act.

[00:01:37] Speaker 04:
It was addressed in two distinct parts of the opinion.

[00:01:40] Speaker 04:
First, in the

[00:01:42] Speaker 04:
beginning of the case, in the beginning of the opinion, in APA part of the opinion, the Supreme Court held that it did not have to decide whether the network sweep was in the best interests of the companies because the FHFA as conservator was authorized to take actions that were in the best interests of the agency, whether or not the actions were in the best interests of the companies.

[00:02:07] Speaker 04:
This part of the Supreme Court's opinion isn't mentioned in the government supplemental papers.

[00:02:12] Speaker 04:
because Collins reflects the argument that the agency's adoption of the third amendment can be characterized as a purely commercial activity.

[00:02:20] Speaker 04:
The court said, when the FHFA access conservator may aim to regulate the regulated entity in a way that while not in the best interest of the regulated entity is beneficial to the agency and by extension to the public it serves.

[00:02:35] Speaker 09:
This distinctive- Council, this is Judge O'Malley.

[00:02:39] Speaker 09:
Even if we agree with you that Collins discussed the fact that the FHFA as conservative would, for certain purposes, be acting as the government, that doesn't foreclose the conclusion that for other purposes it might not be, correct?

[00:03:00] Speaker 04:
Well, except that when it was deciding the APA case, Your Honor,

[00:03:03] Speaker 04:
the court actually decided that the government was, excuse me, that the FHFA was exercising governmental or executive power in connection with the Third Amendment decision.

[00:03:15] Speaker 09:
That is why... I'm saying that the concern that the government has raised that, you know, when the conservator is really just acting as a market participant, that that might impact

[00:03:28] Speaker 09:
the ability to act on behalf of the entities.

[00:03:31] Speaker 09:
And as I understand your argument, you don't go that far, correct?

[00:03:35] Speaker 04:
Oh, I'm sorry I didn't understand your question.

[00:03:37] Speaker 04:
You're correct, Your Honor.

[00:03:38] Speaker 04:
We do not go that far.

[00:03:40] Speaker 04:
The FHFA, when it's enforcing mortgages, for example, it's not going to be considered to be exercising governmental power unless it's doing something beyond the scope of those contracts.

[00:03:54] Speaker 04:
I think the quintessential case

[00:03:56] Speaker 04:
for commercial action is when the FHFA as conservator inherits a pre-conservatorship contract relationship and is abiding by it.

[00:04:09] Speaker 04:
So just as the court says it twice, because it also goes on to say the Recovery Act therefore authorized the agency to choose this option,

[00:04:17] Speaker 04:
The option it's referring to is, again, it's a Fifth Amendment transaction.

[00:04:22] Speaker 04:
The option was an option which was not necessarily in the best interest of the entities or their shareholders, but was in the best interest of the public in the view of the FHFA.

[00:04:31] Speaker 04:
And that's why there was no review under the APA.

[00:04:36] Speaker 09:
So, Council, let me move on to another question, though.

[00:04:39] Speaker 09:
So, there's a lot of things that seem to be addressed in Collins.

[00:04:43] Speaker 09:
So, assuming we agree with you that

[00:04:47] Speaker 09:
The conservator is acting as the government for purposes of court of federal claims jurisdiction as it relates to the Third Amendment.

[00:04:56] Speaker 09:
As I understand your takings claims and your illegal exactions claims, they're sort of two sides to a coin, right?

[00:05:04] Speaker 09:
If the activity is unauthorized, then it's an illegal exaction, but if it's a different

[00:05:12] Speaker 09:
authorized government action, then you're simply asserting it as a takings.

[00:05:16] Speaker 09:
Is that right?

[00:05:17] Speaker 04:
That is exactly correct.

[00:05:20] Speaker 09:
But doesn't Collins say that the third amendment was authorized, both statutorily and to the extent there is any reference to an Appointment Clause issue, that it was also legal because it was entered into by the acting director?

[00:05:40] Speaker 04:
Yes, Your Honor.

[00:05:41] Speaker 04:
We believe this is a takings case under Collins as opposed to an illegal ex-action case.

[00:05:46] Speaker 04:
They're both sides of the same coin in our view.

[00:05:48] Speaker 09:
Okay.

[00:05:49] Speaker 09:
I just want to make sure we're trying to figure out where we are with all this.

[00:05:53] Speaker ?:
Okay.

[00:05:55] Speaker 10:
So can I ask you something?

[00:05:56] Speaker 10:
This is Judge Crouse.

[00:05:58] Speaker 10:
Can I just take straight to the takings case since that's what we're talking about?

[00:06:02] Speaker 10:
So let me understand the takings that you've alleged.

[00:06:06] Speaker 10:
Can you hear me?

[00:06:08] Speaker 04:
Yes, I can hear you.

[00:06:09] Speaker 04:
And this is a subject that Mr. Hume is going to cover, the person immediately following me.

[00:06:15] Speaker 04:
And if the court wants to move on to that, I can save my time and let him proceed.

[00:06:21] Speaker 10:
Well, I'd ask Judge Lurie to make that decision.

[00:06:24] Speaker 10:
I don't know if others... What other issues are you in charge of?

[00:06:30] Speaker 04:
I'm about jurisdiction.

[00:06:33] Speaker 07:
Well, I think if counsel are arguing jointly, they ought to be all prepared to

[00:06:38] Speaker 07:
to address each issue.

[00:06:40] Speaker 07:
But if Judge Poster is prepared to hold her question for Mr. Hume, Mr. Bennett should proceed with what he's prepared to argue on.

[00:06:50] Speaker 07:
Sure.

[00:06:50] Speaker 07:
Happy to do that.

[00:06:51] Speaker 07:
Thank you.

[00:06:52] Speaker 09:
Can I ask you then a basic question about jurisdiction as it relates to the contract claims?

[00:07:01] Speaker 09:
As I understand, those are being asserted only as direct claims by everyone other than Fairholme, correct?

[00:07:09] Speaker 04:
That's my understanding as well.

[00:07:11] Speaker 09:
Okay.

[00:07:12] Speaker 09:
And putting aside preclusion issues for a minute, it might be correct that the Court of Federal Claims sort of just, at least to the extent it dismissed, it should have been dismissing for failure to state a claim as it relates to the direct claims and the

[00:07:30] Speaker 09:
and the claim that there are third-party beneficiaries, because of course the Court of Federal Claims has jurisdiction over contract claims against the government.

[00:07:41] Speaker 04:
That is our position as well, Your Honor.

[00:07:43] Speaker 09:
Okay.

[00:07:44] Speaker 09:
All right.

[00:07:45] Speaker 09:
Then what about preclusion?

[00:07:46] Speaker 09:
I mean, didn't, at least as it relates to Fairholme and there are other, I think, of the appellants that are implicated, but why isn't there preclusive effect, at least as it relates to the non-constitutional claims,

[00:08:01] Speaker 09:
from the Perry decision?

[00:08:04] Speaker 04:
Your Honor, all of Jones Day clients were not in the Perry case.

[00:08:08] Speaker 04:
So there is no preclusion as to us.

[00:08:11] Speaker 09:
Well, but when you're talking about it, it was a derivative action that was at least brought.

[00:08:17] Speaker 09:
It wasn't only a direct action, right?

[00:08:21] Speaker 04:
Well, I don't think that the court ever considered the merits of the derivative action, which would have been required for collateral estoppel effect.

[00:08:33] Speaker 04:
And we weren't parties, so there could not be a rest of the Cato effect.

[00:08:37] Speaker 09:
Well, I'm talking about issue preclusion, and it's different.

[00:08:41] Speaker 09:
It's not the same as a class action.

[00:08:45] Speaker 09:
When it's derivative, it's been brought on behalf of the corporation.

[00:08:50] Speaker 09:
And so it would still be the corporation who is the party, correct?

[00:08:56] Speaker 04:
The corporation would be the party, but I don't think that there was any decisions on the merits that affected the claims there was for this year.

[00:09:03] Speaker 09:
Okay, but they did consider HERA, correct?

[00:09:07] Speaker 09:
And say that all claims must be derivative and all derivative claims are swept into the succession clause.

[00:09:17] Speaker 04:
Some specific claims were dealt with under the succession clause, but I don't believe that the derivative claims that were asserted here were involved in that case.

[00:09:25] Speaker 04:
And there are differences, as the Supreme Court recognized also as to which claims would be subject to the succession clause and which claims wouldn't be.

[00:09:36] Speaker 09:
Okay, so what do you think the Supreme Court said about which claims are subject to the succession clause and which are not?

[00:09:44] Speaker 04:
Well, it only considered one specific claim.

[00:09:47] Speaker 04:
It considered whether or not the succession clause was applicable to the claim asserted in the Fifth Circuit relating to the APA claim.

[00:09:58] Speaker 04:
That was the only one before it in that context.

[00:10:04] Speaker 09:
I don't understand what you're saying that the Supreme Court actually differentiated between that and other claims.

[00:10:10] Speaker 09:
It just didn't address other claims, right?

[00:10:13] Speaker 04:
It didn't address... That's probably a better way to say it.

[00:10:15] Speaker 04:
It did not address other claims and it said that there were... You know, it didn't sweep all... It did make pretty clear that it would not take all of them because it didn't take the one involved in front of the Supreme Court either.

[00:10:26] Speaker 10:
I'm sorry.

[00:10:27] Speaker 10:
I'm not clear on that point.

[00:10:28] Speaker 10:
Could you point us to what you're talking about, Colin?

[00:10:32] Speaker 10:
This is Judge Croft.

[00:10:34] Speaker 04:
Yeah, there's a section of Collins that deals with the succession clause, and it's a long opinion.

[00:10:39] Speaker 04:
I'm not going to be able to find it within my time.

[00:10:41] Speaker 04:
But that section that specifically holds that the particular claim that the government asserted was subject to the succession clause was not.

[00:10:49] Speaker 04:
I'm sorry, it related to the appointments clause issue.

[00:10:54] Speaker 04:
So the Supreme Court, I think by what they did, there was no specific discussion of any... That's my time.

[00:11:02] Speaker 04:
There wasn't a specific discussion of any other claim, but it clearly admitted the possibility that some claims were not subject to the succession clause because that one wasn't.

[00:11:15] Speaker 07:
Judge Prost, does your question then answer?

[00:11:18] Speaker 10:
Yes.

[00:11:18] Speaker 10:
Yes, thank you.

[00:11:20] Speaker 07:
All right.

[00:11:22] Speaker 07:
Mr. Bennett, we'll save at least five minutes for you and hear from Mr. Field.

[00:11:30] Speaker 05:
Thank you, your honor, and may it please the court.

[00:11:32] Speaker 05:
This is Hamish Hume from Boyd Schiller Flexner for the Catchy Appalachian plaintiffs who are the class representatives for the class of shareholders.

[00:11:41] Speaker 05:
Your honors, I'm going to address the question of whether the takings claim is a direct claim or a derivative claim.

[00:11:48] Speaker 05:
We submit that the court or federal claims erred in holding that the takings claims of the shareholders were derivative and that this court should reverse.

[00:11:57] Speaker 10:
Okay, Mr. Chairman, before you get... Can I just ask you a threshold question about that?

[00:12:02] Speaker 10:
If we just agree with you and we find that the shareholders' claims were derivative, where does that leave the takings question?

[00:12:11] Speaker 05:
It leaves the takings question as a derivative claim, which the court said could proceed, was not barred by the succession clause.

[00:12:21] Speaker 05:
That is the issue raised by the government's cross-appeal.

[00:12:26] Speaker 10:
Which Mr. Barn was going to- That's the first Hartford, I guess.

[00:12:29] Speaker 10:
So let me ask you the second part.

[00:12:30] Speaker 10:
What if we disagree with what the Court of Federal Claims said in first Hartford?

[00:12:34] Speaker 10:
What if we find that the succession clause does apply?

[00:12:39] Speaker 10:
And their derivative claims, does that lie completely any takings arguments we have?

[00:12:47] Speaker 05:
So if I understand the question correctly, if this court holds that the takings claims by the shareholders are all derivative and not direct, and also holds that the derivative claims are barred by the succession clause and that this court's first Hartford decision does not apply for some reason, then the shareholders would be left with no claim, neither a direct claim nor a derivative claim.

[00:13:17] Speaker 05:
submit to Your Honors, and this wasn't raised in the briefing because it hasn't been right yet, that in that circumstance, the court ought to allow us to address the question, to brief the question of whether the exceptions to the third-party standing rule should apply.

[00:13:36] Speaker 05:
And those exceptions are addressed and summarized.

[00:13:40] Speaker 09:
Wasn't it briefed?

[00:13:41] Speaker 09:
It was definitely briefed below.

[00:13:42] Speaker 09:
You raised the Kowalski question, and it's at least mentioned in a couple of pages in the Fairholme brief, which is the only one that I think asserted the claim as a derivative claim, correct?

[00:13:56] Speaker 05:
Well, I think Fairholme is the only one on appeal who styled their claim as derivative.

[00:14:01] Speaker 05:
There were other plaintiffs who have been amicus here, the Fisher-Reed plaintiffs, who brought a derivative claim.

[00:14:08] Speaker 09:
But my point is... Why hasn't it been briefed?

[00:14:13] Speaker 09:
Why hasn't the opportunity to brief it been there?

[00:14:15] Speaker 09:
Because it was raised below and it got about a page and a half here.

[00:14:21] Speaker 09:
I mean, it has been briefed, correct?

[00:14:26] Speaker 05:
I don't believe it was briefed before this court because it wasn't right because the court below said that we did have a derivative claim.

[00:14:36] Speaker 05:
But in any event, that's where we would, in response to your question, if you hold that there are no direct claims and hold that the derivative claim is barred by the succession clause because first Hartford does not apply, then there would be no claim of any kind under the takings clause in this case.

[00:14:53] Speaker 10:
There would be nothing left unless you were to... Well, let me ask you, before we get to the... This is Judge Prestigian.

[00:14:57] Speaker 10:
Sorry to interrupt, but time is short.

[00:14:59] Speaker 10:
If we... Without getting to the succession clause, just on the point of whether or not these are derivative or direct claims, if we concluded they were derivative claims, what would be the property interest that the shareholders are asserting that would rise to the level of a taking?

[00:15:20] Speaker 10:
Because everything they're asserting is on behalf of the corporation, right?

[00:15:25] Speaker 05:
No.

[00:15:25] Speaker 05:
I'm glad you asked that question.

[00:15:27] Speaker 05:
And the question, Your Honor, I think should be in the opposite order, which is, what is the property interest?

[00:15:35] Speaker 10:
Well, I get to ask the question.

[00:15:36] Speaker 10:
You don't.

[00:15:36] Speaker 10:
I'm sorry.

[00:15:38] Speaker 05:
I apologize.

[00:15:41] Speaker 05:
If you ask if the claim is held to be derivative, what is the property interest?

[00:15:46] Speaker 05:
Yes.

[00:15:48] Speaker 05:
And then we would have to identify a property interest owned by the corporations, which would be the corporation's property interest in its network, in its assets.

[00:15:57] Speaker 05:
But that is not the property interest the shareholders have asserted in their takings claim.

[00:16:02] Speaker 05:
And we have brought a takings claim on behalf only of the property we own, the property right in our right to future dividends and distributions and liquidation.

[00:16:13] Speaker 05:
And that is property that the shareholders and the shareholders alone own.

[00:16:18] Speaker 05:
The corporations, the companies do not own those properties.

[00:16:21] Speaker 09:
Well, that seems to be completely inconsistent with your point that you'd like to argue that there should be exceptions to the ability to bring a third-party claim so that we would allow the derivative claim to go forward despite this exception.

[00:16:34] Speaker 05:
That's why we didn't argue that, because we don't think it is a derivative claim.

[00:16:38] Speaker 05:
We think it is a direct claim, and we argue for a direct claim.

[00:16:41] Speaker 09:
All I'm saying is...

[00:16:42] Speaker 09:
Are you arguing on behalf of the Fairholme plaintiffs, too?

[00:16:45] Speaker 05:
No.

[00:16:47] Speaker 05:
Mr. Barnes is arguing on that.

[00:16:49] Speaker 10:
Well, so there's nobody this morning that's arguing the takings issue with respect to the assertion in the Fairholme claims that there's a taking even if the claims are derivative?

[00:17:00] Speaker 10:
There's nobody here arguing that?

[00:17:02] Speaker 05:
Mr. Barnes is arguing that issue.

[00:17:05] Speaker 09:
Well, why don't you just tell us that he wasn't prepared to do that?

[00:17:11] Speaker 05:
No, that was Mr. Bennett.

[00:17:13] Speaker 05:
Mr. Barnes has not argued yet.

[00:17:16] Speaker 05:
Got it.

[00:17:18] Speaker 07:
Mr. Hume, please proceed.

[00:17:21] Speaker 05:
Thank you, Your Honor.

[00:17:22] Speaker 05:
Your Honor, I would like to emphasize the threshold point of our direct standing claim, which is that we are suing for the taking of a property right that the shareholders and they alone owned.

[00:17:35] Speaker 05:
That is the right to receive dividends and other distributions under various circumstances.

[00:17:40] Speaker 05:
The companies cannot bring that claim.

[00:17:42] Speaker 05:
and it therefore cannot be a derivative claim, because the companies never owned that property right.

[00:17:47] Speaker 05:
They never owned the property right that we, the shareholders, focus on.

[00:17:51] Speaker 05:
And as a matter of simple federal law, if we come to court and identify a property right and allege that it has been taken, we have standing to bring that claim.

[00:18:00] Speaker 09:
But isn't there a difference, as the government points out, between Article III standing and the ability to assert

[00:18:10] Speaker 09:
claims that would otherwise belong to a third party?

[00:18:13] Speaker 09:
I mean, it's the damage to the corporation that damages your receipt of dividends, correct?

[00:18:20] Speaker 05:
No.

[00:18:21] Speaker 05:
It is correct that Article 3 standing and prudential third party standing are two different threshold issues.

[00:18:29] Speaker 05:
But both are satisfied.

[00:18:31] Speaker 05:
Both are satisfied if we, the shareholders, identify a property interest that we and we alone owned, and we are suing for the taking of that property.

[00:18:40] Speaker 09:
There's a separate question.

[00:18:41] Speaker 09:
Did both Roberts and Perry reject that theory?

[00:18:47] Speaker 05:
No.

[00:18:47] Speaker 05:
Perry Capital squarely upheld it in the context of a breach of contract claim for the breach of the shareholder certificate contracts.

[00:18:57] Speaker 10:
Right, which we don't have here.

[00:18:59] Speaker 05:
Correct.

[00:19:00] Speaker 05:
But they said that was a direct claim.

[00:19:02] Speaker 09:
Right.

[00:19:03] Speaker 09:
And that's very different.

[00:19:05] Speaker 05:
It's not very different.

[00:19:06] Speaker 05:
My point is it's not different at all.

[00:19:10] Speaker 05:
The key thing here, Your Honor, is it's not a question of the merits of the kick-off claim.

[00:19:14] Speaker 05:
It's a question of who owns it.

[00:19:16] Speaker 05:
We owned a property right to dividend.

[00:19:18] Speaker 05:
And specifically, Your Honors, if I might, prior to the network sweep, the private shareholders owned a property right to receive a dividend whenever the U.S.

[00:19:29] Speaker 05:
Treasury received a dividend in excess of the 10% dividend on a senior preferred stock.

[00:19:35] Speaker 05:
That property right existed as a matter of black letter law

[00:19:40] Speaker 05:
based on the applicable shareholder agreements and the governing state law over the rights of shareholders.

[00:19:46] Speaker 09:
The question is not who, when you're talking about direct versus derivative, the question is not really who owns the interest, but about whether the injury is independent of the corporation's injury.

[00:20:00] Speaker 05:
Your Honor, I don't believe that is correct.

[00:20:03] Speaker 05:
And if there's one case I would really hope the court would read from Delaware law, it's

[00:20:09] Speaker 05:
NAF case, the NAF Holdings case, which addresses the kind of confusion that can arise when federal claims are brought or when the shareholders bring claims and the Thule test is applied without fully understanding what the Thule test really is.

[00:20:27] Speaker 05:
That was a case, the NAF Holdings, that the Second Circuit certified to the Delaware Supreme Court.

[00:20:33] Speaker 05:
The fact of that case was a corporation created two subsidiaries

[00:20:38] Speaker 05:
those two subsidiaries, so the corporation was the shareholder, if subsidiaries were going to acquire a big apparel company and then the shareholder... Where do you brief this case?

[00:20:49] Speaker 05:
This case is cited in our briefs, but I think it was not fully unpacked because what it says on pages 179 to 180 of the opinion is that the Thule and its progeny is not intended

[00:21:05] Speaker 05:
to determine every single time a shareholder has its own claim, whether that claim, because it causes injury, because it also is intertwined with injury to the company, is direct or derivative.

[00:21:17] Speaker 09:
Instead, the Delaware... Okay, let's say it wasn't really unpacked.

[00:21:20] Speaker 09:
Does that mean it wasn't really briefed?

[00:21:23] Speaker 05:
I don't think the point I'm making now was made with respect to NAF holdings.

[00:21:27] Speaker 05:
The point was made more generally that the Delaware case law

[00:21:32] Speaker 05:
on direct derivative focuses on the fiduciary duty claims brought by stockholders in context where it's very unclear whether the fiduciary duty is owed to the stockholders directly or only to the company.

[00:21:45] Speaker 05:
And therefore, it's confusing and has to be worked through in that case law whether the claim is direct or derivative.

[00:21:51] Speaker 10:
Well, I'm unclear.

[00:21:53] Speaker 10:
This is Judge Prost.

[00:21:54] Speaker 10:
I mean, I thought we were arguing that the complaint here, the charge here, is the transfer of net worth from the corporation to the Treasury, and that that's the gravamen of the takings claim.

[00:22:08] Speaker 10:
Now, you're saying you have a right to a... Let me finish the question, please.

[00:22:12] Speaker 10:
You're saying you have a right to receive a dividend payment

[00:22:16] Speaker 10:
And that's kind of your property right.

[00:22:18] Speaker 10:
But the dividend is predicated, the right to receive dividends, it's predicated on this net worth of the corporation, on the transfer of the net worth.

[00:22:30] Speaker 10:
That's the taking.

[00:22:32] Speaker 05:
Judge Post, I think you put your finger on the heart of the issue.

[00:22:36] Speaker 05:
If the case is framed as being solely about the requirements that the companies pay their entire net worth to the Treasury,

[00:22:46] Speaker 05:
It obviously looks like a claim that the companies would bring in the first instance.

[00:22:50] Speaker 10:
It doesn't have to be solely about, but if that's the gravamen of the complaint and the claim, it doesn't, solely is, I think, a too harsh a word, too stringent a word.

[00:23:00] Speaker 10:
I wasn't suggesting solely, but that really is the gravamen of the complaint, I think, on the takings end.

[00:23:06] Speaker 10:
And therefore, your dividend argument is subsidiary to that, because the dividends flow from all of this net worth transfer.

[00:23:21] Speaker 05:
Your Honor, we don't think it's subsidiary.

[00:23:22] Speaker 05:
We think the gravamen is that we had dividend rights that were completely nullified and transferred to the Treasury.

[00:23:28] Speaker 05:
That's the heart of the case, because those are our rights.

[00:23:32] Speaker 05:
The Treasury has been paid out $125 billion

[00:23:36] Speaker 05:
in excess of what it would have received under the 10% dividend.

[00:23:42] Speaker 05:
If it weren't for the network sweep, that $125 would have had to have been shared with the private shareholders.

[00:23:49] Speaker 05:
Most of it would have gone to the government, but some of it would have gone to the private shareholders because any time the structure of this shareholding by the Treasury was that it got a 10% senior preferred dividend

[00:24:01] Speaker 05:
and warrants to acquire 80% of the common stock for next to nothing.

[00:24:05] Speaker 05:
So if it wanted a dividend above 10%, it could exercise its right to get the common, and then dividends could be paid on that.

[00:24:13] Speaker 05:
But that would require paying the coupon on the junior preferred owned by private shareholders and 20% pro rata allocation to private common shareholders.

[00:24:22] Speaker 05:
That was the state of the property rights of all the shareholders in these companies prior to August 17, 2012.

[00:24:30] Speaker 10:
I think I have my answer to the question and I think I heard the bell.

[00:24:39] Speaker 07:
I did not hear the bell, although I have a stopwatch that shows you've had well more than your 10 minutes.

[00:24:46] Speaker 07:
Mr. Lippres, what is your clock show?

[00:24:50] Speaker 03:
Governor, currently we are well into Mr. Rosenberg's period of time.

[00:24:55] Speaker 03:
All right.

[00:24:56] Speaker 07:
Let's stop Mr. Rosenberg with his own five minutes.

[00:25:01] Speaker 00:
Absolutely, Your Honor.

[00:25:03] Speaker 00:
Good luck.

[00:25:04] Speaker 00:
Your Honor, it's Mr. Rosenberg.

[00:25:07] Speaker 00:
Let me just pick up where Mr. Hume left off on standing, and there are a couple of different arguments I'd like to address, but I fundamentally agree with him.

[00:25:16] Speaker 00:
We are talking about rights, dividend rights, and the liquidation rights.

[00:25:21] Speaker 00:
The liquidation rights don't flow from the net worth value of the corporation at all.

[00:25:26] Speaker 00:
And the dividend rights and liquidation rights are unique property interests that the shareholders have.

[00:25:33] Speaker 00:
The Cowan case from the D.C.

[00:25:34] Speaker 00:
Circuit that the government cited in its brief specifically says the dividend claims are unique claims that are direct, that are held by shareholders.

[00:25:44] Speaker 00:
And so under the Thule test,

[00:25:47] Speaker 00:
the question is who's got the claim and who gets the remedy we've got the claim and the remedy and this is critical is not repaying

[00:25:56] Speaker 00:
the amount for the companies.

[00:25:58] Speaker 00:
We are not asking in this lawsuit for the companies to be repaid.

[00:26:03] Speaker 10:
We are asking for direct damages to... Mr. Rosenberg, isn't it true under Thule that there has to be an injury that does not depend on harm to the corporation?

[00:26:14] Speaker 10:
And here all of this harm results from the harm to the corporation, right?

[00:26:22] Speaker 00:
It does not, Your Honor.

[00:26:24] Speaker 00:
The liquidation preference is entirely independent of harm to the corporation.

[00:26:28] Speaker 00:
And as I said, our dividend rights are independent of harm to the corporation.

[00:26:33] Speaker 09:
How could that be, Counsel?

[00:26:34] Speaker 09:
Because all of those things wouldn't be impacted but for the fact that the corporate network has been swept, right?

[00:26:45] Speaker 00:
No, no, not at all, Your Honor, because the impact is because our rights were directly transferred to Treasury, which was a controlling shareholder at the time.

[00:26:54] Speaker 00:
It doesn't derive from the harm to the company as far as its net worth.

[00:27:00] Speaker 00:
It derives from the Third Amendment's transfer of the dividend and liquidation rights directly to Treasury.

[00:27:06] Speaker 00:
It's a different mechanism.

[00:27:07] Speaker 00:
It's totally different.

[00:27:08] Speaker 09:
So this depends on our concluding that Treasury was actually a controlling shareholder under Delaware law?

[00:27:14] Speaker 00:
Not necessarily.

[00:27:16] Speaker 00:
It simply says, I mean, that helps, but that isn't critical.

[00:27:21] Speaker 00:
But the point is, Treasury was a shareholder.

[00:27:23] Speaker 00:
And so there was a... But it didn't have a coding rights, right?

[00:27:28] Speaker 00:
It had the ability to obtain warrants for a nominal price, which is very analogous to the situation in Star, where on the stock split claim that was found direct,

[00:27:43] Speaker 00:
At that point, the right was of a preferred holder to exercise warrants in that circumstance as well as almost directly analogous.

[00:27:54] Speaker 00:
And that was the case where the claim was direct.

[00:27:57] Speaker 00:
So it is a direct claim.

[00:27:59] Speaker 00:
The other point I want to make on this to follow up with Mr. Hume.

[00:28:02] Speaker 00:
is the argument he was making about who owns the claim being the threshold issue, even beyond Tully, was made in our opening brief at pages 31 to 32, but we were relying primarily on the Citigroup case, which is subsequent to NAF and says basically the same thing.

[00:28:21] Speaker 00:
It says that where you have a claim that really is an independent claim

[00:28:27] Speaker 00:
that a shareholder possesses, you don't even get to tool.

[00:28:30] Speaker 00:
You don't even get to dual nature because it's inherently part of the claim that that individual party has.

[00:28:38] Speaker 00:
And that's the circumstance here.

[00:28:40] Speaker 00:
These are claims that we have uniquely.

[00:28:43] Speaker 00:
The company can't assert our liquidation preference.

[00:28:46] Speaker 00:
They can't assert our dividend claims.

[00:28:48] Speaker 00:
There's no way the company could assert that.

[00:28:50] Speaker 00:
And so these are not derivative claims for that reason.

[00:28:54] Speaker 00:
Another reason

[00:28:55] Speaker 00:
your honors, is that this was a restructuring of equity.

[00:28:59] Speaker 00:
This is an argument we made in our briefs that the government never responded to.

[00:29:03] Speaker 09:
So you're saying 31 to 32, that's where you have NAF as a see also site, which is the totality of the discussion, right?

[00:29:12] Speaker 09:
Right.

[00:29:12] Speaker 09:
You're saying that's the only place?

[00:29:15] Speaker 00:
I don't know if it's the only place.

[00:29:17] Speaker 00:
The most important place in the brief for our argument is there, and we're citing Citigroup for the exact same point.

[00:29:25] Speaker 00:
It's the exact same argument.

[00:29:27] Speaker 00:
And so that's where we're saying that's the point.

[00:29:30] Speaker 09:
OK, so basically you cite, it's one paragraph, right?

[00:29:35] Speaker 00:
Right, but that's a threshold argument that says

[00:29:39] Speaker 00:
that you don't even get to dual nature or to Tully if the claim is independently owned by a shareholder, right?

[00:29:47] Speaker 00:
And that's what we're arguing here.

[00:29:49] Speaker 00:
It supports the whole section of the brief that that's in, but that's the pages where we cited Citigroup.

[00:29:57] Speaker 09:
What do you do with the fact that the

[00:30:00] Speaker 09:
district court in Perry found that the liquidation rights were not right, the question of liquidation rights were not right, and that question wasn't even appealed.

[00:30:10] Speaker 00:
But that was a contract claim that wasn't part of the property interest for a takings claim.

[00:30:18] Speaker 00:
I mean, the point is that whether that was right for a contract claim or not is completely different from whether that's a property interest that supports a takings claim.

[00:30:28] Speaker 00:
And with respect, they're very different

[00:30:30] Speaker 00:
inquiries and so it is part of the property interest here.

[00:30:34] Speaker 00:
That's what the takings claim looks at is who owns the property interest.

[00:30:37] Speaker 00:
I see my time is up.

[00:30:39] Speaker 00:
Could I just conclude by making one additional point

[00:30:42] Speaker 00:
which is that the cases we cited on naked reallocation of equity, the Supreme Court's Allegheny decision, Citigroup supports this, GATT supports this, where there is a change in the equity rights, which here are the dividend rights and the liquidation preference, that ends the inquiry.

[00:30:59] Speaker 00:
It is a direct claim.

[00:31:01] Speaker 00:
It is not a derivative claim.

[00:31:02] Speaker 00:
So you've got Delaware law, you've got federal law that all say that without getting into

[00:31:08] Speaker 00:
the dual nature doctrine, which we think we win under anyway, but you don't even need to get there.

[00:31:13] Speaker 00:
These are quintessentially direct claims.

[00:31:15] Speaker 00:
I was supposed to address the contract and fiduciary duty claims, but let me just ask, does the court have any questions about the breach of implied contract or fiduciary duty claims at this point?

[00:31:30] Speaker 07:
Apparently not.

[00:31:32] Speaker 07:
Move on to Mr. Morocco, who has two minutes.

[00:31:37] Speaker 07:
Unless I heard Judge O'Malley?

[00:31:41] Speaker 09:
No, I was just going to say about the implied contract.

[00:31:46] Speaker 09:
Does the ability to assert that depend on us believing that first Hartford controls here?

[00:31:55] Speaker 00:
I don't think so, Your Honor.

[00:31:57] Speaker 00:
Those are direct claims.

[00:31:58] Speaker 00:
Those are claims, again, that we hold.

[00:32:00] Speaker 00:
That's not a corporate claim.

[00:32:02] Speaker 00:
The corporation could never assert that we were third-party beneficiaries of a contract.

[00:32:07] Speaker 00:
There's no reason they'd ever do that.

[00:32:08] Speaker 00:
That's a unique claim to us.

[00:32:10] Speaker 00:
And so it's a direct claim.

[00:32:11] Speaker 00:
And so First Hartford, with respect, is irrelevant to that question, we believe.

[00:32:17] Speaker 01:
OK.

[00:32:18] Speaker 07:
Thank you, Mr. Rosenberg.

[00:32:20] Speaker 07:
Mr. Morocco.

[00:32:22] Speaker 01:
Thank you, Your Honor.

[00:32:22] Speaker 01:
Drew Morocco on behalf of the Arrowwood plaintiffs.

[00:32:25] Speaker 01:
May I please the court?

[00:32:27] Speaker 01:
In Fairhorn, the Court of Federal Claims correctly held that if any shareholders could bring direct claims, it would only be those shareholders, like the Arrowwood plaintiffs, who held stock as of the date of the net worth sweep.

[00:32:40] Speaker 01:
If this court agrees with plaintiffs, as argued by Mr. Hume and Mr. Rosenberg, that direct claims may be brought, they may only be brought, the court should rule that they may only be brought

[00:32:52] Speaker 01:
by those shareholders who held stock as of the date of the net worth sweep.

[00:32:57] Speaker 01:
In order for a court to find a compensable taking has occurred, it must find that the claimant had a valid property interest at the time of the taking, i.e.

[00:33:07] Speaker 01:
the shareholder held Fannie and Freddie Stock at the time of the net worth sweep.

[00:33:11] Speaker 01:
The court below correctly rejected arguments, also made here by the Fair Home plaintiffs, that plaintiffs that did not hold their interest in August 2012 can still bring claims

[00:33:22] Speaker 01:
Pursuant to Bailey, a court of federal claims decision that created a narrow exception to the basic rule in the limited context of a temporary regulatory taking of real property interests, where the nature of the taking, such as land use restrictions, is inherently subject to change over time.

[00:33:39] Speaker 09:
Isn't there also, more than just the timing, what about the fact that as of the time the stock was bought, the conservative ship was already in place?

[00:33:50] Speaker 09:
Isn't there an impact on the scope of the right if you enter into an agreement or buy stock in such a highly regulated entity?

[00:34:03] Speaker 01:
I don't believe so, Your Honor.

[00:34:04] Speaker 01:
If I follow the question, the ownership interests have to be established and concrete at the time of the network suite.

[00:34:16] Speaker 01:
Only plaintiffs who owned their interests at that time

[00:34:20] Speaker 01:
had such concrete interest.

[00:34:23] Speaker 09:
I don't think you understood, because it was actually kind of a softball question.

[00:34:27] Speaker 09:
But all right, go ahead.

[00:34:30] Speaker 01:
This exception, however, does not apply to the case which is not a temporary regulatory taking or real property case.

[00:34:37] Speaker 01:
Further, this narrow exception has never been adopted by this court in any form.

[00:34:42] Speaker 01:
Also, inapplicable are cases like the Palazzolo case that's distinguished between a regulation that is promulgated

[00:34:49] Speaker 01:
and when a land use taking claim is right based, for example, on the denial of a permit application.

[00:34:56] Speaker 01:
Those distinctions are simply not present here.

[00:34:59] Speaker 01:
The net worth sweep was a direct taking that had its full effect when it was implemented and wiped out the interests of all shareholders, other than Treasury.

[00:35:07] Speaker 01:
Arrowwood asked this court to rule first that Fannie and Freddie shareholders may bring direct claims to address the direct injuries caused by the net worth sweep.

[00:35:15] Speaker 01:
And second, that only those plaintiffs like Arrowwood

[00:35:17] Speaker 01:
that held their interests at the time of the network sweep as standing to pursue their direct claims.

[00:35:23] Speaker 01:
Thank you.

[00:35:24] Speaker 07:
Thank you, Mr. Morocco.

[00:35:25] Speaker 07:
And we will hear from Mr. Barnes for eight minutes and hope that if Mr. Bennett is not aboard now, I would certainly hope he could be aboard for the governance, hear the governance argument.

[00:35:42] Speaker 07:
And if any extra effort is to be made to bring him back, now is the time to do it.

[00:35:51] Speaker 07:
But I assume nothing's been heard from Mr. Bennett?

[00:35:54] Speaker 03:
Your Honor, I believe Mr. Bennett is on the call right now.

[00:35:58] Speaker 03:
At least I'm seeing his number back on.

[00:36:00] Speaker 03:
We haven't had a moment to do a check.

[00:36:02] Speaker 03:
Mr. Bennett, are you with us?

[00:36:05] Speaker 04:
Yes, and I've been for quite a while.

[00:36:07] Speaker 03:
OK, excellent.

[00:36:08] Speaker 07:
Thank you.

[00:36:08] Speaker 07:
Glad to hear it.

[00:36:09] Speaker 07:
Mr. Bonds, please proceed.

[00:36:12] Speaker 06:
Thank you, Your Honor.

[00:36:13] Speaker 06:
This is Brian Barnes with Cooper and Kirk on behalf of the Fairholme plaintiffs.

[00:36:17] Speaker 06:
Unlike anyone who's argued so far on the inside, I do represent plaintiffs who are bringing derivative claims, and so I'm mostly going to focus on the succession clause.

[00:36:28] Speaker 06:
Let me address a couple of issues that have already come up during the course of the argument.

[00:36:32] Speaker 06:
First, the property interest for purposes of the derivative takings claim that we're asserting is the company's interest in their earnings.

[00:36:39] Speaker 06:
It's their net worth.

[00:36:40] Speaker 06:
That's what was

[00:36:41] Speaker 06:
taken, at least for purposes of the derivative takings analysis.

[00:36:46] Speaker 06:
I think that it's a different property interest that's at stake when we're talking about direct takings claims, but the derivative takings claim, we're concerned with the company's net worth.

[00:36:56] Speaker 09:
Second, with respect to... Can I ask you about that particular question?

[00:37:01] Speaker 09:
So, if the claim is about the company's net worth, do you have a problem in that

[00:37:09] Speaker 09:
There was, and I understand there's debate over whether there was actual consent to the conservatorship, but with respect to your claims, you do not argue that there wasn't consent to the conservatorship.

[00:37:22] Speaker 09:
You simply argue that it's the Third Amendment that affects the network.

[00:37:26] Speaker 09:
So don't you have a problem in that having consented to the conservatorship with the broad powers and authorities that Collins just described that it has?

[00:37:35] Speaker 09:
that there's no reasonable expectation that the net worth would not be taken?

[00:37:41] Speaker 06:
Well, a couple of points there, Your Honor.

[00:37:44] Speaker 06:
So one, my client, the client who's asserting the derivative claim, Mr. Barrett, did own his shares before the conservatorships began.

[00:37:52] Speaker 06:
But the other point is, in Collins itself, I think the court's quite clear in recognizing that these powers that FHSA has

[00:38:02] Speaker 06:
they extend to basically allowing the FHSA to manage these companies in a way that essentially promotes the public interest and enriches the public fisc at the expense of the companies themselves.

[00:38:15] Speaker 06:
And so I think far from foreclosing a taking the claim.

[00:38:19] Speaker 09:
Yeah, but you're talking about the board, you're talking about interests of the entities and you have the board members having consented to the conservatorship, correct?

[00:38:30] Speaker 06:
well respectfully your honor i don't think uh... anyone if you look at the history of federal conservatorships and receiverships under this statutory regime would have anticipated anything like the network sweep i mean uh... there have been literally thousands of conservatorships and receiverships overseen by the f d i c and there's never in the history of conservatorships and receiverships in anything like this and so uh... i don't see anything in colin the changes the fact that that this is not something that the board could agree

[00:39:00] Speaker 06:
anticipated when they consented to conservatorship.

[00:39:02] Speaker 06:
And what's more, I would submit that if it were the case that, per se, the imposition of conservatorship authorized the government to take all of the net worth of these companies full stop, that that would mean, necessarily, that the imposition of conservatorship itself affects the taking.

[00:39:20] Speaker 06:
And I think this Court has been careful to avoid that conclusion, that the only way you can avoid it is by recognizing that it's not within the realm of

[00:39:28] Speaker 06:
what investors reasonably anticipate when a company is put into conservatorship that the government's just going to take all the money.

[00:39:35] Speaker 06:
Let me also address, if I could, the issue preclusion question.

[00:39:40] Speaker 06:
So I think the easiest way to deal with that issue is to just recognize that the issue here with respect to our constitutional claim is just different than the one that was before the court in Perry Capital.

[00:39:51] Speaker 06:
And the best authority for that is the district court's opinion in the Roth case, the Western District of Michigan case, where

[00:39:57] Speaker 06:
The judge in that case actually said he disagreed with this court's decision in First Hartford.

[00:40:02] Speaker 06:
He thought Perry Capital was right on the harsh portion of the D.C.

[00:40:05] Speaker 06:
Circuit opinion that the government said is preclusive, and he nevertheless allowed constitutional claims to go forward because he didn't think that the succession clause speaks with enough clarity to foreclose constitutional claims even if it does foreclose statutory or common law claims.

[00:40:21] Speaker 06:
with respect to the merits of the succession clause issue.

[00:40:24] Speaker 09:
Are you saying that the district court there said they didn't foreclose constitutional claims in the form of direct claims or didn't foreclose constitutional claims in the form of derivative claims?

[00:40:38] Speaker 06:
You know, I'd have to go back and look at the Robb decision.

[00:40:41] Speaker 06:
I'm not sure that the judge in that case actually resolved this issue.

[00:40:45] Speaker 06:
If memory serves, I think he may have actually decided that the claim was derivative and that's how he got to

[00:40:51] Speaker 06:
the issue of whether, uh, first Hartford was correct.

[00:40:55] Speaker 06:
And he said, no, first Hartford's wrong, but nevertheless, I'm not going to allow these constitutional claims to go forward.

[00:41:00] Speaker 06:
And my point here in siding with that decision is we have a federal judge who's not only recognizing that these are distinct issues, but it is resolving them different ways.

[00:41:09] Speaker 06:
And so at least when we're talking about issue preclusion, I don't think there's any serious doubt that these are different issues.

[00:41:16] Speaker 06:
And we see that in Collins too, right?

[00:41:18] Speaker 06:
In Collins, the Supreme Court allows the constitutional claim to go forward, notwithstanding its succession clause, but nevertheless reserves the question of whether the shareholder's statutory claim would have been foreclosed by the succession clause.

[00:41:32] Speaker 09:
Do you agree that, despite what your colleagues said, that this issue was briefed below by the Fairholme plaintiff and was briefed, at least, albeit

[00:41:47] Speaker 09:
briefly in your supplemental brief before us.

[00:41:53] Speaker 06:
And I apologize, Your Honor, when you refer to this issue, you talk about issue conclusions.

[00:41:58] Speaker 09:
Meaning that whether the derivative claims could still go forward despite the succession clause.

[00:42:06] Speaker 06:
Oh, yes.

[00:42:07] Speaker 06:
I mean, I think that's half of our supplemental brief.

[00:42:09] Speaker 06:
To the extent that they're constitutional.

[00:42:12] Speaker 06:
Yeah.

[00:42:12] Speaker 06:
So half of our supplemental brief is devoted to that.

[00:42:15] Speaker 06:
issue and then we we hit it again in the in the reply brief and uh... you know what critical cases we talk about these constitutional claim that's what you're going to go you know that the a supreme court opinion that recognizes a very strong very very strong candidate construction i think it's it's one of the strongest and all statutory interpretation the court should strain to avoid interpreting federal statute in a way that makes it impossible for litigants bring colorful constitutional claim and what what more

[00:42:44] Speaker 06:
I would submit to the court that it would be a taking and it would be a constitutional problem if the court were to interpret the succession clause in a way that foreclosed derivative claims in situations where the conservator is conflicted, that that itself would affect the taking and

[00:43:02] Speaker 06:
for that reason as well.

[00:43:05] Speaker 10:
For purposes of this discussion, Mr. Barnes and this is Judge Crouse, let's assume hypothetically that we don't agree with the Court of Federal Claims and First Hartford.

[00:43:15] Speaker 10:
So let's assume there's no conflict of interest problem with the succession clause.

[00:43:20] Speaker 10:
Isn't the language of the succession clause quite clear and quite strict and could have created exceptions and didn't?

[00:43:30] Speaker 10:
And isn't that the way it's been interpreted?

[00:43:34] Speaker 06:
uh... respectfully your honor i i don't think that's the way it's been interpreted it's not how first heartverted hurt interpreted it uh... it's not how the delta savings bank uh... cake it from the ninth circuit came out uh... and it would work with respect to the statutory text are fundamental submission if this is a succession clause not a termination clause and there's a there's a separate provision of the statute forty six seventeen b two k that specifically talked about under what circumstances during receivership

[00:44:03] Speaker 06:
not conservatorship, but receivership, certain shareholder claims are terminated.

[00:44:08] Speaker 06:
And the fact that the succession clause speaks in terms of the government succeeding to our claims as opposed to those claims being terminated, I think that's the critical sort of textual linchpin for this analysis.

[00:44:21] Speaker 06:
But again, there's a critical constitutional avoidance concern here too, because under the government's construction of the succession clause, there would be a serious due process problem.

[00:44:33] Speaker 07:
Thank you, Mr. Barnes.

[00:44:37] Speaker 07:
Mr. Stern, for the government, has 40 minutes, and you've asked to reserve a good number, up to 15, for a battle on the cross appeal.

[00:44:48] Speaker 07:
And of course, you're well aware that that depends on the extent to which Mr. Bennett or anyone else uses any of his further time.

[00:45:01] Speaker 07:
on cross-appeal issues, but I know you know that, and please proceed.

[00:45:07] Speaker 08:
Thank you very much, Your Honor.

[00:45:10] Speaker 08:
Mark Stern for

[00:45:11] Speaker 08:
the United States and there have been a number of issues that have been raised and that be to begin anywhere the court would like me to.

[00:45:22] Speaker 08:
If there are no particular places that the court would direct me to, I would start with the issue of the derivative claims which some of my friends on the opposing side

[00:45:36] Speaker 10:
Well, Mr. Stern, this is Judge Pros.

[00:45:40] Speaker 10:
I think we may be going in the same direction, but I have a kind of a threshold question.

[00:45:45] Speaker 10:
It seems to me we have two global questions.

[00:45:48] Speaker 10:
The first is whether or not it's a claim against the United States, and I'm not asking you to start dealing with that.

[00:45:56] Speaker 10:
But then we've got the question about whether plaintiffs have standing to bring either direct or derivative claims.

[00:46:04] Speaker 10:
and the standing question.

[00:46:06] Speaker 10:
So my question is, if we were to decide the standing question in your favor, does that obviate the need for us to deal with the issue of claims against the United States?

[00:46:23] Speaker 08:
Yes, I think that if the court concludes that these are derivative claims, that they're barred by the succession clause, then there is no reason, I believe, I can go back and check, but I believe that would obviate, as you say, any need to deal with whether in this circumstance the conservator was acting in a governmental capacity.

[00:46:52] Speaker 10:
OK.

[00:46:52] Speaker 10:
Well, why don't you proceed then in discussing the direct derivative stuff, which is, I think, where you were going in any event.

[00:46:58] Speaker 10:
Thank you.

[00:46:59] Speaker 08:
Yeah.

[00:47:00] Speaker 08:
Thank you, Your Honor.

[00:47:02] Speaker 08:
I think that these are classic derivative claims, and the Fairholme plaintiffs

[00:47:13] Speaker 08:
recognize them as much.

[00:47:18] Speaker 08:
And the characterization of the claims as being claims for dividends really misses the point of the distinction between direct and derivative suits.

[00:47:36] Speaker 08:
The point about a derivative suit is the court

[00:47:39] Speaker 08:
emphasized citing its earlier cases in STAR is you look to who was harmed and to whom would any recovery flow.

[00:47:49] Speaker 08:
And it's clear in this case both from the complaints and it just is true that the asserted harm is the asserted harm to the enterprises and any recovery would go to the enterprises

[00:48:05] Speaker 08:
And if that either, you know, short-term or long-term, either increased the value of plaintiff shares or gave them dividends which they had not been receiving prior to the Third Amendment, then that would all flow through the enterprises and the conservator standing in for the enterprises.

[00:48:30] Speaker 08:
There's nothing direct about any part of this.

[00:48:35] Speaker 09:
Council, can we go to where we sort of ended up with Mr. Barnes, and that is, assuming that we agree with you that they're derivative claims, how would, under your theory, the corporations or the shareholders on behalf of the corporations ever be able to pursue a constitutional claim on behalf of the corporations under your reading of the succession clause?

[00:49:03] Speaker 08:
Well, I think that it's really parallel to the situation in Star, which also involved, you know, constitutional claims of this kind.

[00:49:14] Speaker 08:
And the conservator, like even though plaintiffs, you know, always suggest that this would not happen, but the conservator

[00:49:24] Speaker 08:
has the right to assert all kinds of claims.

[00:49:31] Speaker 08:
And that's, you know, the question here really, you know, isn't like which kind of claim we're talking about.

[00:49:38] Speaker 08:
It's whose claim it is.

[00:49:41] Speaker 09:
But Star specifically pointed out that no argument was being presented under Kowalski.

[00:49:48] Speaker 09:
I mean, obviously Star recognized that there was at least an issue

[00:49:53] Speaker 09:
as it related to the constitutional avoidance question, and they said that Star simply was not asserting any claim like that.

[00:50:07] Speaker 09:
Star was insisting that they were all direct, period.

[00:50:12] Speaker 08:
Correct.

[00:50:13] Speaker 08:
Yes, but they were asserting that, but the court said that they were

[00:50:21] Speaker 08:
derivative claims, and there was no, and again, what Starr was asserting was just as in this case, they were asserting takings and illegal transaction claims.

[00:50:33] Speaker 09:
But how do we get around the fact that Starr explicitly said that it had to go through a threshold list of the things that weren't being asserted before it got to where it ended up?

[00:50:44] Speaker 09:
And one of them was the Kowalski line of cases.

[00:50:49] Speaker 08:
Your Honor, I'm sorry.

[00:50:50] Speaker 08:
I admit I'm sorry that I can't remember that precise language, but again, what we have here is there's no reason to, and I'm not aware of any authority that suggests that because a plaintiff is filing a claim as constitutional, that that alters the direct derivative analysis.

[00:51:13] Speaker 09:
Correct.

[00:51:16] Speaker 09:
What I'm saying is even if we accept that fact,

[00:51:19] Speaker 09:
isn't there the issue as to whether or not they should be allowed to assert the derivative claim if it is of a constitutional nature?

[00:51:32] Speaker 08:
We don't think, obviously, that there is any basis for asserting that.

[00:51:38] Speaker 08:
And it's very, I mean, you know, where the Supreme Court has said that the various federal courts should be reluctant

[00:51:47] Speaker 08:
to look at a statutory bar to preclude constitutional claims.

[00:51:55] Speaker 08:
First of all, it didn't say that you couldn't have a bar, but also what we know is that in this case, the succession clause

[00:52:05] Speaker 08:
was enacted with the precise point of looking at what this, like the whole point of the succession clause is that Congress knew that there was going to be an extraordinary infusion of capital from the Treasury to save these enterprises which were on the brink of falling down and taking much of the housing market with them.

[00:52:30] Speaker 08:
And it was against that action.

[00:52:31] Speaker 09:
Right, but you're saying that, so what you're saying is that a

[00:52:34] Speaker 09:
Takings' claim, it would look like FHFA versus FHFA, correct?

[00:52:42] Speaker 08:
No, Takings' claim would look like FHFA versus the United States, because the rights were transferred to the conservator, and the conservator could assert those rights.

[00:53:00] Speaker 08:
It might not choose to do so, but it could.

[00:53:03] Speaker 09:
And again, the... But the rights would have to be... Okay, go ahead.

[00:53:09] Speaker 08:
I mean, it's the... I mean, again, it flows from the fact that the harm is to the enterprises and therefore those rights have been transferred by statute to the conservative who can assert them.

[00:53:28] Speaker 09:
Right.

[00:53:30] Speaker 09:
But the government actor who allegedly

[00:53:33] Speaker 09:
did the taking is the FHFA, right?

[00:53:37] Speaker 09:
So when you said it would be against the United States, in this case, the United States is the FHFA.

[00:53:46] Speaker 08:
Well, obviously, we disagree with that.

[00:53:48] Speaker 08:
But the question, again, is to read the succession clause to permit suits of this kind would suggest that Congress

[00:54:00] Speaker 08:
sort of was like enacting a provision that sort of you could, you know, sort of like drive a bulldozer through because it was entirely concerned with suits by the shareholders against

[00:54:18] Speaker 08:
like asserting the rights of the corporation.

[00:54:22] Speaker 08:
You couldn't have a clearer expression.

[00:54:26] Speaker 10:
Let me ask you about that.

[00:54:28] Speaker 10:
Leaving aside the succession clause, if we're just looking at the derivative claim, what's the property interest there that's being protected under the Constitution?

[00:54:42] Speaker 08:
Your Honor, it's not clear and we have not briefed that because to some extent that sort of moves into a merits question.

[00:54:52] Speaker 08:
But the property interest we think is again, we're looking at a what it is the property at this point of the conservator and of, I mean, of the enterprises and then sort of being managed by the conservator.

[00:55:09] Speaker 08:
And that is, I mean, it's all of the piece, we think, that this all, and this is, you know, look, the Court of Federal Claims recognized, this is a classic derivative, so this Court of Federal Claims said that its hands were tied, I think that was the phrase that it used,

[00:55:29] Speaker 08:
by this court's position in First Hartford.

[00:55:32] Speaker 08:
And that was the only reason that the Court of Federal Claims said that these could go forward.

[00:55:39] Speaker 08:
It was absolutely clear, and I think the court was 100% right to recognize that these are derivative claims.

[00:55:49] Speaker 08:
And everything I think that, like my friends on the other side have been saying, just sort of tends to confirm that.

[00:55:57] Speaker 09:
Counsel, can I back you up a little bit?

[00:55:59] Speaker 09:
You said that the Supreme Court has never said that Congress can't legislate away a constitutional claim.

[00:56:08] Speaker 09:
But it has said that to the extent that Congress would ever be permitted to do so, it would have to do so expressly.

[00:56:19] Speaker 09:
And you're not arguing that there's an express statement in ACRA that says

[00:56:25] Speaker 09:
that this would, that the sweep would encompass constitutional claims.

[00:56:30] Speaker 09:
You're just saying it's implied, right?

[00:56:34] Speaker 08:
No, I think that what we're saying is that the, again, that all claims were transferred to the shareholder, excuse me, to the conservator.

[00:56:47] Speaker 08:
And that it's not that there's a sort of different sort of some taxonomy at some points were transferred and others weren't.

[00:56:56] Speaker 08:
They were all transferred to the, to the conservator.

[00:57:01] Speaker 08:
So it's not.

[00:57:03] Speaker 09:
Do you think that constitutes clear and convincing evidence with the meaning of Califano?

[00:57:08] Speaker 08:
Absolutely.

[00:57:09] Speaker 08:
I mean, this really couldn't be clearer and the idea that what Congress said was, I want you, all that we're talking about is, do you have a right to a derivative claim?

[00:57:20] Speaker 08:
And that's not the sort of concern that the Supreme Court has ever been concerned about when it's like dealt with the very grave questions, you know, that have been raised, you know, in some of the other cases.

[00:57:32] Speaker 08:
This is an elimination of the derivative claim and this does not rise

[00:57:38] Speaker 08:
to constitutional dimension, would the court like me to address 1st Hartford, which was the basis of the Court of Federal Claims conclusion that these weren't

[00:57:58] Speaker 08:
derivative suits just to some extent I think that the sort of that in some ways that sort of mirrors or just an extension of the point I was just trying to make which is that trying to imply an exception to this statute requires one to disregard

[00:58:21] Speaker 08:
the entire background against which it was enacted.

[00:58:26] Speaker 09:
How are we as a panel to ignore First Hartford when the language of the provisions that First Hartford were looking at was identical to the language here?

[00:58:43] Speaker 08:
Well, I don't think that the... I mean, the question here is that you have a

[00:58:51] Speaker 08:
Whereas in First Hartford, the court was dealing with the situation of the FDIC as receiver.

[00:59:03] Speaker 08:
And that sort of comes up, you know, that's a problem that comes up in all sorts of, you know, totally unpredictable ways.

[00:59:13] Speaker 08:
And the court said that and it went out of its way to explain how narrow its holding was in that case where you have the like FDIC as like FDIC corporate issuing a sort of regulation in sort of the general windstorm vein and then

[00:59:35] Speaker 08:
like the very same sort of claim is what would have to be asserted by the receiver.

[00:59:42] Speaker 08:
But that's something that, like, there's no way Congress could have ever predicted that kind of claim.

[00:59:50] Speaker 08:
And when you don't hear, on the contrary, Congress knew exactly

[00:59:55] Speaker 08:
what it was dealing with.

[00:59:57] Speaker 10:
Mr. Stern, this is Judge Proce.

[01:00:00] Speaker 10:
Just to follow up on what Judge O'Malley was asking, am I correct that other than our Court of Claims judge here who said that it controls everybody other courts that have looked at this have reached the opposite conclusion, i.e., Diane Wood in the Seventh Circuit and Perry, or am I mixing this up with something else?

[01:00:25] Speaker 08:
Yes, you are correct, Your Honor, and indeed that's why we have the issue of preclusion ruling in this suit because the court in Perry Capital concluded that there was no conflict

[01:00:49] Speaker 08:
of interest exception.

[01:00:51] Speaker 08:
So, yes, the other courts that have looked at this have concluded that there is no conflict of interest exception.

[01:01:02] Speaker 07:
Mr. Stern, the other courts are not binding on us, whereas the first half is our court's decision.

[01:01:12] Speaker 08:
That's 100% true, Your Honor, and we are not suggesting that, as the panel points out,

[01:01:19] Speaker 08:
that, of course, as a panel can't overrule a prior decision of this court, and we have not urged it to do so.

[01:01:27] Speaker 08:
We said that this situation is very much distinguishable from first Hartford on a variety of grounds.

[01:01:38] Speaker 08:
And also, we've emphasized how careful the court

[01:01:43] Speaker 08:
in 1st Hartford was to explain that this was addressing a very precise situation.

[01:01:54] Speaker 08:
And here, the nature of what is happening and the background against which this has occurred, I would think, really precludes any inference that the court should

[01:02:07] Speaker 08:
imply an exception, at least in this circumstance.

[01:02:12] Speaker 08:
Maybe there's another circumstance involving, you know, involving FHFA's conservator.

[01:02:20] Speaker 08:
where there might be a different result, though I don't know what it would be, but one doesn't need a blanket rule.

[01:02:27] Speaker 08:
It's enough to say that in this case, First Hartford does not control and didn't purport to set out a broad rule that would encompass this kind of a situation.

[01:02:42] Speaker 09:
But Council, even if we agree that First Hartford did not set out a broad

[01:02:48] Speaker 09:
conflict of interest rule, because that could, as you say, swallow the whole point of the succession clause.

[01:02:56] Speaker 09:
But even if we agreed that it didn't do that, wouldn't the fact of the conflict of interest possibly constitute a hindrance within the meaning of Kowalski with respect to the assertion of the claim?

[01:03:14] Speaker 08:
No, Your Honor.

[01:03:15] Speaker 08:
I mean, this, again, if we're coming back to what Congress intended to do, Congress clearly did not perceive that there was going to be a conflict of interest that would render the succession clause, like, essentially, like, in a broad variety of cases, would, you know, essentially sort of, like, undermine the whole point of the succession clause.

[01:03:39] Speaker 08:
Right.

[01:03:39] Speaker 09:
What I'm trying to do is limit you to just the constitutional issue.

[01:03:44] Speaker 09:
Assuming we agree with you as it relates to sort of the other causes of action, like any derivative contract claim or any derivative fiduciary duty claim, wouldn't there still be this question of whether the conflict of interest could constitute a hindrance for purposes of the constitutional analysis?

[01:04:12] Speaker 08:
Well, we don't, I mean, I think that the answer is no.

[01:04:16] Speaker 08:
We think that Congress clearly anticipated that there could be claims of this kind.

[01:04:21] Speaker 08:
And so, like this wouldn't be sort of to say that Congress left open the door to any derivative suit claim.

[01:04:31] Speaker 08:
when it transferred all rights.

[01:04:35] Speaker 08:
I don't think that that's a plausible reading of the statute.

[01:04:40] Speaker 08:
And again, although what we're talking about here is simply, like, has Congress foreclosed a derivative suit?

[01:04:50] Speaker 08:
And that's not sort of something that rises to a constitutional dimension in any case, but again,

[01:04:59] Speaker 08:
If this succession clause means anything, it means that having transferred the shareholder rights that the shareholders don't then get to bring derivative suits and whether they are, and that's the case even if the claim is that there is taking away the right to bring a derivative suit impinges on some constitutional concern.

[01:05:23] Speaker 08:
because we just think that there's no basis for that and there's no precedent for that.

[01:05:34] Speaker 09:
Do you agree with what the amicus brief said, that there has never been a case that found clear and convincing evidence that Congress intended to foreclose jurisdiction over a constitutional claim?

[01:05:48] Speaker 08:
I don't.

[01:05:50] Speaker 08:
I don't want to say, like, that they're to sort of argue, like, with a negative.

[01:06:01] Speaker 08:
Well, you haven't cited us to any such case, right?

[01:06:03] Speaker 08:
No, I have not cited you to any of that.

[01:06:06] Speaker 09:
But you want us to reach that conclusion here.

[01:06:11] Speaker 08:
I want to, sure, I would like to have the court reach the conclusion that the fact that there is a takings claim being asserted on the ground that not because Congress had said you can't bring a claim, but because it transferred the rights to bring that claim so that there is a derivative suit bar on claims, like the, you know, we are saying like that

[01:06:37] Speaker 08:
However, that's characterized and if one characterizes that as some sort of deprivation of a constitutional claim, then in this case, that is exactly what Congress did.

[01:06:48] Speaker 08:
There is just no reading of the succession clause that would permit another outcome.

[01:06:58] Speaker 08:
And the general thrust, you know, of the plaintiff's arguments has not been

[01:07:05] Speaker 08:
to make this kind of point is to argue all sorts of things about how there is a right to dividends that's separate from what the harm to the corporation and none of these arguments, you know, has any substance to it in the end.

[01:07:34] Speaker 07:
No, I was asking whether you have anything further to say for now, whether there are questions.

[01:07:43] Speaker 08:
I mean, I'm happy to address the governmental character of just, I don't know, just do that briefly.

[01:07:53] Speaker 08:
And obviously, any questions that the court has about that.

[01:07:57] Speaker 08:
Again, I think that the French recognized explicitly that the conservator does not always

[01:08:10] Speaker 08:
as the government and that it, and indeed, as we pointed out, the contrary ruling would suggest several cases that we cite in our briefs involving various constitutional claims, sort of, such as Bivens claims and due process claims or claims as to what statute of limitations applies or the government or these conservative status under the False Claims Act

[01:08:40] Speaker 08:
that there would have been a sub-salential reading of all of those cases.

[01:08:45] Speaker 08:
And the argument is, well, this is a bigger thing than that.

[01:08:50] Speaker 08:
But as all the other courts to look at this, like Perry Capital, for example, said, look, this is a quintessential act

[01:09:03] Speaker 08:
of a conservator.

[01:09:05] Speaker 08:
It's renegotiated a contract, and that's in the heart of what conservators do.

[01:09:10] Speaker 09:
But didn't Collins explicitly say that entering into the Third Amendment, the very thing at issue here, was an exercise of executive power?

[01:09:19] Speaker 08:
I think you could say yes or no on that one.

[01:09:29] Speaker 08:
I think I say no.

[01:09:31] Speaker 08:
I'd like to nuance it a bit.

[01:09:35] Speaker 08:
The court cited a bunch of factors that for purposes of the separation of powers analysis led it to conclude, and this was consistent with what the government was arguing,

[01:09:52] Speaker 08:
in that case more broadly but like that you could have that there would be a government that for separation of powers problems in terms of the status of the director of the FHFA that yes, that like that was a governmental

[01:10:13] Speaker 08:
I'm sorry, I see that I'm... That it's held it for that purpose, but it clearly does... And the court ascribed, sort of described a number of powers, but here in renegotiating the Third Amendment, there is no claim that there was any exercise of a governmental power.

[01:10:38] Speaker 08:
by the conservator.

[01:10:39] Speaker 08:
That's why the other courts to look at it have said that this is classic exercise of the kinds of powers that belong to private boards and conservators.

[01:10:52] Speaker 10:
But Mr. Stern, this is Judge Prost.

[01:10:55] Speaker 10:
Didn't the Supreme Court and Collins explicitly say that to differentiate this from the normal conservatorship in several places?

[01:11:07] Speaker 10:
It says HFA powers under the statute differ critically from those of most conservators.

[01:11:17] Speaker 10:
It can take the best interest of the company to its own best interest in those of the public.

[01:11:23] Speaker 10:
Those are the words of the Supreme Court, right?

[01:11:25] Speaker 08:
That's right.

[01:11:26] Speaker 08:
But to be clear, that certainly isn't the only, like, sort of concern.

[01:11:32] Speaker 08:
I mean, the purpose of the enterprises and the enterprises charters governing statutes specifically emphasize, and the court decisions, you know, we've cited in our briefs, emphasize this as well, that the enterprises themselves always had a very important public purpose.

[01:11:53] Speaker 08:
They were not sort of simply

[01:11:55] Speaker 08:
Boards were never supposed to simply take into account the interests of the shareholders.

[01:12:01] Speaker 08:
They had a broad interest in making affordable low-income and middle-income housing available.

[01:12:08] Speaker 08:
And to a large extent, what we have here is a sort of charge that is very similar to the charge given to the enterprises themselves.

[01:12:20] Speaker 08:
And in addition, even though there's been the suggestion

[01:12:25] Speaker 08:
distinguishable from the FDIC.

[01:12:29] Speaker 08:
The FDIC's clause similarly like permits it to take into when it's acting as receiver or conservator to take into account

[01:12:40] Speaker 08:
general public interest and the interest of the corporation specifically.

[01:12:45] Speaker 08:
So there is a direct parallel there too and there are other sort of entities that also take the public interest into account.

[01:12:56] Speaker 08:
And, you know, and like there's nothing unusual with about differentiating them of the case like in the SAC or versus TVA case, which is Kagan said, look, for some purposes, it's going to be governmental, others it's not.

[01:13:12] Speaker 08:
And in that case, the issue was whether there was sovereign immunity, which would be the case if it was governmental and wouldn't be otherwise.

[01:13:22] Speaker 10:
Okay, thank you.

[01:13:24] Speaker 07:
Thank you, Mr. Stern.

[01:13:25] Speaker 07:
We will save the remainder of your time if there is something to properly respond to.

[01:13:32] Speaker 07:
Mr. Bennett, welcome back.

[01:13:35] Speaker 07:
I see you have five minutes of rebuttal time to be shared.

[01:13:40] Speaker 00:
This is Mr. Rosenberg.

[01:13:41] Speaker 00:
Can you hear me?

[01:13:43] Speaker 07:
Yes.

[01:13:45] Speaker 00:
I believe Mr. Bennett was going to cede the beginning of the rebuttal to me.

[01:13:51] Speaker 00:
We're partners and so we've communicated about this.

[01:13:55] Speaker 07:
All right.

[01:13:56] Speaker 07:
You have five minutes.

[01:13:58] Speaker 00:
All right.

[01:13:59] Speaker 00:
Just a couple of quick points on standing.

[01:14:02] Speaker 00:
I think number one, it is critical to realize that the Delaware Supreme Court has held it before you get to Tully, before you get to the question about whether there is a harm to the corporation.

[01:14:16] Speaker 00:
And I quote here from NAF and is a virtually identical quote from Citigroup as well.

[01:14:21] Speaker 00:
A more important initial question that has to be answered is does the plaintiff seek to bring a claim belonging to her personally or one belonging to the corporation itself?

[01:14:33] Speaker 00:
Here the shareholders seek to bring a takings claim that can only belong to them.

[01:14:37] Speaker 00:
The transfer of their equity rights to Treasury

[01:14:42] Speaker 00:
Those are not rights that the companies have, and those are not claims that the companies could break.

[01:14:47] Speaker 09:
Isn't Citigroup though distinguishable?

[01:14:49] Speaker 09:
I mean, Citigroup is a case about fraud committed by the directors in connection with the purchase of the shares.

[01:14:58] Speaker 09:
I don't see how that translates to these circumstances.

[01:15:03] Speaker 00:
It translates because the claim here is that the government

[01:15:08] Speaker 00:
unconstitutionally took our property without just compensation.

[01:15:12] Speaker 00:
It is not a typical equity dilution claim.

[01:15:15] Speaker 00:
It's not a claim that the government brought in new money and were complaining about what the government got for the new money.

[01:15:22] Speaker 00:
This is totally different.

[01:15:22] Speaker 00:
There was no new money.

[01:15:24] Speaker 09:
This was a simple reallocation.

[01:15:26] Speaker 09:
But how is the right to a dividend different from the injury to the corporation that would give rise to those dividends?

[01:15:37] Speaker 00:
The dividends were going to be paid anyway.

[01:15:39] Speaker 00:
They were already in the pipeline.

[01:15:41] Speaker 00:
So the question was whether those dividends went to us or went to Treasury.

[01:15:45] Speaker 00:
And they went to Treasury.

[01:15:46] Speaker 00:
And we're not talking about the actual issuance of the dividend, Your Honor.

[01:15:50] Speaker 00:
We're talking about the rights to dividends and the right to our liquidation preference.

[01:15:54] Speaker 00:
Those are rights only we have.

[01:15:56] Speaker 00:
The corporation has no right to dividends.

[01:15:59] Speaker 00:
The corporation has no right to a liquidation preference.

[01:16:02] Speaker 00:
Those are uniquely our rights.

[01:16:04] Speaker 00:
And I would say this, Your Honor, we think that under STAR, this court's decision, this is clear enough, and that should end the matter.

[01:16:11] Speaker 00:
And under Allegheny Supreme Court, that this equity reallocation doctrine makes it clear that these are direct.

[01:16:17] Speaker 00:
But if the court believes that under Delaware law, these are really derivative, we would suggest you certify the claim to the Delaware Supreme Court.

[01:16:25] Speaker 00:
We are confident that the Delaware Supreme Court would say that these are direct claims under Citigroup, under NAS, under Tully, because these are direct claims that uniquely belong to the shareholders.

[01:16:39] Speaker 00:
Secondly, I would say again in STAR, footnote 15, the stock split claims there were held to be direct.

[01:16:47] Speaker 00:
And the circumstance here is a direct analogy.

[01:16:50] Speaker 00:
In that case, the government was a shareholder at the time or after the reverse stock split.

[01:16:59] Speaker 00:
That claim was brought saying that that was unlawful or that was a take-in.

[01:17:05] Speaker 00:
And here, Treasury was a shareholder at the time of the Third Amendment.

[01:17:09] Speaker 00:
And again, here, no new money was brought to the table, none.

[01:17:14] Speaker 00:
It's a very, very different circumstance

[01:17:17] Speaker 00:
from the circumstances in Delaware cases that say claims are derivative.

[01:17:21] Speaker 09:
Are you saying there's an injury to the shareholders' right to dividends because they didn't get paid?

[01:17:32] Speaker 00:
Because they lost the right to ever get dividends.

[01:17:35] Speaker 00:
It's a threshold right.

[01:17:36] Speaker 00:
It's not whether they got paid or not, it's whether they ever had a right to dividends at all.

[01:17:41] Speaker 00:
Their right to dividends was extinguished and given directly to Treasury.

[01:17:45] Speaker 00:
All dividends

[01:17:46] Speaker 00:
went from the shareholders to Treasury.

[01:17:48] Speaker 00:
The liquidation preference was the same.

[01:17:51] Speaker 00:
Our liquidation preference was extinguished, and Treasury got all of the rights to a liquidation preference.

[01:17:57] Speaker 00:
So it was a direct transfer of our rights from the shareholders to Treasury, independent, apart from, completely different from any harm to the corporation.

[01:18:07] Speaker 00:
I see my time is run out.

[01:18:09] Speaker 00:
One other point I would just make very quickly is that in Collins, the Supreme Court specifically said,

[01:18:15] Speaker 00:
there that because the relevant action in this case is the Third Amendment and because the shareholders concrete injury flows directly from that amendment, the traceability requirement is satisfied.

[01:18:27] Speaker 00:
That was on the constitutional claim there and the court said that that claim was a direct claim.

[01:18:33] Speaker 00:
Our claim is an analogous constitutional claim and that language should apply here.

[01:18:38] Speaker 00:
I see the rest of my time.

[01:18:41] Speaker 07:
Thank you, Mr. Rosenberg.

[01:18:43] Speaker 07:
I'm not sure.

[01:18:45] Speaker 07:
that Mr. Stern has the right to respond further?

[01:18:55] Speaker 00:
I'm sorry, Your Honor.

[01:18:57] Speaker 00:
I meant to cede the rest of the time to Mr. Barnes.

[01:19:01] Speaker 07:
Mr. Barnes.

[01:19:02] Speaker 07:
All right.

[01:19:04] Speaker 07:
Well, there is no time.

[01:19:06] Speaker 07:
But we'll give Mr. Barnes two minutes.

[01:19:10] Speaker 06:
Thank you very much, Your Honor.

[01:19:11] Speaker 06:
I just have a couple of quick points on the derivative claim.

[01:19:15] Speaker 06:
First, with respect to the suggestion that FHSA could bring these claims, I don't think that FHSA would have credential standing to assert these claims.

[01:19:26] Speaker 06:
We know from Collins that FHSA is the United States, and the United States can't sue itself.

[01:19:31] Speaker 06:
The second point, there was a suggestion that if we recognize and follow first Harper's conflict of interest exception, if the exception would somehow swallow the rule that the succession clause lays out,

[01:19:43] Speaker 06:
But that's not right at all, because normally in these shareholder derivative actions where a financial institution has been put into conservatorship, the shareholders are suing prior management.

[01:19:53] Speaker 06:
A good illustration of that is the Pareto case, the case out of the Ninth Circuit.

[01:19:57] Speaker 06:
It's cited in the briefs.

[01:19:59] Speaker 06:
And in that case, the Ninth Circuit, even though it recognizes a conflict of interest exception and follows First Hartford, it rejected shareholder derivative claims because they were claims not brought against the conservator, but against former management.

[01:20:13] Speaker 06:
And then finally, in terms of whether or not First Hartford can be distinguished from this case, I think it's instructed to look at the solicitor general's briefing in Collins in the Supreme Court.

[01:20:22] Speaker 06:
There was a lot of backing and forcing in the Supreme Court about whether or not First Hartford was right.

[01:20:27] Speaker 06:
But what the solicitor general's office did not argue is that First Hartford was distinguishable from this situation.

[01:20:32] Speaker 06:
They just took a run at arguing that First Hartford was incorrect and that the Supreme Court shouldn't follow it.

[01:20:38] Speaker 06:
The Supreme Court obviously didn't reach that issue, and this panel is bound by First Hartford, and for all those reasons, we think the derivative claims to survive.

[01:20:47] Speaker 07:
Thank you, Mr. Bonds.

[01:20:48] Speaker 07:
Unless I'm correct, I do not believe there's anything for Mr. Stern to respond to concerning the cross-appeal.

[01:20:58] Speaker 08:
That being the, I mean, I'm sorry, I'm happy to, like, if I don't have any lecture time, I would, I mean, the issues that were discussed were those that we brought on our cross-appeal dealing with the derivative nature and the governmental issue.

[01:21:21] Speaker 08:
But obviously, it's the course of discussion whether I have any rebuttal or not.

[01:21:28] Speaker 07:
Do my colleagues wish to have further argument on cross-appeal issues?

[01:21:36] Speaker 09:
I'm fine.

[01:21:38] Speaker 07:
And we will take the case on the submission.

[01:21:41] Speaker 07:
We thank all counsel for informative arguments.

[01:21:45] Speaker 07:
Case submitted.