[00:00:00] Speaker 03:
is Washington federal versus the United States, 2020, 2190.

[00:00:05] Speaker 03:
Mr. Green.

[00:00:09] Speaker 00:
Thank you, your honor.

[00:00:10] Speaker 00:
And may it please the court, Kevin Green for the Washington federal plaintiffs.

[00:00:15] Speaker 00:
And if there's one point I want to make today, it's a distinction from the prior cases.

[00:00:24] Speaker 00:
And first, as has been touched on,

[00:00:27] Speaker 00:
This is an unprecedented conservatorship.

[00:00:30] Speaker 00:
There's nothing remotely comparable probably even to the duration of it and much less the terms of it.

[00:00:37] Speaker 00:
But a key distinction on the direct derivative standing point is that the conservatorship took away the shareholders voting rights.

[00:00:48] Speaker 00:
And I want to focus on that in particular because it's not presented in the other cases.

[00:00:54] Speaker 00:
And that claim, that injury,

[00:00:58] Speaker 00:
can only be direct, even if dividends are debatable.

[00:01:03] Speaker 00:
Taking away the shareholder's right to vote, shareholder democracy, the ability to influence corporate affairs is a direct injury.

[00:01:13] Speaker 01:
And indeed... Is your claim then dependent upon the conclusion that the appointment of the conservator was unlawful?

[00:01:24] Speaker 00:
Your Honor, that has been alleged and if I can clarify one point on that, it is alleged to be unlawful but authorized as within the scope of officials, the government officials' official duties.

[00:01:45] Speaker 00:
But it doesn't necessarily hinge on that.

[00:01:49] Speaker 00:
Of course, the taking can result from lawful conduct.

[00:01:52] Speaker 00:
But we've pled the strongest case we can here that the conservatorship did not meet the statutory prerequisites for the Recovery Act and that the government took over Fannie and Freddie to use them to stabilize the national mortgage market on the backs of the shareholders and at their expense.

[00:02:10] Speaker 01:
Okay, so putting aside the question of whether or not

[00:02:19] Speaker 01:
you timely filed a complaint and whether or not those are direct versus derivative.

[00:02:26] Speaker 01:
Let me just ask you about the timing here.

[00:02:29] Speaker 01:
So the imposition of the conservatorship occurred on September 6, 2008.

[00:02:34] Speaker 01:
But the taking away of the voting rights, the taking away of the dividends, the right to the property interest and the rights to transfer stock, receive dividends, vote shareholder meetings,

[00:02:47] Speaker 01:
All of those occurred after the conservatorship was imposed, correct?

[00:02:55] Speaker 00:
I don't think so, Your Honor.

[00:02:56] Speaker 00:
They occurred as a result of the conservatorships.

[00:03:01] Speaker 00:
I don't think that the precise timing is necessarily conclusive.

[00:03:06] Speaker 00:
It was the fact of imposing the conservatorships that it was a takeover and the consequences that flowed from that.

[00:03:14] Speaker 00:
And that the government's actions, as we've argued and pledded, as regulator in imposing the conservatorships.

[00:03:22] Speaker 00:
So I don't know that that timing necessarily makes a difference.

[00:03:25] Speaker 00:
It was a result of the conservatorships.

[00:03:28] Speaker 01:
Okay, so then how do you deal with 4617A, 5A, where there is a very short window in which to challenge the conservatorship?

[00:03:40] Speaker 01:
And now you're way outside of that window.

[00:03:45] Speaker 00:
Well, not dispositive, but the Court of Federal Claims agreed with us on that, and I would just invite the Court's attention to the plain language of the statute.

[00:03:56] Speaker 00:
It refers to an action by the regulated entity, which alludes to a potential derivative claim, but these are shareholders.

[00:04:05] Speaker 00:
It's not the regulated entity.

[00:04:07] Speaker 00:
And importantly,

[00:04:09] Speaker 00:
seeking equitable relief, removing the conservator, which quite understandably, if there's going to be any unwinding, and practically speaking, that's hard to imagine.

[00:04:19] Speaker 00:
But if that is to occur, then that needs to be sought promptly.

[00:04:22] Speaker 00:
It says nothing about damages claims, it says nothing about constitutional claims, and for reasons other councils refer to,

[00:04:30] Speaker 00:
It would be a stretch under rules of statutory construction to read the statute that way.

[00:04:36] Speaker 00:
So we agree with the Court of Federal Claims that it simply doesn't apply here.

[00:04:41] Speaker 00:
The statute of limitations was a six-year statute.

[00:04:47] Speaker 01:
But that has to assume that your claims are direct and not derivative.

[00:04:54] Speaker 00:
That I'm not sure about because there just isn't case law

[00:04:59] Speaker 00:
on this particular provision and framed through that lens of direct derivative.

[00:05:05] Speaker 00:
But just applying the statute as it's written, it doesn't govern takings claims for damages stemming from a conservatorship.

[00:05:17] Speaker 00:
It just doesn't apply to this.

[00:05:19] Speaker 01:
All right.

[00:05:19] Speaker 01:
What's your response to RIP, where we specifically said that to the extent that

[00:05:25] Speaker 01:
of claims it's entitled to prevail because the agency acted in violation of statute or regulation, that you can't repackage that issue as a takings rather than through an administrative review proceeding.

[00:05:44] Speaker 00:
As I read that decision, it doesn't involve a very clear statute here.

[00:05:50] Speaker 00:
that says this is when you need to go through a particular procedure when you're challenging the conservator's appointment and potentially removing the conservator.

[00:06:03] Speaker 00:
I didn't see a comparable statute to any of that.

[00:06:06] Speaker 00:
Maybe there could be a conceptual similarity, but I mean, this is governed by the statute here, and I think because it's very specific and it doesn't and shouldn't be read to bar constitutional claims that it doesn't interfere with those.

[00:06:20] Speaker 00:
So there's nothing inconsistent with the statute, Section A5, in holding that the claims here, either direct or derivative, although we believe they're direct, may proceed.

[00:06:33] Speaker 00:
I mean, at least that they're standing to hear them.

[00:06:35] Speaker 00:
I mean, getting the merits of regulatory taking analysis under Penn Central and so on, we haven't gotten to that.

[00:06:44] Speaker 00:
But I think the core of the statute is something that, again, it's unscrambling the egg, as in the Delaware jurisprudence of potentially removing a conservator, a pretty extreme action that ought to be sought in 30 days or less.

[00:06:59] Speaker 00:
And that's what the statute directs that.

[00:07:01] Speaker 00:
And that's simply not our case.

[00:07:08] Speaker 00:
All right.

[00:07:09] Speaker 00:
Now, if I may go on.

[00:07:11] Speaker 00:
particularly because Judge Prost is on this panel, I want to address the STAR decision and why that doesn't make the claims here derivative.

[00:07:25] Speaker 00:
And the key distinction is that STAR was a bailout.

[00:07:31] Speaker 00:
It was not a takeover.

[00:07:34] Speaker 00:
The government loaned $85 billion to AIG when it was literally on the verge of bankruptcy the next day.

[00:07:41] Speaker 00:
and obtain an 80% equity interest.

[00:07:44] Speaker 00:
And so the argument was that that diluted the other shareholders' interests, not that it destroyed the value of their shares.

[00:07:53] Speaker 00:
And again, a conservatorship, and this one in particular, was a real watershed event for the stockholders.

[00:08:03] Speaker 00:
and the impact on the value, not just the value of their shares, which is personal to them resulting from this, so that the government could bail out the national mortgage market through a conservatorship.

[00:08:17] Speaker 00:
We've not seen anything like this before.

[00:08:19] Speaker 00:
But I think the analysis, the rationale, and the scope of STAR flows from that difference.

[00:08:26] Speaker 00:
And so it really is, STAR is read, and I'm trying to put this in simple terms,

[00:08:32] Speaker 00:
as a dilution case that, yes, it was literally an overpayment claim, which, of course, is derivative.

[00:08:41] Speaker 00:
And we don't have that here because the stockholders are saying that our shares were worth a certain amount and then plummeted dramatically in value as a result of the conservatorship that was imposed in violation of the Recovery Act or not authorized by it.

[00:09:00] Speaker 00:
to stabilize the national mortgage market.

[00:09:04] Speaker 00:
And I want to go back to voting rights and the distinction there, because even the voting rights claim in STAR, the argument was that voting rights were diluted, not that they were eliminated.

[00:09:15] Speaker 00:
And the latter is our case.

[00:09:17] Speaker 00:
And in fact, shareholder democracy continued in STAR.

[00:09:20] Speaker 00:
So part of the argument was that the shareholders, the government had somehow maneuvered

[00:09:25] Speaker 00:
things so that the shareholders couldn't undertake a vote on something.

[00:09:29] Speaker 00:
Well, they still had the right to vote.

[00:09:31] Speaker 00:
What does that tell you?

[00:09:32] Speaker 00:
Here, they didn't have that.

[00:09:34] Speaker 00:
And so the takings claim is for that bundle of rights.

[00:09:39] Speaker 00:
It's the loss of value between September 6, the day of the conservatorship, and September 8, when the shares were worth 10% of what they were before.

[00:09:51] Speaker 00:
And there's the voting rights and I think also the dividend rights.

[00:09:55] Speaker 00:
And I understand that this may be, from the prior discussion, this may be debatable and a little closer.

[00:10:02] Speaker 00:
But that is Perry Capital, which is not a takings claim, but it is the same conservatorship where the D.C.

[00:10:10] Speaker 00:
Circuit said that direct claims do not pass through the secession clause.

[00:10:16] Speaker 00:
Well, that also tells me that there could be direct claims

[00:10:19] Speaker 01:
that exists preceding the conservatorship and- Yeah, but did you really plead a cognizable injury to voting rights?

[00:10:32] Speaker 00:
Yes, Your Honor, and I believe that's at paragraphs 30 and 31 of our complaint, of the first amended complaint.

[00:10:42] Speaker 00:
And that is most assuredly pled, and that would be at the Joint Appendix, page 98.

[00:10:52] Speaker 00:
Thirty, thirty-one, and I think thirty-two.

[00:10:54] Speaker 03:
Mr. Green, you said you wanted to address Starr because the post was on the panel.

[00:11:01] Speaker 03:
Starr is relevant or not, irrespective of whether the author of Starr is on the panel?

[00:11:09] Speaker 00:
Oh, I fully understand that, Your Honor.

[00:11:12] Speaker 00:
Given that connection, I meant nothing otherwise than that.

[00:11:17] Speaker 00:
But there's no allegation.

[00:11:20] Speaker 00:
As shareholder, I want to go back to this notion of diminution of value.

[00:11:25] Speaker 00:
And the conservatorship destroyed the value for the stockholders, many of whom had held Fannie and Freddie stock, much like people used to hold General Motors.

[00:11:37] Speaker 00:
And before 2008, if we go back in the picture of those events, that was a very stable and predictable investment.

[00:11:46] Speaker 00:
And I think nobody would have predicted or foreseen a situation where the government would take over Fannie and Freddie and use it for other purposes and as we've alleged in detail with coerced consent.

[00:12:02] Speaker 00:
And I'm not going to get into that because we've briefed it at length.

[00:12:06] Speaker 00:
I see that I'm running into my rebuttal time.

[00:12:10] Speaker 00:
Unless there are any questions, I'd like to reserve the remainder.

[00:12:14] Speaker 03:
We will do that Mr. Green and Mr. Stern.

[00:12:18] Speaker 00:
Thank you.

[00:12:20] Speaker 02:
Thank you your honor Mark Stern for the United States.

[00:12:25] Speaker 02:
The claim here we think was as an initial matter we think was clearly time barred.

[00:12:34] Speaker 02:
We also think that it is clearly derivative that the, if I understand the,

[00:12:44] Speaker 02:
what the request for relief is, it appears to be the difference in the share value of the enterprises between two dates.

[00:12:57] Speaker 02:
And that is essentially, again, a derivative claim.

[00:13:03] Speaker 02:
The voting rights allegations formed

[00:13:08] Speaker 02:
are in the complaint, they won't form a very big part of the complaint and the relief sought has always been money that would have gone to the enterprises.

[00:13:24] Speaker 02:
We also think that the note also that the entire basis of this that there was impermissible coercion of which there is like

[00:13:38] Speaker 02:
like there's sort of threadbare allegations that don't survive Iqbal and Twamili.

[00:13:44] Speaker 02:
There's also the fact that there were other bases that like for the, under which even if there had been no consent and Plankton's like recognizes that there was consent, but even if there wasn't,

[00:13:59] Speaker 02:
The, for example, 12 USC 4617A3C allows the, like permitted the conservatorship to go forward if there was an unsafe or unsound condition to transact business.

[00:14:16] Speaker 02:
And every other plaintiff in these cases, nobody disputes that this was a dire emergency, and that's why everything moved at the speed that it did.

[00:14:27] Speaker 01:
Mr. Stern, can I ask you, with respect to the time bar, is it your position that the Court of Federal Claims was wrong to say that that time bar only applies to the enterprises so it wouldn't impact any direct claim by its

[00:14:45] Speaker 01:
the stockholders because that provision is the only waiver or the total waiver of sovereign immunity with respect to the ability of anyone to object to the conservatorship.

[00:15:00] Speaker 02:
It is the only means of doing it, but it's that what Congress anticipated was the shareholders would go to the boards and ask the boards in classic

[00:15:13] Speaker 02:
you know, shareholder derivative fashion to like reject the claim and the reject the conservatorship.

[00:15:23] Speaker 02:
And that was what instead what we have is and there's also where the suit was to bring the suit and the suit was going to be brought in district court, not in the court of federal claims.

[00:15:37] Speaker 02:
Washington Federal recognizes that trying to unwind the conservatorship at this point would be a non-starter, but of course that's exactly why such a claim like this one was supposed to be brought within 30 days.

[00:15:52] Speaker 02:
But even if it wasn't time barred, and we think it was, the claim was a derivative one as the Court of Federal Claims did recognize.

[00:16:04] Speaker 02:
And the assumptions on which any of this rests are untenable because they didn't need the consent of the enterprises to impose the conservatorship.

[00:16:22] Speaker 02:
the allegations of coercion and this after years of discovery are sort of absolutely unsupported by any sort of fact or allegation other than the general kind of assertion that doesn't survive equally.

[00:16:40] Speaker 02:
So there's a whole menu.

[00:16:42] Speaker 01:
So I'm trying to understand how this works.

[00:16:44] Speaker 01:
So RIF says that you can't challenge whether an agency action

[00:16:52] Speaker 01:
violates a statute when you haven't asserted it within the regulatory framework for allowing that, right?

[00:17:03] Speaker 02:
That's correct.

[00:17:05] Speaker 01:
Okay.

[00:17:06] Speaker 01:
So what is left?

[00:17:10] Speaker 01:
If we find that the Court of Federal Claims was wrong about the time bar, is that the end of the inquiry?

[00:17:15] Speaker 01:
Do we still have to address the direct versus derivative nature of these things?

[00:17:22] Speaker ?:
No.

[00:17:22] Speaker 02:
We think that the case should be dismissed at the threshold because of the time bar.

[00:17:29] Speaker 01:
Okay, but RIF doesn't imply that you would still have to proceed just simply on the assumption that the imposition of the conservatorship was okay?

[00:17:40] Speaker 02:
I'm sorry, I'm not really sure I understand the question.

[00:17:45] Speaker 01:
Well, Rift doesn't say that taking his claims are necessarily barred, but it says that it means you have to proceed on the assumption that the imposition of a conservatorship isn't challengeable anymore.

[00:18:00] Speaker 01:
So my question is then what's left if it's not challengeable under Rift?

[00:18:05] Speaker 02:
But we don't think that the imposition of the conservatorship as a basis for the suit is available if the plaintiff had the opportunity under the statute to proceed, did not do so, and filed a separate claim years later.

[00:18:27] Speaker 02:
So we don't think that there is anything left in light of the

[00:18:33] Speaker 02:
in light of the time period created specifically by the statute.

[00:18:44] Speaker 02:
But as I say, there are like alternative

[00:18:47] Speaker 02:
grounds including that on which the court of federal claims ruled, then, you know, we think that they can any and all of these can be the basis for an affirmance without reaching any of the other grounds.

[00:19:06] Speaker 02:
I'm happy to answer any other questions that the court may have.

[00:19:14] Speaker 03:
Thank you, Mr. Stern.

[00:19:15] Speaker 03:
I'm not hearing any, so Mr. Green has some more butter time.

[00:19:22] Speaker 00:
Thank you, Your Honor, and on the timing issue and the statute

[00:19:27] Speaker 00:
Again, it's important to emphasize what this case is about is pled at the pleading stage.

[00:19:33] Speaker 00:
It seeks damages for violations of the Fifth Amendment takings clause.

[00:19:38] Speaker 00:
It doesn't seek to unwind anything.

[00:19:41] Speaker 00:
It doesn't challenge the appointment of the conservator.

[00:19:44] Speaker 00:
It challenges the consequences of that in violation of the Fifth Amendment.

[00:19:49] Speaker 00:
And the statute is very clearly written.

[00:19:52] Speaker 00:
It refers to the regulated entity.

[00:19:55] Speaker 00:
bringing a claim, which it would have an interest in doing, in contrast to shareholders, potentially to challenge and obtain the removal of the conservator.

[00:20:05] Speaker 00:
And that is just not this case.

[00:20:08] Speaker 00:
It's very narrow.

[00:20:09] Speaker 00:
And so we employ a lot into that statute to say that a Fifth Amendment takings claim of some kind would have to be brought in, say, federal district court against the government, which, of course, the district court wouldn't have jurisdiction to hear.

[00:20:23] Speaker 00:
So for all those reasons, it just doesn't add up that the shareholders hear that that would be their only remedy somehow.

[00:20:31] Speaker 00:
It doesn't make any sense, and Congress clearly didn't reach further than that.

[00:20:36] Speaker 00:
Next point, a loss can fall equally on all shareholders and still be a direct claim.

[00:20:44] Speaker 00:
Thule says that.

[00:20:45] Speaker 00:
I believe it's quoted in Star.

[00:20:47] Speaker 00:
And that reinforces my point about the nature of the financial harm.

[00:20:53] Speaker 00:
It wasn't just the voting rights which necessarily are personal and individual.

[00:20:58] Speaker 00:
And the government at page 37 of its brief seems to concede that voting rights are direct in nature.

[00:21:07] Speaker 00:
So we can disagree about a lot here but there doesn't seem to be disagreement on that.

[00:21:12] Speaker 00:
And then my last point.

[00:21:16] Speaker 00:
My friend on the other side argued that the merits of this to some extent and whether the Recovery Act prerequisites for conservatorship were satisfied, and none of that really should be contestable now on a motion to dismiss.

[00:21:34] Speaker 00:
It's all well-pled, but there aren't factual findings from the Supreme Court that would somehow control

[00:21:42] Speaker 00:
Here, and in any event, you can read Collins' as making points in support of us.

[00:21:48] Speaker 00:
And Collins noted that Fannie and Freddie were still solvent at the time.

[00:21:54] Speaker 00:
And why would the government scramble as it did?

[00:21:58] Speaker 00:
And I respectfully disagree with my opponent that this is not alleged in detail.

[00:22:03] Speaker 00:
It's from their own documents and emails.

[00:22:06] Speaker 00:
Why would the government scramble to obtain consent from the board if any of the other grounds were satisfied?

[00:22:12] Speaker 00:
And the government didn't do that.

[00:22:14] Speaker 00:
And we think that all that supports an amendment allowing this case to go forward on standing.

[00:22:22] Speaker 00:
I don't know how it comes out on the merits, but those should be litigated.

[00:22:28] Speaker 00:
Unless the court has any questions.

[00:22:31] Speaker 03:
Thank you, Mr. Green.

[00:22:33] Speaker 03:
And we appreciate the argument of both of you when the case is submitted.

[00:22:37] Speaker 00:
Thank you.

[00:22:39] Speaker 03:
That concludes the arguments for this morning.