Fannie Mae and Freddie Mac shareholders return to the court after Collins

Petitions of the week

The Petitions of the Week column highlights a selection of cert petitions recently filed in the Supreme Court. A list of all petitions we’re watching is available here.

Under the Fifth Amendment, “private property” cannot be “taken for public use” by the government “without just compensation.” This week, we highlight cert petitions that ask the court to consider, among other things, whether the federal government’s decision to essentially nationalize the country’s largest federal backed mortgage-securities companies in the wake of the Great Recession was an unconstitutional “taking” of private shareholders’ assets.

In 2008, with the housing market collapsing, the federal government placed the two companies that handled the vast majority of Americans’ mortgages, Fannie Mae and Freddie Mac, under control of a new federal agency and lent them enough money to stay afloat. Congress intended this conservatorship to be temporary. Four years later, however, with the companies on their feet, the government changed its mind. In what came to be known as the “net worth sweep,” the agency and the secretary of the Treasury Department amended a series of stock-purchase agreements to direct the companies to begin returning nearly all their net worth above a survival amount back to the U.S. Treasury each quarter. The money is distributed to American taxpayers.

Fannie and Freddie’s private shareholders, whose investments were originally saved by the government’s intervention, found themselves shut out of the earnings from their shares of the rebounded companies’ assets. They filed a series of lawsuits against the government.

The court heard one set of these suits in 2020, against the Treasury Department and the agency created as Fannie Mae and Freddie Mac’s conservator, the Federal Housing Finance Agency. The shareholders had challenged both Treasury and the FHFA’s decision to essentially nationalize the companies in 2012 as violating the decision-making rules that govern federal agencies, and also the constitutionality of the FHFA’s structure. The court in Collins v. Yellen agreed that Congress had unconstitutionally insulated the FHFA’s director from termination by the president. But it ruled that Congress had deprived federal courts of jurisdiction to hear the administrative challenge to the agencies’ decision to administer the 2012 amendment.

In Owl Creek Asia I, L.P. v. United States (and three related petitions), the shareholders return to the court to challenge the 2012 amendment under the takings clause of the Fifth Amendment. The government’s decision to redirect Fannie Mae’s and Freddie Mac’s surpluses to the treasury, the shareholders argue, deprives them of dividends and other payouts from their existing shares without any compensation. In response, the government argues that the shareholders lack the right to sue because the only parties possibly harmed by the arrangement, if any, are the companies themselves.

A list of this week’s featured petitions is below:

NGL Supply Wholesale, LLC v. Federal Energy Regulatory Commission
22-90
Issue: Whether the U.S. Court of Appeals for the District of Columbia Circuit erred in deferring to the Federal Energy Regulatory Commission’s “interpretation of its own precedent” in the absence of a reasoned explanation for departing from the standards embodied in those precedents.

Banerian v. Benson
22-92
Issue: Whether a state may justify deviations from the standards for apportionment of congressional districts in Article I, Section 2 of the Constitution and Wesberry v. Sanders based on a purported desire to maintain “communities of interest.”

Financial Oversight and Management Board for Puerto Rico v. Centro de Periodismo Investigativo, Inc.
22-96
Issue: Whether the Puerto Rico Oversight, Management, and Economic Stability Act’s general grant of jurisdiction to the federal courts over claims against the Financial Oversight and Management Board for Puerto Rico and claims otherwise arising under PROMESA abrogate the Board’s sovereign immunity with respect to all federal and territorial claims.

Owl Creek Asia I, LP v. United States
22-97
Issue: Whether, if the United States causes a company to transfer private shareholders’ rights incident to their ownership of shares in the company to the United States for the public benefit, the private shareholders have a direct, personal interest in a cause of action challenging that taking.

Coinbase, Inc. v. Bielski
22-105
Issue: Whether a non-frivolous appeal of the denial of a motion to compel arbitration ousts a district court’s jurisdiction to proceed with litigation pending appeal.