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Treasury Reply to Perry Cross Motion

Treasury Reply to Perry Cross Motion

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Published by Chris Herzeca
FHFA:Treasury Reply to Perry Cross Motion for SJ
FHFA:Treasury Reply to Perry Cross Motion for SJ

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Published by: Chris Herzeca on Jun 25, 2014
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10/27/2014

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
PERRY CAPITAL LLC
,
 
) ) Plaintiff, ) ) v. ) Case No. 1:13-cv-1025-RCL )
JACOB J. LEW
,
 
in his official capacity as )
 
Secretary of the Treasury,
et al 
., ) ) Defendants. )  _____________________________________________ )
FAIRHOLME FUNDS, INC.
,
et al.
, ) ) Plaintiffs, ) ) v. ) Case No. 1:13-cv-1053-RCL )
FEDERAL HOUSING FINANCE AGENCY
,
 
)
 
et al 
., ) ) Defendants. )  _____________________________________________ )
ARROWOOD INDEMNITY COMPANY
, )
et al.,
) ) Plaintiffs, ) ) v. ) Case No. 1:13-cv-01439-RCL )
FEDERAL NATIONAL MORTGAGE
)
 ASSOCIATION
,
et al 
., )
 
) Defendants. )  _____________________________________________ 
 
)
 In re Fannie Mae/Freddie Mac Senior
)
 Preferred Stock Purchase Agreement Class
)
Action Litigations
) Misc. Action No. 1:13-mc-1288-RCL  _________________________ ) ) This document relates to: ) ALL CASES )  _____________________________________________ )
TREASURY DEFENDANTS’ REPLY IN SUPPORT OF THEIR DISPOSITIVE MOTIONS AND OPPOSITION TO PLAINTIFFS’ SUMMARY JUDGMENT MOTIONS
Case 1:13-cv-01025-RCL Document 40 Filed 05/02/14 Page 1 of 73
 
i
TABLE OF CONTENTS Page
INTRODUCTION ...........................................................................................................................1 ARGUMENT ...................................................................................................................................6 I. The Court Does Not Have Jurisdiction Over the Plaintiffs’ Claims ....................................6 A.
 
Section 4617(f) of HERA Bars the Plaintiffs’ APA Claims ....................................6 B.
 
Section 4617(f) Also Bars the Plaintiffs’ Claims Against Treasury ......................11 C.
 
HERA’s Stockholder Rights Provision Precludes the Plaintiffs’ Lawsuits .................................................................................................................15 1. The plaintiffs’ claims are derivative ..........................................................15 2. HERA bars direct claims during the conservatorship of the GSEs.....................................................................................................20 3. There is no conflict of interest exception applicable to the  plaintiffs’ claims ........................................................................................22 D.
 
The Plaintiffs Do Not Have Prudential Standing ...................................................23 II. The Plaintiffs’ APA and Fiduciary Duty Claims Fail on the Merits .................................26 A.
 
The Third Amendment Was Not a “Purchase” of Securities .................................26 1.
 
The Third Amendment was an exercise of rights received in connection with the PSPAs ....................................................................26 2.
 
The Third Amendment was not a purchase of securities ...........................29 B.
 
Treasury Did Not Breach Any Fiduciary Duty to the Plaintiffs ............................38 C.
 
The Third Amendment Was the Result of Reasoned Decision Making ................43 1.
 
Treasury reasonably addressed the circularity of payments between the GSEs and Treasury, a practice that threatened to exhaust the GSEs’ draw capacity and endanger their future viability ..........................43 2.
 
Treasury did not fail to consider reasonable alternatives to the Third Amendment ................................................................................48
Case 1:13-cv-01025-RCL Document 40 Filed 05/02/14 Page 2 of 73
 
ii III. The Class Plaintiffs’ Takings Claim Should Be Dismissed ...............................................52 A. This Court Lacks Jurisdiction Over the Takings Claim .........................................52 B. Treasury Did Not Take the Plaintiffs’ Property by Entering into the Third Amendment ............................................................................................53 1.
 
The plaintiffs do not have any legally cognizable property interest for purposes of a takings claim .....................................................53 2.
 
Treasury has not taken any of the plaintiffs’ property interests .................56 3.
 
Treasury cannot be subject to taking liability, because it entered into the Third Amendment as a market participant ...................................58 C. The Takings Claim Is Not Ripe For Judicial Review ............................................59 CONCLUSION ..............................................................................................................................60
Case 1:13-cv-01025-RCL Document 40 Filed 05/02/14 Page 3 of 73

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