On August 12, the U.S. Court of Appeals for the Federal Circuit affirmed a lower court’s dismissal of a shareholder suit brought by two stockholders. The two plaintiff stockholders held interests in both Fannie Mae and Freddie Mac and alleged a violation of the Fifth Amendment’s takings clause. The plaintiffs challenged the so-called “net worth sweep” provision in a 2012 amendment to a Treasury agreement, which required the enterprises to transfer all profits and losses to the Treasury through quarterly dividends based on their net assets. The plaintiffs argued the arrangement was unconstitutional and sought to recover billions in diverted funds for the enterprises.
The lower claims court had previously dismissed the suit, finding the claims indistinguishable from those rejected in a similar case three years ago — a binding precedent from the same appellate court. In the previous case, the court held that Congress gave the FHFA broad authority as conservator, including prioritizing public interests over those of the enterprises’ shareholders. As a result, the enterprises lacked property interests on which shareholders could base a takings claim, and the appellate court found no grounds to revisit that holding, despite new arguments. Accordingly, the judgment of the claims court was affirmed, leaving intact the net worth sweep and the Treasury’s collection of enterprise profits.
[View source.]
