FNMA and FMCC preferreds. In search of the elusive 10 bagger.

[merkhet]

This is very odd...

[Guest cherzeca]

really loose between judge and clerk.  parties in their new motion were careful to say the MTD was vacated as moot.  that would have been much clearer

[blainehodder]

@blaine

 

no, that is required only if/when court denies motion to dismiss (for real)

 

Thanks for the clarification.

 

Too bad!

[hardincap]

seems v sloppy of them to do this in such a high profile case. even j steele was confused

[Guest cherzeca]

seems v sloppy of them to do this in such a high profile case. even j steele was confused

 

didn't see steele refer to saxton. where did you see that?

[Luke 532]

More of the same in terms of arguments from the government.  Seems to be a weak response to Steele's arguments...

 

Posted with permission from:

Peter A. Chapman / peter@bankrupt.com / (215) 945-7000

 

Three documents were delivered to Judge Sleet this evening:

 

    (A) FHFA, Treasury, Fannie and Freddie delivered their Opposition (Doc. 27) to the Delaware Plaintiffs' request to certify the question about the legality of the Net Worth Sweep under Delaware and Virginia corporate law to those states' courts, arguing that nothing the state courts will say would be dispositive of anything because the Net Worth Sweep is perfectly legal because it was the Government that injected billions of dollars into the GSEs, and the novelty of that situation is what justifies it;

 

    (B) Treasury's Reply (Doc. 28) in support of its motion to dismiss the Delaware Plaintiffs' Complaint, arguing again HERA bars you from suing us, federal law trumps all state law; and Judge Lamberth's decision is all anybody needs to read; and

 

    © FHFA's Reply (Doc. 29) in support of its motion to dismiss the Delaware Plaintiffs' Complaint, echoing the arguments made in Docs. 27 and 28.

15-00708-0028.pdf

15-00708-0027.pdf

15-00708-0029.pdf

[Guest cherzeca]

fhfa reply brief re MTD in Hindes/jacobs:  https://www.dropbox.com/s/zl1hmds7h4fo3xp/delaware%20fhfa%20MTD%20reply%20brief.pdf?dl=0

 

doj reply brief re MTD in Hindes/jacobs:  https://www.dropbox.com/s/vd96xxy9dny39yl/delaware%20treasury%20reply%20brief%20MTD.pdf?dl=0

 

reply to cetif request:  https://www.dropbox.com/s/vu29sjzpei7o1ax/delaware%20defendants%20oppo%20to%20certification.pdf?dl=0

 

as i read the reply briefs, there are no new arguments advanced.  if you read the original MTD briefs, then you aren't going to read much new in the replies to the plaintiffs' reply, which is here:  https://www.dropbox.com/s/ckfh8qlgs4kynjp/delaware%20reply%20to%20motion%20to%20dismiss.pdf?dl=0

 

the reply to certif basically says that a fed judge should only refer cases to state Sct where the state law question is outcome determinative and is likely to affect future cases.  but of course if fed judge finds there is jurisdiction and no federal preemption, then state law is outcome determinative, and if NWS isnt invalidated, there could very well be future examples where this kind of preferred could be issued

[hardincap]

seems v sloppy of them to do this in such a high profile case. even j steele was confused

 

didn't see steele refer to saxton. where did you see that?

 

sent a brief one liner email to him at msteele at potteranderson

[Guest cherzeca]

@hardincap

 

right.  i have had some email convo with him too, insofar as i am a class member that he is repping  ;D

 

i like the cut of that guy's jib

[Guest cherzeca]

i have a confession to make.

 

lamberth has me spooked.

 

i strongly believe that with respect to the delaware case, the amendment of the treasury preferred that resulted in the issuance of the NWS is an exercise of a corporate power to issue stock, the validity of which is governed by state law, since there was no federal preemption of this power in HERA.  it is not an exercise of a corporate power to "transfer assets" as argued by fhfa (indeed no assets were transferred in connection with the issuance of the NWS)  or "manage business" (the business conducted by fnma/fmcc is mortgage finance; the business of fnma/fmcc is not to issue preferred stock).

 

so i think the delaware case is very strong.

 

and yet, i am still spooked that sleet might be a wannabe lamberth

 

these are strange times

[merkhet]

i have a confession to make.

 

lamberth has me spooked.

 

i strongly believe that with respect to the delaware case, the amendment of the treasury preferred that resulted in the issuance of the NWS is an exercise of a corporate power to issue stock, the validity of which is governed by state law, since there was no federal preemption of this power in HERA.  it is not an exercise of a corporate power to "transfer assets" as argued by fhfa (indeed no assets were transferred in connection with the issuance of the NWS)  or "manage business" (the business conducted by fnma/fmcc is mortgage finance; the business of fnma/fmcc is not to issue preferred stock).

 

so i think the delaware case is very strong.

 

and yet, i am still spooked that sleet might be a wannabe lamberth

 

these are strange times

 

Probably a spillover emotional result of the "reversal" of the "denial" of the MTD in the Saxton case. At least that's what I think my current worries are attributed to at the moment. I also increased my position this morning, so that might be it as well.

[Guest cherzeca]

"Probably a spillover emotional result of the "reversal" of the "denial" of the MTD in the Saxton case. At least that's what I think my current worries are attributed to at the moment. I also increased my position this morning, so that might be it as well."

 

well remember what soros said to druck, it is not whether you are right, but how long you are when you are right

 

[merkhet]

well remember what soros said to druck, it is not whether you are right, but how long you are when you are right

 

True, but I am neither Soros nor Druck.

[Mephistopheles]

 

and yet, i am still spooked that sleet might be a wannabe lamberth

 

these are strange times

 

And/or maybe Reade might be a wannabe Lamberth too.

 

I'm also worried. For all we know, the administration can just be buying out all of these judges and willing to excuse their behavior with Presidential Pardons. The law is on our side but what if that's not enough?

[hardincap]

I dont know how you can not be worried, given that its in the hands of judges who are human and subject to the same biases and frailties as the rest of us. even if the nws was in fact unlawful, there must be an incredible amount of pressure on the judges to look the other way, given the colossal sums of money (not to mention political capital) at stake for the government. whats more, now that there is precedent set with lamberth, subsequent judges can play the "me too" card. there is less risk to them personally to go with the tide than against.

[tede02]

I don't post much on this thread because its hard to add anything intelligent beyond what all the regulars put out there.  I've taken a small position because the legal arguments do seem sound.  However, what's worried me from the beginning, and the reason I don't take on more exposure, is the politics involved.  I'm sure these judges are just as scared as the politicians of a headline to the effect of, "hedge funds score big on xx ruling on Fannie/Freddie."  Although this "should" have no relevance from a legal standpoint, its obviously at least one elephant in the room. 

 

On the flip side, it is interesting to see the various special interest groups calling for the release of the companies.  Political pressure is coming from lots of different directions. 

[merkhet]

The main worries here remain procedural. If the 4617(f) bar and succession to both derivative and direct shareholder rights continue to hold up for the Government, then the courts never get to the merits.

[Guest cherzeca]

I dont know how you can not be worried, given that its in the hands of judges who are human and subject to the same biases and frailties as the rest of us. even if the nws was in fact unlawful, there must be an incredible amount of pressure on the judges to look the other way, given the colossal sums of money (not to mention political capital) at stake for the government. whats more, now that there is precedent set with lamberth, subsequent judges can play the "me too" card. there is less risk to them personally to go with the tide than against.

 

the "me too" judicial cop out is a real concern, as you state.  fwiw, that's why i find the delaware case to be promising.  it focuses on a different issue than perry, saxton and other similar cases.

 

all of these cases turn as merkhet says on the anti-injunction provision withdrawing jurisdiction from courts to the extent conservator exercises a conservator power or function.  all cases other than delaware focus on conservator duty to conserve and rehabilitate (which fhfa says is not even a duty but is permissive), saying that NWS doesnt do this, hence NWS is subject to judicial review.

 

the delaware case focuses on corporate power to issue pref stock with NWS terms.  a judge looking at this issue really doesn't have lamberth to follow as a me too cop out example, because the power to issue NWS is really a different analysis than whether NWS fails to conserve and rehab.  in my view, it is also an easier analysis.

 

so the question becomes whether lamberth is an outlier or the new normal of judicial competency and independence.  it is easier, of course, for appeals judges at a higher pay grade so to speak and acting as a threesome to make the call than a solitary trial judge.

[merkhet]

I'm thinking we hear one way or another from the Delaware court in March.

 

The MTD is fully briefed as of yesterday and the certification application will be fully briefed by February 26. Can't imagine it will take too long to get a response.

[Guest cherzeca]

I'm thinking we hear one way or another from the Delaware court in March.

 

The MTD is fully briefed as of yesterday and the certification application will be fully briefed by February 26. Can't imagine it will take too long to get a response.

 

you may be right, but sleet may want oral argument.  if so that will move the decision back a couple of months.

 

on a case like this, i sure would want oral arg

[merkhet]

I'm thinking we hear one way or another from the Delaware court in March.

 

The MTD is fully briefed as of yesterday and the certification application will be fully briefed by February 26. Can't imagine it will take too long to get a response.

 

you may be right, but sleet may want oral argument.  if so that will move the decision back a couple of months.

 

on a case like this, i sure would want oral arg

 

Good point. There could also be a delay in terms of the "conflict of interest" re shareholder rights. If that's the case, I could see the court delaying things a little bit by asking for some proof of the conflict from the discovery documents in Fairholme.

[Eye4Valu]

Also keep in mind that is more difficult for outside observers to know how these cases are proceeding since we do not have access to the discovery materials. Bruce recently mentioned that the current share prices do not reflect what has been produced in discovery. Being long entails some blind faith in what has been discovered and in the judicial process itself. You would like to think that the government would be held to account for unlawful actions. On the flip side of that, the government is a 1,000 pound gorilla. I must say that I admire Bruce and the others who are willing to contest the government's actions here. While we're all interested in the potential to make a buck, it's also about what is just and right. Don't be afraid to get or stay long in support of the American way of life. (With no offense intended for board members from elsewhere)

[doughishere]

Also keep in mind that is more difficult for outside observers to know how these cases are proceeding since we do not have access to the discovery materials. Bruce recently mentioned that the current share prices do not reflect what has been produced in discovery. Being long entails some blind faith in what has been discovered and in the judicial process itself. You would like to think that the government would be held to account for unlawful actions. On the flip side of that, the government is a 1,000 pound gorilla. I must say that I admire Bruce and the others who are willing to contest the government's actions here. While we're all interested in the potential to make a buck, it's also about what is just and right. Don't be afraid to get or stay long in support of the American way of life. (With no offense intended for board members from elsewhere)

 

I think we would be having a very different conversation if we could see some of the discovery.

[merkhet]

As much as I agree that discovery is likely providing damning evidence against the government, I have to reiterate my worries here about procedural versus substantive law. This is a bit difficult for the non-lawyers to understand, but just being right on the merits is not enough. You also have to be procedurally (jurisdiction, standing, etc.) allowed to bring the case.

 

Although, despite my procedural worries, I did slightly increase my position yesterday.

[doughishere]

As much as I agree that discovery is likely providing damning evidence against the government, I have to reiterate my worries here about procedural versus substantive law. This is a bit difficult for the non-lawyers to understand, but just being right on the merits is not enough. You also have to be procedurally (jurisdiction, standing, etc.) allowed to bring the case.

 

Although, despite my procedural worries, I did slightly increase my position yesterday.

 

 

We appreciate the insights filling in the blanks and all, Merk and cherzeca.

 

Edit: And everyone else.