Montilla v. Federal Nat'l Mortgage Ass'n

United States Court of Appeals
For the First Circuit
No. 20-1673
NERIS MONTILLA, on behalf of herself and all others so similarly
situated; MICHAEL KYRIAKAKIS, on behalf of himself and all
others so similarly situated,
Plaintiffs, Appellants,
ROSELIA MONTUFAR, on behalf of herself and all others so
similarly situated; RUBEN VELASQUEZ, on behalf of himself and
all others so similarly situated,
Plaintiffs,
v.
FEDERAL NATIONAL MORTGAGE ASSOCIATION; FEDERAL HOUSING FINANCE
AGENCY,
Defendants, Appellees,
MR. COOPER, f/k/a Nationstar Mortgage, LLC; SETERUS, INC.;
C.I.T. BANK, N.A.,
Defendants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. William E. Smith, U.S. District Judge]
Before
Lynch and Kayatta, Circuit Judges,
and Woodcock,* District Judge.
* Of the District of Maine, sitting by designation.
Todd S. Dion for appellants.
Michael A.F. Johnson, with whom Dirk C. Phillips and Arnold
& Porter Kaye Scholer LLP were on brief, for appellee Federal
Housing Finance Authority.
Noah A. Levine, with whom Wilmer Cutler Pickering Hale & Dorr
LLP, Samuel C. Bodurtha, and Hinshaw & Culbertson LLP were on
brief, for appellees Federal Housing Finance Authority and Federal
National Mortgage Association.
Steven Fischbach for amici curiae Direct Action for Rights
and Equality, National Center for Law and Economic Justice,
National Housing Law Project, and Virginia Poverty Law Center.
June 8, 2021
LYNCH, Circuit Judge. Plaintiffs-appellants obtained
loans secured by mortgages on their real property in Rhode Island.
These agreements gave their lenders the right to nonjudicially
foreclose on the mortgages. The loans and mortgages were later
sold to the Federal National Mortgage Association ("Fannie Mae")
while the Federal Housing Finance Agency ("FHFA"), a federal
agency, was acting as Fannie Mae's conservator. Appellants
defaulted on their loans, and Fannie Mae, consistent with Rhode
Island law, conducted nonjudicial foreclosure sales of the
mortgaged properties.
Appellants brought suit in federal court alleging that
Fannie Mae and FHFA are government actors and that the nonjudicial
foreclosure sales violated their Fifth Amendment procedural due
process rights. They appeal from the district court's holding
that Fannie Mae and FHFA are not subject to their Fifth Amendment
claims and its order dismissing those claims. See Montilla v.
Fed. Hous. Fin. Agency, No. 18-cv-00632, slip op. at 9-11 (D.R.I.
May 26, 2020), ECF No. 40. We affirm.
I. Facts
A. Fannie Mae, Freddie Mac, and FHFA
Fannie Mae and the Federal Home Loan Mortgage
Corporation ("Freddie Mac") (collectively, the "government-
sponsored enterprises" or "GSEs") are "private, publicly traded
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corporations . . . created by federal charter to support the
development of the secondary mortgage market." Town of Johnston
v. Fed. Hous. Fin. Agency, 765 F.3d 80, 82 (1st Cir. 2014); see 12
U.S.C. § 1716b; id. § 1452. Among other activities, the GSEs buy
and sell residential mortgages. See 12 U.S.C. § 1719; id. § 1454.1
In July 2008, as the housing market crashed and the value
of the GSEs' loan portfolios declined, Congress established FHFA
through the Housing and Economic Recovery Act of 2008 ("HERA").
See 12 U.S.C. § 4511. HERA gave the director of FHFA the
discretionary authority to appoint FHFA as conservator or receiver
for Fannie Mae or Freddie Mac "for the purpose of reorganizing,
rehabilitating, or winding up the[ir] affairs." Id. § 4617(a)(2).
In September 2008, FHFA's director exercised this
authority and placed both entities into conservatorship. As
conservator, FHFA "immediately succeed[ed] to" the "rights,
titles, powers, and privileges" of Fannie Mae, Freddie Mac, and
the entities' shareholders and boards of directors. Id.
§ 4617(b)(2)(A).
1 Appellants' claims are solely against Fannie Mae.
However, because the issues presented in this case overlap
significantly with those in Sisti v. Fed. Hous. Fin. Agency, 324
F. Supp. 3d 273 (D.R.I. 2018), which involved claims against
Freddie Mac in addition to claims against Fannie Mae, we discuss
both entities together. See Faiella v. Fed. Nat'l Mortg. Ass'n,
928 F.3d 141, 149 (1st Cir. 2019) (describing Freddie Mac and
Fannie Mae as "siblings under the skin"). We heard oral argument
in this appeal and in Sisti on the same day.
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HERA also amended the GSEs' charters to allow the
Secretary of the Treasury to "purchase any obligations and other
securities issued by the corporation[s]." Pub. L. No. 110–289,
122 Stat. 2654, 2683 (codified at 12 U.S.C. § 1719(g)(1)(A)); id.
at 2684-85 (codified at 12 U.S.C. § 1455(l)(1)(A)). Under this
authority, Treasury entered into agreements to infuse capital into
Fannie Mae and Freddie Mac. In exchange, it received $1 billion
in senior preferred stock in both entities and warrants for the
purchase of common stock that, if exercised, would give Treasury
79.9% of the entities' common stock. Treasury has never exercised
these warrants and owns no common stock in either Fannie Mae or
Freddie Mac.
B. Foreclosures on Appellants' Properties
In 2011, acting as the GSEs' conservator, FHFA
established the Servicing Alignment Initiative ("SAI") to improve
loan servicer performance and to limit the GSEs' financial losses.
Plaintiffs allege that the SAI "directed [the GSEs' loan] servicers
to use non-judicial foreclosure procedures when foreclosing on
residential properties in Rhode Island."
Rhode Island permits nonjudicial foreclosures through a
statutory power of sale when that power is specified in the
mortgage contract. See Bucci v. Lehman Bros. Bank, FSB, 68 A.3d
1069, 1084-85 (R.I. 2013); 34 R.I. Gen. Laws § 34-11-22; id.- 5 -
§ 34-27-4. The GSEs' standard mortgage agreement, which was used
by the plaintiffs in this case, explicitly gives the lender a
statutory power of sale.
Appellant Neris Montilla executed a mortgage in July
2008 on a property in Providence. This mortgage was assigned to
Fannie Mae in April 2015 and serviced by C.I.T. Bank, N.A. ("CIT").
On September 10, 2016, CIT began nonjudicial foreclosure
proceedings under Rhode Island law against Montilla's property.
The mortgage was foreclosed on October 14, 2016. Similarly,
appellant Michael Kyriakakis's mortgage on his property was
assigned to Fannie Mae in May 2016. The loan servicer conducted
a nonjudicial foreclosure sale in December 2017 and recorded a
foreclosure deed in March 2018.
II. Procedural History
Montilla filed a putative class action against Fannie
Mae, FHFA, and CIT on November 19, 2018 in federal district court
in Rhode Island.2 The complaint was amended in December 2018 to
include Kyriakakis's claims. It alleged that FHFA and Fannie Mae
deprived Montilla, Kyriakakis, and others similarly situated of
property without "adequate notice and opportunity for meaningful
hearings" in violation of the Fifth Amendment. The plaintiffs
2 Other plaintiffs and defendants were also named in the
suit. They were later dismissed either voluntarily or by
stipulation.
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sought "declaratory relief, injunctive relief, actual, monetary,
punitive and exemplary damages, restitution, an accounting,
attorney's fees and costs, and all other relief as provided by
law."
FHFA and Fannie Mae moved to dismiss the case in February
2019. FHFA argued that it and Fannie Mae are not government actors
for the purposes of the plaintiffs' Fifth Amendment claims. Fannie
Mae joined FHFA's arguments and alternatively argued that, even if
it and FHFA were subject to the Fifth Amendment, the plaintiffs'
claims failed because there was no due process violation.
In May 2020, the district court granted FHFA and Fannie
Mae's motions to dismiss. See Montilla, slip op. at 1. It held
that because FHFA stepped into Fannie Mae's shoes as its
conservator and its ability to foreclose was a "contractual right
inherited from Fannie Mae by virtue of its conservatorship," FHFA
was not acting as the government when it foreclosed on the
plaintiffs' mortgages and was not subject to the plaintiffs' Fifth
Amendment claims. Montilla, slip op. at 9-10. In so holding, the
court disagreed with an earlier Rhode Island district court's
contrary holding in Sisti v. Fed. Hous. Fin. Agency, 324 F. Supp.
3d 273, 284 (D.R.I. 2018).
The court, applying Lebron v. Nat'l R.R. Passenger
Corp., 513 U.S. 374 (1995), also held that FHFA's conservatorship
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over Fannie Mae did not make Fannie Mae a government actor for the
purposes of the plaintiffs' constitutional claims because the
government does not exercise sufficient control over Fannie Mae.
See Montilla, slip op. at 6-9; see also Lebron, 513 U.S. at 398-
99 (holding that a corporation is subject to constitutional claims
if, among other things, the government "retains for itself
permanent authority to appoint a majority of the directors of [the]
corporation"). The court again disagreed with Sisti, which had
held that because the "decision to end [FHFA's] conservatorship is
left entirely to the discretion of the government," its control
over the GSEs is "effectively permanent." Sisti, 324 F. Supp. 3d
at 280-81.
Montilla and Kyriakakis timely appealed. FHFA, Fannie
Mae, and Freddie Mac timely appealed the decision in Sisti which
had reached the contrary result.3 We heard oral argument in these
appeals on May 4, 2021.
III. Analysis
We review an order granting a motion to dismiss de novo.
See Sterling Suffolk Racecourse, LLC v. Wynn Resorts, Ltd., 990
F.3d 31, 35 (1st Cir. 2021). To avoid dismissal, a plaintiff's
3 The Sisti opinion addressed two separate cases: one
brought by Judith Sisti against Freddie Mac and FHFA and another
brought by Cynthia Boss against Fannie Mae and FHFA. Sisti and
Boss were consolidated for oral argument.
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complaint must include factual allegations sufficient to state a
plausible claim to relief. See Abdisamad v. City of Lewiston, 960
F.3d 56, 59 (1st Cir. 2020).
A. FHFA, as the GSEs' Conservator, Is Not a Government Actor
Subject to Appellants' Due Process Claims
Adopting the district court's reasoning in Sisti, 324 F.
Supp. 3d at 281-84, appellants argue that because FHFA is a
government agency, any action it takes as conservator, like
directing the GSEs to nonjudicially foreclose on appellants'
mortgages, is government action subjecting it to appellants'
constitutional claims. That analysis is simply wrong and contrary
to law. We hold that, in its role as the GSE's conservator, FHFA
is not a government actor because it has "stepped into the shoes"
of the private GSEs.
First, it is undisputed that FHFA is a federal agency
that sometimes acts as the government. 12 U.S.C. § 4511(a). But
this fact is not dispositive. That a federal agency exercising a
portion of its statutory powers in one role is a government actor
does not as a matter of law mean that it is a government actor for
all purposes or in all exercises of its statutory powers. See
Faiella v. Fed. Nat'l Mortg. Ass'n, 928 F.3d 141, 148 (1st Cir.
2019). We must determine if FHFA acted as the government in its
role as the GSEs' conservator.
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Under HERA's "succession clause," when FHFA became the
GSEs' conservator, it succeeded to "all rights, titles, powers,
and privileges of the regulated entity, and of any stockholder,
officer, or director of such regulated entity with respect to the
regulated entity and the assets of the regulated entity." 12
U.S.C. § 4617(b)(2)(A). One of these rights was the GSEs' private
contractual right to nonjudicially foreclose on appellants'
mortgages, which FHFA instructed the GSEs' loan servicers to
exercise. Appellants do not allege that FHFA relied on any power
other than the GSEs' contractual rights in carrying out the
nonjudicial foreclosures.
The Supreme Court has interpreted a succession clause in
the Financial Institutions Reform, Recovery, and Enforcement Act
("FIRREA") with nearly identical language4 to the one in HERA to
mean that when a government agency acts as receiver for an entity,
it "'steps into the shoes' of the failed [institution]" and
exercises that entity's rights. O'Melveny & Myers v. FDIC, 512
U.S. 79, 86 (1994). Other circuits have interpreted HERA to mean
4 The language at issue in O'Melveny said that if the FDIC
becomes a conservator or receiver of an insured depository
institution, it succeeds to "all rights, titles, powers, and
privileges of the insured depository institution, and of any
stockholder, member, accountholder, depositor, officer, or
director of such institution with respect to the institution and
the assets of the institution." 12 U.S.C. § 1821(d)(2)(A)(i); see
also Perry Cap. LLC v. Mnuchin, 864 F.3d 591, 622 (D.C. Cir. 2017)
(describing HERA's language as "nearly identical" to FIRREA's).
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that when acting as the GSEs' conservator and exercising their
rights, FHFA steps into the GSEs' shoes. See Herron v. Fed. Nat'l
Mortg. Ass'n, 861 F.3d 160, 169 (D.C. Cir. 2017) (holding that
when FHFA "step[ped] into Fannie Mae's private shoes," it became
a private actor); Meridian Invs., Inc. v. Fed'l Home Loan Mortg.
Corp., 855 F.3d 573, 579 (4th Cir. 2017) ("[T]hough FHFA is a
federal agency, as conservator it steps into Freddie Mac’s shoes,
shedding its government character and also becoming a private
party."); see also U.S. ex rel. Adams v. Aurora Loan Servs., Inc.,
813 F.3d 1259, 1261 (9th Cir. 2016) (holding that FHFA's
conservatorship "places [it] in the shoes of Fannie Mae and Freddie
Mac, and gives the FHFA their rights and duties"). We agree that,
after stepping into the GSEs' shoes under HERA and exercising their
private contractual rights to nonjudicially foreclose on
appellants' properties, FHFA did not act as the government.
Appellants, again relying on Sisti, argue that O'Melveny
is inapplicable here because it involved a government agency acting
as receiver, not as a conservator. See Sisti, 324 F. Supp. 3d at
282-83. We disagree. O'Melveny was decided based on what the
statute's "language appears to indicate." 512 U.S. at 86. Section
4617(b)(2)(A) says that FHFA succeeds to the GSE's rights when it
acts "as conservator or receiver" (emphasis added). Similarly,
the statute at issue in O'Melveny says that the FDIC succeeds to
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the rights of failed depository institutions when it acts "as
conservator or receiver." 12 U.S.C. § 1821(d)(2)(A) (emphasis
added). There is no reason O'Melveny's textual logic does not
apply to both conservators and receivers.5
Appellants' final argument is that another Supreme Court
case, FDIC v. Meyer, 510 U.S. 471 (1994), controls this case and
requires a finding in their favor. Neither contention is accurate.
Meyer concerned whether a plaintiff could bring a Bivens claim
against the Federal Savings and Loan Insurance Corporation
("FSLIC"), a federal agency acting as receiver for a failed bank.6
See 510 U.S. at 473-75; see generally Bivens v. Six Unknown Named
Agents of Fed. Bureau of Narcotics, 403 U.S. 388 (1971). The Court
in Meyer held: (1) that the "sue-and-be-sued" clause in FSLIC's
organic statute waived FSLIC's sovereign immunity; and (2) that a
plaintiff cannot bring a Bivens claim against a federal agency
like FSLIC. Meyer, 510 U.S. at 483-84. Focusing on the "sue-and-
be-sued" holding, appellants' argument proceeds as follows: (1)
FSLIC was a federal agency acting as receiver; (2) the plaintiff
5 Assuming dubitante there was some basis for contention,
O'Melveny was decided on § 1821(d)(2)(A)(i)'s text and not, as
appellants argue, on the basis of a receiver's fiduciary duties.
There is no basis in O'Melveny to conclude that the fiduciary
duties of the FDIC as receiver affected its holding.
6 In Meyer, the FDIC was substituted for FSLIC and made
arguments on FSLIC's behalf after FIRREA abolished FSLIC. Id. at
474.
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brought a constitutional claim against FSLIC for actions it took
as receiver; (3) a federal court could not hear the case if FSLIC
had sovereign immunity; (4) only government actors can have (and
waive) sovereign immunity; (5) Meyer held that FSLIC waived
sovereign immunity through its "sue-and-be-sued" clause; so (6) by
deciding the sovereign immunity issue, the Court must have thought
that FSLIC is a government actor potentially liable for a
constitutional tort when it acts as receiver. Applying that logic
here, they say that FHFA, as a government agency, must be acting
as the government when it acts as the GSEs' conservators. See
Sisti, 324 F. Supp. 3d at 281-82.
Appellants misread Meyer. Meyer decided a threshold
jurisdictional question.7 See 510 U.S. at 475 (explaining that
sovereign immunity is "jurisdictional in nature"). It held that
FSLIC, through its "sue-and-be-sued" clause, waived any right it
may have had to argue that a federal court does not have the power
to address the merits of the plaintiff's claim. Id. at 479; see
also Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 89
7 Meyer does raise the issue of whether we have subject
matter jurisdiction to decide appellants' claims against FHFA.
HERA contains no "sue-and-be-sued" clause applicable to FHFA. But
because FHFA has "stepped into the shoes" of the GSEs when acting
as their conservator, it has also succeeded to their "sue-and-be-
sued" clauses, see 12 U.S.C. § 1723a(a) (Fannie Mae); id.
§ 1452(c)(7) (Freddie Mac), and we have jurisdiction over claims
against FHFA based on its actions as conservator.
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(1998) (distinguishing between "the absence of a valid . . . cause
of action" and "subject-matter jurisdiction, i.e., the courts'
statutory or constitutional power to adjudicate the case"). Meyer
never addressed the merits of the plaintiff's claim, including the
argument that his claim must fail because FSLIC was not acting as
the government. See id. at 486 n.12 ("[W]e do not reach the merits
of [Meyer's] due process claim."). Indeed, FDIC never made such
an argument to the Supreme Court and the Court had no reason to
reach it.
Properly viewing Meyer's "sue-and-be-sue" holding as
jurisdictional, Meyer did not decide that a federal agency is a
government actor whenever it acts as a receiver or conservator.
Such a categorical reading of Meyer is inconsistent with post-
Meyer Supreme Court cases, including O'Melveny, decided only four
months later, making clear that an agency acting as receiver is
not necessarily the government for all purposes. See O'Melveny,
512 U.S. at 85 ("[T]he FDIC is not the United States, and even if
it were we would be begging the question to assume that it was
asserting its own rights rather than, as receiver, the rights of
[the failed bank]."); Atherton v. FDIC, 519 U.S. 213, 225 (1997)
("[A]s in O'Melveny, the FDIC is acting only as a receiver of a
failed institution; it is not pursuing the interest of the Federal
Government . . . ." (emphasis added)). It is also inconsistent
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with post-Meyer case law from other circuits holding that an agency
is not necessarily the government when it acts as a conservator or
receiver. See Collins v. Mnuchin, 938 F.3d 553, 590 (5th Cir.
2019) (en banc), cert. granted, 141 S. Ct. 193 (2020) ("Whether an
agency exercises government power as conservator or receiver
'depends on the context of the claim.'" (quoting Slattery v. United
States, 583 F.3d 800, 827 (Fed. Cir. 2009), vacated then reinstated
as modified on reh'g en banc, 635 F.3d 1298 (Fed. Cir. 2011));
United States v. Heffner, 85 F.3d 435, 439 (9th Cir. 1996) ("The
[federally-owned Resolution Trust Corporation] in its corporate
character as receiver is not the federal sovereign . . . .");
United States v. Ely, 142 F.3d 1113, 1121 (9th Cir. 1997) ("Meyer
did not purport to determine the status of the FDIC when . . .
taking over a failed bank as receiver . . . ."). Here, FHFA is
not acting as the government in its capacity as the GSEs'
conservator. Appellants' constitutional claims against it fail
for that reason.
B. Fannie Mae and Freddie Mac Are Not Government Actors Subject to
Appellants' Due Process Claims
Appellants next argue that Fannie Mae and Freddie Mac
are themselves government actors. In Lebron, the Supreme Court
articulated a three-part test to determine when a private
corporation is a government actor for purposes of certain
constitutional claims against it. It held that if "[1] the
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Government creates a corporation by special law, [2] for the
furtherance of governmental objectives, and [3] retains for itself
permanent authority to appoint a majority of the directors of that
corporation," then the corporation's actions "are subject to the
constraints of the Constitution." Lebron, 513 U.S. at 376, 399.
The parties do not dispute that the first two prongs of the Lebron
test are satisfied. Appellants also do not dispute that, pre-
conservatorship, the GSEs were private actors not subject to their
claims. See Am. Bankers Mortg. Corp. v. Fed'l Home Loan Mortg.
Corp., 75 F.3d 1401, 1406 (9th Cir. 1996) (applying Lebron before
FHFA's conservatorship began to hold that "Freddie Mac is not a
government agency subject to the Fifth Amendment's Due Process
Clause"). The issue before us is whether, through FHFA's
conservatorship over the GSEs, the government has "retain[ed] for
itself permanent authority" over Fannie Mae and Freddie Mac.
Lebron, 513 U.S. at 399.
We hold that FHFA's temporary conservatorship over the
GSEs does not constitute permanent authority. FHFA controls the
GSEs for the limited purpose of "reorganizing, rehabilitating, or
winding up the[ir] affairs." 12 U.S.C. § 4617(a)(2); see also id.§ 4617(b)(2)(D)(i) (authorizing FHFA, as conservator, to take
actions "necessary to put the regulated entity in a sound and
solvent condition"). The statutory language confirms, as other
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courts have held, that a conservatorship has "an inherently
temporary purpose." Herron, 861 F.3d at 169 (quoting Rubin v.
Fed. Nat'l Mortg. Ass'n, 587 F. App'x 273, 275 (6th Cir. 2014));
see also Kerpen v. Metro. Wash. Airports Auth., 907 F.3d 152, 158
(4th Cir. 2018) ("Temporary control -- as when the federal
government steps in as a conservator -- is not sufficient [under
Lebron]."); Sprauve v. W. Indian Co. Ltd., 799 F.3d 226, 233 n.8
(3d Cir. 2015) (noting that control is temporary "where the
Government is acting as a conservator"). Given the
conservatorship's limited purpose, Congress is not required to
assign a definite endpoint to FHFA's conservatorship to make the
government's control temporary. See Herron, 861 F.3d at 169.
Similarly, appellants' argument that the conservatorship has
"continued to exist well past its intended purpose" fails. The
housing and mortgage financial markets are highly complex, as are
the various indicators of their financial health, so the fact that
FHFA has maintained the conservatorship for almost thirteen years
does not mean that the government's control is permanent.
Appellants have failed to plead a plausible claim, particularly in
light of indications that the government is working to eventually
bring the conservatorship to an end.8
8 In their briefing to us, appellants called our attention
to news articles discussing amendments to certain agreements
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The fact that Treasury owns senior preferred stock in
the GSEs and warrants that, if exercised, would give it 79.9% of
the GSEs' common stock does not change the analysis. Lebron says
that "a private corporation whose stock comes into federal
ownership" can still be "in the temporary control of the
Government." 513 U.S. at 398. Here, neither HERA nor Treasury's
agreements with the GSEs require the government to permanently
retain its interest in them.
governing FHFA's conservatorship. See Kelsey Ramirez, FHFA: GSEs
Can’t Exit Conservatorship on Retained Earnings, HousingWire
(January 15, 2021), https://www.housingwire.com/articles/fhfa-
gses-cant-exit-conservatorship-on-retained-earnings/; Joe Light,
Trump Clears Fannie-Freddie Capital Boost, Leaves Fates to Biden,
Bloomberg (January 14, 2021), https://www.bloomberg.com/news/
articles/2021-01-14/trump-clears-fannie-freddie-capital-boost-
leaves-fates-to-biden. We take judicial notice of the fact that,
on January 14, 2021, Treasury and FHFA amended Treasury's Preferred
Stock Purchase Agreements with Fannie Mae and Freddie Mac. The
amendments added language saying that "Treasury . . . [has] begun
work to establish a timeline and process to terminate the
conservatorship and raise capital" and that "Treasury . . .
endeavor[s] to transmit a proposal that details this work to both
Houses of Congress on or prior to September 30, 2021." See Letter
Agreement between Treasury and Fannie Mae (Jan. 14, 2021),
https://home.treasury.gov/system/files/136/Executed-Letter-
Agreement-for-Fannie-Mae.pdf; Letter Agreement between Treasury
and Freddie Mac (Jan. 14, 2021),
https://home.treasury.gov/system/files/136/Executed-Letter-
Agreement-for-Freddie%20Mac.pdf; see also Fed. R. Evid. 201
(permitting a court to take judicial notice of an adjudicative
fact sua sponte "at any stage of the proceeding"); Butler v.
Balolia, 736 F.3d 609, 611 (1st Cir. 2013) (stating that, when
reviewing an order granting a motion to dismiss for failure to
state a claim, this court may consider "facts susceptible to
judicial notice" (quoting Haley v. City of Bos., 657 F.3d 39, 46
(1st Cir. 2011))).
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Appellants' main argument is that FHFA's conservatorship
over the GSEs is temporary in name but permanent in practice. They
say that we should focus on the practical reality of the
government's control over the GSEs because the "permanent
authority" prong of the Lebron test was qualified by the Supreme
Court's decision in Department of Transportation v. Association of
American Railroads, 575 U.S. 43 (2015).
Both Lebron and American Railroads involved whether the
National Railroad Passenger Corporation (commonly known as Amtrak)
is a government entity for certain purposes. Lebron held that
Amtrak "is part of the Government for purposes of the First
Amendment." 513 U.S. at 399. American Railroads held that Amtrak
"acted as a governmental entity for purposes of the Constitution's
separation of powers provisions." 575 U.S. at 54. At issue in
American Railroads was whether Congress's directive that Amtrak
"is not a department, agency, or instrumentality of the United
States Government," 49 U.S.C. § 24301(a)(3), precluded Congress
from giving it joint authority with the Federal Railroad
Administration to issue "metrics and standards" governing
passenger railroad services. American Railroads, 575 U.S. at 45.
The Court found that Lebron provided "necessary instruction" on
whether Congress's "disclaimer of Amtrak's governmental status"
meant that it could not be a federal actor. Id. at 54-55. It
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held that the "practical reality of federal control and supervision
prevail[ed]" over Congress's directive. Id. at 55.
Appellants read American Railroads's "practical reality"
language to say that the degree of control the government actually
exercises over an entity informs whether its control is permanent.
They argue that because FHFA has all the powers of the GSEs' boards
of directors, see 12 U.S.C. § 4617(b)(2)(A), and has discretion to
determine when the conservatorship will end, 12 U.S.C.
§ 4617(a)(2), it permanently controls the GSEs. See also Sisti,
324 F. Supp. 3d at 280 ("The practical reality here is that the
government effectively controls Fannie Mae and Freddie Mac
permanently.")
This argument fails. American Railroads did not alter
Lebron's requirement that the government retain "permanent
authority" over an entity for it to be governmental. American
Railroads says nothing about Lebron's "permanent authority"
requirement, and the Supreme Court "does not normally overturn, or
so dramatically limit, earlier authority sub silentio." Shalala
v. Ill. Council on Long Term Care, Inc., 529 U.S. 1, 18 (2000).
Indeed, American Railroads had no reason to address whether the
federal government retained "permanent authority" over Amtrak.
The Court had already held in Lebron that it did. See 513 U.S.
at 399; Herron, 861 F.3d at 168 ("Because the government's
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permanent control over Amtrak was already established in Lebron,
the Court had no occasion to revisit that question in [American
Railroads].").
Appellants next argue, again relying on Sisti, that 12
U.S.C. § 4617(a)(2), which authorized FHFA's conservatorship "for
the purpose of reorganizing, rehabilitating, or winding up the
affairs [of the GSEs]," should be ignored. They say that, like
the statute at issue in American Railroads, it is a disclaimer of
governmental status entitled to no deference. Sisti, 324 F. Supp.
3d at 280. We disagree that Section 4617(a)(2) can be properly
read as a disclaimer or that its statutory command can be bypassed.
Section 4617(a)(2) confirms that FHFA's conservatorship has a
temporary purpose. It is directly relevant to whether FHFA
exercises "permanent authority" over the GSEs.
Finally, amici for appellants argue9 that Lebron's three-
part test is not the only relevant precedent. They say that
whether FHFA's conservatorship over the GSEs constitutes federal
government action must be analyzed under a series of other state
action theories, specifically the "coercive power" theory, the
9 Appellants never made this argument, and we ordinarily
do not consider arguments not made by the parties. Molina v. INS,
981 F.2d 14, 20 (1st Cir. 1992) ("Normally, we would not consider
. . . separate issues [raised by amici] . . . not raised by the
parties in the case."). However, Boss and Sisti made similar
arguments in their briefs to us.
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"joint participation" theory, the "entwinement" theory, and the
"government control" theory. See Brentwood Acad. v. Tenn.
Secondary Sch. Athletic Ass'n, 531 U.S. 288, 296-97 (2001)
(discussing these theories). All of these theories attempt to
determine whether "there is such a 'close nexus between the State
and the challenged action' that seemingly private behavior 'may be
fairly treated as that of the State itself.'" Id. at 295 (quoting
Jackson v. Metro. Edison Co., 419 U.S. 345, 351 (1974)); id.(holding that "state action may be found if, though only if" such
a "close nexus" exists). As the Supreme Court has stated, "a host
of facts . . . bear on the fairness of" attributing private action
to the government. Id. at 296. Here, because we have held that
FHFA10 acted privately and not as the government in its role as the
GSEs' conservator, we do not need to address whether FHFA's private
actions on behalf of the private GSEs constituted state action.
IV. Conclusion
Affirmed.
10 FHFA is the only relevant government entity, as the
appellants do not argue that Treasury directed or was involved in
any of the alleged constitutional violations at issue in this
appeal. See Blum v. Yaretsky, 457 U.S. 991, 1004 (1982) (stating
that the "close nexus" requirement ensures that "constitutional
standards are invoked only when it can be said that the State is
responsible for the specific conduct of which the plaintiff
complains" (second emphasis added)); Am. Mfrs. Mut. Ins. Co. v.
Sullivan, 526 U.S. 40, 51 (1999).
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