Fairholme Funds, Inc. v. United States

In the United States Court of Federal Claims
No. 13-465C
(Filed: March 9, 2020)
*************************************
FAIRHOLME FUNDS, INC. et al., *
*
Plaintiffs, *
* Certification of Interlocutory Appeal; 28
v. * U.S.C. § 1292(d)(2)
*
THE UNITED STATES, *
*
Defendant. *
*************************************
Charles J. Cooper, Washington, DC, for plaintiffs.
Kenneth M. Dintzer, United States Department of Justice, Washington, DC, for defendant.
ORDER
Plaintiffs and defendant each filed an unopposed motion requesting that the court certify
for interlocutory appeal its December 6, 2019 opinion granting in part and denying in part
defendant’s motion to dismiss. Defendant also moves to stay further proceedings pending the
resolution of the interlocutory appeal process, which plaintiffs do not oppose. For the reasons
explained below, the court grants the motions and will (1) modify the December 6, 2019 opinion
to include the language necessary for an interlocutory appeal and (2) stay further proceedings in
this case.
I. BACKGROUND
Plaintiffs challenge actions taken in connection with the conservatorships of the Federal
National Mortgage Association (“Fannie”) and the Federal Home Loan Mortgage Corporation
(“Freddie”). 1 In their complaint, plaintiffs aver that the Federal Housing Finance Agency
(“FHFA”) in its role as conservator (“FHFA-C”) for Fannie and Freddie (collectively, the
“Enterprises”) infringed on plaintiffs’ rights when the FHFA-C executed the third amendment to
the Preferred Stock Purchase Agreements (“PSPA Amendments”). Plaintiffs allege four types of
claims: a taking, illegal exaction, breach of contract, and breach of fiduciary duty. Each type of
1
For the sake of brevity, this order recites only the facts and background necessary for
the purposes of resolving the parties’ motions. Additional information on the genesis of this suit
and the underlying facts is set forth in the December 6, 2019 opinion on defendant’s motion to
dismiss. See Fairholme Funds, Inc. v. United States, 146 Fed. Cl. 17, 31-36 (2019).
claim is styled as (1) a direct claim and (2) a derivative claim on behalf of each Enterprise.
Defendant moved to dismiss the complaint on the bases that the court lacked subject-matter
jurisdiction over the claims, plaintiffs lacked standing to pursue their claims, and plaintiffs failed
to state a claim on which relief may be granted. The court, after reviewing hundreds of pages of
briefing and hearing nearly nine hours of oral argument, dismissed the direct claims.
Specifically, the court explained that (1) it lacked jurisdiction to entertain plaintiffs’ direct
fiduciary duty claim and implied-in-fact contract claim, (2) plaintiffs who first purchased
Enterprise stock after the PSPA Amendments lacked standing to pursue their direct claims, and
(3) plaintiffs lacked standing to pursue their self-styled direct claims because those claims were
substantively derivative. The court, however, denied defendant’s request to dismiss the
derivative claims.
Following the court’s decision, both plaintiffs and defendant requested that the court
certify its December 6, 2019 opinion for interlocutory review. Plaintiffs support their motion by
highlighting three general questions presented in the opinion that they contend warrant
certification:
(1) Whether the court lacks subject-matter jurisdiction over plaintiffs’ direct
claims for breach of fiduciary duty and breach of implied-in-fact contract.
(2) Whether plaintiffs who purchased stock in Fannie and Freddie after the PSPA
Amendments lack standing to pursue their direct takings claims.
(3) Whether plaintiffs lack standing to pursue their self-styled direct claims
because those claims are substantively derivative in nature. 2
And defendant focuses on three different questions that it believes support certification:
(1) Whether plaintiffs have standing to assert derivative claims notwithstanding the
Housing and Economic Recovery Act of 2008’s (“HERA”) succession clause, 12
U.S.C. § 4617(b)(2)(A)(i) (2018).
2
Plaintiffs note that the issues they identify (and those presented by defendant) have
subsidiary questions of law that they believe also need to be addressed on appeal. The court
need not delve into those questions because the United States Court of Appeals for the Federal
Circuit (“Federal Circuit”) “may consider ‘any question reasonably bound up with the certified
order, whether it is antecedent to, broader or narrower than, or different from the question
specified by the [Claims Court].’” A&D Auto Sales, Inc. v. United States, 748 F.3d 1142, 1150
(Fed. Cir. 2014) (alteration in original) (quoting 16C Charles Alan Wright & Arthur R. Miller,
Federal Practice & Procedure § 1357 (3d ed. 2012)); accord Yamaha Motor Corp., U.S.A. v.
Calhoun, 516 U.S. 199, 205 (1996) (noting that an appellate court “may address any issue fairly
included within the certified order because ‘it is the order that is appealable, and not the
controlling question identified by the district court.’” (quoting 9 J. Moore & B. Ward, Moore’s
Federal Practice ¶ 110.25[1] (2d ed. 1995))); see also id. (“[A]ppellate jurisdiction applies to the
order certified to the court of appeals, and is not tied to the particular question formulated by the
district court.”).
-2-
(2) Whether the FHFA-C’s actions are attributable to the United States such that the
court possesses subject-matter jurisdiction to entertain plaintiffs’ derivative takings
and illegal exaction claims.
(3) Whether plaintiffs’ allegations that the FHFA entered into an implied-in-fact contract
with the Enterprises to operate the conservatorships for shareholder benefit fail as a
matter of law.
If the court certifies the December 6, 2019 opinion for interlocutory appeal, defendant asks that
the court also stay further proceedings in this case until the Federal Circuit decides whether to
entertain the parties’ appeals and, if applicable, the final disposition of those appeals.
II. ANALYSIS
“Courts have long understood that ‘[i]nterlocutory appeals are reserved for exceptional or
rare cases . . . .’” White Mountain Apache Tribe v. United States, No. 17-359, 2018 WL
6293242, at *2 (Fed. Cl. Dec. 3, 2018) (quoting Starr Int’l Co. v. United States, 112 Fed. Cl. 601,
603 (2013)); accord Coast Fed. Bank, FSB v. United States, 49 Fed. Cl. 11, 13 (2001); see Zoltek
Corp. v. United States, 672 F.3d 1309, 1328 (Fed. Cir. 2012) (Dyk, J., dissenting) (discussing the
legislative history of the statute authorizing interlocutory appeals). The trial court has discretion
on whether to certify an issue for an interlocutory appeal. Starr, 112 Fed. Cl. at 603. The court
certifies issues by “includ[ing] in the [interlocutory] order a statement that a controlling question
of law is involved with respect to which there is a substantial ground for difference of opinion
and that an immediate appeal from that order may materially advance the ultimate termination of
the litigation . . . .” 28 U.S.C. § 1292(d)(2) (2018). In short, there is a three-part test for
certifying issues for interlocutory appeal: The court must conclude that (1) there is a controlling
question of law; (2) there is a substantial ground for difference of opinion with respect to that
question; and (3) an immediate appeal may materially advance the ultimate termination of the
litigation. 3 Id.; accord United Launch Servs., LLC v. United States, 139 Fed. Cl. 721, 723
(2018). The court will address each factor in turn.
The first factor is whether the parties are requesting permission to appeal a controlling
question of law. A party makes the necessary showing by seeking to appeal matters that
“materially affect issues remaining to be decided in the trial court.” Coast Fed. Bank, 49 Fed. Cl.
at 13 (quoting Pikes Peak Family Hous., LLC v. United States, 40 Fed. Cl. 673, 686 (1998));
accord In re Lloyd’s Am. Trust Fund Litig., No. 96-1262, 1997 WL 758739, at *4 (S.D.N.Y.
Aug. 12, 1997) (noting that there is a controlling question if “reversal . . . could result in
dismissal of the action” or “significantly affect the conduct of the action”). 4 Both parties have
3
Even if this court certifies its opinion for interlocutory appeal, the Federal Circuit may
decide not to entertain the appeal. 28 U.S.C. § 1292(d)(2); accord AD Glob. Fund, LLC ex rel.
N. Hills Holding, Inc. v. United States, 68 Fed. Cl. 663, 665 (2005).
4
The statutory standard for interlocutory appeals in federal district court is “virtually
identical” to the provision supplying the standard in this court. Am. Mgmt. Sys., Inc. v. United
-3-
done so here. Defendant seeks interlocutory review of justiciability issues (standing and subject-
matter jurisdiction) that could end plaintiffs’ lawsuit and one question—related to the alleged
implied-in-fact contract—that, depending on the appellate decision, could significantly affect the
issues to be tried. On the flip side, plaintiffs are concerned with a number of dismissed claims,
and a reversal of the court’s decision on those claims would significantly alter any future
litigation in this case. Thus, the first factor weighs in favor of certification.
The second factor is whether the parties are seeking review of topics on which there is a
substantial ground for a difference of opinion. A court may find that there is substantial room for
disagreement on an issue when there is a circuit split or the parties dedicated extensive briefing
to the topic. See Klamath Irr. Dist. v. United States, 69 Fed. Cl. 160, 163 (2005) (explaining that
the second prong “more often . . . manifests itself as splits among the circuit courts”); Coast Fed.
Bank, 49 Fed. Cl. at 14 (acknowledging that a large amount of briefing on an issue “suggests that
there is room for disagreement”). Those considerations are present here. The court ruled against
the weight of authority in other jurisdictions on some topics, see, e.g., Fairholme, 146 Fed. Cl. at
48-50, and the parties devoted hundreds of briefing pages and hours of oral argument to the
disputed issues. Furthermore, as the court acknowledged during oral argument on defendant’s
motion to dismiss, this case is an “intellectual feast” with “thorny legal issues.” Tr. 391. The
second factor, therefore, weighs in favor of certification.
The third factor is whether an interlocutory appeal will materially advance the
termination of the litigation. The focus here is, “in large part[,] on considerations of ‘judicial
economy’ and the need to avoid ‘unnecessary delay and expense’ and ‘piecemeal litigation.’”
Coast Fed. Bank, 49 Fed. Cl. at 14 (quoting Northrop Corp. v. United States, 27 Fed. Cl. 795,
798-99 (1993)); see also Lummi Tribe of the Lummi Reservation, Wash. v. United States, 870
F.3d 1313, 1315 (Fed. Cir. 2017) (“[T]his court granted the government’s petition for
interlocutory appeal to ‘ensure that the [United States Court of Federal Claims] is the court of
proper jurisdiction before requiring it and the parties to undergo extensive unnecessary
proceedings.’” (quoting appellate order)). The court and other parties will preserve their
resources with an interlocutory appeal because a definitive ruling on the issues identified by the
parties will offer clear guidance on the materially similar claims in seventeen related cases
pending before the undersigned. And the parties in the instant case will also benefit from an
expedited appellate ruling. Without an interlocutory appeal, the parties will likely begin costly
discovery that would be unnecessary if an appellate court reverses this court’s decision that it
possesses jurisdiction over the derivative claims. Similarly, an interlocutory appellate decision
on the viability of the direct claims will conserve resources because, if the dismissal of those
claims is reversed, the parties will be able to consolidate their discovery efforts for the
overlapping aspects of the direct and derivative claims. Thus, the third factor also weighs in
favor of certification.
States, 57 Fed. Cl. 275, 276 (2003) (quoting United States v. Connolly, 716 F.2d 882, 883 n.1
(Fed. Cir. 1983)). See 28 U.S.C. § 1292 (setting forth standards for interlocutory review).
-4-
III. CONCLUSION
Because all of the factors that the court must consider under 28 U.S.C. § 1292(d)(2)
weigh in favor of certification, the court concludes that it is appropriate to certify its December 6,
2019 opinion for interlocutory appeal. The court, therefore, GRANTS plaintiffs’ and
defendant’s respective motions to certify the December 6, 2019 opinion for interlocutory appeal.
The court will amend its December 6, 2019 opinion by appending the following language to the
end of the opinion:
The court finds that this opinion involves the following controlling questions of
law with respect to which there is a substantial ground for difference of opinion
and that an immediate appeal from the opinion may materially advance the
ultimate termination of the litigation:
(1) Whether the court lacks subject-matter jurisdiction over plaintiffs’ direct
claims for breach of fiduciary duty and breach of implied-in-fact contracts.
(2) Whether plaintiffs who purchased stock in Fannie and Freddie after the PSPA
Amendments lack standing to pursue their direct takings claims.
(3) Whether plaintiffs lack standing to pursue their self-styled direct claims
because those claims are substantively derivative in nature.
(4) Whether plaintiffs have standing to assert derivative claims notwithstanding
HERA’s succession clause.
(5) Whether the FHFA-C’s actions are attributable to the United States such that
the court possesses subject-matter jurisdiction to entertain plaintiffs’
derivative takings and illegal exaction claims.
(6) Whether plaintiffs’ allegations that the FHFA entered into an implied-in-fact
contract with the Enterprises to operate the conservatorships for shareholder
benefit fail as a matter of law.
The court also GRANTS defendant’s motion to stay further proceedings in this case pending the
completion of the interlocutory appeal process. By no later than 14 days after the completion
of that process, the parties shall file a joint status report in which they propose further
proceedings, if any are necessary.
IT IS SO ORDERED.
s/ Margaret M. Sweeney
MARGARET M. SWEENEY
Chief Judge
-5-