Christopher Roberts, et al. v. Federal Housing Finance Agency, et al.

At the height of the 2008 financial crisis,

Congress created the Federal Housing Finance Agency

(the Agency) and authorized it to place into conservatorship

two critical government‐sponsored enterprises—the Federal

National Mortgage Association and the Federal Home Loan

Mortgage Corporation, commonly known as Fannie Mae and

2 No. 17‐1880

Freddie Mac. 12 U.S.C. § 4617(a). To stabilize Fannie and Freddie,

along with the broader financial markets, Congress empowered

the U.S. Treasury to purchase their “obligations and

other securities” through the end of 2009. 12 U.S.C.

§§ 1455(l)(1)(A), 1719(g)(1)(A). The Agency and Treasury

acted quickly. In exchange for a cash infusion and fixed funding

commitment for each enterprise, Treasury received senior

preferred shares. Its shares gave it extraordinary governance

and economic rights, including the right to receive dividends

tied to the amount of Treasury’s payments. But the stabilization

effort proved to be more difficult than was initially expected.

As Fannie and Freddie’s capital needs mounted,

Treasury agreed three times to modify the original stock purchase

agreements. The First and Second Amendments primarily

increased Treasury’s funding commitment. The third

modification—which, unlike the first two, was made after

Treasury’s purchasing authority had expired—introduced a

variable dividend under which Treasury’s dividend rights

were set equal to the companies’ outstanding net worth.

That net‐worth dividend, sometimes called the Net Worth

Sweep, is at the heart of this litigation. The plaintiffs are private

shareholders of Fannie and Freddie. They sued Treasury

and the Agency, claiming that the Agency violated its duties

in two ways: by agreeing to the net‐worth dividend and by

unlawfully succumbing to the direction of Treasury. They

fault Treasury both for exceeding its statutory authority and

failing to follow proper procedures. The district court dismissed

the complaint for failure to state a claim. See 12 U.S.C.

§ 4617(f). We affirm.

No. 17‐1880 3

I

Fannie Mae and Freddie Mac are mammoth institutions.

Although they were chartered by Congress to increase homeloan

lending by injecting liquidity into mortgage markets,

they have long operated as publicly traded corporations. By

2008, they had come to play an integral role in the United

States economy, backing mortgages valued at trillions of dollars

and representing a substantial portion of all home loans.

As the 2008 financial crisis intensified and the national housing

market hovered on the verge of collapse, fears mounted

about their vitality. Congress responded by passing the Housing

and Economic Recovery Act of 2008 (HERA).

HERA authorizes the director of the Agency to appoint the

Agency as conservator or receiver for Fannie or Freddie for a

variety of reasons. 12 U.S.C. § 4617(a)(1)–(3). In either of those

capacities, the Agency “may” then:

(i) take over the assets of and operate the regulated entity

with all the powers of the shareholders, the directors,

and the officers of the regulated entity and conduct

all business of the regulated entity;

(ii) collect all obligations and money due the regulated

entity;

(iii) perform all functions of the regulated entity in the

name of the regulated entity which are consistent with

the appointment as conservator or receiver;

(iv) preserve and conserve the assets and property of

the regulated entity; and

4 No. 17‐1880

(v) provide by contract for assistance in fulfilling any

function, activity, action, or duty of the Agency as conservator

or receiver.

Id. § 4617(b)(B). Additional provisions of HERA apply separately

to each of the Agency’s two possible roles. The Agency

“may, as a conservator, take such action as may be (i) necessary

to put the regulated entity in a sound and solvent condition;

and (ii) appropriate to carry on the business of the regulated

entity and preserve and conserve the assets and property

of the regulated entity.” Id. § 4617(b)(D). In contrast,

“when acting as receiver,” the Agency “shall place the regulated

entity in liquidation.” Id. § 4617(b)(E). Finally, the

Agency may exercise “such incidental powers as shall be necessary

to carry out” powers granted to it in either role, and it

may “take any action authorized … which the Agency determines

is in the best interests of the regulated entity or the

Agency.” Id. § 4617(b)(J). In exercising any of these powers,

the Agency “shall not be subject to the direction or supervision

of any other agency of the United States.” Id. § 4617(a)(7).

At the same time as HERA broadly empowers the Agency,

it disempowers courts and existing stockholders, directors,

and officers. Unless otherwise permitted by the statute or requested

by the Agency’s director, “no court may take any action

to restrain or affect the exercise of powers or functions of

the Agency as a conservator or a receiver.” Id. § 4617(f). The

law also provides that the Agency “shall, as conservator or

receiver, and by operation of law, immediately succeed 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 [its] assets … .”

Id. § 4617(b)(2)(A); see also id. § 4617(b)(2)(K)(i).

No. 17‐1880 5

Finally, HERA authorized Treasury to purchase securities

in Fannie and Freddie “on such terms and conditions … and

amounts as the Secretary [of the Treasury] may determine.”

Id. §§ 1455(l)(1)(A), 1719(g)(1)(A). Treasury’s purchasing authority

continued through December 31, 2009, 12 U.S.C.

§ 1719(g)(4), after which Treasury could only “hold, exercise

any rights received in connection with, or sell, any” of the securities

it had purchased, 12 U.S.C. § 1719(g)(2)(D).

After Congress passed HERA, the Agency promptly

placed Fannie and Freddie into conservatorship and entered

into agreements with Treasury for the sale of senior preferred

shares. Treasury initially invested $1 billion in each company

and extended $100 billion funding commitments to each. Pursuant

to Preferred Stock Purchase Agreements, Treasury received

a) an initial liquidation preference in each company of

$1 billion, to be increased dollar‐for‐dollar as each company

drew on its $100 billion funding commitment, b) a quarterly

cumulative dividend, c) an annual commitment fee waivable

at Treasury’s discretion, and d) warrants to purchase approximately

80 percent of each company’s common stock. The

companies could elect to pay the dividend in cash at an annualized

rate equal to ten percent of Treasury’s outstanding liquidation

preference or by increasing that preference by twelve

percent. The Purchase Agreements required Treasury’s consent

before terminating the companies’ conservatorships, engaging

in fundamental transactions, or taking on significant

debt.

Freddie and Fannie continued to burn through cash,

prompting the parties to execute a First Amendment to the

Purchase Agreements. That amendment increased Treasury’s

6 No. 17‐1880

funding commitment to $200 billion per company. On December

24, 2009, days before Treasury’s purchase authority

expired, a set of Second Amendments allowed the companies

to draw funds from Treasury in excess of that $200 billion to

cover losses incurred through the end of 2012. Thereafter, the

funding commitments would again become fixed based upon

the sums actually drawn. Fannie and Freddie eventually drew

more than $187 billion from Treasury. Treasury and the

Agency agreed to a Third Amendment to each Purchase

Agreement in August 2012. This replaced Treasury’s fixed

dividend with a variable dividend equal to an amount

slightly less than each company’s net worth. In other words,

it funneled substantially all profits (if any) to the federal government.

The Third Amendment also eliminated Treasury’s

right to an annual commitment fee.

The plaintiffs complain that the Third Amendment was

adopted just as Freddie and Fannie were returning to profitability

in order to capture all anticipated upside for Treasury

to the detriment of the corporations and their private shareholders.

The Agency and Treasury counter that the net‐worth

dividend served to prevent the companies from running up

against the soon‐to‐be fixed funding commitment. They note

that Freddie and Fannie had consistently borrowed from

Treasury to pay the fixed‐rate dividends—a practice that resulted

in a spiral of ever greater liquidation preferences and

dividends.

The plaintiffs sued Treasury and the Agency under the

Administrative Procedure Act, 5 U.S.C. §§ 702 and 706(2)(A),

(C), and (D). They argue first that the Agency exceeded its

statutory authority as a conservator by agreeing to both the

original Purchase Agreements and the Third Amendment.

No. 17‐1880 7

Second, they asserted that the Third Amendment amounted

to a purchase of new securities by Treasury after its purchasing

authority had expired and without having made findings

required by HERA. Finally, they claim that Treasury acted arbitrarily

and capriciously in agreeing to the Third Amendment.

They sought declaratory and injunctive relief, including

the rescission of the Third Amendment and return of all

resulting dividend payments made to Treasury.

The district court granted both defendants’ motion to dismiss

the complaint, finding that 12 U.S.C. § 4617(f) precluded

the relief requested. We examine that ruling de novo, looking

first at the Agency and then at Treasury.

II

With regard to the Agency, our review is squarely foreclosed

by 12 U.S.C. § 4617(f). That provision bars judicial interference

with the Agency’s statutorily authorized role as

conservator. Because the Agency acted within its powers as

conservator in agreeing to the Preferred Stock Purchase

Agreements and the Third Amendment, declaratory and injunctive

relief cannot run against it.

Section 4617(f) bars “any” judicial interference with the

“exercise of powers or functions of the Agency as a conservator

or a receiver.” 12 U.S.C. § 4617(f) (emphases added). This shelter

is sweeping, but its scope is not boundless. Section 4617(f)

will not protect the Agency if it acts either ultra vires or in

some third capacity. See Perry Capital LLC v. Mnuchin,

864 F.3d 591, 606 (D.C. Cir. 2017); id. at 636 (Brown, J., dissenting

in part); Robinson v. Fed. Hous. Fin. Agency, 876 F.3d 220,

227–28 (6th Cir. 2017); see also, e.g., Cnty. of Sonoma v. Fed.

Hous. Fin. Agency, 710 F.3d 987, 992 (9th Cir. 2013); Leon Cnty.,

8 No. 17‐1880

Fla. v. Fed. Hous. Fin. Agency, 700 F.3d 1273, 1278 (11th Cir.

2012). That is, for section 4617(f) to bar judicial relief, the

Agency must have acted a) pursuant to its “powers or functions”

and b) “as a conservator or a receiver.”

In so construing section 4617(f), we have taken guidance

from our interpretation of 12 U.S.C. § 1821(j), a materially

identical provision in the Financial Institutions Reform, Recovery,

and Enforcement Act (FIRREA). That statute limits recourse

against the Federal Deposit Insurance Corporation

(FDIC) and, formerly, the Resolution Trust Corporation. We

have also considered FIRREA’s predecessor, which appeared

in the Financial Institutions Supervisory Act of 1966, formerly

codified at 12 U.S.C. § 1464(d)(6)(C). “[W]hen Congress uses

the same language in two statutes having similar purposes,”

as do these acts, “it is appropriate to presume that Congress

intended that text to have the same meaning” in each statute.

Smith v. City of Jackson, 544 U.S. 228, 233 (2005). Thus, interpretations

of that language in one statute may provide “precedent

of compelling importance” when construing the other.

Id.; see also Perry Capital LLC, 864 F.3d at 605–06 (interpreting

section 4617(f) in light of section 1821(j)); Robinson, 876 F.3d at

227 (same).

Although section 1821(j) works a “sweeping ouster of

courts’ power to grant equitable remedies,” Veluchamy v.

F.D.I.C., 706 F.3d 810, 817 (7th Cir. 2013) (quoting Courtney v.

Halleran, 485 F.3d 942, 948 (7th Cir. 2007)), we have understood

that ouster to apply only insofar as the FDIC exercises

powers granted to it as a conservator or a receiver, see id. at

818. Circuits that have had to confront the issue head‐on have

agreed. E.g., Gross v. Bell Sav. Holdings, Inc. Money Purchase

Plan, 974 F.2d 403, 408 (3d Cir. 1992); see also Coit Indep. Joint

No. 17‐1880 9

Venture v. Fed. Sav. & Loan Ins. Co., 489 U.S. 561, 574 (1989)

(applying Financial Institutions Supervisory Act). Section

1821(j) thus reaffirms our view that 12 U.S.C. § 4617(f) bars

declaratory or injunctive relief against the Agency unless it

acted ultra vires or in a role other than as conservator or receiver.

In the present case, the Agency neither exceeded its powers

nor acted as other than a conservator in agreeing to the

Third Amendment. The plaintiffs’ argument to the contrary

rests primarily on their assertion that the Third Amendment

dissipated corporate assets in violation of the Agency’s purportedly

mandatory duties as a conservator to “preserve and

conserve the assets and property” of Freddie and Fannie and

to place the companies in a “sound and solvent condition.”

12 U.S.C. § 4617(b)(2)(D); see also 12 U.S.C. § 4617(b)(2)(B)(iv).

The problem with this contention is two‐fold: first, HERA

does not impose such mandatory duties on conservators; and

second, the factual assertions in the plaintiffs’ complaint

could not establish that agreeing to the Third Amendment

necessarily contravened those duties.

In fact, section 4617(b)(2)(D) does not require the Agency

to do anything. It uses the permissive “may,” rather than the

mandatory “shall” or “must,” to introduce the Agency’s

power as conservator to “preserve and conserve” Freddie’s

and Fannie’s assets and to restore their solvency. 12 U.S.C.

§ 4617(b)(2)(D); see also Kingdomware Techs., Inc. v. United

States, 136 S. Ct. 1969, 1977 (2016) (“Unlike the word ‘may,’

which implies discretion, the word ‘shall’ usually connotes a

requirement.”). Congress’s choice of “may” in this part of

HERA does not strike us as accidental. The statute consistently

distinguishes between “shall” and “may” with the latter

10 No. 17‐1880

term reserved for situations in which one would expect the

exercise of discretion. For example, the Agency “may, at the

discretion of the Director, be appointed conservator or receiver”

if Fannie’s or Freddie’s obligations exceed its assets

for a brief period of time, 12 U.S.C. § 4617(a)(2) (emphasis

added); see also id. § 4617(a)(3)(A), but the Director “shall appoint

the [Agency] as receiver” if Fannie or Freddie’s obligations

exceed their assets for 60 days, id. § 4617(a)(4)(A)(i) (emphasis

added). Likewise, the Agency “may, as conservator or

receiver, transfer or sell any asset or liability” of the companies,

id. § 4617(b)(2)(G), but it “shall” utilize the proceeds

from any such sale to pay their debts, id. § 4617(b)(2)(H). That

distinction between the Agency’s powers and duties makes

sense: A conservatorship that required liquidation would be,

in effect, a receivership. See id. § 4617(b)(2)(E).

We have also considered the context of section

4617(b)(2)(D) in concluding that the provision grants discretion

to the Agency. In interpreting HERA, as with any statute,

we avoid a reading that would render its provisions inconsistent

or redundant. United States v. Miscellaneous Firearms,

Explosives, Destructive Devices & Ammunition, 376 F.3d 709, 712

(7th Cir. 2004). Section 4617(b)(2)(D) is part of a broader listing

of the Agency’s powers. Thus, section 4617(b)(2)(B) concerns

the Agency’s authority as either receiver or conservator,

12 U.S.C. § 4617(b)(2)(B), while section 4617(b)(2)(E) addresses

its powers as a receiver, id. § 4617(b)(2)(E), and section

4617(b)(2)(D) concerns its powers as a conservator, id.

§ 4617(b)(2)(D). Section 4617(b)(2)(B) already allows a conservator

or receiver to “preserve and conserve the assets and

property” of the companies. Id. § 4617(b)(2)(B)(iv). This grant

of authority in section 4617(b)(2)(B) must be treated as discretionary

to avoid creating a conflict with section 4617(b)(2)(E),

No. 17‐1880 11

which empowers the Agency as receiver to liquidate the companies

“through the sale of assets.” Id. § 4617(b)(2)(E). Therefore,

section 4617(b)(2)(D) cannot require the Agency to “preserve

and conserve” the companies’ assets as a conservator,

or else it would conflict with the discretionary grant of the

same authority in section 4617(b)(2)(B) or render it superfluous.

Instead, section 4617(b)(2)(D) grants additional authority to

the Agency. Apart from the powers granted to it elsewhere in

HERA, the Agency has the authority as conservator to undertake

any additional action or means “as may be (i) necessary

to put the regulated entity in a sound and solvent condition;

and (ii) appropriate to carry on the business of the regulated

entity and preserve and conserve” its assets. Id.

§ 4617(b)(2)(D). The preservation and conservation of assets

does impose a limitation of sorts—but only when the Agency

has to rely on section 4617(b)(2)(D) because it can find no

other source of power in HERA. In the present case, however,

the Agency can point to several independent sources of authority

to enter into the Third Amendment, including its

power to “operate” Fannie and Freddie “with all the powers”

of their shareholders, directors, and officers. Id.

§ 4617(b)(2)(B)(i).

Thus, by agreeing to the Third Amendment, the Agency

did not violate its duty to conserve Fannie and Freddie’s assets,

because it had no rigid duty to do so. The plaintiffs’ fundamental

error is to mistake the point of an Agency conservatorship:

its “purpose [is the] reorganizing, rehabilitation, or

winding up” of the companies’ affairs, id. § 4617(a)(2), not just

the preservation of assets.

12 No. 17‐1880

Even accepting for the sake of argument the plaintiffs’

construction of section 4617(b)(2)(D) as imposing a mandatory

duty, their complaint does not establish that the Third

Amendment contravened this obligation. The question under

section 4617(f) is not whether the Agency made a poor business

judgment, but rather whether it took an action fundamentally

inconsistent with its powers as a conservator. Perry

Capital LLC, 864 F.3d at 607 (“The [appellants] no doubt disagree

about the necessity and fiscal wisdom of the Third

Amendment. But Congress could not have been clearer about

leaving those hard operational calls to the Agency’s managerial

judgment.”).

While the dividend terms under the Third Amendment

may initially have proven more profitable to Treasury than to

Fannie and Freddie, a conservator could have believed that

the amendment’s terms would further the conservation of the

companies’ assets better than either the ten‐percent cash dividend

or the twelve‐percent increases in liquidation preference.

The plaintiffs admit that the earlier cash dividend had

necessitated drawing on Treasury’s funding commitment,

leading to increased liquidation preferences and, in turn, future

dividends owed to Treasury. The prior arrangement also

reduced the Treasury funds available for future draws. The

plaintiffs themselves said in their complaint that paying cash

dividends “contravene[d the Agency’s] obligations as conservator,”

a view reiterated in their brief. The Third Amendment

permanently eliminated the risk that cash‐dividend payments

would consume the companies’ financial lifeline, and it forever

prevented Treasury from demanding payment of commitment

fees.

No. 17‐1880 13

The alternative of adding to the liquidation preference,

though preferred by the plaintiffs, came with its own problems.

While this option would have obviated the need to draw

down Treasury’s funding commitment, it would have increased

Treasury’s liquidation preference at a faster rate. (Recall

that the liquidation preference increases dollar‐for‐dollar

with draws on Treasury’s funding commitment. Therefore, a

fully financed cash dividend would have increased the liquidation

preference by ten—rather than twelve—percent.)

While the plaintiffs seem to treat growth of the liquidation

preference as a harmless accounting quirk, that preference

places real constraints on the companies’ future. First, a liquidation

preference is, most immediately, a claim on the assets

of the corporation. Pursuing a policy that would eventually

shift assets to Treasury would seem to go to the heart of the

plaintiffs’ complaint that the Agency adopted policies that

dissipated corporate assets. Second, the companies can potentially

redeem Treasury’s preferred shares by paying down the

liquidation preference. Redemption thus becomes more expensive

and difficult as the liquidation preference increases.

Yet, redeeming Treasury’s shares would create real benefits

for the companies: for example, the outstanding shares create

dividend obligations, they limit the companies’ ability to raise

capital and debt, and, as the plaintiffs complain, the covenants

in the Purchase Agreements limit the companies’ independence.

An ever‐increasing liquidation preference also

makes it more costly for the companies to pay cash dividends

in the future, creating a vicious cycle of paying liquidationpreference

dividends. Against this backdrop, adopting the

net‐worth dividend in the Third Amendment was not necessarily

an unjustifiable dissipation of corporate assets.

14 No. 17‐1880

Finally, the plaintiffs fail to appreciate that the Agency’s

conservatorship of the companies has no fixed expiration

date. Even if the Amendment has benefited Treasury thus

far—and the Agency could anticipate its having done so—

that does not establish that the Amendment will ultimately

place the companies in a worse financial position than they

would have been in under prior versions of the agreement.

The Agency could not know for how long the companies

might remain profitable or to what extent. While Treasury realized

additional dividend earnings in 2013 and 2014 (as compared

to the situation before the Third Amendment), it actually

fared worse under the net‐worth dividend in 2015 than it

would have under the old cash dividend. (Though not part of

the record on which we resolve this appeal, we note that fluctuations

continue. Under the new tax law, the net‐worth formula

has produced a loss in the fourth quarter 2017 of $6.7 billion

at Fannie and will likely require the company to draw

$3.7 billion from Treasury to eliminate its resulting net‐worth

deficit. Federal National Mortgage Association, Annual Report

for 2017 (Form 10‐K) (Feb. 14, 2018) at 2–3. Freddie,

meanwhile, will draw $312 million from Treasury to cure its

negative net worth. Federal Home Loan Mortgage Corporation,

Annual Report 2017 (Form 10‐K) (Feb. 15, 2018) at 2, 117.)

In short, the plaintiffs have failed—both as a matter of statutory

interpretation and as a matter of facts alleged—to state a

claim that the Agency acted outside its authority as a conservator

and thereby lost the protection of section 4617(f).

We also reject the plaintiffs’ alternate argument that the

Agency acted contrary to its statutory authority by deferring

to Treasury in violation of 12 U.S.C. § 4617(a)(7). Section

4617(a)(7) bars the Agency from being “subject to the direction

or supervision of any other agency” when exercising its

No. 17‐1880 15

“rights, powers, and privileges” as conservator. 12 U.S.C.

§ 4617(a)(7). The plaintiffs alleged that the Agency breached

this prohibition by ceding significant control to Treasury in

various covenants in the original Purchase Agreements and

again by entering into the Third Amendment at Treasury’s

behest.

This argument fails, however, to read section 4617(a)(7) in

harmony with HERA as a whole. See Davis v. Mich. Dep’t of

Treasury, 489 U.S. 803, 809 (1989). The same HERA that bars

another agency from exercising “direction or control” over

the Agency authorized Treasury to acquire securities in Fannie

and Freddie “on such terms and conditions” as Treasury

“may determine.” 12 U.S.C. § 1455(l)(1)(A). It also says that

Treasury could not force Fannie and Freddie to issue securities

“without mutual agreement between” Treasury and the

Agency. Id. § 1455(l)(1)(A). We read these provisions to mean

that, so long as the Agency remained free to reject the terms

offered by Treasury and to exercise its independent judgment,

nothing prevented the Agency from taking Treasury’s

advice or agreeing to its terms. Even if, as the complaint alleges,

Treasury officials made statements suggesting that

Treasury was in the driver’s seat and had to convince the

Agency to come along for the ride, such behavior alone would

not violate section 4617(a)(7).

Two other statutory provisions also preclude the plaintiffs’

absolutist reading of section 4617(a)(7), at least insofar as

it concerns their attack on the original Purchase Agreements.

First, the Agency may “contract for assistance in fulfilling any

function, activity, action, or duty of the Agency as conservator

or receiver.” 12 U.S.C. § 4617(b)(2)(B)(v). Thus, to the extent

that the Agency agreed to Purchase Agreements permitting

16 No. 17‐1880

Treasury to exercise functions related to the Agency’s role as

conservator by, for example, giving Treasury a role in the termination

of conservatorship, transfer of assets, or assumption

of debt, the Agency acted within its statutory authority. Second,

to the extent that the plaintiffs challenge the original Purchase

Agreement, their claim is time‐barred by the six‐year

statute of limitations in the Administrative Procedure Act.

28 U.S.C. § 2401(a). Their attempt to avoid the statute of limitations

through the discovery rule is unconvincing. The terms

of the original Purchase Agreements were apparent long before

the Third Amendment.

III

Just as section 4617(f) bars the plaintiffs’ claims against the

Agency, it prevents our granting declaratory and injunctive

relief against Treasury. Section 4617(f), once again, prevents

us from taking “any action to restrain or affect the exercise of

powers or functions of [the Agency] as a conservator.”

12 U.S.C. § 4617(f) (emphasis added). An injunction or declaratory

judgment preventing Treasury—the Agency’s counterparty—

from honoring the terms of the Third Amendment

would fundamentally “affect” the Agency’s conservatorships

of Fannie and Freddie and so would run afoul of section

4617(f).

Our interpretation of section 4617(f) comports with past

applications of section 1821(j), the analogous provision in

FIRREA. In the latter context, the Third Circuit has refused to

grant injunctions against third parties if the relief would “dramatic[

ally] and fundamental[ly]” affect FDIC as a receiver.

Hindes v. Fed. Deposit Ins. Corp., 137 F.3d 148, 161 (3d Cir. 1998)

(“[S]ection 1821(j) precludes a court order against a third

party which would affect the FDIC as receiver, particularly

No. 17‐1880 17

where the relief would have the same practical result as an

order directed against the FDIC in that capacity.”); see also

Dittmer Properties, L.P. v. Fed. Deposit Ins. Corp., 708 F.3d 1011,

1017 (8th Cir. 2013). Thus, in Hindes, it declined to order rescission

of a “Notification to Primary Regulator” issued by

FDIC in its corporate capacity that precipitated a bank’s seizure,

and to impose a constructive trust. Id. (We note that section

1821(j) directly immunizes FDIC only in its capacity as

receiver, not in its corporate capacity.) Those remedies, the

Third Circuit thought, would impermissibly “affect the

FDIC’s continued functioning as receiver and … throw into

question every act of FDIC‐Receiver.” Id. Similarly, wiping

out Treasury’s acceptance of the original Purchase Agreements

or the Third Amendment in this case would undermine

the very foundations of the Agency’s conservatorships of Fannie

and Freddie. Appellants effectively ask us to unwind

years of action by the Agency predicated on those agreements.

Contrary to the plaintiffs’ suggestion, 281–300 Joint Venture

v. Onion, 938 F.3d 35 (5th Cir. 1991), does not stand for the

broad proposition that “a third‐party federal agency that violates

its own obligations in connection with a conservatorship

or receivership” can be enjoined notwithstanding section

1821(j). Because that case concerned the failure of a savings

and loan association, section 1821(j) barred court actions that

“restrain[ed] or affect[ed]” the federal Resolution Trust Corporation,

rather than FDIC. 12 U.S.C. § 1821(j). The Fifth Circuit

did declare the Federal Home Loan Bank Board’s determinations

“regarding the worthlessness of unsecured creditor

claims … subject to review” by the courts, 281–300 Joint Venture,

938 F.3d at 38. Those judgments, however, were akin to

18 No. 17‐1880

a decision by the Agency in our case to initiate a conservatorship

or receivership, and HERA expressly makes such a

decision reviewable. 12 U.S.C. § 4617(a)(5). 281–300 Joint Venture

says nothing about enjoining third parties dealing with

the Agency after its conservatorship begins. At that point, the

Agency acts as an immune conservator rather than as a nonimmune

regulator.

In any case, Treasury did not exceed its statutory authority

in agreeing to the Third Amendment. HERA permitted Treasury

to purchase Fannie’s and Freddie’s securities “on such

terms and conditions as the Secretary may determine”

through December 31, 2009. 12 U.S.C. §§ 1719(g)(1)(A), (g)(4).

After that date, Treasury could continue to “hold, exercise

any rights received in connection with, or sell, any” of the securities

it had purchased. Id. § 1719(g)(2)(D). Treasury negotiated

modification rights as part of the terms of the original

Purchase Agreements, and it exercised those rights when it

agreed to the Third Amendment.

The plaintiffs’ unconvincing attempt to equate the Third

Amendment to the issuance of new securities relies heavily

on inapt analogies to securities law and IRS regulations and

rhetorical flourishes about expropriation. As for expropriation,

all we need say is that this is the wrong place in which

to explore that subject. We were told at oral argument that the

plaintiffs are pursuing a takings claim in the Court of Federal

Claims, which is the proper forum for such a case. As for their

arguments relying on analogies to securities law, the short answer

is that those laws use their own definition of the term

“security,” see 15 U.S.C. § 78c(a)(10). That definition includes

“any put, call, straddle, option, or privilege on any security.”

No. 17‐1880 19

Id. Judges have no authority to add or subtract from that language.

See Landreth Timber Co. v. Landreth, 471 U.S. 681 (1985)

(rejecting a rule under which a sale of business accomplished

by selling 100% of a company’s stock was somehow not covered

by the securities laws). Any economic equivalence between

the Third Amendment and the issuance of new securities

does not manufacture new stock out of thin air.

Nothing in the Internal Revenue Code helps plaintiffs either.

Their own brief asserts that the IRS treats “a significant

modification of a debt instrument” as an exchange of debt instruments,

26 C.F.R. § 1.1001‐3(b), in order “[t]o prevent tax

evasion.” The desire to forestall fraud and abuse lies behind

the interpretation of the terms “sale” and “exchange” in the

tax and securities contexts; HERA has different goals and thus

must be read on its own.

The plaintiffs also argue that Treasury could not have exercised

a “right” in entering into the Third Amendment because

it could not amend the Purchase Agreements unilaterally.

We cannot accept such a cramped construction of the

term “right.” One need not invoke First Amendment associational

rights or the Lochner Era’s “right to contract” to spot the

weakness of this definition. Rights are often contingent. In the

corporate context, shareholders frequently cannot exercise

voting rights unless the board calls a meeting to consider the

matter at hand. Likewise, a poison pill may give stockholders

a right to purchase additional shares, but their ability to exercise

that right (at least at an economically rational price) depends

entirely on the purchases of a would‐be acquirer and

the unwillingness of the board to redeem the pill. Under the

Purchase Agreements and the Third Amendment, Treasury

20 No. 17‐1880

receives a payout of its liquidation preference if the companies

opt to pay it or to dissolve. The shareholders do not challenge

Treasury’s right to collect these benefits on the ground

that Treasury cannot unilaterally trigger their payment. Nor

do the shareholders contest Treasury’s right to receive dividends

only if the companies’ boards declare them. Along the

same lines, the Purchase Agreements permit the amendments

as long as the parties comply with certain restrictions. In other

words, Treasury’s shares came with a right to amend the Purchase

Agreements, even if that right required the participation

and consent of those who governed the companies.

IV

Our discussion thus far is enough to demonstrate why the

district court correctly dismissed this suit. For the sake of

completeness, we add that section 4617(b)(2)(A)(i) of HERA

independently supports that outcome. That provision names

the Agency the successor to “all rights, titles, powers, and

privileges of [Fannie and Freddie], and of any stockholder, officer,

or director … with respect to” the companies and their

assets. 12 U.S.C. § 4617(b)(2)(A)(i). Applying the analogous

provision of FIRREA, 12 U.S.C. § 1821(d)(2)(A)(i), we have

held that the FDIC thereby acquires the sole right to bring derivative

actions on behalf of failed institutions, Levin v. Miller,

763 F.3d 667, 669 (7th Cir. 2014); see also Courtney v. Halleran,

485 F.3d 942, 950 (7th Cir. 2007). We must therefore consider

whether the shareholders have brought derivative claims. If

so, then they must yield to the Agency.

The law governing the companies’ internal affairs controls

whether a claim is direct or derivative for purposes of HERA,

just as it would for FIRREA. Id. at 670. Fannie and Freddie are

both federally chartered corporations, but each has selected a

No. 17‐1880 21

state law for its internal affairs: Fannie has chosen Delaware

corporate law, 12 C.F.R. § 1239.3(b); FANNIE MAE BYLAWS

(July 21, 2016), § 1.05; and Freddie has elected the law of Virginia,

12 C.F.R. § 1239.3(b); BYLAWS OF THE FEDERAL HOME

LOAN MORTGAGE CORPORATION (July 7, 2016), § 11.3. In Delaware,

whether a suit is direct or derivative “must

turn solely on … : (1) who suffered the alleged harm (the corporation

or the suing stockholders, individually); and (2) who

would receive the benefit of any recovery or other remedy

(the corporation or the stockholders, individually).” Tooley v.

Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1033

(Del. 2004). While Virginia has not expressly decided whether

to adopt the Tooley test, Remora Invs., L.L.C. v. Orr, 673 S.E.2d

845, 848 (Va. 2009), its reasoning in past cases indicates a consistent

approach. See, e.g., Simmons v. Miller, 544 S.E.2d 666,

674–75 (Va. 2001); Little v. Cooke, 652 S.E.2d 129, 136 (Va. 2007).

The present complaint states a derivative claim. The harm

the plaintiffs allege, for purposes of Tooley, is that the networth

dividend illegally dissipated corporate assets by transferring

them to Treasury. They complain, in effect, of a combination

of mismanagement and depletion of corporate assets

through overpayment, both of which are classic derivative

claims. See In re Massey Energy Co. Derivative & Class Action

Litig., 160 A.3d 484, 503 (Del. Ch. 2017) (mismanagement);

El Paso Pipeline GP Co., L.L.C. v. Brinckerhoff, 152 A.3d 1248

(Del. 2016) (overpayment).1 Turning to the benefit inquiry, the

1 Admittedly, a conflict between shareholders (or classes of shareholders)

can sometimes qualify as a direct action as well as derivative. These

situations, however, generally include allegations of an unlawful transfer

of control, see In re Activision Blizzard, Inc. Stockholder Litig., 124 A.3d 1025,

1052 (Del. Ch. 2015); El Paso Pipeline, 152 A.3d at 1263–64 (discussing Gentile

v. Rossette, 906 A.2d 91 (Del. 2006)), or fraudulent efforts to induce the

22 No. 17‐1880

complaint seeks only benefits that would inure to the benefit

of the corporations, rather than individual stockholders. The

plaintiffs have demanded, for example, the effective rescission

of (at least elements of) a contract between the companies

and Treasury, the return of dividend payments to the corporate

treasuries, and the end of Treasury control over the companies

through the Purchase Agreements’ covenants.

Finally, we do not see a conflict‐of‐interest exception implicit

in section 4617(b)(2)(A)(i). Its language is clear and absolute,

and HERA itself approves of the Agency’s taking actions

in its own interests as well as that of the companies.

12 U.S.C. § 4617(b)(2)(J)(ii). Only two circuits have apparently

recognized a conflict‐of‐interest exception in the FIRREA context,

and those cases are easily distinguished. First Hartford

Corporate Pension Plan & Trust v. United States concerned

FDIC’s breach of a distinct contract entered into before the

bank entered FDIC receivership. 194 F.3d 1279, 1283–84 (Fed.

Cir. 1999). The Federal Circuit expressly limited its conflictof‐

interest exception to situations “in which a government

contractor with a putative claim of breach by a federal agency

is being operated by that very same federal agency.” Id. at

1295. First Hartford thus stands for the proposition that the accident

of receivership should not serve to extinguish an asset

(whether seen as a contractual right or chose in action) of the

sale or purchase of securities for personal gain, see In re Massey Energy,

160 A.3d at 504 (Del. Ch. 2017) (emphasis in original). Neither is the case

here. Treasury acquired no voting rights, and the complaint does not allege

that any shareholders transferred their shares. Even in the case of a

controlling shareholder (which Treasury was not), the “extraction of

solely economic value from the minority” is not a direct injury if “not coupled

with any voting rights dilution.” El Paso Pipeline, 152 A.3d at 1264.

No. 17‐1880 23

bank. Likewise, in the Ninth Circuit case of Delta Savings Bank

v. United States, the plaintiffs wished to sue the Office of Thrift

Supervision for racial discrimination in placing the bank into

receivership—not for operating the bank once in receivership.

265 F.3d 1017, 1020 (9th Cir. 2001). HERA already authorizes

derivative challenges to the decision to place the companies

into conservatorship or receivership. 12 U.S.C.

§ 4617(a)(5)(A). What section 4617(b)(2)(A)(i) does not authorize

are shareholder suits that would interfere with the

Agency’s decisions as conservator once that conservatorship

is underway. Otherwise, shareholders could challenge nearly

any business judgment of the Agency using a derivative suit,

by invoking a conflict‐of‐interest exception.

We therefore AFFIRM the decision of the district court to

dismiss this lawsuit. HERA prevents this court from granting

the relief requested against both the Agency and Treasury,

and it precludes the shareholders from requesting that relief

on behalf of the companies.