Okay, so here goes my recap: audio link https://t.co/FOFFYF3Wyl

Olson went up first, and Judge Millett was pretty aggressive on the APA claim. Mostly, she parroted Lamberth’s arguments on whether we should be second guessing FHFA. Moreover, she raised the question of whether, if FHFA figured that the GSEs were beyond saving, that they could have used the NWS to stem the tide of losses. In other words, what’s wrong w/ saying “give us what you have, and if you make nothing, you give us nothing?” Sadly, I thought Olson missed a great opportunity to mention that the NWS is not just about profits but that they also sweep away the equity of the company over time. (And I agree w/ TH717 that Olson did not seem prepared.) Additionally, she asked whether there was fluidity between conservatorship and receivership such that FHFA could conceivably be doing what Lamberth said in his opinion, and Olson responded no. Surprisingly, she seemed to be helping him out at one point by asking whether this is just an issue about notice — i.e. at some point, maybe they should have just notified people that they were doing receivership instead, but Olson seemed not to catch the point. (The point is that during receivership, you have different safeguards and protection, so this isn’t just a situation where you “cure” the violation by backdating notice.) With more prodding from Millett, Olson did eventually get there.

During Olson’s time, Ginsburg also brought up the idea that the idea that Susan McFarland saying that things were going sustainably well was just one opinion. It’s still possible that Treasury & FHFA might have honestly believed that things were getting worse. (However, Olson missed another opportunity to say that Treasury & FHFA’s sworn affidavit was that no one thought things were turning rather than that there was some difference of opinion and they decided to make a judgment one way versus another.) Furthermore, it was worrisome because she signed off on the 10-Q a few days before that saying that they actually didn’t think that things were getting better. Seemed to bother him. On the other hand, Ginsburg also brought up the question of whether there is a conceivable situation where Treasury is conserving as much as they can and that $5 trillion of assets is a lot to run down before you can even put it into receivership — Olson said that it’s possible but unlikely, and that’s why they would really like to have an administrative record. Ginsburg agreed with him that an administrative record would be necessary.

Hume’s argument went much better, and I actually think the court was much more receptive to his claims about breach of contract, implied convenient, good faith, etc. There was some back and forth about derivative versus direct claims, but he was pretty adamant about direct claims of breach of contract, and the three judges seemed to agree. There was also some back and forth between DE and VA differences of law. One thing to note is that if this comes down to a breach of contract claim, you have a much better shot being in the preferreds than the common, IMO. Not as many questions during the Hume time.

Cain (sp?) went up for the FHFA and talked a lot about 4623, which went a bit over my head. They seemed to spend most of the time talking about the classification of capital (adequate, undercapitlized, severely undeocatpialized) where the attorney was saying it’s okay to run at razor thin capital because FHFA suspended capital — but I found that to be oddly beside the point? Later on, the judges asked for supplemental briefing on 4623. Ginsburg, however, was a bit annoyed that FHFA decided to suspend capital requirements rather than following the statute and putting the companies into a category. Possibly, he doesn’t like the end run around putting the company into a receivership due to capitalization by just stating by fiat that capital doesn’t matter.

Forget the name of the person who stood up for Treasury, but Ginsburg came alive when he started talking. I think it was Dintzer, but I’m not sure. I’ll use his name unless someone corrects me. Dintzer started off talking about how the world was ending in 2008, and Congress intended for HERA to grant really broad powers to the conservator, etc. Finally Ginsburg interjected and said “I don’t know why you and your colleague keep talking about things at 30,000 feet and haven’t referenced the statute.” They have a bit of back and forth, and they get to a point where Ginsburg asks him to point to the statute where the conservator is allowed to wind things down and then says that he reads the conservator and receiver having different powers because of the word respectively. Specifically, he says “that’s not how I read the statute.” In any case, that throws the government lawyer off his game a little bit. Millett actually also lays into the government lawyer a little bit by adopting some of the arguments from the appellants, which is what makes her a bit harder for me to read. Moreover, the government lawyer says something about how the liquidation preference hasn’t been changed at all so the appellants aren’t harmed, and Ginsburg says something to the effect of “and what does that leave them with?” to which the government lawyer has no response and then the courtroom chuckled a bit.

Both Olson & Hume close w/ good rebuttals. Olson pointed to Lockhart’s statements in 2008 about conservatorship being to rehabilitate things and shareholders being left with residual value as what FHFA understood its role to be. Hume closed with the idea, again, that their claim for breach of K was direct and not supplanted by the statute that says shareholder claims accrue to the FHFA. I thought Olson really came back strong in the rebuttal.

Judge Brown was surprisingly silent. She basically made a clarifying remark saying that appellants are arguing that 4617(f) is not a bar because conservator acted ultra vires, beyond their power, and then asked Olson a question about “why isn’t this just a bad judgment on the part of FHFA,” during rebuttal, and he answered that FHFA’s action wasn’t just a bad judgment because it was beyond the scope of their powers — picking up on her earlier ultra vires comment.

As a side note, two things I forgot:

(1) Hume made a fantastic argument in terms of looking at things economically rather than formalistically. Basically, Treasury sat at the top of the capital stack, then junior preferreds and then Treasury had 80% of the common stock and 20% of common was in other hands. He talked about how if you look at it economically, basically what Treasury did was leapfrog all the other participants.

(2) In rebuttal (possibly also in his opening), he makes it very clear that what Treasury sought to do was create a second level of common (i.e. the Steele argument) above the other common AND above the junior preferred. I think that resonated well w/ Brown & Ginsburg, and I thought it was a genius move to get part of that into this oral argument rather than to wait for the MDL panel a few months down the line.

In any case, the biggest surprise for me was Ginsburg saying flat out that he didn’t read the conservator & receiver having the same powers. If he can convince one of the other two of that, then, by definition, the conservator is acting outside of its powers, which means 4617(f) falls and a lot of other things fall with it.

By admin