                            UNITED STATES DISTRICT COURT
                            FOR THE DISTRICT OF COLUMBIA
____________________________________
                                    )
GAIL C. SWEENEY ESTATE MARITAL      )
TRUST, derivatively on behalf of    )
FEDERAL NATIONAL                    )
MORTGAGE ASSOCIATION,               )
                                    )
                  Plaintiff,        )
                                    )
      v.                            )                Civil Action No. 13-206 (ABJ)
                                    )
UNITED STATES TREASURY              )
DEPARTMENT, et al.,                 )
                                    )
                  Defendants.       )
____________________________________)


                                 MEMORANDUM OPINION

       Plaintiff Gail C. Sweeney Estate Marital Trust has brought a shareholder derivative

lawsuit on behalf of the Federal National Mortgage Association (“Fannie Mae”) against

defendants Fannie Mae, the United States Department of the Treasury (“Treasury”), Secretary of

the Treasury Jacob J. Lew, the Federal Housing Finance Agency (“FHFA”), and FHFA Director

Melvin L. Watt. 1    Am. Compl. [Dkt. # 32]. Plaintiff asserts four counts in the amended

complaint: breach of fiduciary duty, abuse of control, mismanagement, and waste of corporate

assets. Id. ¶¶ 146–63. Plaintiff seeks declaratory and injunctive relief, and attorneys’ fees and

costs. Am. Compl., Prayer for Relief, ¶¶ A–B.

       The FHFA is the Conservator of Fannie Mae, id. ¶ 26, and it has moved to substitute

itself as plaintiff in this case, arguing that only the Conservator has standing to pursue claims on



1       The amended complaint names Acting FHFA Director Edward J. Demarco as a
defendant, but pursuant to Federal Rule of Civil Procedure 25(d), the Court has automatically
substituted Director Watt in his stead.
behalf of Fannie Mae. Renewed Mot. of FHFA as Conservator of Fannie Mae to Substitute for

Shareholder Derivative Pl. & Mem. of P. & A. in Supp. [Dkt. # 37] at 2 (“FHFA Mot.”).

Plaintiff does not disagree that, as a general matter, only the Conservator has standing to sue on

behalf of Fannie Mae. But plaintiff contends that in this case, the Conservator suffers from a

“manifest, disabling and irreconcilable” conflict of interest that prevents it from pursuing Fannie

Mae’s interests, and that plaintiff should therefore be permitted to bring this action. Am. Compl.

¶ 93; Pl.’s Opp. to FHFA Mot. & to Resp. of Defs. U.S. Dep’t of Treasury & Sec’y of Treasury

[Dkt. # 41] at 1 (“Pl.’s Opp.”). The Court finds that there is not a “manifest, disabling and

irreconcilable” conflict of interest in this case and that plaintiff lacks standing to sue on behalf of

Fannie Mae, so it will grant the FHFA’s motion to substitute.

                                         BACKGROUND

I.     Factual Background 2

A. The Housing and Economic Recovery Act of 2008

       Congress enacted the Housing and Economic Recovery Act of 2008 (“HERA”) in

response to the recent national housing market crisis. HERA established the FHFA, an agency

charged with regulating Fannie Mae, the Federal Home Loan Mortgage Corporation (“Freddie

Mac”), and the Federal Home Loan Banks.               12 U.S.C. § 4511 (2012).      The statute also

empowered the Director of the FHFA to appoint the FHFA as the conservator or receiver for the

entities it regulates “for the purpose of reorganizing, rehabilitating, or winding up [their] affairs.”

12 U.S.C. § 4617(a)(2) (2012). HERA further provides that “no court may take any action to




2       The background facts of this case are not in dispute except where noted. Although
neither party has directed the Court to a standard of review for motions to substitute under
HERA, the Court will construe the facts in favor of plaintiff, the non-moving party.
                                                  2
restrain or affect the exercise of powers or functions of the [FHFA] as a conservator or receiver.”

Id. § 4617(f).

       In another section of HERA that is relevant to the pending motion, Congress amended the

charter of Fannie Mae to grant the Department of the Treasury “[t]emporary authority” to

purchase “obligations and securities” of Fannie Mae by agreement between the two entities, as

long as Treasury also considers the need to “protect the taxpayers.” 12 U.S.C. § 1719(g) (2012).

   B. The Appointment of FHFA as Conservator of Fannie Mae and the Treasury Agreements

       On September 6, 2008, the Director of the FHFA exercised his statutory authority to

appoint the FHFA as Fannie Mae’s Conservator.           Am. Compl. ¶ 26; see also 12 U.S.C.

§ 4617(a). As Conservator, the FHFA succeeded to “all rights, titles, powers, and privileges of

the regulated entity, and of any stockholder, officer, or director of [Fannie Mae].” 12 U.S.C.

§ 4617(b)(2)(A)(i). The Conservator has the power to “[o]perate” Fannie Mae, to assume the

“[f]unctions of officers, directors, and shareholders” of Fannie Mae, and to “take such action as

may be – (i) necessary to put [Fannie Mae] in a sound and solvent condition; and (ii) appropriate

to carry on the business of [Fannie Mae] and preserve and conserve [its] assets and property.”

Id. § 4617(b)(2)(B)–(D).

       Starting on September 7, 2008, Fannie Mae, through its Conservator, entered into a series

of Senior Preferred Stock Purchase Agreements with Treasury (“Treasury Agreements”). 3 Am.

Compl. ¶ 43; see also 12 U.S.C. § 1719(g) (granting Treasury temporary authority to purchase

“obligations and securities” of Fannie Mae). Pursuant to the Treasury Agreements, Treasury

received one million shares of senior preferred Fannie Mae stock, which carries a preference



3      There have been several amendments to the Treasury Agreements, but they are not
material to this case.


                                                3
with respect to dividends and a liquidation preference of at least $1 billion, but no voting rights.

Am. Compl. ¶ 43; FHFA Mot. at 5–6. In addition, Treasury acquired a warrant to purchase up to

79.9% of Fannie Mae’s common stock. Am. Compl. ¶ 43; FHFA Mot. at 7.

        In exchange, Treasury agreed to make billions of dollars available to Fannie Mae to keep

it solvent. To date, Fannie Mae has received at least $116 billion from Treasury, and Treasury is

obligated to make up to an additional $125 billion available. Pl.’s Opp. at 13; FHFA Mot. at 6.

The parties also agreed that the Conservator would not “sell, transfer, lease or otherwise dispose

of” any assets outside the ordinary course of business without Treasury’s written consent, subject

to exceptions not relevant here. FHFA Mot. at 5; see also Am. Compl. ¶ 44.

   C. The Low-Income Housing Tax Credits

       In 2009, Fannie Mae owned low-income housing tax credits (“LIHTCs”) 4 worth

approximately $5.2 billion. Am. Compl. ¶ 57; FHFA Mot. at 7. But because Fannie Mae was

not profitable at the time, it had no profits against which to offset the LIHTCs, and could not

realize their value. Am. Compl. ¶ 57; FHFA Mot. at 7. Fannie Mae therefore sought to sell the

LIHTCs, and it identified third-party investors interested in acquiring approximately $2.6 billion

worth of the credits. Am. Compl. ¶ 61; FHFA Mot. at 8.

       Pursuant to the Treasury Agreements, though, Fannie Mae and the Conservator could not

dispose of the LIHTCs without Treasury’s written permission. See FHFA Mot. at 5. According

to the complaint, Treasury declined to approve the sale twice – in November 2009 and February

2010 – finding that the sale would not ultimately protect or benefit the taxpayers. Am. Compl.




4      According to plaintiff, the purpose of the low-income housing tax credits program is to
spur the development of affordable housing by providing a tax break to investors in low-income
housing projects. Am. Compl. ¶¶ 55–56.


                                                 4
¶¶ 66, 73. 5 Plaintiff alleges that Treasury’s failure to consent to the sale constitutes a breach of

its fiduciary duties as the purported “controlling shareholder” of Fannie Mae. Am. Compl. ¶ 76.

Through this derivative action, plaintiff seeks to step into the shoes of the Conservator and sue

Treasury on behalf of Fannie Mae.

II.    Procedural Background

       Plaintiff filed its shareholder derivative complaint on February 15, 2013, Compl. [Dkt.

# 1], and its amended complaint on June 25, 2013, Am. Compl. The FHFA filed its motion to

substitute on May 23, 2013, [Dkt. # 29], and a revised version of that motion on September 25,

2013, [Dkt. # 37]. Defendant Treasury filed a renewed response in support of the FHFA’s

revised motion October 28, 2013, [Dkt. # 40], and plaintiff filed a motion to strike one of the

affidavits attached to Treasury’s response on November 25, 2013, [Dkt. # 42]. The Court denied

plaintiff’s motion to strike on November 26, 2013, stating that it would consider plaintiff’s

objections in connection with its consideration of Treasury’s pleading. Nov. 26, 2013 Minute

Order. Plaintiff opposed the FHFA’s motion on November 25, 2013, [Dkt. # 41], and the FHFA

filed a reply on December 16, 2013, [Dkt. # 43].

                                           ANALYSIS

       It is undisputed that the plain language of HERA provides that only the Conservator may

bring suit on behalf of Fannie Mae. See 12 U.S.C. § 4617(b)(2)(A)(i); Kellmer v. Raines, 674

F.3d 848, 850 (D.C. Cir. 2012). But plaintiff argues that its shareholder derivative suit is

nevertheless proper because a “manifest, disabling and irreconcilable” conflict of interest

prevents the Conservator from suing Treasury over its refusal to consent to the sale of the



5     The FHFA’s motion states that Treasury rejected the sale in February 2010, but makes no
mention of a November 2009 rejection. See FHFA Mot. at 8.


                                                 5
LIHTCs – a lawsuit that, in plaintiff’s view, would be in the best interest of Fannie Mae. Am.

Compl. ¶ 93; Pl.’s Opp. at 1. But the Court finds that there is no disabling conflict here that

would permit plaintiff to assume the Conservator’s function. Furthermore, the clear statement in

HERA that “no court may take any action to restrain or affect the exercise of powers or

functions” of the Conservator, 12 U.S.C. 4617(f), suggests that the Court may not be empowered

to authorize plaintiff to pursue litigation that the Conservator has declined to pursue. Therefore,

the Court will grant the Conservator’s motion to substitute the FHFA as plaintiff in this case.

I.      There is no “manifest, disabling and irreconcilable” conflict of interest in this case.

        The “language [of HERA] plainly transfers shareholders’ ability to bring derivative

suits . . . to FHFA.” Kellmer, 674 F.3d at 850. And no court has held that a conflict-of-interest

exception applies to this provision.     But two courts have recognized a conflict-of-interest

exception to HERA’s predecessor statute:       the Financial Institutions Reform Recovery and

Enforcement Act of 1989 (“FIRREA”). See First Hartford Corp. Pension Plan & Trust v.

United States, 194 F.3d 1279 (Fed. Cir. 1999); Delta Savings Bank v. United States, 265 F.3d

1017 (9th Cir. 2001); see also Kellmer, 674 F.3d at 850 (noting that FIRREA is the

“predecessor” of HERA and that “absent a manifest conflict of interest,” all courts found that

FIRREA barred shareholder derivative suits). Plaintiff argues that under the specific facts of this

case, the FIRREA conflict-of-interest exception should apply to HERA, and that it therefore has

standing to bring its shareholder derivative suit. But the Court finds that even if the exception

were available under HERA, there is no conflict of interest that would justify its application in

this case.




                                                 6
   A. First Hartford

       The authorities cited by plaintiff do not call for a different outcome. The First Hartford

case arises out of the following circumstances: In 1983, Dollar Savings Bank of New York and

Dry Dock Savings Bank merged to form Dollar Dry Dock Bank of New York (“Dollar”), a New

York state-chartered bank. 194 F.3d at 1283. As part of an effort to assist the struggling new

bank, in 1986, the Federal Deposit Insurance Corporation (“FDIC”) entered into an agreement

with Dollar that required it to maintain a certain level of total capital. Id. The agreement further

specified that the intangible asset of “goodwill” could count toward Dollar’s minimum capital

level requirement. 6 Id. at 1283–84.

       In 1990, the FDIC, the Superintendent of Banks for the State of New York

(“Superintendent”), and Dollar executed an agreement that increased the amount of capital

Dollar was required to have on hand. Id. at 1284. Then, in 1991, the FDIC promulgated rules

that effectively prohibited Dollar from counting goodwill toward its total capital. Id. As a result,

Dollar was no longer able to meet its capital requirements. Id. The Superintendent seized Dollar

and appointed the FDIC as receiver. Id.

       First Hartford, a Dollar shareholder, brought suit on behalf of Dollar against the United

States protesting the FDIC’s raising of Dollar’s capital requirements, the seizure of Dollar, and

Dollar’s loss of its contractual right to value goodwill as part of its total capital. Id. It sued for

breach of contract and alleged that there had been an unconstitutional taking in violation of the

Fifth Amendment. Id. First Hartford had submitted “multiple requests” to the FDIC asking it to



6       As the Federal Circuit explained, “‘[g]oodwill’ is defined as the excess of the cost to the
acquirer of purchasing the financial institution . . . and the fair market value of the acquired
financial institution’s assets at the time of the acquisition.” First Hartford, 194 F.3d at 1283.
The goodwill at issue here is commonly referred to as “supervisory goodwill” because of the
particular context of a supervisory merger of a failed financial institution. Id. at 1283 n.1.
                                                  7
bring the lawsuit, and the FDIC repeatedly replied simply that it was considering the question.

Id. at 1295. First Hartford finally filed its own shareholder action one day before the statute of

limitations expired. Id.

       The Court of Federal Claims dismissed First Hartford’s complaint, in part on the grounds

that only the FDIC, as receiver, could bring an action on behalf of the bank. Id. at 1286. The

Federal Circuit reversed on that issue. Id. at 1294. The court found that the particular facts of

this case warranted an exception to the “general proposition” that “the FDIC’s statutory

receivership authority includes the right to control the prosecution of legal claims on behalf of”

Dollar. Id. at 1295. “[I]n the circumstances presented by this case,” the court reasoned, “the

FDIC was asked to decide on behalf of the depository institution in receivership whether it

should sue the federal government based upon a breach of contract, which, if proven, was caused

by the FDIC itself.” Id. Given that “manifest conflict of interest,” as well as the FDIC’s “de

facto refusal to sue,” the court concluded that First Hartford had standing to bring a shareholder

derivative suit. Id. The court cautioned that its holding was “very narrow” and “limited to the

situation here 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.

   B. Delta Savings Bank

       Delta Savings Bank is the only other case in which a court has applied the conflict-of-

interest exception recognized in First Hartford. See 265 F.3d at 1022. In Delta Savings Bank, a

failing bank was under investigation by the Office of Thrift Supervision (“OTS”) and it came

under increased scrutiny because of an alleged racially-motivated conspiracy among two OTS

employees and a Delta employee. Id. at 1019–20. Delta’s board of directors authorized “any

and all action necessary to file Civil Litigation against any and all parties including the OTS” and



                                                 8
the individual employees, and several months later, the OTS removed the bank president and

placed the bank under the conservatorship of the FDIC. Id. at 1020. The OTS also issued a

Prohibition Order forever banning the former president, Young Il Kim, from working in the

American banking industry. Id. That order was later vacated by the Ninth Circuit. Id.

       Delta and Kim, in his individual and shareholder capacities, brought suit against the

United States and the individual employees based on the OTS’s failure to prevent the alleged

discrimination by its employees. Id. The district court dismissed Kim’s shareholder derivative

claims on the ground that only the FDIC, as Delta’s conservator, had standing to pursue claims

on behalf of the bank. Id. But the Ninth Circuit found that, as in First Hartford, a “manifest

conflict of interest” prevented the FDIC from bringing suit against the OTS. Id. at 1022.

Therefore, the court held, Kim had shareholder standing under the conflict-of-interest exception.

Id.

       Unlike First Hartford, the Delta Savings Bank case involved two ostensibly separate

agencies: the FDIC, Delta’s conservator, and the OTS, which had investigated Delta and placed

it into conservatorship. Id. Nevertheless, the court held that “the fact that this case involves

separate federal agencies does not distinguish it from First Hartford” because the agencies were

so closely “interrelated[ ].” Id. As proof of this interrelatedness, the court noted that:

       The Director of the OTS was, by statute, also a member of the Board of Directors of the
       FDIC. Id. at 1023, citing 12 U.S.C. § 1812(a)(1)(B).

       The OTS and the FDIC shared employees: “An employee of the OTS [could]
       simultaneously serve as a deputy or assistant to a member of the Board of Directors of the
       FDIC,” and would be considered to be employed by the FDIC. Id., citing 12 U.S.C.
       § 1812(f)(2).

       The FDIC and the OTS jointly published regulations, issued reports, and conducted
       investigations. Id.

       Both the FDIC and the OTS were created by FIRREA. Id.

                                                  9
       The agencies “play[ed] complementary roles in the process of bailing out failing thrifts,”
       and the OTS could appoint the FDIC as conservator or receiver. Id.

The court concluded that “[g]iven the nature and extent of the relationship between the FDIC and

the OTS, . . . the FDIC cannot be expected to objectively pursue lawsuits against the OTS, even

when it is in the best interest of the failing bank to do so.” Id. Therefore, it found that the

“common-sense[ ] conflict of interest exception to the commands of FIRREA” established in

First Hartford applied in this case, giving the shareholder plaintiff standing to sue. 7 Id. at 1024.

   C. A conflict-of-interest exception, if available, is not appropriate in this case.

       Unlike First Hartford and Delta Savings Bank, the circumstances of this case do not

justify the exception that plaintiff seeks. As an initial matter, the Court notes that neither First

Hartford nor Delta Savings Bank is binding in this jurisdiction, and that even if they were, they

are not HERA cases. 8 But assuming without deciding that the conflict-of-interest exception

these cases recognized could also apply to HERA, the Court finds that it would not apply in this

case. Therefore, plaintiff does not have standing to pursue its claims and the Court will grant the

Conservator’s motion to substitute.

       Plaintiff argues that the conflict-of-interest exception would apply here because, “as a

practical matter, Fannie Mae cannot be expected to objectively pursue a lawsuit against

Treasury.” Am. Compl. ¶ 94. As evidence of the agencies’ excessive interrelatedness, plaintiff

points out that:



7      The court ultimately disposed of the shareholder plaintiff’s claims on other grounds.
Delta Savings Bank, 265 F.3d at 1024.

8      In Kellmer, the D.C. Circuit acknowledged that the Ninth and Federal Circuits have
recognized a conflict of interest exception in FIRREA cases. See Kellmer, 674 F.3d at 850. This
statement in Kellmer neither establishes nor forecloses the existence of a conflict of interest
exception for HERA.
                                                 10
       Treasury has already provided $116 billion to Fannie Mae, and is required by contract to
       make an additional $125 billion available. Pl.’s Opp. at 13.

       The FHFA and Treasury entered into and implemented the Treasury Agreements
       together. Id.

       Until August 2012, Treasury provided Fannie Mae with the funds to make its dividend
       payments, which were all owed to Treasury. Id. Treasury and Fannie Mae ended this
       “circular practice” in 2012, and established that Treasury would instead take “the entire
       positive net worth of [Fannie Mae] each quarter” as its dividend payment. Id. at 14–15.

       Fannie Mae has indicated in filings with the Securities and Exchange Commission
       (“SEC”) that it and Treasury are “related parties” as defined by Statement of Financial
       Accounting Standards No. 57. Id. at 17.

       Treasury and Fannie Mae work together on the Home Affordable Modification Program
       (“HAMP”), with Fannie Mae serving as program administrator for loans modified under
       HAMP, and Treasury compensating Fannie Mae for that work. Id. at 18.

       The Secretary of the Treasury holds one of the four seats on the Federal Housing Finance
       Oversight Board (“FHFOB”), which, by statute, exists to advise the Director of the
       FHFA. Id. at 20 n.6; see also 12 U.S.C. § 4513a (2012).

       Plaintiff also argues that because Fannie Mae has received billions of dollars from

Treasury, “[i]t strains credulity to believe that Fannie Mae would bite the hand that fed it,” and

that, as in Delta Savings Bank, it is “impractical” and “absurd” to think that the FHFA would sue

Fannie Mae. Pl.’s Opp. at 2, 12. It is impossible, plaintiff contends, for the FHFA to objectively

assess whether it should sue Treasury because the FHFA “already has capitulated twice to

Treasury” on the LIHTC issue. Id. at 2. In addition, plaintiff alleges that in May, 2013, Fannie

Mae made a one-time dividend payment of approximately $60 billion to Treasury “so that

Treasury could pump up its financial results to avoid the federal debt ceiling.” Id. at 16.

According to plaintiff, that dividend payment “really is an accounting artifice” and it “further

evidences the interrelatedness between Fannie Mae and Treasury.” Id.

        Even taking plaintiff’s factual allegations as true, plaintiff’s arguments fail because they

do not establish a conflict of interest similar to the ones at issue in First Hartford and Delta

                                                11
Savings Bank. First, the holding of First Hartford is “limited to the situation . . . in which a

government contractor with a putative claim of breach by a federal agency is being operated by

that very same federal agency.” 194 F.3d at 1295. Given that plaintiff here states that its “action

is directed at Treasury . . . not the FHFA,” Pl.’s Opp. at 24, there can be no question that the

alleged breach was not committed by the conservator agency. Therefore, the obvious conflict at

issue in First Hartford is not present here, and that case’s reasoning does not support plaintiff’s

claims.

          Second, Delta Savings Bank, too, is inapposite. In that case, the Ninth Circuit applied the

conflict-of-interest exception that was articulated in First Hartford, even though the conservator

of the bank was not the agency that had allegedly harmed it, as was the case in First Hartford. 9

The court reasoned that the circumstances of Delta Savings Bank could “not [be] distinguish[ed]

from First Hartford” because the OTS and the FDIC were so intertwined. 265 F.3d at 1022. In

other words, the Ninth Circuit found that the two ostensibly separate agencies were so closely

related that it was as if Delta Savings Bank were being operated by a single agency, the agency

that harmed it, as in First Hartford.

          The FHFA and Treasury, however, are not virtually the same agency.             Unlike the

agencies in Delta Savings Bank, they do not share employees and directors, and they were not

created by the same statute to serve complementary functions. See id. at 1023. The Department

of the Treasury is a Cabinet-level agency established by the First Congress in 1789 that, by

plaintiff’s own description, is “charged with, inter alia, managing federal finances, supervising

national banks and thrift institutions, and advising on domestic and international financial,

monetary, economic, trade and tax policy.” See Am. Compl. ¶ 23. The FHFA, by contrast, was


9      The Court notes that this was a significant expansion of what the court in First Hartford
expressly warned was supposed to be a “very narrow” holding. See 194 F.3d at 1295.
                                                  12
established by the 110th Congress in 2008 through the HERA statute, and it is authorized to

regulate and act as conservator or receiver for Fannie Mae, Freddie Mac, and the Federal Home

Loan Banks. 12 U.S.C. § 4511.

       Furthermore, in Delta Savings Bank, the would-be defendant, the OTC, appointed the

FDIC as the bank’s conservator, and that was a factor leading the court to conclude that the

entities were intertwined. But Fannie Mae is not a bank, and would-be defendant Treasury did

not appoint the FHFA as Conservator. Congress passed legislation and created a new agency to

deal specifically with Fannie Mae, as well as Freddie Mac and the Federal Home Loan Banks.

12 U.S.C. § 4511. Pursuant to that statutory authority, the Director of the FHFA appointed the

FHFA as Conservator of Fannie Mae. See id. § 4617(a). In other words, the conflict in Delta

Savings Bank, where the plaintiff sought to sue the agency that had appointed the conservator, is

absent here.

       Moreover, it is particularly significant to this analysis that Treasury and the FHFA are

counterparties to a contract that was authorized by Congress in the HERA statute. In that

contract, Treasury agreed to provide billions of dollars to Fannie Mae in exchange for stock and

the right to ensure that Fannie Mae used its assets wisely. See 12 U.S.C. § 1719(g)(1)(A)

(granting Treasury authority to purchase “any obligations and other securities” of Fannie Mae

upon “mutual agreement between the Secretary and the corporation”). The fact that the two

entities occupy opposite sides of a contract, which is supported by consideration and requires

each to perform in accordance with its terms, differentiates this situation from the OTS–FDIC

relationship described in Delta Savings Bank.

       Plaintiff’s theory that the FHFA and Treasury are so interrelated that the FHFA “cannot

be expected to objectively pursue a lawsuit against Treasury” arises primarily out of the



                                                13
relationship created by this contract. See Am. Compl. ¶ 94. But plaintiff’s central claim – that

the FHFA would never “bite the hand that fed it” by suing its source of funding – is undermined

by the contract, since Treasury is obligated to provide funding whether or not it is sued. See Pl.’s

Opp. at 2; Am. Compl. ¶ 43. And the fact that the FHFA acquiesced to Treasury’s disapproval

the LIHTC sale suggests little more than that the FHFA abided by the terms of its contract with

Treasury.

       The rest of plaintiff’s arguments fall similarly flat. In support of its claim that Treasury

and the FHFA are excessively intertwined, plaintiff notes that the FHFA has “admitted” that it

and Treasury are “related parties” in SEC filings. Pl.’s Opp. at 17. Statement of Financial

Accounting Standards No. 57 defines “related party” to include a party that “has an ownership

interest in one of the transacting parties and can significantly influence the other to an extent that

one or more of the transacting parties might be prevented from fully pursuing its own separate

interests.” App. B, Ex. J to Resp. of Treasury Defs. to FHFA Mot. [Dkt. # 40-6] ¶ f; see also

Pl.’s Opp. at 17. Fannie Mae reported to the SEC that it was “related” to Treasury under that

definition because Treasury holds a warrant to purchase 79.9% of the shares of its common

stock. Ex. K to Resp. of Treasury Defs. to FHFA Mot. [Dkt. # 40-7] at 90 (Fannie Mae Form

10-Q for the period ending June 30, 2013). Treasury has not exercised that warrant, however,

and the Conservator succeeded to all of the powers of all shareholders under HERA, so the

“related party” designation does not indicate a conflict of interest here.

       Plaintiff also points out that Treasury compensates Fannie Mae for its role in

implementing the HAMP program, that the Secretary of the Treasury advises the Director of the

FHFA as a member of the FHFOB, that Treasury takes all of Fannie Mae’s profits as dividends,

and that Fannie Mae, through its Conservator, made a large one-time dividend payment to



                                                 14
Treasury. Pl.’s Opp. at 14–16, 18, 20 n.6. But nothing about Treasury’s compensation of Fannie

Mae for administering HAMP could create a conflict of interest that affects this case when

Treasury is contractually obligated to provide funding to Fannie Mae through the FHFA in any

event. And the official advisory role of the Secretary of the Treasury is not, on its own,

sufficient to create a “manifest conflict of interest,” nor does it reflect the level of

interconnectedness at issue in Delta Savings Bank, where the director of the OTS sat on the

board of directors of the FDIC. See 265 F.3d at 1022–23. Finally, the Court sees nothing

extraordinary about arrangements that enable Fannie Mae to repay to Treasury some portion of

the $116 billion in taxpayer funds that it has borrowed so far. 10 See Pl.’s Opp. at 13.

       In sum, this case does not present the type of “manifest conflict of interest” at issue in

either First Hartford or Delta Savings Bank. Rather, it appears that plaintiff’s true objection is to

the terms of the Treasury Agreements, which plaintiff does not challenge in its complaint, and




10     Plaintiff makes the conclusory claim that the FHFA has abandoned its mandate to
“preserve and conserve” the assets of Fannie Mae. Pl.’s Opp. at 16. It points to public
statements by the FHFA, set forth in paragraphs 115 and 116 of the amended complaint, that
purportedly demonstrate that the FHFA has adopted Treasury’s “agenda” of protecting
taxpayers. Id. at 3, 15–16, citing Am. Compl. ¶ 115 (“With taxpayers providing the capital
supporting [Fannie Mae’s] operations, this mandate to preserve and conserve directs FHFA to
minimize losses on behalf of taxpayers.”); id. at ¶ 116 (“FHFA has reported on numerous
occasions that, with taxpayers providing capital supporting Enterprise operations, this ‘preserve
and conserve’ mandate directs FHFA to minimize losses on behalf of taxpayers.”) (emphasis
omitted). But these statements simply reflect that taxpayer dollars have been utilized to support
Fannie Mae. Furthermore, the extent of Fannie Mae’s indebtedness to Treasury (and the
taxpayers) negates plaintiff’s insinuation that Treasury vetoed the sale of the LIHTCs because
“every dollar of tax credits used reduces tax revenue to Treasury,” Am. Compl. ¶ 9, and that
Treasury is “unjustly enriching itself at the expense or to the detriment of [Fannie Mae’s]
minority shareholders.” Id. ¶ 46.


                                                 15
which were authorized by Congress in HERA. Therefore, the Court will grant the Conservator’s

motion to substitute. 11

II.     The anti-injunction provision of HERA also bars plaintiff’s claims.

        In addition to granting broad powers to the FHFA as Conservator, HERA contains an

anti-injunction provision that prevents courts from “tak[ing] any action to restrain or affect the

exercise of powers or functions of the [FHFA] as a conservator or a receiver.” 12 U.S.C.

§ 4617(f). Every circuit court to consider the issue has held that this provision strips courts of

jurisdiction to hear challenges to the “lawful exercise of FHFA’s power as conservator.” 12 Cnty.

of Sonoma v. FHFA, 710 F.3d 987, 990 (9th Cir. 2013); see also Leon Cnty. v. FHFA, 700 F.3d

1273, 1279 (11th Cir. 2012); Town of Babylon v. FHFA, 669 F.3d 221, 228 (2d Cir. 2012); La.

Mun. Police Emps. Ret. Sys. v. FHFA, 434 F. App’x 188, 191 (4th Cir. 2011) (per curiam). The

Court finds that this provision provides a second, independent basis for its decision to grant the

Conservator’s motion to substitute.

        Plaintiff does not argue that the FHFA’s failure to bring suit against Treasury over the

LIHTC issue was outside the scope of the FHFA’s powers as the Conservator of Fannie Mae.


11       Without reaching the issue of demand futility, the Court notes that this case is also unlike
First Hartford and Delta Savings Bank because plaintiff here has not attempted to ask the FHFA
or Fannie Mae’s Board of Directors to sue Treasury over the LIHTC sale issue. See First
Hartford, 194 F.3d at 1295 (noting First Hartford’s “multiple requests” to the FDIC); Delta
Savings Bank, 265 F.3d at 1020 (noting that Delta’s board of directors had authorized the
litigation before Delta was placed into conservatorship); Am. Compl. ¶¶ 80–92 (stating that
demand on the Fannie Mae Board of Directors would be futile because the Board is “beholden”
to the Conservator, because the Conservator has succeeded to all of the Board’s powers, and
because of the Conservator’s “manifest, disabling and irreconcilable conflicts of interest with
respect to this action”).

12      FIRREA contains a parallel anti-injunction provision. See 12 U.S.C. § 1821(j). In a
different factual context, the D.C. Circuit stated that FIRREA’s anti-injunction provision
“effect[s] a sweeping ouster of courts’ power to grant equitable remedies” against the FDIC
when it acts within its powers as receiver. Freeman v. FDIC, 56 F.3d 1394, 1399 (D.C. Cir.
1995).
                                                 16
Nor could it: whether or not to spend Fannie Mae’s assets on a lawsuit against Treasury is

plainly the type of business decision Congress entrusted to the Conservator in HERA. See 12

U.S.C. § 4617(b)(2)(D), (D)(ii) (empowering the FHFA as Conservator to “take such action as

may be . . . appropriate to carry on the business of the regulated entity and preserve and conserve

the assets of the regulated entity”). Rather, plaintiff claims that its suit does not run afoul of

section 4617(f) because its “action is directed at Treasury . . . not the FHFA.” Pl.’s Opp. at 24.

Moreover, plaintiff says, it does not seek to “interfer[e]” with the FHFA’s powers, but to liberate

it to “do precisely what it intended to do” before Treasury rejected the LIHTC sale.             Id.

(emphasis in original).

       But “[a] court action can ‘affect’ a conservator even if . . . the litigation is not directly

aimed at the conservator itself.” In re Fed. Home Loan Mortg. Corp. Derivative Litig., 643 F.

Supp. 2d 790, 799 (E.D. Va. 2009). And since the Conservator has succeeded to “all rights,

titles, powers, and privileges of . . . any stockholder, officer, or director” of Fannie Mae, 12

U.S.C. § 4617(b)(2)(A)(i), only the Conservator has the power to bring suit on behalf of Fannie

Mae.   Kellmer, 674 F.3d at 850.       Thus, to permit plaintiff to bring an action which the

conservator has declined to bring “would interfere with and potentially usurp precisely the

powers granted to the FHFA by HERA.” Esther Sadowsky Testamentary Trust v. Syron, 639 F.

Supp. 2d 347, 351 (S.D.N.Y. 2009). Given that the FHFA undisputedly acted within the scope

of its authority as Conservator and that plaintiff’s lawsuit would “affect” and “interfere” with the




                                                17
