            Case: 11-15614    Date Filed: 11/09/2012   Page: 1 of 10

                                                                       [PUBLISH]


              IN THE UNITED STATES COURT OF APPEALS

                       FOR THE ELEVENTH CIRCUIT
                         ________________________

                               No. 11-15614
                         ________________________

                   D.C. Docket No. 4:10-cv-00436-RH-WCS


LEON COUNTY FLORIDA,
LEON COUNTY ENERGY IMPROVEMENT DISTRICT,

                                                        Plaintiffs - Appellants,

                                    versus

FEDERAL HOUSING FINANCE AGENCY,
ACTING DIRECTOR OF FEDERAL HOUSING FINANCE AGENCY,
FEDERAL HOME LOAN MORTGAGE CORPORATION,
FEDERAL NATIONAL MORTGAGE ASSOCIATION

                                                        Defendants - Appellees,
CHARLES E. HALDEMAN, JR.,
In his capacity as Chief Executive Officer of
Federal Home Loan Mortgage Corporation, et al.,
                                                        Defendants.

                         ________________________

                  Appeal from the United States District Court
                      for the Northern District of Florida
                        ________________________
                              (November 9, 2012)
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Before BARKETT and JORDAN, Circuit Judges, and HODGES, * District Judge.

BARKETT, Circuit Judge:

       Leon County, Florida and the Leon County Energy Improvement District

(together, “Leon County”) appeal the dismissal of their complaint against the

Federal Housing Finance Agency (“FHFA”), its acting director, Charles E.

Haldeman, Jr., the Federal National Mortgage Association (“Fannie Mae”) and the

Federal Home Loan Mortgage Corporation (“Freddie Mac”), for lack of subject

matter jurisdiction. 1

       On appeal, Leon County argues that by directing Fannie Mae, Freddie Mac,

and the Federal Home Loan Banks to refrain from purchasing mortgages

encumbered with certain first-priority lien obligations, some of which were held by

Leon County, the FHFA engaged in rulemaking without providing “notice and

opportunity for public comment pursuant to (the relevant provisions of the

Administrative Procedure Act (“APA”)]. 12 U.S.C. § 4526(b). The FHFA

responds that its directive did not constitute rulemaking but was simply an exercise

of its business judgment as a “conservator” of Fannie Mae and Freddie Mac and,

*
 Honorable Wm. Terrell Hodges, United States District Judge for the Middle District of Florida,
sitting by designation.
1
  The district court did not specify whether it dismissed Leon County’s complaint pursuant to
Rule 12(b)(1) or Rule 12(b)(6) of the Federal Rules of Civil Procedure. However, in its motion
to dismiss, the FHFA argued that 12 U.S.C. § 4617(f) withdrew the district court’s jurisdiction,
and the district court appeared to base its decision on that argument. See 12 U.S.C. § 4617(f)
(articulating a limitation on court action).

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that pursuant to § 4617(f), “no court may take any action to restrain or affect the

exercise of powers or functions of the [FHFA] as a conservator or a receiver.” Id.

§ 4617(f).

                                     BACKGROUND

      In 2008, Congress enacted the Housing and Economic Recovery Act of 2008

(“HERA”), Pub. L., No. 110–289, 122 Stat. 2654 (codified at 12 U.S.C. § 4501 et

seq.), which established the FHFA to regulate and oversee Fannie Mae and Freddie

Mac, as well as the Federal Home Loan Banks, which together largely control the

country’s secondary market for residential mortgages. In addition to the FHFA’s

regulatory authority, HERA vests in the FHFA the authority to act as conservator

or receiver for Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. Id. §

4617(a). In September 2008, following the collapse of the housing market and the

ensuing economic crisis, the FHFA became conservator of Fannie Mae and

Freddie Mac and remains conservator of both entities. See Fed. Hous. Fin.

Agency, Statement of FHFA Director James B. Lockhart Announcing

Conservatorship of Fannie Mae and Freddie Mac (2008).

      Leon County is one of many local governments to have established a

Property Assessed Clean Energy (“PACE”) program, which assists its citizens in

obtaining funding to finance home improvements aimed at achieving energy

efficiency. To secure repayment of these PACE funds, the improved property at


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issue is encumbered with a lien which, under Florida law, takes priority over all

other liens. On July 6, 2010, the FHFA instructed Fannie Mae, Freddie Mac, and

the Federal Home Loan Banks to “undertake certain prudential actions” aimed at

discouraging the acquisition of mortgages attached to properties encumbered with

first-priority PACE liens.2 To comply with this directive, Fannie Mae and Freddie

Mac announced that it would no longer purchase mortgages subject to first-priority

PACE liens originating after July 6, 2010.

       Claiming that this restriction would destroy the PACE program, Leon

County sought injunctive and declaratory relief to prohibit the implementation of

Fannie Mae and Freddie Mac’s announced restriction. The district court dismissed

Leon County’s complaint on the grounds that, in issuing the directive to Fannie

Mae and Freddie Mac, the FHFA was acting in its capacity as a “conservator” and,

pursuant to § 4617(f), “no court may take any action to restrain or affect the

exercise of powers or functions of the [FHFA] as a conservator or a receiver.” Id.

§ 4617(f). Leon County appeals that determination, seeking to avoid the

jurisdictional bar in § 4617(f) by arguing that the FHFA was acting as a regulator

and not as a conservator. “Our review of a district court’s determination of subject


2
  This instruction was via a statement to Fannie Mae, Freddie Mac, and the Federal Home Loan
Banks explaining that it had “determined that certain energy retrofit lending programs present
significant safety and soundness concerns that must be addressed by [Fannie Mae, Freddie Mac,]
and the Federal Home Loan Banks.” Fed. Hous. Fin. Agency, Statement on Certain Energy
Retrofit Loan Programs 1 (2010).

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matter jurisdiction as well as statutory interpretation is de novo.” United States v.

Rendon, 354 F.3d 1320, 1324 (11th Cir. 2003).

                                       DISCUSSION

       Under subchapter I of HERA, the FHFA has “[g]eneral supervisory and

regulatory authority” over Fannie Mae, Freddie Mac, and the Federal Home Loan

Banks. 12 U.S.C. § 4511(b). Pursuant to this general regulatory authority, the

FHFA may, through its Director, “issue any regulations, guidelines, or orders

necessary to carry out the duties of the Director under this chapter or the

authorizing statutes, and to ensure the purposes of this chapter and the authorizing

statutes are accomplished.” Id. § 4526(a). The “principal duties” articulated in the

statute are:

       (A) to oversee the prudential operations of each regulated entity; and
       (B) to ensure that--
              (i) each regulated entity operates in a safe and sound manner,
              including maintenance of adequate capital and internal controls;
              (ii) the operations and activities of each regulated entity foster liquid,
              efficient, competitive, and resilient national housing finance markets
              (including activities relating to mortgages on housing for low- and
              moderate-income families involving a reasonable economic return
              that may be less than the return earned on other activities);
              (iii) each regulated entity complies with this chapter and the rules,
              regulations, guidelines, and orders issued under this chapter and the
              authorizing statutes;
              (iv) each regulated entity carries out its statutory mission only through
              activities that are authorized under and consistent with this chapter
              and the authorizing statutes; and
              (v) the activities of each regulated entity and the manner in which
              such regulated entity is operated are consistent with the public
              interest.

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Id. § 4513(a)(1)(B). The Director of the FHFA also has the duty to, “by regulation,

establish criteria governing the portfolio holdings of [Fannie Mae and Freddie

Mac], to ensure that the holdings are backed by sufficient capital and consistent

with the mission and the safe and sound operations of [Fannie Mae and Freddie

Mac].” Id. § 4624(a). When issuing regulations, the Director must provide “notice

and opportunity for public comment pursuant to [the relevant provisions of the

APA].” Id. § 4526(b).

      Distinct from its regulatory and supervisory authority, § 4617(a) authorizes

the FHFA to appoint itself conservator or receiver of Fannie Mae, Freddie Mac,

and/or the Federal Home Loan Banks “for the purpose of reorganizing,

rehabilitating, or winding up the affairs of a regulated entity.” Id. § 4617(a)(2).

When the FHFA became the conservator of Fannie Mae and Freddie Mac in

September 2008, the FHFA “immediately succeed[ed] to . . . all rights, titles,

powers and privileges of [Fannie Mae and Freddie Mac] . . . .” 12 U.S.C. §

4617(b)(2)(A)(i). As conservator, the FHFA is vested with the “[p]owers” to:

      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)(2)(D). As conservator, the FHFA may “[o]perate” Fannie Mae and

Freddie Mac by:


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      (i) tak[ing] over the assets of and operat[ing] the regulated entity with all the
      powers of the shareholders, the directors, and the officers of the regulated
      entity and conduct[ing] all business of the regulated entity;
      (ii) collect[ing] all obligations and money due the regulated entity;
      (iii) perform[ing] all functions of the regulated entity in the name of the
      regulated entity which are consistent with the appointment as conservator or
      receiver;
      (iv) preserv[ing] and conserv[ing] the assets and property of the regulated
      entity; and
      (v) provid[ing] by contract for assistance in fulfilling any function, activity,
      action, or duty of the [FHFA] as conservator or receiver.

Id. § 4617(b)(2)(B). Section 4617(f) limits judicial review of the FHFA’s actions

as conservator, stating that “no court may take any action to restrain or affect the

exercise of powers or functions of [FHFA] as a conservator or receiver.” Id. §

4617(f).

      Although it may appear at first blush that many of the functions of the FHFA

as regulator and as conservator overlap, we consider both the concept and function

of a conservatorship and the overall statutory scheme to determine whether the

actions of the FHFA in issuing its directive regarding PACE mortgages should be

deemed an act taken by the FHFA as conservator, insulated from judicial review,

or an act of rulemaking within its function as a regulator.

      We recognize that when a directive is issued by the FHFA that applies

across the board to an entire category of cases, it contains an aspect of rulemaking

and should therefore be carefully examined to assure that the FHFA is not simply

attempting to avoid its responsibility to give notice and provide an opportunity for


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public comment. The FHFA cannot evade judicial scrutiny by merely labeling its

actions with a conservator stamp. Congress did not intend that the nature of the

FHFA’s actions would be determined based upon the FHFA’s self-declarations

because the distinction between regulator and conservator would be one without a

meaning or effect. Moreover, “if the FHFA were to act beyond statutory or

constitutional bounds in a manner that adversely impacted the rights of others, §

4617(f) would not bar judicial oversight or review of its actions.” In re Fed. Home

Loan Mortg. Corp. Derivative Litig., 643 F. Supp. 2d 790, 799 (E.D. Va. 2009)

(citation omitted), aff’d sub nom. La. Mun. Police Emps. Ret. Sys. v. Fed. Hous.

Fin. Agency, 434 F. App’x 188 (4th Cir. 2011) (per curiam). With that concern in

mind, we must consider all relevant factors pertaining to the directive to determine

whether it was issued pursuant to the FHFA’s powers as conservator or as

regulator. These would include, for example, its subject matter, its purpose, its

outcome, and whether it involves a matter in which public comment might be

relevant, appropriate, useful or intended by Congress.

      The directive in this case identified a specific form of security interest

priming a relatively small number of residential mortgages available to Fannie Mae

and Freddie Mac in the mortgage market as a whole. The directive had a very

narrow field of operation. It did not establish a general set of criteria to be applied

across the board by Fannie Mae and Freddie Mac to their mortgage transactions in


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general. A directive in that form would have the mark of a regulation. The

directive at issue here, by comparison, does not contain any indicia of a general

regulation and looks more like a discreet management decision by a conservator.

      After carefully considering the directive here, we are satisfied that it

comports with the duties, purpose, and actions of a prudent conservator and does

not constitute an act of rulemaking. A conservator is one who has been given the

legal authority to establish control of an entity to put it in a sound and solvent

condition. Essentially, the powers of the directors, officers, and shareholders of

the entity in conservatorship are transferred to the conservator, and those powers

include marshaling, protecting, and managing assets. Part of managing the assets

and assuring the solvency of a mortgage-purchasing entity is considering the

degree of risk entailed by the acquisition of particular mortgages. It is fully within

the responsibilities of a protective conservator, acting as a prudent business

manager, to decline to purchase a mortgage when its lien will be relegated to an

inferior position for repayment. The fact that the conservator declines to purchase

any—or many—mortgages in which another entity holds a first-priority lien does

not turn the FHFA’s business decision into an act of rulemaking. Rather it is

clearly within the broad powers given by Congress to the FHFA as conservator to

take actions “necessary to put [Fannie Mae and Freddie Mac] in a sound and

solvent condition” and “to carry on the business of [Fannie Mae and Freddie Mac]”


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in a way that will “preserve and conserve” its assets. 12 U.S.C. § 4617(b)(2)(D).

As the Second Circuit recently noted, “[d]irecting protective measures against

perceived risks is squarely within FHFA’s powers as conservator.” Town of

Babylon v. Fed. Hous. Fin. Agency,— F.3d —, Nos. 11-3408-CV, 11-3285-CV,

2012 WL 5233601, at *3 (2d Cir. Oct. 24, 2012). Moreover, the function of

providing an opportunity for public comment has considerably less resonance

where, as here, the disagreement with the directive would simply be a

disagreement with a business assessment regarding the level of an investment risk.

      For all of these reasons, we agree with the district court that, under the

specific facts in this case, the FHFA’s directive not to purchase PACE-encumbered

mortgages was within the FHFA’s broad powers as conservator. Accordingly,

because § 4617(f) provides that “no court may take any action to restrain or affect

the exercise of powers or functions of the [FHFA] as a conservator or receiver,”

see 12 U.S.C. § 4617(b), the district court correctly held that § 4617(f) bars Leon

County’s claims.

      AFFIRMED.




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