           In the United States Court of Federal Claims
                                           No. 13-698C
                                      (Filed: May 15, 2020)

*************************************
ARROWOOD INDEMNITY COMPANY *
et al.,                             *                 Motion to Dismiss; RCFC 12(b)(1); RCFC
                                    *                 12(b)(6); Jurisdiction; Standing; Direct
            Plaintiffs,             *                 Claims; Instrumentalities; Coercion; Agent;
                                    *                 Collateral Estoppel; Issue Preclusion;
v.                                  *                 Conservators; Conflict of Interest; Third-
                                    *                 Party Beneficiaries; Stock; Shareholders;
THE UNITED STATES,                  *                 Fannie; Freddie; FHFA
                                    *
            Defendant.              *
*************************************

Richard M. Zuckerman, New York, NY, for plaintiffs.

Kenneth M. Dintzer, United States Department of Justice, Washington, DC, for defendant.

                                    OPINION AND ORDER

SWEENEY, Chief Judge

        Plaintiffs in this case challenge the actions of the United States during the
conservatorships of the Federal National Mortgage Association (“Fannie”) and the Federal Home
Loan Mortgage Corporation (“Freddie”). Specifically, plaintiffs take issue with the conservator
for Fannie and Freddie (collectively, the “Enterprises”) amending a funding agreement between
the Enterprises and the United States Department of the Treasury (“Treasury”). Based on the
revisions to that agreement, plaintiffs seek the return of money illegally exacted, damages for
breach of contract and breach of fiduciary duty, and compensation for a taking pursuant to the
Fifth Amendment to the United States Constitution (“Constitution”). Defendant moves to
dismiss plaintiffs’ complaint, arguing that the court lacks subject-matter jurisdiction over
plaintiffs’ claims, plaintiffs lack standing to pursue certain claims, and plaintiffs fail to state a
claim upon which relief may be granted. For the reasons stated below, the court grants
defendant’s motion to dismiss.
                                      I. BACKGROUND

  A. The Enterprises are private companies that are under the control of a conservator.

           1. The Enterprises operated independently before the financial crisis.

        Congress created the Enterprises to help the housing market; the Enterprises purchase and
guarantee mortgages originated by private banks before bundling those mortgages into securities
that are sold to investors. 1 2d Am. Compl. ¶ 28. Congress chartered Fannie in 1938 and
established Freddie in 1970. Id. ¶ 29. Both Enterprises were initially part of the federal
government before Congress reorganized them into for-profit companies owned by private
shareholders. Id. Freddie is organized under Virginia law, and Fannie is organized under
Delaware law. Fairholme II, 147 Fed. Cl. at 15. The Enterprises, consistent with the applicable
state laws, issued their own common and preferred stock. 2d Am. Compl. ¶ 30. Common
shareholders obtained the right to receive dividends, collect any residual value, and vote on
various corporate matters. Id.; Fairholme II, 147 Fed. Cl. at 15. Those owning preferred stock,
including plaintiffs in this suit, acquired the right to receive dividends and a liquidation
preference. 2d Am. Compl. ¶¶ 30-31.

        The Enterprises, up until the financial crisis in the late 2000s, were consistently
profitable; Fannie had not reported a full-year loss since 1985, and Freddie had not reported such
a loss since becoming privately owned. Id. ¶ 32. Although the Enterprises recorded losses in
2007 and the first two quarters of 2008, the Enterprises continued to generate sufficient cash to
pay their debts and retained sufficient capital to operate. Id. ¶ 33. Otherwise stated, the
Enterprises were not in financial distress or otherwise at risk of insolvency. Id. ¶ 34.

 2. Congress created the Federal Housing Finance Agency to regulate the Enterprises and
          authorized the agency to serve as a conservator for each Enterprise.

        In the midst of the financial crisis during the summer of 2008, Congress enacted the
Housing and Economic Recovery Act of 2008 (“HERA”), Pub. L. No. 110-289, 122 Stat. 2654
(codified as amended in scattered sections of 12 U.S.C.). In that statute, Congress created the
Federal Housing Finance Agency (“FHFA”) and provided it with supervisory and regulatory
authority over the Enterprises. See 12 U.S.C. § 4511(a)-(b) (2018). 2 Congress further
authorized the FHFA Director to, in limited circumstances, appoint the FHFA as the conservator




       1
           This background section is a less comprehensive version of the court’s recitation of
facts in a related case, Fairholme Funds, Inc. v. United States, 147 Fed. Cl. 1 (2019) (“Fairholme
II”), motion to certify interlocutory appeal granted, 147 Fed. Cl. 126 (2020).
       2
        Congress has not amended the relevant portions of HERA since enacting the law in
2008. The court, therefore, refers to the most recent version of the United States Code.

                                               -2-
(“FHFA-C”) for each Enterprise to reorganize, rehabilitate, or wind up its affairs. 3 Id.
§ 4617(a)(2). Specifically, the Director is authorized to appoint a conservator if, among other
things, an Enterprise consents, is undercapitalized, or lacks sufficient assets to pay its
obligations. Id. § 4617(a)(3). 4 The conservator, once appointed, functions independently; it is
not “subject to the direction or supervision of any other agency of the United States or any State
in the exercise of [its] rights, powers, and privileges . . . .” Id. § 4617(a)(7).

         Congress also delineated the scope of the FHFA-C’s powers in HERA. See generally id.
§ 4617. As soon as it is appointed, the FHFA-C “immediately succeed[s] to . . . all rights, titles,
powers, and privileges of the [Enterprise], and of any stockholder, officer, or director of such
[Enterprise] with respect to the [Enterprise] and the assets of the [Enterprise] . . . .” Id.
§ 4617(b)(2)(A). Congress also conferred on the conservator the power to “[o]perate the
[Enterprise].” Id. § 4617(b)(2)(B). Pursuant to that power, the conservator “may,” among other
things, “perform all functions of the [Enterprise],” “preserve and conserve the assets and
property of the [Enterprise],” and “provide by contract for assistance in fulfilling any
function . . . of the [conservator].” Id. The conservator “may” also “take such action as may be
. . . necessary to put the [Enterprise] in a sound and solvent condition; . . . and appropriate to
carry on the business of the [Enterprise] and preserve and conserve the assets and property of the
[Enterprise].” Id. § 4617(b)(2)(D). Rounding out the panoply of powers, Congress also
provided that the conservator “may . . . exercise . . . such incidental powers as shall be necessary
to carry out [its enumerated powers]” and “take any action authorized by [12 U.S.C. § 4617(b)],
which [it] determines is in the best interest of the [Enterprise] or the [FHFA].” Id.
§ 4617(b)(2)(J). By describing the FHFA-C’s role primarily in terms of what powers it “may”
exercise, see generally id. § 4617, Congress provided the FHFA-C with significant discretion on
when or how it uses its powers, see United States v. Rodgers, 461 U.S. 677, 706 (1983) (“The
word ‘may,’ when used in a statute, usually implies some degree of discretion.”). Simply stated,
the FHFA has “extraordinarily broad flexibility to carry out its role as conservator.” Perry
Capital LLC v. Mnuchin, 864 F.3d 591, 606 (D.C. Cir. 2017) (“Perry II”), cert. denied, 138 S.
Ct. 978 (2018).

     3. Congress authorized Treasury to purchase securities issued by the Enterprises.

        At the same time that it established the FHFA, Congress authorized the Treasury
Secretary to buy securities issued by the Enterprises in limited circumstances. 12 U.S.C.
§§ 1455(l) (Freddie), 1719(g) (Fannie). Congress included a sunset clause on this power; the
Secretary could not purchase securities after December 31, 2009. Id. §§ 1455(l)(4), 1719(g)(4).
Until that date, the Secretary was permitted to purchase the securities if he determined that doing
so was necessary to provide stability to the financial markets, prevent disruptions in the

       3
         To avoid any ambiguity, the court reiterates that it is using “FHFA” to refer to the
agency acting in its regulatory role and “FHFA-C” when discussing the agency acting as a
conservator.
       4
        Congress enticed the Enterprises to consent to a conservatorship by insulating their
board members from any liability to shareholders or creditors for agreeing in good faith to the
FHFA’s appointment of a conservator. 12 U.S.C. § 4617(a)(6).

                                                -3-
availability of mortgage finance, and protect taxpayers. Id. §§ 1455(l)(1)(B), 1719(g)(1)(B). As
part of his obligation to protect taxpayers, the Secretary could only purchase securities after
considering:

       (i) The need for preferences or priorities regarding payments to the Government.

       (ii) Limits on maturity or disposition of obligations or securities to be purchased.

       (iii) The [Enterprise’s] plan for the orderly resumption of private market funding
       or capital market access.

       (iv) The probability of the [Enterprise] fulfilling the terms of any such obligation
       or other security, including repayment.

       (v) The need to maintain the [Enterprise’s] status as a private shareholder-owned
       company.

       (vi) Restrictions on the use of [Enterprise] resources, including limitations on the
       payment of dividends and executive compensation and any such other terms and
       conditions as appropriate for those purposes.

Id. §§ 1455(l)(1)(C), 1719(g)(1)(C).

                 4. The FHFA became the conservator for each Enterprise.

        After Congress enacted HERA, Treasury “urg[ed]” the FHFA to place each Enterprise
into conservatorship. 2d Am. Compl. ¶ 4. The FHFA and Treasury subsequently sought to
persuade each Enterprise’s board of directors to consent to conservatorship. Id. ¶ 45. The FHFA
and Treasury told each Enterprise’s board that the FHFA would seize the Enterprises if the board
did not consent to the conservatorship. Id. Around the same time, the FHFA made an offer to
each board: consent to a conservatorship in exchange for the FHFA-C aiming to preserve and
conserve the Enterprises’ assets, attempting to restore the Enterprises to sound and solvent
condition, and terminating the conservatorships when those goals were achieved. Id. ¶¶ 45-48.
Each Enterprise’s board accepted that offer and consented to a conservatorship on September 6,
2008, with an understanding that the FHFA-C would operate in the aforementioned limited
ways. Id. ¶ 45. The FHFA, soon thereafter, issued statements echoing each board’s
understanding. Id. ¶¶ 46-47.

       The conservatorships became effective on September 6, 2008, upon each Enterprise’s
board’s consent. Id. ¶ 45; see also 12 U.S.C. § 4617(a)(3)(I) (permitting the FHFA Director to
appoint a conservator when “[t]he [Enterprise], by resolution of its board of directors or its
shareholders or members, consents to the appointment”).




                                                -4-
      5. The FHFA-C contracted with Treasury to obtain funding for the Enterprises.

       On September 7, 2008, the FHFA-C entered into a Preferred Stock Purchase Agreement
(“PSPA”) with Treasury for each Enterprise. 2d Am. Compl. ¶ 49. Treasury entered into the
agreements pursuant to its authority under HERA to buy the Enterprises’ securities. Id. ¶ 50.
The PSPA for each Enterprise is materially identical. Id. ¶ 53. Under the PSPAs, Treasury
committed to provide up to $100 billion to each Enterprise to ensure that the Enterprises
maintained a positive net worth. Id. If an Enterprise’s liabilities exceeded its assets, then the
Enterprise could draw on Treasury’s funding commitment in an amount equal to the difference
between the Enterprise’s liabilities and assets. Id.

        In return for Treasury’s funding commitment, the Enterprises surrendered stock,
dividends, commitment fees, and control. First, with respect to the stock, Treasury acquired one-
million shares of preferred stock in each Enterprise and warrants to purchase 79.9% of their
respective common stock at a nominal price. Id. ¶ 54. Treasury’s preferred stock had an initial
liquidation preference of $1 billion, but the amount increased dollar-for-dollar when an
Enterprise drew on Treasury’s funding commitment. Id. ¶ 55. In the event of a liquidation,
Treasury was entitled to recover the full liquidation value of its shares before any other
shareholder would receive compensation. Id. Second, Treasury bargained for the right to a
quarterly cash dividend equal to 10% of its liquidation preference. Id. ¶¶ 57, 60. An Enterprise
that decided against paying a cash dividend in a specific quarter could make an in-kind payment:
the value of the dividend would be added to the liquidation preference, and the dividend rate
would increase to 12%. Id. ¶ 57. Those in-kind payments, however, did not count as a draw
from Treasury’s funding commitment. Id. ¶ 61. Third, Treasury received the right to a quarterly
commitment fee from each Enterprise, but Treasury could waive the fee each year. Id. ¶ 62. If
Treasury did not waive the fee, the Enterprise could elect to pay the amount in cash or make an
in-kind payment by increasing the liquidation preference. Id. Fourth, Treasury obtained de facto
control over various aspects of each Enterprise; the Enterprises needed to obtain Treasury’s
consent before awarding dividends, issuing stock, transferring assets, incurring certain types of
debt, and making certain organizational changes. Id. ¶ 63.

       The FHFA-C and Treasury amended each Enterprise’s PSPA on May 6, 2009, to increase
Treasury’s funding commitment to each Enterprise from $100 billion to $200 billion. Id. ¶ 65.
On December 24, 2009, the FHFA-C and Treasury executed another amendment to the PSPAs;
they abolished the specific dollar cap and replaced it with a formula to allow Treasury’s total
commitment to each Enterprise to exceed $200 billion. Id.

           6. The Enterprises’ finances improved during their conservatorships.

       In the early stages of the conservatorships, each Enterprise’s net worth decreased as it
reported losses. The bulk of the losses resulted from the FHFA-C writing down the value of
deferred tax assets and designating large loan loss reserves. 5 Id. ¶ 66. Notwithstanding those


       5
           A loan loss reserve is an entry on a company’s balance sheet that reduces its net worth
to reflect anticipated losses on mortgages that it owns. 2d Am. Compl. ¶ 68. A deferred tax
asset is an asset that may be used to offset future tax liability. Id. ¶ 67. A company must write
                                                -5-
on-paper losses, the Enterprises’ cash receipts consistently exceeded their expenses; they
maintained net operating revenue in excess of their net operating expenses from the onset of the
conservatorships under the PSPAs and through the first two amendments to the agreements. Id.
¶ 72.

         By 2012, the Enterprises’ financial outlooks were promising. In addition to an
improvement in the housing market, the Enterprises began generating consistent profits and
anticipated losing less money on their newer mortgages. Id. ¶¶ 73-76. They were positioned to
further improve their financial condition by settling lawsuits brought by each Enterprise, id. ¶ 89,
and revising their valuations of (1) deferred tax assets because of growing profits and (2) loan
loss reserves because losses were less than expected, id. ¶¶ 79-80. The FHFA-C and Treasury
were aware of those forthcoming changes and the Enterprises’ improving outlooks. Id. ¶¶ 75-80.
In August 2012, Treasury and FHFA-C knew that the Enterprises would soon experience
improved profitability and received projections reflecting that the Enterprises would have
positive comprehensive income between 2012 and 2022. Id. ¶¶ 81-84. Otherwise stated, the
FHFA-C and Treasury knew, by early August 2012, that the Enterprises were poised to generate
profits in excess of their respective dividend obligations to Treasury. Id. ¶ 88.

          7. Treasury and the FHFA-C agreed to a third amendment to the PSPAs.

         At an unspecified time prior to August 2012, the Treasury and the FHFA-C began
considering a third amendment to each PSPA. Treasury was the driving force behind the
initiative to amend the PSPAs’ terms. Id. ¶ 127. Indeed, an FHFA official reported in early
August 2012 that Treasury was making a “renewed push” to implement a new amendment. Id.
¶ 126 (quoting the FHFA official). The FHFA-C learned of the proposed changes before the
Enterprises; Treasury informed the Enterprises that the new terms were forthcoming and
announced the changes to the Enterprises at a subsequent meeting. Id. ¶ 127. Treasury officials
who were involved with the process do not recall Treasury making any backup or contingency
plans in the event that the FHFA-C rejected the proposed terms. Id. The FHFA-C accepted the
changes without advocating for different terms. Fairholme II, 147 Fed. Cl. at 19.

        Treasury and the FHFA-C decided to announce the changed terms in mid-August 2012
because, according to Treasury, the Enterprises would be reporting earnings exceeding their
dividend obligation at the beginning of that month. 2d Am. Compl. ¶ 110. On August 17, 2012,
Treasury and the FHFA-C executed the third amendment to each PSPA (“PSPA Amendment”).
Id. ¶ 92. A key component of the amended PSPAs is the requirement—referred to as the “Net
Worth Sweep”—that each Enterprise pay Treasury a quarterly dividend equal to 100% of each
Enterprise’s net worth (except for a small capital reserve amount) rather than a dividend based




down the value of that deferred asset if it is unlikely to be used to offset future taxable profits.
Id. This write down occurs, for example, if a company predicts it will not be profitable in the
future. Id.

                                                  -6-
on a set percentage of the liquidation preference. 6 Id. ¶ 93. Additionally, under the amended
PSPAs, the Enterprises are not obligated to pay a periodic commitment fee. Id. ¶ 95.

             a. Treasury wanted to ensure that it benefited from the new terms.

        With the PSPAs, Treasury sought to secure a more beneficial arrangement for itself, as a
representative for taxpayers. During the lead-up to the PSPA Amendments, a Treasury official
acknowledged in an internal communication that the government had resolved “to ensure
existing common equity holders will not have access to any positive earnings from the
[Enterprises] in the future.” Id. ¶ 9 (quoting the document). In another Treasury document, an
official noted that the amended PSPAs would put the taxpayer “in a better position” because,
rather than having “Treasury’s upside . . . capped at the 10% dividend, now the taxpayer will be
the beneficiary of any future earnings produced by the [Enterprises].” Id. ¶ 110 (quoting the
document). Treasury recognized its goal of obtaining all of the Enterprises’ profits by executing
the PSPA Amendments; when the changes were announced, it noted that “every dollar of
earnings that [the Enterprises] generate will be used to benefit taxpayers.” Id. ¶ 98 (quoting a
Treasury press release).

                  b. The FHFA-C agreed to changes that benefit Treasury.

         For its part, the FHFA-C was operating under the belief that Treasury would benefit from
the PSPA Amendments. An internal Treasury communication indicates that Treasury anticipated
that its receipts under the PSPA Amendments would “‘exceed the amount that would have been
paid if the 10% [dividend] was still in effect’ and that the changes would lead to ‘a better
outcome’ for Treasury.” Id. ¶ 110 (quoting the communication). Moreover, Mel Watt—a
former FHFA Director—confirmed that he was concerned with how decisions affect the
taxpayers. Id. ¶ 99. During an interview conducted while he was Director, he stated that he does
not “‘lay awake at night worrying what’s fair to the shareholders’ but rather focuses on ‘what is
responsible for the taxpayers.’” Id. (quoting the interview).

c. Treasury and the FHFA understood that the PSPA Amendments would not facilitate the
                         Enterprises exiting conservatorship.

        Treasury was aware that the new terms of the PSPAs were not conducive to the
Enterprises exiting conservatorship. When announcing the PSPA Amendments, Treasury openly
acknowledged that the new terms would “expedite the wind down of [the Enterprises].” Id.
¶ 114 (quoting a Treasury press release). Treasury further explained that the new deal would
ensure that the Enterprises “will be wound down and will not be allowed to retain profits, rebuild
capital, and return to the market in their prior form.” Id.; accord id. ¶ 14 (explaining that “[b]y
taking all of their profits going forward, [Treasury is] making clear that [the Enterprises] will not
ever be allowed to return to profitable entities”) (quoting internal Treasury document). Indeed, a
White House official sent a message to a Treasury official on the day the deal was announced

       6
          The capital reserve for each Enterprise started at $3 billion and was set to decrease to
$0 by January 2018, but the Enterprises and Treasury agreed in December 2017 to reset the
capital reserve amount to $3 billion in the first quarter of 2018. 2d Am. Compl. ¶ 104.

                                                 -7-
noting that “we’ve closed off [the] possibility that [the Enterprises] ever[] go (pretend) private
again.” Id. ¶ 118 (alterations in original) (quoting the message); accord id. (noting in a separate
message that a quotation “in Bloomberg” was “exactly right on substance and intent” when
describing the deal as depriving the Enterprises of the capital they needed to go private).

        The FHFA shared a similar sentiment. The FHFA’s former Acting Director, Edward
DeMarco, testified before the United States Senate that the PSPA Amendments “reinforce the
notion that the [Enterprises] will not be building capital as a potential step to regaining their
former corporate status.” Id. ¶ 115 (quoting the testimony). He also stated that he had no
intention of returning the Enterprises to private control under their existing charters, while
another FHFA official testified that the agency’s objective “was not for Fannie and Freddie . . .
to emerge from conservatorship.” Id. ¶ 116 (quoting the testimony). Indeed, the FHFA
explained in its 2012 report to Congress that the agency had begun “prioritizing [its] actions to
move the housing industry to a new state, one without Fannie . . . and Freddie . . . .” Id. ¶ 115
(quoting the report). Consistent with those actions, the FHFA acknowledged that it would
continue to serve as conservator until “Congress determines the future of [the Enterprises] and
the housing finance market.” Id. ¶ 116 (quoting an FHFA statement).

 d. Treasury has benefited from the PSPA Amendments at the expense of the Enterprises
                                and other shareholders.

        There are four significant effects that flowed from the PSPA Amendments. First,
plaintiffs lost their economic interests in the Enterprises because, under the new terms, private
shareholders can never receive dividends or liquidation distributions. Id. ¶ 97; see also id.
(alleging that, in the event of liquidation, private shareholders will receive nothing because an
Enterprise will never have enough money to pay Treasury’s dividend and liquidation
preferences). Second, Treasury acquired plaintiffs’ economic interests in the Enterprises because
Treasury now “has the right to all residual profits, and it hence owns all the equity.” Id. ¶ 100.
Third, Treasury reaped a windfall of $124 billion in comparison to what it would have received
absent changes to the PSPAs. Id. ¶ 15; see id. ¶¶ 102-03 (alleging that the Enterprises paid
Treasury $223.7 billion under the PSPA Amendments but would have only paid Treasury $99.5
billion under the previous terms). Fourth, the Enterprises can never be rehabilitated to a sound
and solvent condition because, by transferring their profits to Treasury, they will perpetually
operate on the brink of insolvency. Id. ¶¶ 111-12.

           8. Treasury and the FHFA are committed to ending the conservatorships.

        On March 27, 2019, President Donald J. Trump issued a memorandum in which he
directed the Treasury Secretary to develop, “as soon as practicable,” a plan for “[e]nding the
conservatorships of the [Enterprises] upon the completion of specified reforms . . . .” 7


       7
          The court takes judicial notice of the presidential memorandum because it is a
government record published in a reliable source, the Federal Register. See Murakami v. United
States, 46 Fed. Cl. 731, 739 (2000) (noting that the court may take judicial notice of government
documents), aff’d, 398 F.3d 1342, 1354-55 (Fed. Cir. 2005); see also Democracy Forward
Found. v. White House Office of Am. Innovation, 356 F. Supp. 3d 61, 62 n.2 (D.D.C. 2019)
                                                -8-
Memorandum on Federal Housing Finance Reform, 84 Fed. Reg. 12,479, 12,479 (Mar. 27,
2019). The President explained that the plan must include proposals for “[s]etting the conditions
necessary for the termination of the conservatorships” and outlined some of those conditions. Id.
at 12,480. Subsequently, Treasury issued a plan in which it advocated for “begin[ning] the
process of ending the [Enterprises’] conservatorships.” 8 U.S. Dep’t of the Treasury, Housing
Reform Plan Pursuant to the Presidential Memorandum Issued March 27, 2019, at 3 (2019),
https://home.treasury.gov/system/files/136/Treasury-Housing-Finance-Reform-Plan.pdf
[https://perma.cc/RGH8-N385]; accord id. at 26 (“It is, after 11 years, time to bring the
conservatorships to an end.”). As part of the plan to end the conservatorships, Treasury proposed
that it and the FHFA consider revising the Net Worth Sweep to allow the Enterprises to retain
more of their earnings. Id. at 26-27.

        The FHFA shares Treasury’s goals with respect to the conservatorships. Mark Calabria,
the current FHFA Director, testified during his confirmation hearing that he wanted to end the
conservatorships. 9 165 Cong. Rec. S2246 (daily ed. Apr. 4, 2019) (statement of Sen. Crapo)
(summarizing testimony). See generally Nominations of Bimal Patel, Todd M. Harper, Rodney
Hood, and Mark Anthony Calabria: Hearing Before the S. Comm. on Banking, Hous., and
Urban Affairs, 116th Cong. 10-40, 74-75, 148-85 (2019) [hereinafter Calabria Testimony]
(documenting Mr. Calabria’s testimony, statement, and responses to written questions during and
after his confirmation hearing). He also stated that, as FHFA Director, he would seek to increase
the amount of capital that each Enterprise retains. Calabria Testimony, supra, at 150; see also id.
at 25 (“I support the idea of having significantly more capital at the [Enterprises].”).

                         B. Plaintiffs own Fannie and Freddie stock.

        There are three plaintiffs in this case; each plaintiff is an insurance company related to
the others through subsidiary relationships. The first is Arrowood Indemnity Company
(“Arrowood Indemnity”), a Delaware corporation. 2d Am. Compl. ¶ 19. Arrowood Indemnity
owns Fannie preferred stock and Freddie preferred stock. Id. ¶¶ 19-20. The second company is
Arrowood Surplus Lines Insurance Company (“Arrowood Surplus Lines”), also a Delaware
corporation. Id. ¶ 21. Arrowood Surplus Lines owns Fannie preferred stock and Freddie
preferred stock. Id. ¶¶ 21-22. The third company is Financial Structures Limited, a Bermuda


(“[J]udicial notice may be taken of government documents available from reliable sources, such
as this 2017 Presidential Memorandum.”); see generally Fed. R. Evid. 201 (discussing judicial
notice). Although a motion to dismiss is normally limited to the allegations in a complaint, the
court may consider facts derived from sources subject to judicial notice without converting the
motion into one for summary judgment. Sebastian v. United States, 185 F.3d 1368, 1374 (Fed.
Cir. 1999).
       8
         The court takes judicial notice of Treasury’s reform plan because it is a government
record available from a reliable source, Treasury’s website. See supra note 7.
       9
         The court takes judicial notice of the relevant testimony because the statements are
recorded in government documents. See supra note 7.

                                                -9-
company that owns Freddie preferred stock. Id. ¶ 23. Each plaintiff has owned shares in the
Enterprises since before September 6, 2008. Id. ¶¶ 19-23.

                                 II. PROCEDURAL HISTORY

         Plaintiffs filed their complaint on September 18, 2013. 10 After jurisdictional discovery
proceeded in Fairholme, a related case, see supra note 1, plaintiffs filed their second amended
complaint in this case on September 17, 2018. In their second amended complaint, plaintiffs
present four claims. Plaintiffs first assert that the Net Worth Sweep constitutes a Fifth
Amendment taking (count I) of their economic interests in their stock. Plaintiffs next assert that
the Net Worth Sweep constitutes an illegal exaction (count II) of those same economic interests
because the (1) FHFA was operating unconstitutionally and (2) FHFA-C and Treasury exceeded
their statutory authority when they approved the PSPA Amendments. Plaintiffs also plead a
breach-of-fiduciary-duty claim (“fiduciary duty claim”) (count III) premised on the Net Worth
Sweep being unfair; constituting waste, self dealing, gross overreach, and gross abuse of
discretion; and failing to further a valid business purpose or reflect a good faith business
judgment. Additionally, plaintiffs assert a breach-of-implied-contract claim (count IV) based on
a purported agreement by which the Enterprises consented to the conservatorship in exchange for
the FHFA agreeing to preserve the Enterprises’ assets with the goal of making them safe and
solvent. Specifically, plaintiffs assert that each dividend payment under the Net Worth Sweep
constitutes a breach because it depletes the Enterprises’ assets in a manner that undermines the
goals of conservatorship.

        On October 1, 2018, defendant moved to dismiss—in a single, omnibus motion—the
claims in this case and eleven related cases before the undersigned. 11 The plaintiffs in each of
the twelve cases filed a response brief on their respective dockets; some of the plaintiffs relied on
a joint brief, while others, as is the case here, filed a joint brief and a supplemental response
brief. Defendant filed its omnibus reply brief in each of the cases on May 6, 2019. The parties
have fully briefed defendant’s motion, and the court held a single oral argument on November
19, 2019, involving the plaintiffs from each of the twelve cases that defendant moved to dismiss.
The plaintiffs in those cases collaborated during argument; each plaintiff argued some of the
issues. Thus, the court infers that the plaintiffs in this case have adopted the favorable arguments




       10
         A fuller recitation of the procedural history of this case and related cases is provided in
Fairholme II, 147 Fed. Cl. at 21-23.
       11
           The eleven related cases are Fairholme Funds, Inc. v. United States, No. 13-465C;
Washington Federal v. United States, No. 13-385C; Cacciapalle v. United States, No. 13-466C;
Fisher v. United States, No. 13-608C; Reid v. United States, No. 14-152C; Rafter v. United
States, No. 14-740C; Owl Creek Asia I, L.P. v. United States, No. 18-281C; Akanthos
Opportunity Master Fund, L.P. v. United States, No. 18-369C; Appaloosa Investment Limited
Partnership I v. United States, No. 18-370C; CSS, LLC v. United States, No. 18-371C; and
Mason Capital L.P. v. United States, No. 18-529C.

                                                -10-
made by the plaintiffs in the related cases to the extent that such arguments are relevant. 12
Defendant’s motion to dismiss is now ripe for adjudication.

                                  III. STANDARD OF REVIEW

        In ruling on a motion to dismiss a complaint pursuant to Rules 12(b)(1) and 12(b)(6) of
the Rules of the United States Court of Federal Claims (“RCFC”), the court generally assumes
that the allegations in the complaint are true and construes those allegations in the plaintiff’s
favor. Trusted Integration, Inc. v. United States, 659 F.3d 1159, 1163 (Fed. Cir. 2011). With
respect to RCFC 12(b)(1), the plaintiff bears the burden of proving, by a preponderance of the
evidence, that the court possesses subject-matter jurisdiction. Id. The allegations in the
complaint must include “the facts essential to show jurisdiction.” McNutt v. Gen. Motors
Acceptance Corp., 298 U.S. 178, 189 (1936). And, if such jurisdictional facts are challenged in a
motion to dismiss, the plaintiff “must support them by competent proof.” Id.; accord Land v.
Dollar, 330 U.S. 731, 735 & n.4 (1947) (“[W]hen a question of the District Court’s jurisdiction is
raised, . . . the court may inquire by affidavits or otherwise, into the facts as they exist.” (citations
omitted)). If the court finds that it lacks subject-matter jurisdiction, it must, pursuant to RCFC
12(h)(3), dismiss the complaint.

        A claim that survives a jurisdictional challenge remains subject to dismissal under RCFC
12(b)(6) if it does not provide a basis for the court to grant relief. Lindsay v. United States, 295
F.3d 1252, 1257 (Fed. Cir. 2002) (“A motion to dismiss . . . for failure to state a claim upon
which relief can be granted is appropriate when the facts asserted by the claimant do not entitle
him to a legal remedy.”). To survive a motion to dismiss under RCFC 12(b)(6), a plaintiff must
include in the complaint “enough facts to state a claim to relief that is plausible on its face.” Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Indeed, “[t]he issue is not whether a plaintiff
will ultimately prevail but whether the claimant is entitled to offer evidence to support the
claims.” Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds by Harlow v.
Fitzgerald, 457 U.S. 800, 814-19 (1982).

                           IV. SUBJECT-MATTER JURISDICTION

        The court begins with jurisdiction because it is a “threshold matter.” Steel Co. v. Citizens
for a Better Env’t, 523 U.S. 83, 94-95 (1998). Subject-matter jurisdiction cannot be waived or
forfeited because it “involves a court’s power to hear a case.” Arbaugh v. Y & H Corp., 546
U.S. 500, 514 (2006) (quoting United States v. Cotton, 535 U.S. 625, 630 (2002)). “Without

        12
           Plaintiffs have specifically adopted certain arguments that support their breach-of-
implied-contract claim that were made in a brief filed by the plaintiffs in Owl Creek. Pls.’
Supp’l Br. in Opp’n to Def.’s Omnibus Mot. to Dismiss 12-13. More generally, they adopt any
arguments presented in the supplemental briefing in other cases that support their claims. Id. at
13. However, given that the plaintiffs in this case allege direct claims, the court does not infer
that they adopted the Reid and Fisher plaintiffs’ argument that “the shareholder claims asserted
in connection with the [PSPA Amendments] are properly asserted as derivative claims.” Reid
Supp’l Mem. in Opp’n to Def.’s Omnibus Mot. to Dismiss 2; accord Fisher Supp’l Mem. in
Opp’n to Def.’s Omnibus Mot. to Dismiss 2.

                                                  -11-
jurisdiction the court cannot proceed at all in any cause. Jurisdiction is power to declare the law,
and when it ceases to exist, the only function remaining to the court is that of announcing the fact
and dismissing the cause.” Ex parte McCardle, 74 U.S. (7 Wall) 506, 514 (1868). Therefore, it
is “an inflexible matter that must be considered before proceeding to evaluate the merits of a
case.” Matthews v. United States, 72 Fed. Cl. 274, 278 (2006); accord K-Con Bldg. Sys., Inc. v.
United States, 778 F.3d 1000, 1004-05 (Fed. Cir. 2015). Either party, or the court sua sponte,
may challenge the court’s subject-matter jurisdiction at any time. Arbaugh, 546 U.S. at 506; see
also Jeun v. United States, 128 Fed. Cl. 203, 209-10 (2016) (collecting cases).

        The ability of the United States Court of Federal Claims (“Court of Federal Claims”) to
entertain suits against the United States is limited. “The United States, as sovereign, is immune
from suit save as it consents to be sued.” United States v. Sherwood, 312 U.S. 584, 586 (1941).
The waiver of immunity “may not be inferred, but must be unequivocally expressed.” United
States v. White Mountain Apache Tribe, 537 U.S. 465, 472 (2003). Any such waiver must be
narrowly construed. Smith v. Orr, 855 F.2d 1544, 1552 (Fed. Cir. 1988). The Tucker Act, the
principal statute governing the jurisdiction of this court, waives sovereign immunity for claims
against the United States, not sounding in tort, that are founded upon the Constitution, a federal
statute or regulation, or an express or implied contract with the United States. 28 U.S.C.
§ 1491(a)(1) (2018); White Mountain, 537 U.S. at 472. However, the Tucker Act is merely a
jurisdictional statute and “does not create any substantive right enforceable against the United
States for money damages.” United States v. Testan, 424 U.S. 392, 298 (1976). Instead, the
substantive right must appear in another source of law, such as a “money-mandating
constitutional provision, statute or regulation that has been violated, or an express or implied
contract with the United States.” Loveladies Harbor, Inc. v. United States, 27 F.3d 1545, 1554
(Fed. Cir. 1994) (en banc).

        Defendant challenges the court’s jurisdiction to entertain plaintiffs’ claims on a number
of bases. Specifically, defendant argues that 28 U.S.C. § 1500 bars plaintiffs’ claims, that
plaintiffs have not asserted claims against the United States, and that the court lacks jurisdiction
over the subject matter of certain claims. The court addresses each of these contentions in turn. 13

 A. Plaintiffs are not barred by 28 U.S.C. § 1500 from litigating their claims in this court.

       The court first addresses defendant’s argument that the court lacks jurisdiction to
consider plaintiffs’ claims because plaintiffs initiated lawsuits in other courts after filing their
complaint in this court. Specifically, defendant asserts that the claims are barred by 28 U.S.C.
§ 1500, which provides:

       The United States Court of Federal Claims shall not have jurisdiction of any claim
       for or in respect to which the plaintiff or his assignee has pending in any other
       court any suit or process against the United States or any person who, at the time


       13
           In Fairholme II, the court addressed an additional jurisdictional concern that was not
raised in this case. See generally 147 Fed. Cl. at 34-37 (rejecting the contention of a putative
intervenor that the Court of Federal Claims lacks jurisdiction to entertain Fifth Amendment
takings claims).
                                                 -12-
       when the cause of action alleged in such suit or process arose, was, in respect
       thereto, acting or professing to act, directly or indirectly under the authority of the
       United States.

Defendant acknowledges that, under binding precedent, § 1500 is not a bar in this case because
the limitation only applies “when the suit shall have been commenced in the other court before
the claim was filed in [the Court of Federal Claims].” Tecon Eng’rs, Inc. v. United States, 343
F.2d 943, 949 (Ct. Cl. 1965). Nonetheless, defendant asserts that the court should reinterpret
§ 1500 as creating a jurisdictional bar regardless of the timing of the filings. Plaintiffs counter
that the court cannot disregard the binding precedent.

        As defendant acknowledges, its argument is foreclosed by binding precedent: The
jurisdictional limitation in § 1500 does not apply in this case because plaintiffs filed their
complaint in this court before seeking redress in other jurisdictions. See Tecon, 343 F.2d at 949;
see also Res. Invs., Inc. v. United States, 785 F.3d 660, 670 (Fed. Cir. 2015) (noting that Tecon
remains good law in this circuit). Compare Compl. (filed Sept. 18, 2013), with Compl.,
Arrowood Indemnity Co. v. Fed. Nat’l Mortg. Ass’n, No. 13-1439 (D.D.C. Sept. 20, 2013).
Although defendant urges the court to reconsider the rule set forth in Tecon, the court cannot do
so because it is bound by that precedent. See Coltec Indus., Inc. v. United States, 454 F.3d 1340,
1353 (Fed. Cir. 2006) (“There can be no question that the Court of Federal Claims is required to
follow the precedent of . . . our court, and our predecessor court, the Court of Claims.”).
Plaintiffs’ claims, therefore, are not barred by § 1500.

                 B. Plaintiffs have asserted claims against the United States.

        The court next considers whether plaintiffs have asserted claims against the United
States, a necessary element of jurisdiction in the Court of Federal Claims. As set forth in their
second amended complaint, plaintiffs’ Fifth Amendment takings, illegal exaction, and breach-of-
implied-contract claims are premised on actions taken by the FHFA-C and Treasury, while
plaintiffs’ fiduciary duty claim is premised on the FHFA-C’s actions. Defendant argues that the
court lacks jurisdiction to consider any claims premised on the FHFA-C’s or Treasury’s conduct.
In response, plaintiffs contend that they have asserted claims against the government because
(1) Treasury was involved in the challenged conduct, (2) the FHFA-C exercised nontraditional
conservator powers such that its actions must be deemed those of the government, (3) the FHFA-
C was coerced by the government, (4) the FHFA-C was the government’s agent, and (5) the
FHFA-C is a government actor. The court addresses each contention in turn.

 1. The court cannot exercise jurisdiction based on allegations of Treasury’s involvement.

       Plaintiffs initially argue that the court has jurisdiction over their Fifth Amendment
takings and illegal-exaction claims because they have alleged the involvement of Treasury—
indisputably a part of the federal government—in the action underlying these claims, i.e., the Net
Worth Sweep. Defendant counters that Treasury alone could not have implemented the PSPA
Amendments, and Treasury’s role as a counterparty to the voluntary agreement with the
Enterprises is not sufficient to establish jurisdiction over plaintiffs’ takings claim. Defendant



                                                -13-
further asserts that the court’s order allowing jurisdictional discovery reflects that plaintiffs’
allegations concerning Treasury alone are insufficient to confer jurisdiction.

         The parties’ dispute on the import of allegations concerning Treasury is ultimately
immaterial in light of the court’s determination, explained below, that the FHFA-C—the other
party involved in the PSPA Amendments—is the United States. Nonetheless, the court notes, as
defendant asserts, that it implicitly acknowledged in its February 26, 2014 discovery order that
the allegations concerning Treasury alone were insufficient to support jurisdiction. In that order,
the court permitted plaintiffs to conduct fact discovery on whether the FHFA-C was “the ‘United
States’ for purposes of the Tucker Act.” Fairholme Funds, Inc. v. United States, 114 Fed. Cl.
718, 721 (2014). The aforementioned discovery would have been unnecessary (and
unwarranted) if, as plaintiffs assert, the court has jurisdiction over plaintiffs’ claims based on
their allegations concerning Treasury.

2. The FHFA-C exercised its statutory conservatorship powers when it approved the PSPA
                           Amendments for each Enterprise.

        Plaintiffs next argue that the FHFA-C must be considered the United States because the
FHFA-C acted beyond its authority when it expropriated the Enterprises’ assets for the
government’s benefit. Defendant counters that, irrespective of the “expropriation” label assigned
by plaintiffs, the FHFA-C’s execution of the PSPA Amendments was consistent with its
statutory authority and purpose.

        The FHFA-C is the United States for any claims challenging the conservator’s conduct
that exceeded the applicable statutory authority. Cf. Slattery v. United States, 583 F.3d 800,
827-28 (Fed. Cir. 2009) (noting that the Federal Deposit Insurance Company (“FDIC”) as
receiver is the United States for claims premised on allegations that the receiver failed to
distribute funds as required by statute). Thus, resolving the parties’ dispute requires determining
whether the FHFA-C had statutory authority to enter into the PSPA Amendments. The answer
depends on HERA. Under HERA, the FHFA-C has exceptionally broad powers. See Jacobs v.
Fed. Hous. Fin. Agency, 908 F.3d 884, 889 (3d Cir. 2018) (noting that the FHFA-C’s “powers
are many and mostly discretionary”); see also Saxton v. Fed. Hous. Fin. Agency, 901 F.3d 954,
960 (8th Cir. 2018) (Stras, J., concurring) (“Congress came close to handing a blank check to the
FHFA.”). The FHFA-C wields complete control over the Enterprises; it succeeds to the rights
and powers of the Enterprises as well as their shareholders, directors, and officers. 12 U.S.C.
§ 4617(b)(2)(A)(i). The FHFA-C may (but is not required to) use that power to, among other
things, further the FHFA’s interests, carry on the Enterprises’ business, preserve and conserve
the Enterprises’ assets, and place the Enterprises in sound and solvent condition. 14 Id.


       14
           The conclusion that the FHFA-C has some discretionary powers is buttressed by the
fact that Congress stated the conservator “may” do certain things but “shall” do others. See
Huston v. United States, 956 F.2d 259, 262 (Fed. Cir. 1992) (“When, within the same statute,
Congress uses both ‘shall’ and ‘may,’ it is differentiating between mandatory and discretionary
tasks.”). Compare 12 U.S.C. § 4617(b)(2)(D) (“The [FHFA] may, as conservator, take such
action as may be . . . necessary to put the regulated entity in sound and solvent condition . . . .”
(emphasis added)), with id. § 4617(b)(14)(A) (“The [FHFA] as conservator or receiver shall
                                                 -14-
§ 4617(b)(2)(B), (D), (J) (noting actions that the FHFA-C “may” undertake); see also Roberts v.
Fed. Hous. Fin. Agency, 889 F.3d 397, 403 (7th Cir. 2018) (explaining that Congress’s use of
“may” reflects that the FHFA-C has discretionary authority).

        Congress’s broad grant of power to the FHFA-C colors the analysis of whether the
FHFA-C became the United States by approving the PSPA Amendments. As an initial matter,
plaintiffs’ contention that the FHFA-C exceeded its statutory authority by expropriating the
Enterprises’ assets for the government is unavailing because the FHFA-C is authorized to act in
its own interest without regard for the effects on the Enterprises. Moreover, the FHFA-C’s
approval of the PSPA Amendments is in accordance with its authority to operate the Enterprises
and preserve their assets. As operating businesses, the Enterprises needed to “secure ongoing
access to capital, manage debt loads, control cash flow, and decide whether and how to pay
dividends.” Jacobs, 908 F.3d at 890. The FHFA-C achieved those goals with the PSPA
Amendments, which are, “in essence[,] a renegotiation of an existing lending agreement.” Id.
By agreeing to the PSPA Amendments, the FHFA-C eliminated the risk of the Enterprises
consuming all of their financial lifeline (Treasury’s funding commitment) through cash-dividend
payments or entering a cycle of an ever-increasing liquidation preference. 15 Roberts, 889 F.3d at
404-05; see also Jacobs, 908 F.3d at 890 (noting that the Enterprises increased their future
obligations and reduced their available funds by drawing funds from Treasury to pay the
dividend); Saxton, 901 F.3d at 962 (Callas, J., concurring) (“Crushing dividend payments could
have led the entities toward insolvency.”). The FHFA-C, with the amendments, also protected
the Enterprises against future financial downturns. 16 See Jacobs, 908 F.3d at 890 (“The [PSPA
Amendments] insured the [Enterprises] against downturns and ‘death spirals,’ preventing
unpayable dividends from ratcheting up their debt loads to unsustainable levels.”); see also
Roberts, 889 F.3d at 405 (noting that the Enterprises fared better in some years and worse in
other years under the terms of the PSPA Amendments as compared to the previous agreements).

        In light of the above, the FHFA-C’s execution of the PSPA Amendment for each
Enterprise was a “quintessential conservatorship task[]” that is appropriate under HERA. Perry
II, 864 F.3d at 607. Although “stockholders no doubt disagree about the necessity and fiscal

. . . maintain a full accounting of each conservatorship and receivership or other disposition of
a[n Enterprise] in default.” (emphasis added)).
       15
           If, under the terms of the PSPAs before the PSPA Amendments, the Enterprises chose
to make their dividend payment by increasing Treasury’s liquidation preference, the future
dividends would be more expensive because the dividends were a set percentage of the
liquidation preference. Making future dividends more expensive would, in turn, increase the
likelihood that the Enterprises would again need to rely on increasing Treasury’s liquidation
preference rather than making a cash payment. The end result is a cycle in which the Enterprises
continue to increase Treasury’s liquidation preference.
       16
           Although the FHFA-C anticipated continued profitability for the Enterprises in the
near term, this fact does not undermine the propriety of the PSPA Amendments because ensuring
the continued functioning of a company includes guarding against long-term risks. These long-
term outlooks are especially important given the indefinite nature of the FHFA-C’s role.

                                                -15-
wisdom of the [PSPA Amendments] . . . , Congress could not have been clearer about leaving
those hard operational calls to the FHFA’s managerial judgment.” Id. In sum, the court joins the
growing consensus that the FHFA-C acted within its statutory authority when it entered into the
PSPA Amendments. See Jacobs, 908 F.3d at 894; Saxton, 901 F.3d at 963; Roberts, 889 F.3d at
403; Robinson v. Fed. Hous. Fin. Agency, 876 F.3d 220, 231 (6th Cir. 2017); Perry II, 864 F.3d
at 606. But see Collins v. Mnuchin, 938 F.3d 553, 582 (5th Cir. 2019) (en banc) (holding, over
the dissent of seven judges, that the plaintiffs stated a plausible claim that the FHFA-C exceeded
its statutory authority), petitions for cert. filed, 88 U.S.L.W. 3114 (U.S. Sept. 25, 2019) (No.
19-422), 88 U.S.L.W. 3146 (U.S. Oct. 25, 2019) (No. 19-563). Thus, plaintiffs’ theory that the
FHFA-C is the United States because the FHFA-C exceeded its statutory authority is not
persuasive.

            3. The FHFA-C was not coerced into approving the PSPA Amendments.

        Plaintiffs also argue that the FHFA-C is the United States because the FHFA-C was
coerced into approving the PSPA Amendments by Treasury. Plaintiffs assert that Treasury
coerced the FHFA-C into approving the PSPA Amendments because (1) Treasury drove the
amendment process, (2) Treasury did not plan for the possibility that the FHFA-C would reject
the amendments, and (3) the FHFA-C did not propose any alternatives to the amendments. In
the alternative, plaintiffs contend that the FHFA, in its role as regulator, coerced the FHFA-C to
approve the amendments because the two entities were not acting independently. Specifically,
plaintiffs aver that the lines between the FHFA and the FHFA-C were blurred because (1) the
FHFA’s consent was required for any dividend payment and (2) the FHFA-C approved the
amendments to achieve governmental objectives.

         Defendant counters that the FHFA-C was not coerced by Treasury because the FHFA-C
had a choice of whether to accept or reject the PSPA Amendments. Defendant asserts that there
is no coercion if a party has a choice, regardless of however difficult refusal of a particular
option may be. With respect to Treasury’s involvement, defendant contends that plaintiffs fail to
proffer any allegations that Treasury required the FHFA-C to enter into the agreements against
its will. Defendant further asserts that other courts have declined to conclude that the FHFA-C
felt compelled to follow Treasury based on allegations that Treasury invented the amendment
concept or led the process. Defendant also argues that the FHFA-C was not coerced by the
FHFA in the latter’s role as regulator because there were clear statutory lines delineating the
FHFA’s authority in each role. 17

 a. The court has jurisdiction over claims based on actions that resulted from government
                                         coercion.

        The court has jurisdiction over claims premised on the FHFA-C’s actions if Treasury’s
“influence over the” FHFA-C “was coercive rather than merely persuasive.” A & D Auto Sales,
Inc. v. United States, 748 F.3d 1142, 1154 (Fed. Cir. 2014). The line between coercion and

       17
          Defendant frames its argument as addressing whether the FHFA-C acted as an agent
for the FHFA in its role as regulator, but defendant is responding to plaintiffs’ coercion
argument.

                                               -16-
persuasion “is highly fact-specific.” Id. Precedent from the United States Court of Appeals for
the Federal Circuit (“Federal Circuit”) frames the contours of the inquiry. In Langenegger v.
United States, the plaintiffs pleaded that the United States coerced El Salvador by threatening to
withhold financial and military assistance unless El Salvador passed legislation expropriating
private property. 756 F.2d 1565, 1567 (Fed. Cir. 1985). The Federal Circuit disagreed with the
plaintiffs’ characterization of the threats because “[d]iplomatic persuasion among allies is a
common occurrence, and as a matter of law, cannot be deemed sufficiently irresistible to warrant
a finding of [coercion], however difficult refusal may be as a practical matter.” Id. at 1572.
Similarly, the Federal Circuit concluded in B & G Enterprises, Ltd. v. United States that
California was not coerced into enacting restrictions on smoking, notwithstanding the federal
government conditioning grants on states enacting such limits. 220 F.3d 1318, 1321, 1325 (Fed.
Cir. 2000); see also A & D Auto, 748 F.3d at 1155 (explaining that “coercion was not
established” in B & G). The court explained that “it was California’s decision to create [the]
restrictions[;] . . . Congress may have provided the bait, but California decided to bite.” B & G,
220 F.3d at 1325. In A & D Auto, the Federal Circuit addressed coercion in the context of the
government allegedly conditioning vital financial assistance to bankrupt automobile companies
on those companies terminating some of their franchise agreements. 748 F.3d at 1145. Unable
to resolve the issue due to gaps in the record, the court noted in dicta that a relevant
consideration was “whether the government financing was essential to the companies.” Id.

        A common thread runs through the Federal Circuit’s decisions: the importance of choice.
A nonfederal actor is not coerced when it can choose to go against the wishes of the United
States, even if doing so will cause significant hardships, Langenegger, 756 F.2d at 1567, or result
in a loss of prospective benefits, id.; B & G, 220 F.3d at 1325. But there is no choice, in any
meaningful sense, when there is only one realistic option. A & D Auto, 748 F.3d at 1145 (noting
the importance of considering whether the companies could survive without accepting the
government’s offer); cf. Nevada v. Skinner, 884 F.2d 445, 448 (9th Cir. 1989) (noting that, with
respect to Congress’s spending powers, “the federal government may not, at least in certain
circumstances, condition the receipt of funds in such a way as to leave the state with no practical
alternative but to comply with federal restrictions”). Put differently, the nonfederal actor must
make a voluntary decision, which it cannot do if there is only one realistic option. See BMR
Gold Corp. v. United States, 41 Fed. Cl. 277, 282 (1998) (finding that the “the necessary element
of coerciveness” for a taking was missing because the plaintiff granted the military permission to
cross his land); accord Henn v. Nat’l Geographic Soc., 819 F.2d 824, 826 (7th Cir. 1987) (noting
that hard choices remain voluntary when they are not akin to “Don Corelone’s ‘make him an
offer he can’t refuse’”). In sum, the FHFA-C was not coerced if it voluntarily chose to enter into
the PSPA Amendments.

 b. Plaintiffs have not established that Treasury coerced the FHFA-C into approving the
                                    PSPA Amendments.

       In support of their contention that Treasury coerced the FHFA-C into approving the
PSPA Amendments, plaintiffs allege that Treasury proposed the terms of the amendments, and
the FHFA-C did not make a counteroffer. Those allegations are not enough to establish
coercion. First, given the Enterprises’ improving financial condition and Treasury’s existing
funding commitment, the FHFA-C’s decision to execute the PSPA Amendments was voluntary

                                               -17-
because it could reject the deals without imperiling the Enterprises. The facts here, therefore, are
diametrically opposed to the circumstances in A & D Auto that the Federal Circuit suggested
may support coercion because the automobile dealers faced insolvency if they did not accede to
the financing terms. See 748 F.3d at 1145. Second, the FHFA-C’s lack of protestation is
informative. “[T]he very fact that FHFA[-C] itself [did] not br[ing] suit to enjoin the Treasury
from the alleged coercion it was subjected to suggest[s] that FHFA[-C] was an independent,
willing participant in its negotiations with the Treasury.” Robinson v. Fed. Hous. Fin. Agency,
223 F. Supp. 3d 659, 668 (E.D. Ky. 2016), aff’d, 876 F.3d at 220. The court’s conclusion is
bolstered by the fact that another court has held that materially similar allegations to those at
issue here did not “come close to a reasonable inference that [the] FHFA[-C] considered itself
bound to do whatever Treasury ordered.” Perry Capital LLC v. Lew, 70 F. Supp. 3d 208, 226
(D.D.C. 2014) (“Perry I”), aff’d in part, rev’d in part sub nom. Perry II, 864 F.3d at 591. This
court agrees with the reasoning in Perry I: The PSPA Amendments were executed by
sophisticated parties, and many agreements arise from a party’s proposal being accepted by the
other party. Id.

 c. Plaintiffs have not established that the FHFA coerced the FHFA-C into approving the
                                     PSPA Amendments.

        Plaintiffs also have not alleged facts reflecting that the FHFA coerced the FHFA-C into
agreeing to the PSPA Amendments. As an initial matter, plaintiffs have not alleged that the
FHFA unduly influenced the FHFA-C’s decision-making process with respect to the proposed
agreements. They merely allege that the FHFA did not silo its regulatory and conservator roles.
The lack of a firewall (without more), however, does not indicate that the FHFA deprived the
FHFA-C of meaningful choice. Moreover, plaintiffs’ focus on the FHFA-C allegedly pursuing
government objectives when it approved the PSPA Amendments is a red herring. The purported
pursuit of government objectives is not germane to the coercion inquiry because it does not
suggest that the FHFA-C lacked any choice in the matter. Even if it was relevant to coercion (or
to some other theory for jurisdiction), plaintiffs would not prevail because Congress permitted
the FHFA-C to act in the interests of the government. See 12 U.S.C. § 4617(b)(2)(J) (allowing
the FHFA-C to “take any action” that “is in the interests of the [Enterprises] or the [FHFA]”).
The mere pursuit of government objectives, therefore, would not reflect a blending of any roles
but rather the FHFA-C using powers afforded to it by Congress.

       In conclusion, plaintiffs have not established that the FHFA-C was coerced into
approving the PSPA Amendments by Treasury or the FHFA.

                           4. The FHFA-C is not Treasury’s agent.

        Plaintiffs further argue that that the FHFA-C’s actions are attributable to the United
States because the FHFA-C is Treasury’s agent. Plaintiffs assert that the FHFA-C is a
government agent because (1) Treasury, by virtue of the PSPAs, had a major role in conservator
decisions; (2) the FHFA-C approved the PSPA Amendments for the taxpayers’ benefit; and
(3) the FHFA-C could not have approved the amendments absent statutory authority. Defendant




                                                -18-
counters that plaintiffs have not pleaded an agency relationship because Treasury does not
control the FHFA-C’s operations and is statutorily barred from exercising such control.

        The United States is subject to claims in this court for the actions of a third party “if [that]
party is acting as the government’s agent . . . .” A & D Auto, 748 F.3d at 1154. “An essential
element of agency is the principal’s right to control the agent’s actions.” Hollingsworth v. Perry,
570 U.S. 693, 713 (2013) (quoting Restatement (Third) of Agency § 1.01 cmt. f (Am. Law. Inst.
2005)); accord O’Neill v. Dep’t of Hous. & Urban Dev., 220 F.3d 1354, 1360 (Fed. Cir. 2000)
(acknowledging that the common-law meaning of agency requires, among other things, that the
principal has the right to control the agent’s conduct); see also Preseault v. United States, 100
F.3d 1525, 1537 (Fed. Cir. 1996) (concluding that a state’s actions were attributable to the
United States when the state acted pursuant to the Interstate Commerce Commission’s order);
Hendler v. United States, 952 F.2d 1364, 1378-79 (Fed. Cir. 1991) (attributing a state’s actions
to the United States when the state acted under authority flowing from an Environmental
Protection Agency order). The facts, as alleged, do not reflect that Treasury controlled the
FHFA-C’s actions because Congress explicitly precluded the FHFA-C from being subservient to
another agency, 12 U.S.C. § 4617(a)(7) (providing that the FHFA-C cannot be subject to the
“direction or supervision” of any other agency), and plaintiffs have not alleged facts indicating
that Treasury exercised such control notwithstanding the statutory bar. Although the FHFA-C
was required by the PSPAs to obtain Treasury’s approval for certain actions (e.g., issuing
dividends), the PSPAs did not provide Treasury with the right to unilaterally order amendments.
Moreover, plaintiffs describe an FHFA-C that made decisions independently; Treasury “urg[ed]”
the FHFA to pursue conservatorship and “push[ed]” for the PSPA Amendments. 2d Am. Compl.
¶¶ 4, 126. Simply stated, plaintiffs have not alleged facts establishing that Treasury exercised
the control over the FHFA-C that is necessary for an agency relationship.

       5. The FHFA-C is the United States because the FHFA-C retains the FHFA’s
                               governmental character.

        Finally, plaintiffs contend that the FHFA-C is itself a government actor. Defendant
disagrees. First, relying on O’Melveny & Myers v. FDIC, 412 U.S. 79 (1994), defendant argues
that the FHFA-C is not the United States because the FHFA-C stands in the Enterprises’ shoes.
Specifically, defendant asserts that Congress’s decision to have the FHFA-C succeed to the
Enterprises’ rights reflects that Congress intended that the FHFA-C step into the Enterprises’
private shoes and shed its government character. Second, defendant argues that the FHFA-C’s
exercise of nontraditional conservatorship powers is immaterial because Congress can expand
the conservator’s role without transforming it into it into a government actor. Third, defendant
argues that the Enterprises are not government instrumentalities—which means that the FHFA
did not step into the shoes of a government actor when it became the Enterprises’ conservator—
because the government does not retain permanent authority to appoint the Enterprises’ directors.
Defendant contends that the government only has temporary, albeit indefinite, control over the
Enterprises because conservatorships are not permanent.

      In response, plaintiffs dispute the premise of defendant’s argument that, pursuant to
O’Melveny, the FHFA becomes the Enterprises when acting as conservator. Plaintiffs assert that
O’Melveny does not concern whether an entity is the United States or, if the decision can be read

                                                 -19-
as addressing that issue, is distinguishable because it concerns receivers or is limited to
conservators exercising traditional conservator powers. Second, plaintiffs argue that the FHFA
has not shed its government status, even if it has stepped into the Enterprises’ shoes, when it acts
as conservator. Specifically, plaintiffs assert that the FHFA-C retains the FHFA’s government
status because (1) the FHFA-C has acted beyond the traditional conservator powers and
(2) Congress expressed its intention for that result by precluding the conservator from being
subject to the supervision of “any other agency.” 12 U.S.C. § 4617 (emphasis added). Third,
plaintiffs argue that their claims are against the United States, even if the FHFA-C steps into the
shoes of the Enterprises, because the Enterprises are government instrumentalities.

         In short, the parties disagree over the government status of the FHFA-C. The FHFA is
indisputably the United States, see 12 U.S.C. § 4511(a) (establishing the FHFA as an
“independent agency of the Federal Government”), and so the only question is whether the
FHFA sheds that status when it acts as conservator. In other jurisdictions, courts have held (with
near unanimity) that the FHFA loses its government status pursuant to O’Melveny. In
O’Melveny, the United States Supreme Court (“Supreme Court”) explained that the FDIC “steps
into [the] shoes” of a private company when acting as receiver and sheds its government
character because the FDIC “succeed[s] to . . . all rights, titles, powers, and privileges of the
[entity in receivership] . . . .” 512 U.S. at 86 (quoting 12 U.S.C. § 1821(d)(2)(A)(i)); see also AG
Route Seven P’ship v. United States, 57 Fed. Cl. 521, 534 (2003) (citing O’Melveny for the
proposition that the FDIC as receiver is a “private party, and not the government per se” because
it “is merely standing in the shoes . . . of the defunct thrift”). The courts drawing from
O’Melveny have concluded that the FHFA steps into the shoes of the Enterprises and sheds its
government character when acting as conservator because Congress provided that the FHFA-C
exercises the same rights with respect to the Enterprises as Congress granted to the FDIC as
receiver. See, e.g., Herron v. Fannie Mae, 861 F.3d 160, 169 (D.C. Cir. 2017); cf. Ameristar Fin.
Servicing Co. v. United States, 75 Fed. Cl. 807, 811 (2007) (concluding, with respect to the
FDIC, that the step-into-the-shoes principle set forth in O’Melveny also applies in the
conservator context).

a. The FHFA-C is not the United States if the FHFA steps into the Enterprises’ shoes when
                                 acting as conservator.

        Plaintiffs initially contend that defendant’s reliance on O’Melveny is a red herring
because, assuming that O’Melveny applies, the FHFA-C is the United States even though it steps
into the Enterprises’ shoes. Specifically, plaintiffs assert that the FHFA-C is the United States
under the facts alleged because (1) the FHFA-C exercises nontraditional conservator powers,
(2) Congress intended that the FHFA-C retain the FHFA’s government status, and (3) the FHFA-
C steps into the shoes of a government instrumentality. The court addresses each assertion in
turn.

        First, the FHFA-C did not become a government actor by exercising powers beyond
those traditionally afforded to a conservator. As a threshold matter, plaintiffs have not alleged
facts reflecting that the FHFA-C used such powers; the execution of the PSPA Amendments was
a “quintessential conservatorship” function. Perry II, 864 F.3d at 607; see also supra Section
IV.B.2 (discussing the FHFA-C’s exercise of its powers). More importantly, however, plaintiffs

                                                -20-
would not prevail even if the FHFA-C exercised nontraditional conservatorship powers in
agreeing to the PSPA Amendments. When this argument was pressed in other jurisdictions, it
was rejected:

       It may well be true that FHFA’s actions would not be allowed under traditional
       principles of corporate or conservatorship law, but it does not follow that those
       actions are therefore governmental. Legislatures can expand conservatorship and
       similar powers without transforming conservators into agents of the
       government. Cf. Pegram v. Herdrich, 530 U.S. 211, 225-26 (2000) (explaining
       that the Employee Retirement Income Security Act altered the common law of
       trusts to permit certain actions that would otherwise violate the trustee’s fiduciary
       duties).

Bhatti v. Fed. Hous. Fin. Agency, 332 F. Supp. 3d 1206, 1226 (D. Minn. 2018) (footnote
omitted). The court agrees with that reasoning, and plaintiffs provide no authority that supports
a contrary result. Although plaintiffs state that the United States Court of Appeals for the
District of Columbia Circuit (“D.C. Circuit”) decision in Waterview Management Co. v. FDIC,
105 F.3d 696 (D.C. Cir. 1997), supports their position, they are mistaken. Waterview is not on
point because the D.C. Circuit did not hold that a conservator is per se the United States when
acting pursuant to a congressional grant of broad powers. Rather, it held that, as a matter of
statutory interpretation, the existence of a receivership did not preempt a prereceivership
contract. Id. at 699-702.

        Second, Congress’s instruction that the FHFA-C is not subject to the supervision of any
other agency does not reflect congressional intent for the FHFA to retain its government status
when acting as conservator even if it steps into the shoes of the Enterprises. Because the court
only reaches this issue by assuming that O’Melveny is instructive, the statutory language
concerning supervision of the FHFA-C does not support a finding of jurisdiction because the
same language is present in the statute that the Supreme Court addressed in O’Melveny. See 512
U.S. at 85-86 (discussing 12 U.S.C. § 1821). Compare 12 U.S.C. § 1821(c)(3)(C) (“When acting
as conservator or receiver . . . , [the FDIC] shall not be subject to the direction or supervision of
any other agency or department of the United States or any State in the exercise of the [FDIC’s]
rights, powers, and privileges.”), with id. § 4617(a)(7) (“When acting as conservator or receiver,
the [FHFA] shall not be subject to the direction or supervision of any other agency of the United
States or any State in the exercise of the rights, powers, and privileges of the [FHFA].”).

        The third argument advanced by plaintiffs—that the FHFA-C is the United States
because it steps into the shoes of a government instrumentality—also is not meritorious. A
government instrumentality’s actions are attributable to the United States for purposes of the
Tucker Act. See Corr v. Metro. Wash. Airports Auth., 702 F.3d 1334, 1336 (Fed. Cir. 2012)
(noting that a claim against a government instrumentality is a claim against the United States for
purposes of the Little Tucker Act, 28 U.S.C. § 1346(a)(2)). The Supreme Court established
in Lebron v. National Railroad Passenger Corp. that a company is a government instrumentality
when (1) it is created by “special law,” (2) it is established “for the furtherance of governmental
objectives,” and (3) the federal government “retains for itself permanent authority to appoint a
majority of the [company’s] directors . . . .” 513 U.S. 374, 400 (1995). After Lebron, the

                                                -21-
Supreme Court clarified that, for purposes of the instrumentality test, “the practical reality of
federal control and supervision prevails over Congress’ disclaimer of the [the entity’s]
governmental status.” Dep’t of Transp. v. Ass’n of Am. R.Rs., 135 S. Ct. 1225, 1233 (2015).

        There is no dispute that the Enterprises satisfy the first two prongs of the Lebron test;
Congress created the Enterprises by special law to achieve governmental objectives related to the
housing market. See 12 U.S.C. § 4501; see also Herron, 861 F.3d at 167 (addressing claims
involving Fannie and noting that “[t]his case satisfies the first two Lebron criteria”); Am.
Bankers Mortg. Corp. v. Fed. Home Loan Mortg. Corp., 75 F.3d 1401, 1406-07 (9th Cir. 1996)
(reaching same conclusion for Freddie). The status of the Enterprises, therefore, turns on the
third prong: whether the government retains permanent authority to appoint a majority of the
Enterprises’ directors.

         The Federal Circuit has not addressed the government-control prong with respect to the
Enterprises, but courts in other jurisdictions have done so. Those decisions provide a starting
point for the court. It appears that every court to consider the issue, with the exception of one
district court, has held that the government does not exercise permanent control over the
Enterprises. Sisti v. Fed. Hous. Fin. Agency, 324 F. Supp. 3d 273, 279 (D.R.I. 2018)
(concluding that the government retains permanent authority to control the Enterprises after
noting that “[t]he non-controlling precedent to date” has reached the opposite conclusion). Most
of the courts that concluded that the government lacks permanent control over the Enterprises
issued their decisions before the Supreme Court in Association of American Railroads
emphasized the importance of evaluating the practical reality over nomenclature, and the other
courts focused on the statutory purpose for the conservatorships rather than the Enterprises’
actual situation. E.g., Herron, 861 F.3d at 169 (relying on the notion that a conservatorship is
fundamentally temporary). In other words, the courts adopting the prevailing view considered
the issue of control without regard for the Supreme Court’s instruction to focus on the practical
reality. The court, therefore, does not find those decisions persuasive.

        The crux of the inquiry, as the Supreme Court mandates, is on the practical reality of the
government’s control over the Enterprises. Ass’n of Am. R.Rs., 135 S. Ct. at 1233. It is of no
import that Congress nominally authorized a facially temporary conservatorship, see 12 U.S.C.
§ 4617(a) (permitting the FHFA to act as conservator to “reorganiz[e]” or “rehabilitat[e]” the
Enterprises), because Congress’s disclaimers are no substitute for the court’s obligation to assess
the government’s actual control, Ass’n of Am. R.Rs., 135 S. Ct. at 1233. The court focuses on
the length of the conservatorship because the FHFA-C wields complete control over the
Enterprises so long as they are in conservatorship. See generally 12 U.S.C. § 4617.

        Plaintiffs allege that the Enterprises will remain undercapitalized—and thus subject to
conservatorship pursuant to 12 U.S.C. § 4617(a)(3)(J)—until the PSPAs, in their current form,
are changed because the Enterprises cannot accumulate any capital under the existing terms of
the PSPAs. Although the PSPAs could be further amended, plaintiffs’ allegations reflect that
Treasury and the FHFA-C will not do so because the purpose of the PSPA Amendments is to
prevent the Enterprises from accumulating the necessary capital to become independent
companies. Plaintiffs, in short, have alleged that the government intended, and has taken steps to
ensure, that the conservatorships never end. Those facts, viewed in isolation, would support a

                                                -22-
conclusion that the practical reality is that the Enterprises are under permanent government
control. The court’s inquiry, however, is not limited to plaintiffs’ allegations because it has
taken judicial notice of relevant facts reflecting that the status quo has changed: The Treasury
Secretary and the FHFA Director are now both committed to ending the conservatorships.
Moreover, the idea that the Enterprises are permanently subject to government control because
they can never accumulate the capital needed to exit the conservatorships is undermined by
recent developments. Indeed, Treasury proposed amending the Net Worth Sweep to allow the
Enterprises to retain more capital, and the FHFA Director testified during his confirmation
hearing that, if confirmed, he would seek to increase the amount of capital that the Enterprises
retain. Simply stated, the practical reality is that the Enterprises are not subject to permanent
government control because the relevant parties are working to terminate the conservatorships. 18

       In sum, the FHFA-C does not become the United States if the FHFA steps into the
Enterprises’ shoes when serving as conservator.

 b. The FHFA-C retains the FHFA’s government character because the FHFA-C does not
                           step into the Enterprises’ shoes.

        The key inquiry, therefore, is whether the FHFA steps into the shoes of the Enterprises
when acting as conservator. Defendant argues that the FHFA-C sheds its government character
and assumes the identity of the Enterprises based on the reasoning in O’Melveny. Defendant’s
reliance on O’Melveny is misplaced. O’Melveny concerns a receiver stepping into the shoes of a
failed bank. 512 U.S. at 86. The roles of a conservator and receiver are meaningfully different.
In a recent decision, the United States District Court for the District of Rhode Island artfully
explained the differences and their import for assessing whether the FHFA-C is the government:

       The O’Melveny Court held that FDIC, when acting as a receiver for a private
       entity, steps into the shoes of that private entity for state law claims. This holding
       makes sense given the purpose of receivership: “to preserve a company’s assets,
       for the benefit of creditors, in the face of bankruptcy.” When FDIC is appointed
       receiver, it must dispose of the received entity’s assets, resolving obligations and
       claims made against the entity. Notably, “[i]n receivership, the receiver owes
       fiduciary duties to the creditors, which the corporation would otherwise owe to

       18
           Plaintiffs may disagree with the court’s conclusion that events occurring after the
PSPA Amendments are relevant to determining whether the Enterprises were under permanent
government control during the events discussed in plaintiffs’ complaint. Even if the court agreed
that events occurring after the PSPA Amendments are not germane, plaintiffs still would not
prevail because they allege that the conservatorships began as temporary measures. See 2d Am.
Compl. ¶¶ 47 (“FHFA also emphasized that the conservatorship was temporary: ‘Upon the
[FHFA] Director’s determination that the [FHFA-C’s] plan to restore the [Enterprises] to a safe
and solvent condition has been completed successfully, the Director will issue an order
terminating the conservatorships’” (quoting FHFA publication)), 90 (noting that, when the
conservatorships were imposed, the FHFA Director “vowed” that the Enterprises would “exit
conservatorship” and return to “normal business operations”). Thus, the Enterprises were not
under permanent government control before the PSPA Amendments.

                                                -23-
       creditors during a period of insolvency.” It logically follows, then, that the
       receiver steps into the shoes of the private entity, because it assumes the fiduciary
       duties of that entity.

              Conservatorship, in contrast, serves a different function. FHFA has
       described the purpose of conservatorship is “to establish control and oversight of
       a company to put it in a sound and solvent condition.” Conservators, unlike
       receivers, have a fiduciary duty running to the corporation itself.

               This is “critically distinct” from the fiduciary duties owed as a receiver—
       the receiver does indeed “step into the shoes” of the entity by assuming the
       fiduciary duties of the entity, but the conservator does not: it remains distinct, and
       rather owes a duty to the entity. Given the difference in fiduciary duties,
       O’Melveny’s “steps into the shoes” holding makes sense in the context of
       receivership, but not in the context of conservatorship.

Sisti, 324 F. Supp. 3d at 282-83 (citations and footnotes omitted). See generally Brian Taylor
Goldman, The Indefinite Conservatorship of Fannie Mae and Freddie Mac Is State-Action, 17 J.
Bus. & Sec. L. 11, 23-30 (2016). The district court, relying on the above analysis, declined to
treat the FHFA-C as a private actor. Sisti, 324 F. Supp. 3d at 284. This court agrees with the
reasoning and conclusion in Sisti: The FHFA does not shed its government character when
acting as conservator because it does not step into the shoes of the Enterprises. Otherwise stated,
the FHFA-C is the United States because it retains the FHFA’s government character. Plaintiffs’
claims, therefore, are against the United States for purposes of the Tucker Act.

          C. The court lacks jurisdiction over plaintiffs’ claim that sounds in tort.

                       1. Plaintiffs’ fiduciary duty claim sounds in tort.

         Defendant next argues that the court lacks jurisdiction over plaintiffs’ fiduciary duty
claim because the United States does not owe to each Enterprise’s shareholders a fiduciary duty
that is grounded in a statute or contract. Defendant asserts that such a fiduciary duty cannot be
based on (1) HERA because, pursuant to the statute, the FHFA-C is only required to act in the
government’s and the Enterprises’ best interests; or (2) the PSPAs because plaintiffs are not
parties to those contracts. Plaintiffs counter that their claim is based on a fiduciary duty rooted in
both HERA and the PSPAs. As to HERA, plaintiffs assert that Congress made the FHFA-C a
fiduciary by authorizing it to control the Enterprises, entrusting it with duties that are at the core
of what it means to be a fiduciary, and using terminology—“conservator”—associated with a
fiduciary. Additionally, plaintiffs contend that recognizing that Treasury owes a fiduciary duty
to shareholders is the only way to give meaning to Congress’s mandate in HERA that Treasury
protect taxpayers by considering, before purchasing securities, the need to maintain the
Enterprises as privately owned entities. With respect to the PSPAs, plaintiffs argue that Treasury
owes a fiduciary duty to the shareholders because it acquired control rights under the contract.

       The court, pursuant to the Tucker Act, lacks jurisdiction over tort claims. 28 U.S.C.
§ 1491(a)(1). A breach of fiduciary duty is generally classified as a tort. Newby v. United

                                                -24-
States, 57 Fed. Cl. 382, 294 (2003). A fiduciary duty claim, however, does not sound in tort for
purposes of the Tucker Act when the fiduciary relationship is founded on a money-mandating
statute or a contractual provision between the claimant and United States. See Hopi Tribe v.
United States, 782 F.3d 662, 667 (Fed. Cir. 2015) (statute); Cleveland Chair Co. v. United States,
557 F.2d 244, 246 (Ct. Cl. 1977) (contract); see also 28 U.S.C. § 1491(a)(1) (providing
jurisdiction over claims “founded upon . . . any Act of Congress . . . or contract with the United
States”).

         The initial issue is whether HERA establishes a fiduciary relationship between the
FHFA-C and the Enterprises’ shareholders. The court begins with the language of the statute.
Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 438 (1999). “If Congress has expressed its
intention by clear statutory language, that intention controls and must be given effect.” Rosete v.
Office of Pers. Mgmt., 48 F.3d 514, 517 (Fed. Cir. 1995); accord Conn. Nat’l Bank v. Germain,
503 U.S. 249, 253-54 (1992) (“[C]ourts must presume that a legislature says in a statute what it
means and means in a statute what it says there.”). Congress provided in HERA that the FHFA-
C is only required to act in the interests of itself or the Enterprises. 12 U.S.C. § 4617(b)(2)(J).
That statement reflects a clear intent: The FHFA-C does not owe a fiduciary duty to
shareholders because the conservator is not required to consider shareholders’ interests. 19 See
id.; see also Collins, 938 F.3d at 580 (noting that HERA “may permit” the FHFA-C to pursue
actions that are “inconsistent with fiduciary duties”). The plain language controls, and therefore
the court does not consider the peripheral considerations urged by plaintiffs such as the
implications of the word “conservator,” the FHFA-C’s control over the Enterprises, or the
FHFA-C’s other powers. In sum, plaintiffs cannot establish jurisdiction for their direct fiduciary
duty claim by relying on HERA.

       The next issue is whether Treasury owes a fiduciary duty to shareholders because it
purchased securities pursuant to HERA. 20 Plaintiffs contend that Treasury assumed such a duty

       19
          The court’s interpretation of HERA’s plain language is buttressed by the fact that
Congress seemingly made a deliberate decision to exclude shareholder interests from the FHFA-
C’s considerations. Congress modeled HERA on the Financial Institutions Reform, Recovery,
and Enforcement Act (“FIRREA”). Jacobs, 908 F.3d at 893. Under FIRREA, Congress
permitted the FDIC as conservator to consider the best interests of a bank, its depositors, or the
FDIC. 12 U.S.C. § 1821(d)(2)(J)(ii). Although Congress permitted the FDIC to take into
consideration the interests of its depositors, Congress omitted the analogue of depositors—
shareholders—from the list of germane interests that the conservator can consider when acting
pursuant to HERA. Compare id. (FIRREA), with 12 U.S.C. 4617(b)(2)(J) (HERA). The
omission is telling.
       20
           The gravamen of plaintiffs’ fiduciary duty claim is that the FHFA-C owed a fiduciary
duty to plaintiffs. See 2d Am. Compl. ¶¶ 151-60. Indeed, plaintiffs state in their complaint that
the “FHFA violated its fiduciary duty,” id. ¶ 160, and make no similar allegation with regard to
Treasury. Although plaintiffs have not alleged that their fiduciary duty claim is premised on
Treasury’s actions, the court nonetheless considers the parties’ arguments on whether such a
claim would be within the court’s jurisdiction for two reasons. First, the parties have fully
briefed the issue without noting the discrepancy between plaintiffs’ arguments and the
allegations in their second amended complaint. Second, the court’s resolution of the issue is
                                               -25-
when it agreed to the PSPAs because of the determinations that Congress required the Treasury
Secretary to make prior to buying the securities. Before purchasing securities pursuant to
HERA, the Secretary is required to determine that the purchase is necessary to protect taxpayers
and evaluate various considerations in connection with protecting the taxpayers. 12 U.S.C.
§§ 1455(l)(1)(B)-(C), 1719(g)(1)(B)-(C). One of those considerations is the need to maintain the
Enterprises as privately owned companies. Id. §§ 1455(l)(1)(C), 1719(g)(1)(C). At no point,
however, did Congress direct (or even suggest) that the Secretary must protect the shareholders.
The court declines to stretch the statutory language to support a fiduciary relationship based on
any incidental benefit shareholders may derive from the Secretary considering the need to keep
the Enterprises privately owned in the context of protecting taxpayers. Simply stated, Treasury
did not assume any fiduciary obligations to the Enterprises’ shareholders by virtue of HERA.

        Finally, the court turns to whether Treasury owed a fiduciary duty to the Enterprises’
other shareholders because it acquired control rights by agreeing to the PSPAs. Plaintiffs’
argument is premised on the state-law principle (which they term “general corporate law”) that a
controlling shareholder owes a fiduciary duty to the minority shareholders. The court is not
convinced. First, plaintiffs’ allegation of a fiduciary relationship is not founded on a contract
within the meaning of the Tucker Act. Plaintiffs are not attempting to enforce any duty imposed
on Treasury that is specified in the PSPAs. They invoke the contracts solely to establish that
Treasury is a controlling shareholder and rely on that conclusion to argue that it has a fiduciary
duty based on state law. The contract, otherwise stated, is one step removed from the purported
genesis of the fiduciary duty—the application of state-law principles. That gap is too much in
light of the court’s obligation to narrowly construe the Tucker Act’s waiver of sovereign
immunity. See Smith, 855 F.2d at 1552 (noting that the Tucker Act is narrowly construed); see
also Perry II, 864 F.3d at 619-20 (rejecting the legal theory that the Enterprises’ shareholders’
need to reference the PSPAs for their fiduciary duty claim was enough to conclude that the claim
was rooted in a contract for purposes of the Tucker Act).

        Second, plaintiffs fail to demonstrate the applicability of the state-law principles
underlying their theory for why Treasury assumed fiduciary duties. Federal law governs the
obligations Treasury incurred by entering into the PSPAs. See Boyle v. United Techs. Corp.,
487 U.S. 500, 519 (1988) (“The proposition that federal common law continues to govern the
‘obligations to and rights of the United States under its contracts’ is nearly as old as Erie [v.
Tompkins, 304 U.S. 64 (1938),] itself.”). Although courts may shape federal law by drawing
from state-law principles, plaintiffs do not explain why doing so is appropriate in this instance.

        Third, plaintiffs do not prevail even if their fiduciary duty claim could be founded on a
contract and federal common law incorporates the state-law principles regarding controlling
shareholders’ fiduciary obligations. Under Delaware and Virginia law, a controlling shareholder
owes a fiduciary duty to the minority shareholders. See Ivanhoe Partners v. Newmont Min.
Corp., 535 A.2d 1334, 1344 (Del. 1987); Parsch v. Massey, 79 Va. Cir. 446 (2009); see also
Quadrant Structured Prod. Co. v. Vertin, 102 A.3d 155, 183 (Del. Ch. 2014) (acknowledging that


immaterial to the ultimate outcome because, as discussed below, plaintiffs lack standing to
pursue their claims.

                                                -26-
those “who effectively control a corporation” owe a fiduciary duty to others). 21 To have the
requisite level of control, the controlling shareholder must (1) be able to exercise a majority of
the corporation’s voting power or (2) direct the corporation without owning a majority of stock.
Kahn v. Lynch Commc’n Sys., 638 A.2d 1110, 1113 (Del. 1994). The latter, effective exercise
of control, “is not an easy test to satisfy”; the individual or group must be, “as a practical
matter, . . . no differently situated than if they had majority voting control.” In re PNB Holding
Co. S’holders Litig., No. CIV.A. 28-N, 2006 WL 2403999, at *9 (Del. Ch. Aug. 18, 2006).
Plaintiffs have not established that Treasury meets either control test. First, plaintiffs do not
allege that Treasury owns any of the Enterprises’ voting stock. Treasury purchased preferred
stock and acquired the right to buy common (i.e., voting) stock, but there is no indication that
Treasury exercised its warrants or otherwise acquired common stock. 22 Second, plaintiffs do not
demonstrate that Treasury exercised effective control over the Enterprises. Although Treasury
acquired the right to preclude the Enterprises from taking certain actions, Treasury did not
control the Enterprises because it could not direct any action—it could only respond to certain
requests made by the Enterprises. As a practical matter, therefore, Treasury is situated
differently than if it had majority voting power.

        In sum, plaintiffs’ fiduciary duty claim is a tort claim because plaintiffs have not
established that the FHFA-C or Treasury owed shareholders a fiduciary duty based on a statute
or contract. The court, therefore, dismisses count III—breach of fiduciary duty—because it lacks
jurisdiction over tort claims.

            2. Plaintiffs’ takings and illegal-exaction claims do not sound in tort.

        Defendant also argues that plaintiffs’ Fifth Amendment takings and illegal-exaction
claims sound in tort because they are premised on purported misconduct by the FHFA-C.
Plaintiffs counter that they have pleaded the predicates for takings and illegal-exaction claims,
which means that it is irrelevant whether they also alleged facts that are germane to tortious
actions.

       When a party pleads the predicates for a takings claim or illegal-exaction claim, the court
possesses jurisdiction to entertain such claims. See Hansen v. United States, 65 Fed. Cl. 76, 80-
81 (2005) (“[S]o long as there is some material evidence in the record that establishes the
predicates for a [claim covered by the Tucker Act,] . . . a plaintiff succeeds in demonstrating

       21
          The court refers to Delaware and Virginia law because Fannie is a Delaware
corporation, and Freddie is a Virginia corporation. When evaluating Virginia law, the court also
looks to Delaware state court decisions because Virginia courts do so to resolve unsettled issues
in the Commonwealth. E.g., U.S. Inspect Inc. v. McGreevy, No. 160966, 2000 WL 33232337, at
*4 (Va. Cir. Ct. Nov. 27, 2000).
       22
            Even if Treasury had exercised its option to buy a majority of the voting stock, it
would not be a controlling shareholder because the FHFA-C succeeded to all of the shareholders’
rights. See 12 U.S.C. § 4617(b)(2)(A) (noting that the FHFA-C, by operation of law, succeeds to
all rights and powers of any Enterprise shareholder). Treasury, therefore, would have no voting
power.

                                               -27-
subject matter jurisdiction in this court . . . .”). Those claims, at a basic level, are contentions
that the government expropriated private property lawfully (takings) or unlawfully (illegal
exaction). See Orient Overseas Container Line (UK) Ltd. v. United States, 48 Fed. Cl. 284, 289
(2000) (“Takings claims arise because of a deprivation of property that is authorized by law.
Illegal exactions arise when the government requires payment in violation of the Constitution, a
statute, or a regulation.” (citing Dureiko v. United States, 209 F.3d 1345, 1359 (Fed. Cir. 2000);
Eastport S.S. Corp. v. United States, 372 F.2d 1002, 1007-08 (Ct. Cl. 1967))). If a party alleges
the necessary predicates for these claims, the court is not deprived of jurisdiction even if the
complaint contains allegations that could support a tort claim. See El-Shifa Pharm. Indus. Co. v.
United States, 378 F.3d 1346, 1353 (Fed. Cir. 2004) (“That the complaint suggests the United
States may have acted tortiously towards the appellants does not remove it from the jurisdiction
of the Court of Federal Claims.”); Rith Energy, Inc. v. United States, 247 F.3d 1355, 1365 (Fed.
Cir. 2001) (explaining that this court has jurisdiction over a takings claim “even if the
government’s action was subject to legal challenge on some other ground”). Here, plaintiffs
plead the predicates for takings and illegal-exaction claims by alleging, in essence, that they were
forced to give their property to the government because of lawful or unlawful government
conduct. Therefore, it is of no import to the court’s jurisdiction whether plaintiffs have alleged
facts that would also support a tort claim.

   D. The court lacks jurisdiction over plaintiffs’ implied-in-fact-contract claim because
              plaintiffs are not third-party beneficiaries of such a contract.

         Defendant argues next that the court lacks jurisdiction to entertain plaintiffs’ implied-in-
fact-contract claim because plaintiffs are not third-party beneficiaries of such a contract.
Specifically, defendant asserts that plaintiffs have not established that they are intended
beneficiaries independent of their status as shareholders and that any benefit that is related to
their status as shareholders is insufficient for jurisdiction. Plaintiffs counter that they are
intended third-party beneficiaries of implied contracts, between the FHFA and each Enterprise’s
board, in which the boards consented to the conservatorships in exchange for the FHFA-C
operating the Enterprises as a fiduciary and returning them to sound condition. Specifically,
plaintiffs assert that the intent to benefit the shareholders is evident from (1) the boards’ consent
to the conservatorships because shareholders would benefit from a conservator focused on
returning the Enterprises to a better condition, and (2) the government acknowledging that the
Enterprises’ stock would remain outstanding while the Enterprises were in conservatorship.

        The court’s jurisdiction over contract claims is limited by the Tucker Act. Ransom v.
United States, 900 F.2d 242, 244 (Fed. Cir. 1990). Of particular import here, ordinarily, a
plaintiff must be in privity of contract with the United States to invoke this court’s jurisdiction
over a contract claim against the government. Fid. & Guar. Ins. Underwriters, Inc. v. United
States, 805 F.3d 1082, 1087 (Fed. Cir. 2015). But privity is not required if “the plaintiff can
demonstrate that it was an intended third-party beneficiary under the contract.” Pac. Gas & Elec.
Co. v. United States, 838 F.3d 1341, 1361 (Fed. Cir. 2016).

       “Third party beneficiary status is an ‘exceptional privilege.’” Glass v. United States, 258
F.3d 1349, 1354 (Fed. Cir. 2001) (quoting German All. Ins. Co. v. Home Water Supply Co., 226
U.S. 220, 230 (1912)). The conditions for attaining such status are “stringent.” Anderson v.

                                                -28-
United States, 344 F.3d 1343, 1352 (Fed. Cir. 2003). “[S]hareholders seeking status to sue as
third-party beneficiaries of an allegedly breached contract must ‘demonstrate that the contract
not only reflects the express or implied intention to benefit the party, but that it reflects an
intention to benefit the party directly.’” Castle v. United States, 301 F.3d 1328, 1338 (Fed. Cir.
2002) (quoting Glass, 258 F.3d at 1354). Specifically, “the contract must express the intent of
the promissor to benefit the shareholder personally, independently of his or her status as
shareholder.” Glass, 258 F.3d at 1353-54. As a practical matter, the shareholder does not
personally benefit independent of its status as a shareholder when the contractual promises
pertain only to the treatment of the company. See FDIC v. United States, 342 F.3d 1313, 1320
(Fed. Cir. 2003) (noting that the broken promises concerned the treatment of the company such
that the plaintiffs did not benefit independent of their status as shareholders); accord Maher v.
United States, 314 F.3d 600, 605 (Fed. Cir. 2002) (concluding that the plaintiffs were not third-
party beneficiaries when they failed to “establish[] that the government took on any obligations
in the merger agreement for [the plaintiffs’] personal benefit, or even that the merger agreement
contains any provisions pertaining to [the plaintiffs] personally”).

         As plaintiffs are not parties to the alleged implied contracts between the FHFA and the
Enterprises, the relevant issue is whether plaintiffs are third-party beneficiaries of those
agreements. They are not. First, it is of no import that the Enterprises, as plaintiffs argue,
purportedly agreed to the conservatorships because that would serve the interests of
shareholders. Indeed, “every action of a corporation is supposed to benefit its shareholders,” but
the “law has not viewed this general benefit as making every shareholder a third-party
beneficiary.” Suess v. United States, 33 Fed. Cl. 89, 94 (1995). Second, plaintiffs’ allegations
reflect that they only benefit from the alleged implied contracts by virtue of their shareholder
status. The relevant promises concerned how the FHFA-C would operate the Enterprises; the
crux of the purported agreements was the FHFA-C promising to operate the Enterprises as a
fiduciary to preserve their assets and return them to sound condition. Because the promises in
the alleged implied contracts were directed at the Enterprises, plaintiffs cannot be third-party
beneficiaries of the alleged contract. See FDIC, 342 F.3d at 1320. Third, plaintiffs have not
demonstrated that the FHFA intended that plaintiffs benefit independently of their status as
shareholders even if they did so benefit. Plaintiffs rely on the FHFA’s statements that private
stock would remain outstanding and shareholders would continue to hold an economic interest in
their stock. Those factual statements, however, do not reflect that the FHFA intended to confer
any specific benefit on plaintiffs independent of their role as shareholders. Because plaintiffs
have not alleged facts reflecting that the FHFA intended to confer a personal benefit on them,
they are not third-party beneficiaries. See Glass, 258 F.3d at 1353-54. In sum, the court lacks
jurisdiction to entertain plaintiffs’ implied-in-fact-contract claim because plaintiffs are neither
parties to a contact with the government nor third-party beneficiaries of any such agreement.
Therefore, the court dismisses count IV.

                                         V. STANDING

        In addition to asserting that the court lacks subject-matter jurisdiction to entertain
plaintiffs’ claims, defendant challenges plaintiffs’ standing to pursue their claims. A plaintiff
bears the burden of demonstrating that it has standing for each claim. Starr Int’l Co. v. United
States, 856 F.3d 953, 964 (Fed. Cir. 2017). It must establish, among other things, that it is

                                                -29-
“assert[ing its] own legal rights and interests, and cannot rest [its] claim[s] to relief on the legal
rights or interests of third parties.” Kowalski v. Tesmer, 543 U.S. 125, 129 (2004). Further, the
label assigned to a claim is irrelevant; it is the substance of the allegations that control. See
Allen v. Wright, 468 U.S. 737, 752 (1984) (“[T]he standing inquiry requires careful examination
of a complaint’s allegations to ascertain whether the particular plaintiff is entitled to an
adjudication of the particular claim asserted.”), abrogated on other grounds by Lexmark Int’l,
Inc. v. Static Control Components, Inc., 572 U.S. 118 (2014). Thus, in a suit brought by
shareholders, it is the substance of the allegations and not the label assigned to the allegations—
i.e., direct or derivative—that matters. See Starr, 856 F.3d at 966-67; see also In re Sunrise Sec.
Litig., 916 F.2d 874, 882 (3d Cir. 1990) (“Whether a claim is [direct] or derivative is determined
from the body of the complaint rather than from the label employed by the parties.”). A
shareholder lacks standing to litigate nominally direct claims that are substantively derivative in
nature because its personal request for relief would be based on the rights of the company. See
Starr, 856 F.3d at 966-67; see also Weir v. Stagg, No. 09-21745-CIV, 2011 WL 13174531, at *9
(S.D. Fla. Feb. 7, 2011) (“Shareholders do not have standing to bring a direct action for injuries
suffered by a corporation, but rather, must bring a derivative action.”). A shareholder, therefore,
must establish that the claims it labeled as direct are substantively direct in nature—i.e.,
premised on its injuries rather than the corporation’s injuries—to have standing to litigate those
claims. See Starr, 856 F.3d at 966-67.

        The parties disagree on whether plaintiffs have standing to litigate any of their claims.
Defendant argues that plaintiffs lack standing to litigate their claims because the claims belong to
the Enterprises and are therefore derivative in nature. Defendant contends that plaintiffs’ claims
are actually derivative because, to prevail, plaintiffs would need to establish an injury to the
Enterprises and any relief would accrue to the Enterprises.

        Plaintiffs counter that they assert direct claims because the government (1) targeted
private shareholders and (2) discriminated against them by rearranging the Enterprises’ capital
structure to plaintiffs’ detriment, which renders the claims for such conduct both direct and
derivative under the dual-nature exception. 23 Defendant replies that the Federal Circuit rejected
the notion that a plaintiff states a direct claim by alleging it was targeted by the challenged
action. Defendant also contends that the dual-nature exception is not applicable because
Treasury was not a controlling shareholder, the Enterprises did not issue new shares, and the
PSPA Amendments did not involve the reallocation of power.

         Plaintiffs do not satisfy their burden of establishing standing. Neither theory they
advance for why those claims are substantively direct, rather than derivative, is persuasive. First,
it is of no import whether the government targeted shareholders with the PSPA Amendments.
See Starr, 856 F.3d at 973 (noting that plaintiffs did not “sufficiently explain why the


       23
           Plaintiffs also assert that their claims must be construed as direct claims to vindicate
important federal policies if shareholders cannot assert derivative claims because of HERA. But
as this court held in Fairholme II, the shareholders of the Enterprises, notwithstanding HERA,
have standing to assert derivative claims because of the FHFA-C’s conflict of interest. 147 Fed.
Cl. at 49-51.


                                                 -30-
Government’s subjective motivations are relevant to the inquiry into direct standing”). The
direct-versus-derivative inquiry “turns on the plaintiff’s injury, not the defendant’s motive.”
Pagan v. Calderon, 448 F.3d 16, 30 (1st Cir. 2006). Second, plaintiffs have not asserted claims
that qualify as both direct and derivative based on the dual-nature exception. The Federal Circuit
explained that, pursuant to this exception, shareholder claims may be both direct and derivative
“when a ‘reduction in [the] economic value and voting power affected the minority stockholders
uniquely . . . .’” Starr, 856 F.3d at 968 (quoting Gentile v. Rossette, 906 A.2d 91, 99 (Del.
2006)). Specifically, shareholder claims are both direct and derivative if

         “(1) a stockholder having majority or effective control causes the corporation to
         issue ‘excessive’ shares of its stock in exchange for assets of the controlling
         stockholder that have a lesser value,” and “(2) the exchange causes an increase in
         the percentage of the outstanding shares owned by the controlling stockholder,
         and a corresponding decrease in the share percentage owned by the public
         (minority) shareholders.”

Id. (quoting Gentile, 906 A.2d at 100). The exception does not apply here because Treasury was
not a controlling shareholder at the time the PSPA Amendments were executed, 24 the PSPA
Amendments did not involve the issuance of new shares, and shareholder voting power was not
reallocated under the PSPA Amendments. It is not enough, contrary to plaintiffs’ contention,
that the government allegedly exacted economic value from the other shareholders by
rearranging the corporate structure. See El Paso Pipeline GP Co. v. Brinckerhoff, 152 A.3d
1248, 1264 (Del. 2016) (applying Gentile and holding a plaintiff does not state a direct claim
under the dual-nature exception by pleading the “extraction of solely economic value from the
minority by a controlling stockholder”). Because plaintiffs have not established that their claims
are substantively direct in nature, they cannot demonstrate that they have standing to litigate
those claims.

        Plaintiffs fare no better if the court moves beyond their arguments for why their claims
are substantively direct in nature. Federal law governs whether plaintiffs’ claims are direct or
derivative. See Starr, 856 F.3d at 965. But, as the parties acknowledge, federal law in this area
is informed by Delaware law. Id.; see also Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 97
(1991) (noting the “presumption that state law should be incorporated into federal common
law”). Under Delaware law, the test for whether a shareholder’s claim is derivative or direct
depends on the answers to two questions: “(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) (en banc). “Normally, claims of corporate
overpayment are . . . regarded as derivative [because] . . . the corporation is both the party that
suffers the injury (a reduction in its assets or their value) as well as the party to whom the
remedy (a restoration of the improperly reduced value) would flow.” Gentile, 906 A.2d at 99,
discussed in Starr, 856 F.3d at 965. Such claims are derivative even “though the overpayment
may diminish the value of the corporation’s stock or deplete corporate assets that might

         24
              Treasury is not a controlling shareholder for the reasons set forth in Section IV.C.1,
supra.

                                                   -31-
otherwise be used to benefit the stockholders, such as through a dividend.” Protas v. Cavanagh,
No. CIV.A. 6555-VCG, 2012 WL 1580969, at *6 (Del. Ch. May 4, 2012); see also Hometown
Fin. Inc. v. United States, 56 Fed. Cl. 477, 486 (2003) (“[C]ourts have consistently held that
shareholders lack standing to bring cases on their own behalf where their losses from the alleged
injury to the corporation amount to nothing more than a diminution in stock value or a loss of
dividends.”).

         In their complaint, plaintiffs focus on the expropriation of the Enterprises’ assets via
compulsory payments of all profits. The gravamen of each claim is the same: The government,
via the PSPA Amendments, compelled the Enterprises to overpay Treasury. Regardless of
plaintiffs’ label (direct or derivative) or theory (taking, illegal exaction, breach of fiduciary duty,
or breach of implied contract) for their claims, the claims are substantively derivative in nature
because they are premised on allegations of overpayment. 25 See Gentile, 906 A.2d at 99; see
also Roberts, 889 F.3d at 409 (explaining that the plaintiffs asserted “classic derivative claims”
when they alleged that “the [PSPA Amendments] illegally dissipated corporate assets by
transferring them to Treasury”). Plaintiffs cannot transform their substantively derivative claims
into direct claims by merely alleging that, as a result of overpayments, they were deprived of
their stockholder rights to receive dividends or liquidation payments. The claims remain
derivative because plaintiffs’ purported “harms are ‘merely the unavoidable result . . . of the
reduction in the value of the entire corporate entity.’” Protas, 2012 WL 1580969, at *6 (quoting
Gentile, 906 A.2d at 99); see also Agostino v. Hicks, 845 A.2d 1110, 1122 (Del. Ch. 2004)
(“[T]he inquiry should focus on whether an injury is suffered by the shareholder that is not
dependent on a prior injury to the corporation.”). Because plaintiffs’ claims are derivative in
nature, plaintiffs lack standing to pursue those claims on their own behalf.

        After the initial round of briefing on defendant’s omnibus motion to dismiss was
complete, and after Fairholme II was decided and the court held a status conference regarding
further proceedings in the related cases, plaintiffs raised a new argument—that the Federal
Circuit’s decision in First Hartford Corp. Pension Plan & Trust v. United States, 194 F.3d 1279
(Fed. Cir. 1999), compels a finding that they have standing to assert their takings and illegal-
exaction claims. 26 This particular argument was not timely raised and is waived. See United

       25
           Plaintiffs would remain unsuccessful if their allegations of waste and mismanagement
(styled as self dealing, overreach, or abuse of discretion) were construed to be indicative of some
action other than overpayment. Any claims premised on waste and mismanagement are
derivative in nature. Kramer v. W. Pac. Indus., Inc., 546 A.2d 348, 353 (Del. 1988) (noting that
“mismanagement resulting in corporate waste, if proven represents a direct wrong to the
corporation . . . [that] is entirely derivative in nature”). Plaintiffs’ claims are also derivative in
nature to the extent that they are premised on (1) a purported reduction in share price as a
consequence of the Enterprises losing assets or (2) the FHFA-C acting unfairly by agreeing to
transfer profits pursuant to the PSPA Amendments. See Hometown, 56 Fed. Cl. at 486 (stock
prices); In re Straight Path Commc’ns Inc. Consol. S’holder Litig., No. CV 2017-0486-SG, 2017
WL 5565264, at *4 (Del. Ch. Nov. 20, 2017) (“Sale of corporate assets to a controller for an
unfair price states perhaps the quintessential derivative claim . . . .”).
       26
          As defendant notes, the court did not invite plaintiffs, after the status conference held
March 5, 2020, to relitigate issues already decided in Fairholme II.
                                                 -32-
States v. Ford Motor Co., 463 F.3d 1267, 1277 (Fed. Cir. 2006) (explaining that “[a]rguments
raised for the first time in a reply brief are not properly before this court”); Ironclad/EEI v.
United States, 78 Fed. Cl. 351, 358 (2007) (noting that “under the law of this circuit, arguments
not presented in a party’s principal brief to the court are typically deemed to have been waived”).

        Even if this argument were not waived, the Federal Circuit’s Starr decision remains the
binding precedent most on point. The distinction between direct and derivative claims brought
by shareholders is the focus of the Federal Circuit’s standing analysis. Starr, 856 F.3d at 963-73.
Just as here, the plaintiffs brought takings and illegal-exaction claims related to a government
intervention, during a financial crisis, affecting the future of a corporation in which they owned
shares. Id. at 958-61. Starr provides the test for determining whether such claims are direct or
derivative in nature and requires that nominally direct claims—that are actually derivative
claims—be dismissed for lack of standing. Id. at 973.

        In face of this binding precedent, the court cannot conclude that the holding in First
Hartford regarding direct Fifth Amendment takings claims is more relevant. It is true that in
First Hartford shareholders of a bank in receivership could pursue their takings claims as direct
claims against the United States. 194 F.3d at 1287. However, First Hartford does not address
the distinction between direct and derivative claims. When faced with binding precedent that
addresses a crucial distinction, such as Starr, and one that does not, such as First Hartford, the
court follows the precedent most on point. Cf. Union Elec. Co. v. United States, 363 F.3d 1292,
1297 (Fed. Cir. 2004) (“[W]e have repeatedly held that the disposition of an issue by an earlier
decision does not bind later panels of this court unless the earlier opinion explicitly addressed
and decided the issue.” (citing Boeing N. Am., Inc. v. Roche, 298 F.3d 1274, 1282 (Fed. Cir.
2002))).

        In sum, plaintiffs have not established that they have standing to litigate their claims
because they do not, and cannot, demonstrate that those claims are substantively direct claims.
Therefore, the court dismisses plaintiffs’ claims on standing grounds to the extent that it has
subject-matter jurisdiction over those claims. 27




       27
            As explained above, the court lacks jurisdiction over plaintiffs’ claims for breach of
fiduciary duty and breach of implied contract. See supra Sections IV.C.1 (fiduciary duty), IV.D
(contract). In addition, because all of plaintiffs’ claims must be dismissed for lack of standing,
the court need not reach defendant’s remaining arguments that these claims should be dismissed
for failure to state a claim upon which relief can be granted.

                                               -33-
                                      VI. CONCLUSION

        For the reasons stated above, the court dismisses plaintiffs’ claims because it lacks
jurisdiction to entertain their fiduciary duty and implied-in-fact-contract claims, and plaintiffs
lack standing to pursue any of their claims. The court therefore GRANTS defendant’s motion to
dismiss. The clerk shall enter judgment accordingly.

       IT IS SO ORDERED.

                                                      s/ Margaret M. Sweeney
                                                      MARGARET M. SWEENEY
                                                      Chief Judge




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