Collins v. Mnuchin (19-422)

argument 19-422

Collins v. Mnuchin

Supreme Court of the United States 1h 40m 8 speakers 8 chapters transcribed 5 days ago official recording ↗

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What is the legal basis for treating the shareholders’ claims as derivative rather than direct?

John G. Roberts 0:00

We will hear argument this morning in case number nineteen four hundred twenty two Collins versus Minuchin and the consolidated case. Mr. Mupan?

Mr. Mupin 0:10

Mr Chief Justice and may it please the court. In the Third Amendment, FHFA, acting as conservator of Fannie and Freddie, renegotiated the enterprise's financial obligations to Treasury. by replacing the enterprise's multi billion dollar dividend and fee obligations with a variable dividend tied to their net worth. The Conservator eliminated any risk that a cycle could continue where the enterprises' obligations to Treasury would themselves cause draws from Treasury's capital commitment. The shareholder statutory and constitutional challenges to the Third Amendment fail for many reasons. But there are three key defects that I'll try to address today. First, both claims are barred by the Recovery Act Succession Clause, which transfers to the Conservator the authority to decide whether shareholders may bring derivative suits on behalf of the enterprises.

Mr. Mupin 0:59

The type of shareholder injury alleged here that the corporation's assets have been unlawfully dissipated to a particular shareholder is plainly derivative rather than direct. The shareholders have not cited even a single case to the contrary. Second, the statutory claim is barred by the Recovery Act Anti Injunction Clause, which prevents courts from restraining exercises of the conservators' powers or functions. The Conservator acted well within its authority in deciding that the renegotiation of the enterprise's financial obligations may have been appropriate to preserve and conserve Treasury's capital commitment. The shareholders cannot second guess the wisdom or motives behind that business judgment.

Mr. Mupin 1:38

Third, the constitutional claim fails because President Obama had unrestricted power to remove and thus to supervise both of the officials who signed the Third Amendment. Treasury Secretary Geitner was of course removable at will, and so too was acting FHFA Director DeMarco. Thus, while the statutory restriction on the President's power to remove the FHFA director is invalid, it had no prejudicial effect on the Third Amendment. I welcome the court's question.

John G. Roberts 2:05

Uh Counsel, um you say that the common stockholders claims uh can't survive because they're uh derivative, really claims of the corporation and and then barred by the s uh succession clause. But it seems to me that they're a little different. Uh according to the claims anyway, the their uh stock value, their stock was completely wiped out uh in a unique way compared to the other uh uh holders of interests uh uh in the enterprises. Uh in other words that this action was directed at them uh uh as distinct from the corporation uh as a whole, therefore is not derivative, they claim, uh and and shouldn't be barred. Um what what is your answer to that?

Mr. Mupin 2:50

So as we cited in our reply brief, we've cited cases from the Delaware Supreme Court and from judges Bork, Easterbrook and Posner, all of whom recognize that when corporate assets are dissipated, that's a derivative claim even where the recipient is a shareholder, such that the financial of the case of the case of the case. Yeah, but when you Yeah, but

John G. Roberts 3:08

when you have excuse me, but when you have different categories of shareholders or people with financial interests, and the complaint is that they w the one class was particularly targeted, it does seem to me that that class has a unique claim that can't be characterized as just a claim of the corporation.

Mr. Mupin 3:28

Well, Your Honor, I think that there's no reason to differentiate between a dissipation of corporate assets pursuant to a dividend payment versus a dissipation of corporate assets per pursuant to a side transaction. In the cases that we cited in our reply brief, each of those cases involves certain shareholders being treated better than other shareholders. And it shouldn't make any difference for purposes of a derivative claim whether that special treatment occurs pursuant to a side transaction or through a dividend payment.