United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued April 21, 2026 Decided July 24, 2026
No. 25-5113
FAIRHOLME FUNDS, INC, ON BEHALF OF ITS SERIES, THE
FAIRHOLME FUND, ET AL.,
APPELLEES
v.
FEDERAL HOUSING FINANCE AGENCY, IN ITS CAPACITY AS
CONSERVATOR OF THE FEDERAL NATIONAL MORTGAGE
ASSOCIATION AND THE FEDERAL HOME LOAN MORTGAGE
CORPORATION, ET AL.,
APPELLANTS
Consolidated with 25-5121, 25-5154, 25-5155
Appeals from the United States District Court
for the District of Columbia
(No. 1:13-cv-01053)
(No. 1:13-mc-01288)
John P. Elwood argued the cause for appellants/crossappellees. With him on the briefs were R. Stanton Jones,
Anthony Franze, Orion de Nevers, Meaghan M. VerGow, and
2
Michael J. Ciatti. David B. Bergman and Taylor T. Lankford
entered appearances.
Hamish Hume argued the cause for Class appellees. With
him on the brief were Adam H. Wierzbowski, Robert Kravetz,
Michael J. Barry, David H. Thompson, Brian W. Barnes, and
John Ramer. Craig L. Briskin and Jonathan M. Shaw entered
appearances.
Brian W. Barnes argued the cause for Berkley
appellees/cross-appellants. With him on the briefs were David
H. Thompson and John Ramer. Charles J. Cooper and Peter A.
Patterson entered appearances.
Before: WALKER and CHILDS, Circuit Judges, and
GINSBURG, Senior Circuit Judge.
Opinion for the Court filed by Senior Circuit Judge
GINSBURG.
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I. Background .................................................................... 5
A. The Housing and Economic Recovery Act ........... 5
B. The Net Worth Sweep ........................................... 7
C. Procedural History ................................................ 9 II. Analysis........................................................................ 11
A. The Implied Covenant of Good Faith and
Fair Dealing ........................................................ 12
1. Collins v. Yellen ......................................... 12
2. “Gap” in the shareholder agreements ........ 19
3. Anticipatory breach .................................... 21
B. Harm Caused by the Net Worth Sweep .............. 23
C. Standing of Post-Third Amendment
Purchasers ........................................................... 26
D. Cross-Appeal....................................................... 33
1. Restitution .................................................. 34
2. Reliance damages....................................... 36 III. Conclusion ................................................................... 40
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GINSBURG, Senior Circuit Judge: In the midst of the 2008
housing crisis, the Congress established the Federal Housing
Finance Agency (FHFA or Agency) and authorized its Director
to place into conservatorship the Federal National Mortgage
Association (Fannie) and the Federal Home Loan Mortgage
Corporation (Freddie). After doing so, the Director entered into
a stock purchase agreement with the United States Department
of the Treasury to make capital available to the companies. In
exchange, Fannie and Freddie would pay the Treasury a quarterly dividend at a fixed rate based upon the funds drawn from
the Treasury.
In 2012 the FHFA and the Treasury abandoned the fixedrate dividend and instead required the companies to pay the
Treasury a quarterly dividend equal to the amount by which
their net worth exceeded their capital reserve. On the day the
FHFA announced this arrangement, known as the “Net Worth
Sweep,” the value of Fannie and Freddie shares dropped precipitously. In the years that followed, the companies paid the
Treasury significantly more money than they would have under
the fixed-rate dividend formula. Perhaps least surprising,
shareholders of Fannie and Freddie sued the FHFA, Fannie,
and Freddie (the Defendants) for damages.
After a decade of litigation, one claim made its way to trial:
By adopting the Net Worth Sweep, the FHFA, as conservator
of Fannie and Freddie, violated the covenant of good faith and
fair dealing implicit in its contract with shareholders. A jury
agreed, and the district court entered a final judgment of $812
million including prejudgment interest.
On appeal, the FHFA argues the implied covenant claim
was unavailable as a matter of law, the Plaintiffs failed to prove they were harmed by the Net Worth Sweep, and certain
Plaintiffs lack standing to bring their claims. One group of
5
Plaintiffs cross-appealed, asserting that the district court should have allowed them to seek restitution or reliance damages in
the amount of $48 billion. Because these arguments lack merit,
we affirm the judgment of the district court.
I. Background
We fully recounted the background events giving rise to
this litigation in Perry Capital LLC v. Mnuchin, 864 F.3d 591
(2017). We restate here only the information relevant to this
appeal.
A. The Housing and Economic Recovery Act
Fannie and Freddie are government-sponsored entities the
shares of which have been publicly traded since 1968 and 1989,
respectively. During the 2008 housing crisis, the Congress
“concluded that resuscitating Fannie Mae and Freddie Mac was
vital for the Nation’s economic health.” Id. at 598. In order to
prevent the companies from defaulting, the Congress enacted
the Housing and Economic Recovery Act of 2008, Pub. L. No.
110-289, 122 Stat. 2654, which created the FHFA and authorized its Director to appoint the FHFA as their conservator. See
Collins v. Yellen, 594 U.S. 220, 226-27 (2021) (citing 12
U.S.C. §§ 4511, 4617).
The Recovery Act “invests [the] FHFA as conservator
with broad authority and discretion over the operation of”
Fannie and Freddie. Perry, 864 F.3d at 600. Two provisions of
the Act are central to this appeal:
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• The “Best Interests” Provision, 12 U.S.C.
§ 4617(b)(2)(J)(ii), authorizes the FHFA as
conservator to “take any action authorized
by this section, which the Agency determines is in the best interests of the regulated
entity or [of] the Agency.”
Therefore, “when the FHFA acts as a
conservator, it may aim to rehabilitate the
regulated entity in a way that, while not in
the best interests of the regulated entity, is
beneficial to the Agency and, by extension,
the public it serves.” Collins, 594 U.S. at
238.
• The Bar to Judicial Review, 12 U.S.C.
§ 4617(f), provides that, with exceptions not
here relevant, “no court may take any action
to restrain or affect the exercise of powers
or functions of the Agency as a
conservator.”
The Recovery Act also temporarily authorized the
Treasury to purchase shares of Fannie and Freddie “if it
determined that infusing the companies with capital would
protect taxpayers and be beneficial to the financial and
mortgage markets.” Collins, 594 U.S. at 229; see §§ 1455(l)(1),
(4), 1719(g)(1), (4). Because the companies are federally chartered, the provisions of the Recovery Act are incorporated in
the contracts between the companies and their shareholders.
See Fairholme Funds, Inc. v. FHFA (MTD Opinion), Nos. 13-cv-1053, 1439, 2018 WL 4680197, at *8-9 (D.D.C. Sept. 28,
2018) (“[A]n investor’s contract with [a] corporation includes
not only documents such as the stock certificate, certificate of
designations, the corporate charter, and bylaws, but also the
7
corporate law under which the corporation is formed and
regulated”).
B. The Net Worth Sweep
In September 2008 the Director of the FHFA placed
Fannie and Freddie into conservatorship and entered into
Senior Preferred Stock Purchase Agreements (PSPAs) with the
United States Department of the Treasury, which agreed to
make $100 billion available to Fannie and Freddie in exchange
for one million preferred shares in each company. As relevant
here, the Treasury was also entitled to receive (1) “a dollar-fordollar increase in [its] liquidation preference each time Fannie
and Freddie drew upon Treasury’s funding commitment,” and
(2) a quarterly dividend “at a rate of 10% of Treasury’s
liquidation preference or a commitment to increase the
liquidation preference by 12%.” Perry, 864 F.3d at 601. Fannie
and Freddie could not pay dividends to their shareholders without the consent of the Treasury.
As Fannie and Freddie continued to incur losses, the
FHFA and the Treasury twice amended the PSPAs to increase
the capital available to Fannie and Freddie. When Fannie and
Freddie drew upon this capital, however, it increased the
Treasury’s liquidation preference which, in turn, increased the
dividend owed to the Treasury. This resulted in “the circular
practice of [Fannie and Freddie] drawing funds from
Treasury’s capital commitment just to hand those funds back
as a quarterly dividend.” Collins, 594 U.S. at 233.
On August 17, 2012 the FHFA and the Treasury amended
the PSPAs for a third time to “ensure[] that Fannie Mae and
Freddie Mac would never again draw money from Treasury
just to make their quarterly dividend payments.” Id. at 234. The
Third Amendment replaced the 10% dividend with a dividend
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based upon Fannie’s and Freddie’s net worth. If either company’s net worth at the end of a quarter exceeded its capital
reserve, then the company would pay the surplus to the
Treasury. If the company’s net worth did not exceed the reserve
or if the company lost money during the quarter, then it was not
required to pay any dividend to the Treasury. See id. This new
arrangement, known as the Net Worth Sweep, “meant that the
companies would not be able to accrue capital in good
quarters,” id., and that shareholders would never receive any
dividends. “In simple terms, the Third Amendment require[d]
Fannie and Freddie to pay quarterly to Treasury a dividend
equal to their net worth — however much or little that might
be.” Perry, 864 F.3d at 602.
The Third Amendment also required Fannie and Freddie
to accelerate the reduction of their retained mortgage portfolios. Before the Third Amendment, Fannie and Freddie were
already required to reduce their portfolios at a rate of 10%
annually, capped at $250 billion per company. The Third
Amendment increased the reduction rate to 15% annually while
retaining the $250 billion cap.
On the day the Net Worth Sweep was announced in 2012,
the value of Fannie and Freddie common and junior preferred
shares decreased by approximately $1.6 billion. * In 2013
Fannie and Freddie paid the Treasury $130 billion in dividends
under the Net Worth Sweep. If the 10% dividend had been in
effect, then the companies would have owed the Treasury only
$19 billion. By the end of 2022 the companies had paid $151.2
*
Both Fannie and Freddie have issued several classes of preferred
shares that are junior to the preferred shares issued to the Treasury. See Perry, 864 F.3d at 601 (explaining that the PSPAs gave the
Treasury “a priority right above all other stockholders, whether
preferred or otherwise, to receive distributions from assets if the entities were dissolved”).
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billion more under the Net Worth Sweep than they would have
paid under the fixed-rate dividend. Although the companies no
longer pay a cash dividend to the Treasury, all their profits are added to the Treasury’s liquidation preference.
C. Procedural History
In 2013 two lawsuits were filed challenging the Net Worth
Sweep: (1) a class action brought by holders of Freddie common shares and of Fannie and Freddie junior preferred shares,
and (2) an individual action brought by holders of Fannie and
Freddie junior preferred shares (the “Berkley Plaintiffs”). The
lawsuits alleged violations of the Administrative Procedure Act
and of the Takings Clause of the Fifth Amendment to the
Constitution of the United States as well as various contract
claims.
The district court dismissed the complaints for failure to
state a claim. We affirmed that decision in most respects, but
we remanded for further consideration of some of the
Plaintiffs’ contract claims. See id. at 633-34.
On remand, the district court dismissed all claims except
the implied covenant claim with respect to the shareholders’
right to receive dividends. MTD Opinion, 2018 WL 4680197,
at *7-14. The district court denied the FHFA’s motion for
reconsideration, which argued that the implied covenant claim
was effectively a non-cognizable claim for anticipatory breach.
Consistent with the parties’ later stipulation, the district
court certified three classes of plaintiffs consisting of:
(1) holders of “junior preferred stock in Fannie,” (2) holders of “junior preferred stock in Freddie,” and (3) holders of
“common stock in Freddie.” Each class included the
shareholders “as of the date of certification, or their successors
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in interest to the extent shares are sold after the date of certification and before any final judgment or settlement.”
In October 2022 the district court granted in part and
denied in part the FHFA’s motion for summary judgment.
Summary Judgment Opinion, 2022 WL 4745970. The district
court rejected the FHFA’s arguments that the implied covenant
claim was foreclosed by the Supreme Court’s decision in
Collins v. Yellen and that the implied covenant did not apply
because the Recovery Act left no gaps in the shareholder agreements. Id. at *5-7. The court held, however, that the Plaintiffs
could not seek damages based upon their “lost-dividends
theory” — that “the Third Amendment [had] deprived
plaintiffs of dividends that they would have eventually
received.” Id. at *9-10. The court also held the Plaintiffs could not seek restitution of what they had paid for their shares. Id. at *11-12. The parties therefore proceeded to trial on the implied
covenant claim with the Plaintiffs seeking damages based upon
their “lost-value theory” — that “the Third Amendment, by
eliminating any possibility of future dividends for [the
Plaintiffs], deprived [their] shares of much of their value, even if such dividends were not reasonably certain to occur in the
foreseeable future.” Id. at 11. The Plaintiffs pointed to the $1.6 billion drop in the value of Fannie and Freddie shares on the
date the Net Worth Sweep was announced as the measure of
harm.
Before trial the Plaintiffs filed a motion to amend their pretrial statement by adding a request for reliance damages. The
district court denied that motion. See Pretrial Amend. Opinion
I, 2022 WL 11110548, at *3-4 (D.D.C. Oct. 19, 2022).
The first jury trial took place in the Fall of 2022 and ended
in a hung jury. The Berkley Plaintiffs filed a motion before the
second trial again seeking to present evidence on reliance dam11
ages, which the district court denied. See Pretrial Amend.
Opinion II, 2023 WL 3790739, at *5-6 (D.D.C. June 2, 2023).
The second trial took place in the Summer of 2023; the
jury found the FHFA had violated the implied covenant of good
faith and fair dealing with respect to all Plaintiffs. The jury
awarded the Plaintiffs a total of $612.4 million, and the district court entered a final judgment of $812 million after adding prejudgment interest. The district court then rejected the FHFA’s
Rule 50(b) motion for judgment as a matter of law. See Rule
50(b) Opinion, 2025 WL 823938 (D.D.C. Mar. 14, 2025).
II. Analysis
We have jurisdiction under 28 U.S.C. § 1291. We review
de novo the district court’s conclusions on the motion to dismiss, the motion for summary judgment, and the motion for
judgment as a matter of law. See Vasquez v. District of
Columbia, 110 F.4th 282, 287, 290 (D.C. Cir. 2024); Liff v. Off.
of Inspector Gen. for U.S. Dep’t of Lab., 881 F.3d 912, 918
(D.C. Cir. 2018). When reviewing the district court’s conclusions on the motion for judgment as a matter of law, however,
“we apply to the jury’s decision the same forgiving standard as
did the district court.” Vasquez, 110 F.4th at 290. “Judgment as
a matter of law is appropriate only if the evidence and all
reasonable inferences that can be drawn therefrom are so onesided that reasonable men and women could not have reached
a verdict in plaintiff’s favor.” Id. (cleaned up). As for the
district court’s denial of the Berkley Plaintiffs’ motions to
amend their pretrial statement, we review the court’s legal conclusions de novo and its trial-management decisions for abuse
of discretion. See Bauer v. FDIC, 38 F.4th 1114, 1121 (D.C.
Cir. 2022); Teneyck v. Omni Shoreham Hotel, 365 F.3d 1139,
1155-56 (D.C. Cir. 2004).
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The parties agree that Delaware law applies to claims
regarding Fannie and Virginia law applies to claims regarding
Freddie. Perry, 864 F.3d at 626 n.24.
A. The Implied Covenant of Good Faith and Fair Dealing
The implied covenant of good faith and fair dealing applies
“when the party asserting the implied covenant proves that the
other party has acted arbitrarily or unreasonably, thereby
frustrating the fruits of the bargain that the asserting party
reasonably expected . . . . at the time of contracting.” Nemec v. Shrader, 991 A.2d 1120, 1126 (Del. 2010); see Drummond
Coal Sales, Inc. v. Norfolk S. Ry. Co., 3 F.4th 605, 611 (4th Cir. 2021). The jury found the FHFA’s adoption of the Net Worth
Sweep violated this implied covenant.
The FHFA does not challenge the sufficiency of the evidence with respect to the parties’ reasonable expectations.
Instead, it argues the implied covenant claim fails as a matter
of law for three reasons. First, Supreme Court precedent
forecloses the implied covenant claim. Second, the implied
covenant cannot apply to the shareholder agreements because
those agreements leave no gap for the implied covenant to fill.
Third, the implied covenant claim is really a non-cognizable
claim for anticipatory breach.
1. Collins v. Yellen
The FHFA’s opening argument is that the Supreme
Court’s decision in Collins v. Yellen forecloses the Plaintiffs’
implied covenant claim. That decision rested upon 12 U.S.C.
§ 4617(f): “Except as provided in this section . . . no court may take any action to restrain or affect the exercise of powers or
functions of the Agency as a conservator or a receiver.” First,
relying upon the Court’s holding that § 4617(f) protects the
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FHFA’s business decisions from judicial review, Collins,
594 U.S. at 254, the FHFA reasons that the jury could not
second-guess the Net Worth Sweep because it was a “core
exercise” of the FHFA’s “broad” powers under the Recovery
Act. Second, because Collins held the FHFA “could have
reasonably concluded” that the Net Worth Sweep was in the
public’s interest, id. at 239, the FHFA says “Collins squarely
rejected the central element of Plaintiffs’ implied covenant
claim — that FHFA acted ‘arbitrarily or unreasonably’ in
agreeing to the Net Worth Sweep.”
The Plaintiffs respond that the FHFA overreads Collins. In
their view, Collins simply involved a claim under the APA
about the scope of the FHFA’s authority; it said nothing about
how § 4617(f) would apply to a claim for contract damages or
whether the Net Worth Sweep was consistent with the reasonable expectations of the parties. † We agree with the Plaintiffs
that Collins did not foreclose the implied covenant claim in this case.
We begin with our pre-Collins decision in Perry. There we
held that § 4617(f) barred the Plaintiffs’ claims that the
FHFA’s adoption of the Third Amendment violated the
Recovery Act and the APA, among other claims. 864 F.3d at
604-16. In response to our dissenting colleague’s concern that
†
The Plaintiffs also argue the FHFA waived its reliance upon
§ 4617(f) because it did not invoke this provision on remand after Perry. Wrong. The district court addressed the FHFA’s Collins
argument and the Supreme Court’s discussion of § 4617(f) in its
summary judgment opinion, 2022 WL 4745970, at *5-6; the FHFA
then renewed this argument in its Rule 50(a) motion “for
preservation purposes”; and the district court declined to reconsider its holding when denying the FHFA’s Rule 50(b) motion, explaining that “[i]f Defendants wish to re-open this purely legal challenge, they must do so with the D.C. Circuit,” 2025 WL 823938, at *7. Just so.
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our decision would “foreclose[] any opportunity for
meaningful judicial review of FHFA’s actions,” id. at 642
(Brown, J.), we pointed out that § 4617(f) “only limits judicial
remedies (banning injunctive, declaratory, and other equitable
relief) after a court determines that the actions taken fall within the scope of [the FHFA’s] statutory authority.” Id. at 613-14.
We did not interpret the Recovery Act to preclude “judicial
review through cognizable actions for damages like breach of
contract.” Id. at 614.
We also rejected the FHFA’s argument that the Recovery
Act preempted state laws imposing an implied covenant of
good faith and fair dealing. Id. at 630. We noted that the Act
authorized the FHFA to “disaffirm or repudiate any contract”
executed by Fannie and Freddie before the conservatorship
“which the conservator determines to be burdensome within a
reasonable period following the agency’s appointment as
conservator.” Id. (cleaned up). “That the Recovery Act permits
the FHFA in some circumstances to repudiate contracts,” we
explained, “indicates that the Companies’ contractual obligations otherwise remain in force.” Id. We therefore remanded
the implied covenant claim, “insofar as it seeks damages,” to
the district court for further proceedings. Id. at 631.
Our pre-Collins decision therefore recognized that the
Recovery Act leaves room for an implied covenant claim for
damages against the FHFA as conservator. See also Jacobs v.
FHFA, 908 F.3d 884, 895 (3d Cir. 2018) (citing an “appropriate
damages claim” for breach of contract as the type of claim
courts may allow to proceed against the FHFA).
This brings us to Collins. As relevant here, a group of
shareholders alleged the FHFA’s adoption of the Net Worth
Sweep exceeded its authority under the Recovery Act because
the Sweep “did not actually serve the best interests of the
15
FHFA or the public.” 539 U.S. at 239-40. At the outset, the
Court explained that § 4617(f), which it referred to as the “antiinjunction clause,” applies “only where the FHFA exercised its
powers or functions as a conservator or a receiver.” Id. at 237
(cleaned up). The Court then considered whether the FHFA had
done so and concluded that it had. Given Fannie’s and
Freddie’s repeated inability to make their dividend payments
without drawing on the Treasury’s capital commitment, the
FHFA “could have reasonably concluded that [the Net Worth
Sweep] was in the best interests of members of the public,” id.
at 239; hence the Agency acted within its authority under
§ 4617(b)(2)(J)(ii), and § 4617(f) barred the shareholders’
statutory claim, id. at 242.
As we said, the FHFA reads Collins as foreclosing the
implied covenant claim in this case. Insofar as Perry supports
a different result, the FHFA says Collins “eliminated” that part
of Perry. We disagree.
As the Plaintiffs note, in Collins the Court never considered how § 4617(f) would apply to a contract claim for
damages; that case involved a statutory claim for declaratory
and injunctive relief. See 594 U.S. at 227. In the Court’s own
words, it “conclude[d] only that under the terms of the
Recovery Act, the FHFA did not exceed its authority as a
conservator, and therefore the anti-injunction clause bars the
shareholders’ statutory claim.” Id. at 242. The Court’s later
statement that the FHFA’s “business decisions are protected
from judicial review,” id. at 254, must therefore be read in the
context of its narrow holding on the statutory claim. The Court
also adopted the parties’ framing of § 4617(f) as an “antiinjunction clause,” id. at 237, further indicating that it was not deciding how § 4617(f) would apply to other forms of relief,
such as damages.
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Nor did Collins address whether the Net Worth Sweep was
reasonable based upon the expectations of the parties. When
the Court held that “the FHFA could have reasonably
concluded” the Net Worth Sweep was in the public interest, id.
at 239, it was considering whether the Sweep was within the
scope of the FHFA’s statutory authority to act in the public
interest. Answering that question “involve[d] a different type
of reasonableness analysis” than the one implicated here by the
implied covenant claim. Summary Judgment Opinion,
2022 WL 4745970, at *5. As the district court correctly
explained in denying the Defendants’ motion for summary
judgment:
Collins does not resolve the issue here, because
although reasonableness factors into both
analyses, it is reasonableness with respect to
different matters. At issue in Collins was
whether FHFA could reasonably have determined that adopting the Third Amendment was
in the best interests of the regulated entity or
[of] the Agency and thus acted within its
statutory authority as conservator of [Fannie
and Freddie] in so doing. Here, in contrast, the
issue is whether FHFA violated the reasonable
expectations of the parties by adopting the
Third Amendment.
Id. (cleaned up).
The FHFA offers two responses to the district court’s distinction. First it invokes the similarities between the arguments raised by the Collins plaintiffs and those raised by the Plaintiffs here. Doing so again overlooks that the underlying questions
differ. Even if the arguments overlap, the question whether the
FHFA acted within its statutory authority is not coextensive
17
with the question whether it acted in accordance with the shareholders’ reasonable expectations. For example, the FHFA
determined the Net Worth Sweep would benefit the public, but
the jury also heard testimony that such a step was
“unprecedented.” The Plaintiffs also introduced evidence that
two weeks before the Net Worth Sweep was announced, the
Treasury and the FHFA had received a report showing that
Fannie and Freddie had generated profits exceeding the 10%
dividend owed to the Treasury in the most recent quarter.
Despite this indication that the companies might be returning
to longer-term profitability, the Treasury and the FHFA
responded by making a “renewed push” to implement the Net
Worth Sweep. The jury therefore could conclude the Net Worth
Sweep was not consistent with the reasonable expectations of
the parties, regardless whether it was consistent with the
FHFA’s authority under the Recovery Act.
The FHFA next argues that the scope of the FHFA’s
statutory authority necessarily affects the expectations of the
shareholders. Fair enough. Recall that the Recovery Act
authorized the FHFA to act “in the best interests of the
regulated entity or [of] the Agency,” § 4617(b)(2)(J)(ii), and
the shareholder agreements incorporate this provision. From
this, the FHFA reasons that the shareholders should have reasonably expected it to “act in the public interest without regard for whether doing so [was] in shareholders’ interests.”
We agree the FHFA’s authority under the Recovery Act
may inform the parties’ reasonable expectations, but that does
not require a different outcome here. In Perry we specifically
instructed the district court on remand to consider whether “the
enactment of the Recovery Act and the FHFA’s appointment
as conservator affected these expectations.” 864 F.3d at 631.
At trial, the district court duly informed the jury that the
Recovery Act “amends or informs the shareholder contracts,”
18
so the jury could consider the terms of the Act when assessing
the reasonable expectations of the shareholders. It also
informed the jury that, under the Recovery Act, the FHFA was
authorized to act in the best interests of Fannie and Freddie or
of itself and hence the public. The district court then explained that the FHFA could “still have violated the implied covenant
of good faith and fair dealing if it exercised that authority in a way that arbitrarily or unreasonably violated plaintiffs’
reasonable expectations under the contract” as amended by
incorporation of the Act. The jury was thus allowed to consider
the extent to which the Recovery Act informed the parties’ reasonable expectations, but it was not required to reject the claim based upon the FHFA’s statutory authority. That instruction
was consistent with Perry, and nothing in Collins suggests a
contrary result.
Finally, we do not view this outcome as incompatible with
the outcome in Collins. It is easy to understand how granting
the statutory claim in Collins would have “restrain[ed] or
affect[ed]” the FHFA’s exercise of its authority. § 4617(f).
Holding that the FHFA lacked the authority to implement the
Net Worth Sweep would have forced the Agency to abandon
the Sweep and would have prevented it from implementing a
future sweep. Awarding damages, on the other hand, does not
require the FHFA to undo any action, nor does it restrain the
FHFA from implementing a future sweep. After all, an implied
covenant claim is based upon the reasonable expectations of
the parties at the time of contracting. Nemec, 991 A.2d at 1126.
Here the Plaintiffs introduced undisputed evidence that the Net
Worth Sweep was “unprecedented” and therefore could not
reasonably have been expected. If, however, the FHFA were
now to sell new shares and afterwards implement a new sweep,
then a future shareholder could no longer argue the sweep was
unprecedented; the FHFA having demonstrated that it views
19
the Net Worth Sweep as a reasonable option would have
informed that future shareholder’s expectations.
In sum, Collins did not abrogate our holding in Perry that
the Recovery Act does not bar “judicial review through cognizable actions for damages like breach of contract.” 864 F.3d
at 614. We therefore reject the FHFA’s argument that Collins
foreclosed the implied covenant claim as a matter of law.
2. “Gap” in the shareholder agreements
The FHFA next argues the implied covenant does not
apply because the shareholder contracts “specify the scope of
FHFA’s contractual discretion.” Under Delaware and Virginia
law, a party “generally cannot base a claim for breach of the
implied covenant on conduct authorized by the terms of the
agreement.” Dunlap v. State Farm Fire & Cas. Co., 878 A.2d
434, 441 (Del. 2005); see Ward’s Equip., Inc. v. New Holland
N. Am., Inc., 493 S.E.2d 516, 520 (Va. 1997). As the FHFA
puts it, the implied covenant cannot apply when there is no
“gap” in the contract for it to fill. There is no gap here, says the FHFA, because the Recovery Act provides that the FHFA may
act “in the best interests of the regulated entity or [of] the
Agency.” § 4617(b)(2)(J)(ii). According to the Plaintiffs, however, that provision “merely enhances the already broad
discretion conferred” on the FHFA; it does not specify in any
meaningful way how the FHFA should exercise that discretion.
The Plaintiffs again have the better argument. When a contract authorizes a party to act in its “sole discretion,” we have recognized the party may still violate the implied covenant if it exercises that discretion “arbitrarily or unreasonably.” Perry,
864 F.3d at 631. Delaware and Virginia law are clear on this
point: “Terms that enhance the level of discretion . . . do not
eliminate the implied duty. When a party has sole discretion to
20
make a decision, that setting provides more reason for the
implied covenant to apply, not less.” Cygnus Opportunity
Fund, LLC v. Wash. Prime Grp., LLC, 302 A.3d 430, 460 (Del.
Ch. 2023) (cleaned up); see Historic Green Springs, Inc. v.
Brandy Farm, Ltd., No. 4872-C, 1993 WL 13029827, at *3
(Va. Cir. Ct. Sept. 28, 1993); see also Drummond Coal Sales,
3 F.4th at 611-12; Va. Vermiculite, Ltd. v. W.R. Grace & CoConn., 156 F.3d 535, 542 (4th Cir. 1998).
This case is a perfect example of that sort. The Recovery
Act does not specifically authorize the conduct giving rise to
this appeal. Rather, the Recovery Act is “framed in terms of
expansive grants of permissive, discretionary authority for
[the] FHFA to exercise as the ‘Agency determines is in the best
interests of the regulated entity or [of] the Agency.’” Perry, 864 F.3d at 607 (quoting § 4617(b)(2)(J)(ii)). The FHFA claims the
“best interests” phrase “defines the scope of [its] contractual
discretion,” but that phrase does not render the implied covenant inapplicable. On the contrary, per the Supreme Court of
Delaware, the implied covenant “encompasses the principle of
contract construction that if one party is given discretion in
determining whether a condition in fact has occurred, that party
must use good faith in making that determination.” Baldwin v.
New Wood Res. LLC, 283 A.3d 1099, 1116 (2022) (cleaned
up). That is precisely the circumstance here: The FHFA
unilaterally determined what was in the “best interests” of the
Agency. As the Plaintiffs note, the statute does not contain any
standard limiting how the FHFA is to make that determination.
The FHFA relies upon three cases in which a court held
the implied covenant did not apply, but those cases are inapposite. In two of those cases, the relevant contracts provided a
more specific process or standard that restrained the party’s
discretion. See Policemen’s Annuity & Benefit Fund of Chi. v.
DV Realty Advisors LLC, No. 7204, 2012 WL 3548206, at *3
21
(Del. Ch. Aug. 16, 2012) (agreement providing for removal of
a general partner if “75% of the Limited Partnership Interests”
consented to the removal and made a “good faith” determination that removal was necessary for the partnership’s best
interests); Khan v. Warburg Pincus, LLC, No. 2024-0523,
2025 WL 1251237, at *6-7 (Del Ch. Apr. 30, 2025) (agreement
allowing majority investors to “act exclusively in their own
interests” provided that any amendment that “disproportionately affected” one class of investors “in a material and adverse manner” be supported by the “prior written consent of a majority of the affected class” (cleaned up)). The third case is even
further afield because the agreement gave “both parties complete discretion in deciding whether” to execute a repurchase
of a minority shareholder’s shares, which required approval by
a majority of the board of directors or 70% of the shareholders.
Blaustein v. Lord Balt. Cap. Corp., 84 A.3d 954, 959 (Del.
2014). The Recovery Act does not contain any comparable feature or limitation on the FHFA’s discretion. We see no reason
the implied covenant does not apply under these circumstances.
3. Anticipatory breach
Lastly, the FHFA argues the implied covenant claim is
really an “unripe claim for anticipatory breach.” “Anticipatory
breach is a doctrine of accelerated ripeness” that “gives a
plaintiff the option to have the law treat a promise to breach or an act rendering performance impossible as the breach itself.”
Perry, 864 F.3d at 632-33 (cleaned up). In the FHFA’s view,
the Plaintiffs raise a claim for anticipatory breach because they “claim that the Net Worth Sweep prevented [Fannie and
Freddie] from possibly paying dividends at some unspecified
point in the future.” The Plaintiffs dispute this characterization of their claim, arguing that they seek to hold the FHFA liable
for a present breach of contract.
22
The FHFA’s argument misapprehends the nature of the
Plaintiffs’ claim. The implied covenant imposes an ongoing
obligation to act in good faith. It “requires a party in a
contractual relationship to refrain from arbitrary or
unreasonable conduct which has the effect of preventing the
other party to the contract from receiving the fruits of the
bargain.” Dunlap, 878 A.2d at 442 (cleaned up). A party that
violates the implied covenant thus commits a present breach of
its contract. See Restatement (Second) of Contracts § 235 cmt.
b (1981) (“Non-performance of a duty when performance is
due is a breach whether the duty is imposed by a promise stated
in the agreement or by a term supplied by the court, as in the
case of the duty of good faith and fair dealing”). We therefore
agree with the district court that the Plaintiffs “seek to hold
defendants presently accountable for a present breach of an
implied promise” rather than for a “future breach of an express
provision.” Partial Reconsideration Order, at 3 (D.D.C. May
16, 2019), Class Pls. ECF No. 104, Berkley Pls. ECF No. 99.
The FHFA’s argument to the contrary rests upon its misplaced emphasis on the future effect of the Net Worth Sweep.
The Plaintiffs alleged the Net Worth Sweep deprived them of
the opportunity to receive future dividends; they do not, however, claim the FHFA breached a promise to pay them future
dividends. Instead, they claim that by eliminating any possibility of dividends, the FHFA violated its ongoing obligation to
act in good faith. This is what distinguishes the implied covenant claim from the Plaintiffs’ claim for breach of their
“contractual rights to receive a liquidation preference,” which
alleged the FHFA had repudiated a future contractual obligation and which the district court dismissed as a claim for
anticipatory breach. MTD Opinion, 2018 WL 4680197, at *5-6. That the breach also had a future effect does not turn the
implied covenant claim into a claim for anticipatory breach.
We agree with the Plaintiffs that “what matters is when the
23
breach occurred, not whether the harm caused by the breach
persists in the future.”
The FHFA speculates that this conclusion will allow future
plaintiffs to recast their claims of anticipatory breach as
implied covenant claims. This matters, it says, because
Virginia and Delaware law do not allow claims for anticipatory
breach of unilateral contracts, see Fairfax-Falls Church Cmty.
Servs. Bd. v. Herren, 337 S.E.2d 741, 744 (Va. 1985); cf. Meso
Scale Diagnostics, LLC v. Roche Diagnostics GmbH, 62 A.3d
62, 78 n.102 (Del. Ch. 2013), and the contracts here became
unilateral when the shareholders completed their performance
by purchasing the shares. We do not share this concern. The
FHFA does not direct us to a single case in which a court has
incorrectly conflated these claims. Even if a future plaintiff
attempted this maneuver, it would still have to satisfy the
standard for stating an implied covenant claim. We see no
reason our holding today will cause courts to mistake an
implied covenant claim for a claim of anticipatory breach
involving a unilateral contract.
B. Harm Caused by the Net Worth Sweep
In order to prevail on their implied covenant claim, the
Plaintiffs needed to demonstrate “both the existence of damages provable to a reasonable certainty, and that the damages
flowed from the defendant’s violation of the contract.” Base
Optics Inc. v. Liu, No. 9803, 2015 WL 3491495, at *16 (Del.
Ch. May 29, 2015); see Saks Fifth Ave., Inc. v. James. Ltd., 630
S.E.2d 304, 311 (Va. 2006). Recall that the implied covenant
claim proceeded to trial based upon a “lost-value theory” of
harm, to wit, “that the Third Amendment, by eliminating any
possibility of future dividends for [the Plaintiffs], deprived
[their] shares of much of their value.” Summary Judgment
Opinion, 2022 WL 4745970, at *11. The Plaintiffs pointed to
24
the $1.6 billion decrease in the value of Fannie and Freddie
common and junior preferred shares outstanding on August 17,
2012 — the day the Net Worth Sweep was announced — as
their measure of harm.
The FHFA offers three reasons the Plaintiffs failed to meet
the standard of proof: The Plaintiffs (1) did not address
increases in Fannie’s and Freddie’s share price in the weeks
following the announcement of the Net Worth Sweep; (2) did
not prove the Net Worth Sweep continued to harm the share
value today; and (3) did not address possible alternative causes
for the drop in the value of Fannie and Freddie on August 17,
2012. None persuades us to set aside the verdict. ‡
First, the FHFA claims the Plaintiffs “introduced no
evidence” regarding the rebound of Fannie’s and Freddie’s
share price after the FHFA announced the Net Worth Sweep.
The FHFA derives this “rebound” rule from securities fraud
cases involving the Private Securities Litigation Reform Act. It
does not cite a single case in which a court has applied that rule to a breach-of-contract claim.
Even setting that aside, the Plaintiffs did introduce evidence — an event study prepared by the FHFA’s own
expert — addressing the price increase. Although the event
study showed that Fannie and Freddie shares recovered some
of the losses incurred when the Net Worth Sweep was
announced, the Plaintiffs note that it also listed several contemporaneous events that may have contributed to that recovery.
‡
The Plaintiffs argue the FHFA waived or forfeited certain
objections to the evidence of harm presented at trial. The FHFA
responds that the Plaintiffs forfeited most of their waiver and
forfeiture arguments. We need not address these arguments because, in any event, the FHFA’s challenge to the sufficiency of the evidence fails on the merits.
25
For example, the event study reports five days in October 2012
when Fannie and Freddie shares reported excess returns
between 3.7% and 12.9%. Around the same time, Fannie
released the results of a national housing survey reporting
“increasing faith in the nascent housing recovery”; the FHFA
released a four-year strategic plan on housing finance, as well
as updated projections of Treasury draws by Fannie and
Freddie that showed an “improved outlook”; and Freddie
announced the dismissal of a securities fraud class-action
lawsuit brought against it. This evidence allowed the jury to
conclude that subsequent increases in the value of Fannie and
Freddie were caused by something other than a market
reevaluation of the Net Worth Sweep.
Second, the FHFA erroneously contends that the Plaintiffs
did not prove the Net Worth Sweep continues to harm the value
of the shares today. The Plaintiffs’ expert witnesses and the
then-Acting Director of the FHFA testified that Fannie and
Freddie would have been better off if they could have retained
some of their earnings to reinvest in their operations or to provide protection during another economic downturn. The jury
also heard testimony that Fannie and Freddie must still allocate
100% of their now-substantial profits to the Treasury — through an increase in the Treasury’s liquidation
preference. Perhaps most important, when the Plaintiffs’ expert
Dr. Mason was asked whether the “$1.6 billion in damages
from the Net Worth Sweep still persist today,” he replied
unequivocally, “Yes.” Although the FHFA now characterizes
his testimony as conclusory, the FHFA did nothing to rebut it.
The jury was entitled to credit this testimony, and it is not our role to second-guess their determination or to reweigh the evidence. See Vasquez, 110 F.4th at 290.
Third, the FHFA argues that the Plaintiffs did not address
possible alternative causes for the one-day drop in the value of
26
Fannie and Freddie, namely the Third Amendment’s portfolioreduction requirement. The record tells a different story. Dr.
Mason testified that the Net Worth Sweep was “the overriding
effect” of the Third Amendment, and he did not have “any
reason to believe that anything besides the Net Worth Sweep
could have caused the huge decline in [the] stock price on
August 17th, 2012.” The FHFA says the jury could not rely
upon this testimony because Dr. Mason formed this opinion
based upon the event study, which did not evaluate the effect
of the Net Worth Sweep separately from the effect of the
portfolio-reduction requirement. Far from relying upon only
the event study, however, Dr. Mason testified that he had also
reviewed financial filings, FHFA reports, and other documents
and testimony in this case. Nor was Dr. Mason alone in his
characterization of the Net Worth Sweep. The Plaintiffs point
us to testimony from other witnesses describing the Net Worth
Sweep as “unprecedented” and “the key part of the Third
Amendment,” whereas the portfolio-reduction requirement
“didn’t have the same impact” and caused only a slight change.
This testimony provided an ample basis for the jury to find that
the Net Worth Sweep caused the drop in the value of Fannie
and Freddie on August 17, 2012.
At bottom, the FHFA asks us to reweigh the evidence and
to discredit testimony heard by the jury. Because that exceeds
the scope of our review, see Vasquez, 110 F.4th at 290, we
reject the FHFA’s arguments.
C. Standing of Post-Third Amendment Purchasers
The FHFA’s final argument is that the Plaintiffs who purchased their shares after the FHFA announced the Third
Amendment do not have standing to bring their implied covenant claim. As discussed earlier, the certified classes included
shareholders at the time of certification or “their successors in
27
interest.” According to the FHFA, the implied covenant claim
did not “travel with the shares” but remains with the seller, so
the post-Third Amendment purchasers could not pursue their
claim. The Plaintiffs argue their claim traveled with the shares
under Delaware law, and Virginia courts would likely follow
Delaware law.
As an initial matter, the FHFA incorrectly frames its
objection as raising a question of constitutional standing.
“Contractual standing is distinct from Article III standing and
does not implicate [the court’s] subject-matter jurisdiction.”
SM Kids, LLC v. Google LLC, 963 F.3d 206, 211 (2d Cir.
2020). “Article III standing speaks to the power of a court to
adjudicate a controversy; contractual standing speaks to a
party’s right to relief for breach of contract.” Id. Whether the
post-Third Amendment purchasers have “a contractual right to
bring this suit” is therefore “part of the inquiry into the merits of [their] claim.” Maxim Crane Works, L.P. v. Zurich Am. Ins.
Co., 11 F.4th 345, 350 (5th Cir. 2020).
Turning to the merits of the FHFA’s argument, we look to
Delaware and Virginia law to determine whether the implied
covenant claim traveled with the shares. Those states have
identical statutes, drawn from § 8-302 of the Uniform
Commercial Code, providing that “a purchaser of a . . . security
acquires all rights in the security that the transferor had or had power to transfer.” 6 Del. Code § 8-302(a); Va. Code. § 8.8A302(a). We hold that these provisions allowed the post-Third
Amendment purchasers to bring their implied covenant claim.
Start with Delaware law. “When a share of stock is sold,
the property rights associated with the shares, including any
claim for breach of those rights and the ability to benefit from
any recovery or other remedy, travel with the shares.” In re
Activision Blizzard, Inc. S’holder Litig., 124 A.3d 1025, 1050
28
(Del. Ch. 2015). Delaware courts have explained that “[t]he
phrase ‘all rights in the security’” in § 8-302(a) distinguishes
“between personal rights of the holder, on the one hand, and
rights that inhere in the security itself, on the other.” Urdan v. WR Cap. Partners, LLC, 244 A.3d 668, 677 (Del. 2020). It is
the latter sort of rights that travels with the shares.
In order to determine whether a right “inhere[s] in the
security itself,” Delaware courts look for a “close relationship
between the stock and the claims asserted.” Id. A right “arising
from the relationship among stockholder, stock and the
company,” such as a “corporate charter violation,” therefore
travels with the shares. Id.; see Yosaki Tr. v. Weber, No. 157,
2025 WL 3632823, at *3-4 (Del. 2025) (applying Urdan and
holding that shareholder claims of dilution of equity interests
and diversion of consideration traveled with the shares). In
such a case, the violation injures “the stock and not the holder.” Urdan, 244 A.3d at 677. In contrast, examples of “personal
rights” that do not travel with the shares include (1) breach of
an agreement to purchase or sell shares, and (2) a tort claim for fraud in connection with the purchase or sale of shares. In re
Activision, 124 A.3d at 1056.
We agree with the Plaintiffs that under Delaware law the
implied covenant claim traveled with the shares. As the district
court explained, the Net Worth Sweep “removed one of the
most valuable sticks” from the bundle of rights that constitute
the shares, namely, the possibility of future dividends. Rule
50(b) Opinion, 2025 WL 823938, at *11. By “effectively
eliminat[ing] the dividend rights that came with the shares,” the Net Worth Sweep diminished the value of those shares. Id. The
implied covenant claim thus bears a “close relationship” to the
stock. Urdan, 244 A.3d at 677.
29
The FHFA resists this conclusion by citing Sabby
Volatility Warrant Master Fund Ltd. v. Jupiter Wellness, Inc.,
No. 24-2777, 2025 WL 1363171 (2d Cir. May 12, 2025). There
the Second Circuit held that “under Delaware law, the right to
receive payment of a lawfully declared dividend is a separate
property right of the record stockholders and, thus, is not a right in the security that transfers with the sale of shares.” Id. at *2 (cleaned up). That holding does not apply here. As the
Plaintiffs explain, “Sabby involved the right to recover a
specific dividend that was due when [the] plaintiff owned his
shares.” That specific dividend, rather than the general right to receive dividends, was what the Second Circuit deemed a
“separate property right” that did not travel with the shares. Id. The failure to pay that dividend harmed the shareholder, but it
would not affect the value of the share to a subsequent purchaser. See Urdan, 244 A.3d at 677.
We think Delaware law is clear that the implied covenant
claims involving Fannie traveled with the shares. Virginia law,
however, is a different story. Neither party points us to a
Virginia case addressing this question, nor are we aware of one.
Still, we believe Virginia courts would follow Delaware’s
approach. We therefore hold the claims involving Freddie also
traveled with the shares.
As the Plaintiffs point out, Virginia courts have long
looked to Delaware for guidance on matters of corporate law.
See, e.g., Pagliara v. Fed. Home Loan Mort. Corp., 203 F.
Supp. 3d 678, 689 n.18 (E.D. Va. 2016) (“It is not uncommon
for courts interpreting Virginia corporate law to look for guidance from other courts, especially Delaware corporate law”);
Abella v. Universal Leaf Tobacco Co., 546 F. Supp. 795, 798-800 (E.D. Va. 1982) (relying upon Delaware law relevant to a
shareholder derivative action); U.S. Inspect, Inc. v. McGreevy,
No. 160966, 2000 WL 33232337, at *4-5 (Va. Cir. Ct. Nov. 27,
30
2000) (reviewing decisions of the Supreme Court of Delaware
for guidance on determining the value of a shareholder’s premerger interest in a company); Milstead v. Bradshaw, No. C96-1498, 1997 WL 33616661, at *6 (Va. Cir. Ct. Oct. 3, 1997)
(finding “great persuasive authority” in Delaware cases regarding the standing of equitable owners of stock to file derivative
suits). That Virginia courts would look to Delaware law here
seems particularly likely because, not only do Delaware and
Virginia have identical provisions governing the rights that
travel to a new owner, but the Supreme Court of Delaware has
weighed in recently on the meaning of that provision. Compare
6 Del. Code § 8-302(a), and Va. Code. § 8.8A-302(a); see
Yosaki Tr., 2025 WL 3632823, at *3-4; Urdan, 244 A.3d at
677-78; see also Abella, 546 F. Supp. at 798 (considering
Delaware case law when “[t]he Code of Virginia contain[ed]
provisions substantially the same as the Delaware provisions
the [Supreme Court of Delaware had] construed”).
To rebut this argument, the FHFA first invokes a different
bit of Virginia law providing that only particular claims with
respect to real or personal property are assignable. See Va.
Code § 8.01-26 (“Only those causes of action for damage to
real or personal property, whether such damage be direct or
indirect, and causes of action ex contractu are assignable”).
From this provision, the FHFA reasons “there is no automatic
assignment” of shareholder rights under Virginia law. We
doubt this general assignment law displaces the specific rule as
to when a claim involving a security travels with it. In any
event, Delaware law also provides that only some claims (those
that inhere in the security itself) travel with the share, whereas others (those involving personal rights) do not.
The FHFA next argues we should look to the common law
rather than Delaware law because Virginia did not abrogate the
common-law rule for the assignment of a claim to a purchaser.
31
Yet the only case the Agency cites does not discuss whether a
claim travels with the share. See also 17 Williston on Contracts
§ 51:4, Applicable Statutes — Article 8 of the Uniform
Commercial Code (4th ed. updated May 2026) (recognizing the
UCC “modified in many respects the[] common-law rules” and
later citing the Supreme Court of Delaware’s holding in Urdan
that claims involving “rights that inhere in the security” travel with the shares).
The FHFA also seeks support from New York law.
Although “New York and Delaware law are consistent” in that
“[w]hen a security or bond is sold . . . any claims arising out of breach of the rights associated with” that security or bond travel with it, FDIC v. Citibank N.A., Nos. 15-cv-6574, 6560, 6570,
2016 WL 8737356, at *4 (S.D.N.Y. Sept. 30, 2016), the FHFA
says New York law in fact demonstrates that the Plaintiffs’
claim does not travel with the shares under any state version of
UCC § 8-302. The Agency’s argument goes like this: (1) New
York has adopted UCC § 8-302. (2) New York has also enacted
General Obligations Law § 13-107(1), which provides that a
claim for damages travels with certain securities. § (3) If that
were already true under § 8-302, then New York would not
have needed to enact § 13-107(1). In the FHFA’s telling, § 13-§
New York General Obligations Law § 13-107(1) states:
Unless expressly reserved in writing, a transfer of
any bond shall vest in the transferee all claims or
demands of the transferrer, whether or not such
claims or demands are known to exist, (a) for
damages or rescission against the obligor on such
bond, (b) for damages against the trustee or
depositary under any indenture under which such
bond was issued or outstanding, and (c) for damages
against any guarantor of the obligation of such
obligor, trustee or depositary.
32
107(1) therefore was intended to address a shortcoming in § 8-302.
This argument could be made only on the assumption that
the court is too incurious or too lazy to notice that New York
adopted the UCC and § 8-302 thereof long after it had enacted
the original version of § 13-107(1) in 1950. See 1950 N.Y.
Laws 2263-64 (codified at N.Y. Pers. Prop. Law § 41(4);
reenacted in 1963 as N.Y. Gen. Oblig. Law § 13-107(1), see
1963 N.Y. Laws 2223). New York did not adopt the UCC for
another 12 years, and the current version of § 8-302(a) did not
appear for another three decades after that. See 1962 N.Y. Laws
2724 (relevant provision codified at N.Y. UCC § 8-301(1);
repealed and replaced in 1997 and codified at § 8-302(a), see
1997 N.Y. Laws 3287, 3303). So much for the General
Obligations Law § 13-107(1) having been enacted to fill a gap
in § 8-302.
Finally, the FHFA asserts Delaware is an outlier, and the
majority of jurisdictions hold a claim is not automatically
assigned to a purchaser of a share. The FHFA refers to this as
the “no-automatic-assignment rule,” which it derives primarily
from cases involving federal securities fraud claims. Those
cases get the FHFA nowhere because fraud claims under
Delaware law, like fraud claims under federal securities laws,
do not travel with the shares; they are “personal claims [that]
do not depend on the relationship between the stockholder and
the corporation or the existence of an underlying security.”
Urdan, 244 A.3d at 677; see also In re Activision Blizzard, 124
A.3d at 1056 (citing a “tort claim for fraud in connection with
the purchase or sale of shares” as a “[q]uintessential
example[]” of a personal claim that does not travel with the
shares). These cases tell us nothing about whether the type of
claim in this case, which “inhere[s] in the security itself,”
Urdan, 244 A.3d at 677, travels with the shares.
33
That leaves the FHFA with a smattering of cases that provide some support for its position, but they do not tip the scales in its favor. In Royal Parks Investments SA/NV v. U.S. Bank
National Ass’n, for example, the court said “[t]he majority rule
is that there is no automatic assignment of an accompanying
litigation right or claim when transferring property.” 324 F.
Supp. 3d 387, 398 (S.D.N.Y. 2018). Yet the court did not cite
any cases in support of that assertion or even discuss UCC § 8-302; it cited only the Restatement (Second) of Contracts § 324,
which also does not mention § 8-302. See id. The Supreme
Court of Ohio, to its credit, undertook a more detailed analysis
of how other jurisdictions apply § 8-302. See Paul Cheatham
I.R.A. v. Huntington Nat’l Bank, 137 N.E.3d 45, 51-57 (2019).
There the court held the Ohio version of § 8-302 “does not
operate to allow the automatic assignment of rights upon a
transfer of title.” Id. at 53. In so doing, however, the court distinguished the personal claim before it from the non-personal
claim considered by the Delaware Chancery Court in
Activision. See id. at 55-56. Moreover, that case was decided
before the Supreme Court of Delaware’s decision in Urdan,
and the FHFA has not provided us reason to think Virginia
would prefer Ohio’s approach to that of Delaware.
We therefore agree with the district court that the postThird Amendment purchasers had contractual standing to bring
their implied covenant claim under both Delaware and Virginia
law.
D. Cross-Appeal
Following our remand in Perry, the Plaintiffs stated in
their initial disclosures that they would seek “the highest of
either restitution, expectancy damages, or reliance damages.”
See Fed. R. Civ. P. 26(a)(1)(A)(iii) (requiring parties to dis34
close “a computation of each category of damages claimed”).
The district court concluded the Plaintiffs could not seek restitution or reliance damages. In their cross-appeal, the Berkley
Plaintiffs argue that they should have been allowed to present
these damages theories to the jury. ** We disagree and affirm
the decision of the district court.
1. Restitution
The Plaintiffs explained in their initial disclosures that
they sought restitution in an amount “equal to the prices
originally paid for [the] shares that Plaintiffs own in [Fannie
and Freddie], plus prejudgment interest.” The Plaintiffs’ expert
calculated restitution damages at approximately $48 billion.
The district court held § 4617(f) barred the Plaintiffs from
seeking that restitution. The court relied upon our statement in
Perry that § 4617 bars “judicial injunctions, declaratory
judgments, or other equitable relief” for actions the FHFA was
authorized to take. Summary Judgment Opinion, 2022 WL
4745970, at *11 (quoting 864 F.3d at 606). The district court
understood our reference to “other equitable relief” to mean
“remedies other than a money judgment or enforcement
thereof.” Id. Then, relying upon Dr. Mason’s testimony, the
court characterized the Plaintiffs’ request for restitution as a
request for rescission because the remedy would “require the
Defendants to disgorge the net benefits they have received
under the contracts and [the] Plaintiffs to give up their right to the shares.” Id. at 12 (cleaned up). In other words, the remedy
would “unwind the shareholder contracts in their entirety,” id.
**
The Class Plaintiffs joined the cross appeal “without seeking to
overturn or vacate the existing final judgment in their favor.” Class Pls.’ Notice of Cross-Appeal at 1, No. 1:13-mc-01288 (D.D.C. Apr. 25, 2025), ECF No. 436.
35
(cleaned up), which the court viewed as equitable relief and
barred by § 4617.
The Berkley Plaintiffs argue the district court erred in two
respects. First, they claim the district court misread our reference to “other equitable relief” in Perry; § 4617 does not bar
all equitable remedies, they say, but only those that would
interfere with the FHFA’s powers as conservator. Second, they
assert that granting restitution would not interfere with the
FHFA’s exercise of its powers.
Starting with Perry, we agree that the district court read
our reference to “other equitable relief” too broadly. That
phrase must be read in reference to what comes directly before
and after it: “The plain statutory text [of § 4617(f)] draws a
sharp line in the sand against litigative interference — through
judicial injunctions, declaratory judgments, or other equitable
relief — with FHFA’s statutorily permitted actions as conservator or receiver.” 864 F.3d at 606. Viewed in context, our
reference to “other equitable relief” meant equitable relief that amounted to interference with the FHFA’s actions as conservator. As the Third Circuit put the point, “[t]he focus is not on the form of requested relief, but its effect.” Jacobs, 908 F.3d at 895. The FHFA seems to agree. See Appellants’ Combined
Response and Reply Br. 35 (“The bar is functional: courts may
not take ‘any action’ — regardless of label — that would
restrain or affect the Conservator’s conduct”).
The district court’s error, however, is not reason enough to
grant the remand the Berkley Plaintiffs seek. For we agree with
the FHFA that regardless whether we characterize rescission as
equitable or legal, granting that remedy would restrain or affect the FHFA’s exercise of its authority as conservator, in violation of § 4617(f).
36
Granting rescission would not, as the Berkley Plaintiffs
claim, simply require the FHFA to “write a check.” As the
district court explained, granting rescission in this case would
also require the FHFA to “terminate plaintiffs’ shareholder
contracts, extinguishing their ownership rights and forcing a
reorientation of [Fannie’s and Freddie’s] capital structure.”
Summary Judgment Opinion, 2022 WL 4745970, at *12; see
also 12 C.F.R. pt. 1240, subpt. B (setting “Capital
Requirements and Buffers” for Fannie and Freddie); January 2,
2025 Letter Agreements, https://perma.cc/6WC4-FGCY
(agreements between the FHFA and the Treasury to amend the
PSPAs by requiring Fannie and Freddie to “comply with the
Enterprise Regulatory Capital Framework” set forth in 12
C.F.R. pt. 1240). Moreover, the Plaintiffs’ own expert admitted
that granting rescission would require the Defendants to
“disgorge the net benefits they have received under the contracts” and would result in an “unwinding [of] the [shareholder]
contracts in their entirety.” Summary Judgment Opinion, 2022
WL 4745970, at *12. Section 4617(f) bars us from granting that
relief. Accord Jacobs, 908 F.3d at 895-96 (holding that
§ 4617(f) barred the court from granting “damages,
disgorgement, and restitution” that would “unravel the Third
Amendment, reverse the monetary payments made under it,
and prevent or at least deter the Agency from implementing it
further”).
2. Reliance damages
The Plaintiffs also explained in their initial disclosures that
they would seek reliance damages equal to “the original price
of Plaintiffs’ shares, plus prejudgment interest.” They did not,
however, assert that theory of damages again until after the
district court had dismissed their request for restitution. The
Plaintiffs then moved to amend their pretrial statement to
include a request for reliance damages. The district court
37
denied that motion for two reasons. First, the court explained
that allowing the amendment “on the eve of trial” would
prejudice the FHFA or force a delay to the start of the trial.
Pretrial Amend. Opinion I, 2022 WL 11110548, at *3. Second,
the court believed that the Delaware and Virginia courts would
not allow the Plaintiffs to seek “reliance damages so far in
excess of ascertainable expectation damages that they would
necessarily place those plaintiffs in a better position than they would have been in had the contract been performed.” Id. at *4.
After the jury in the first trial hung, the Berkley Plaintiffs filed a similar motion before the second trial. The district court
acknowledged that its concern about the first motion coming
“on the eve of trial” did not apply to this second motion, but it again held that reliance damages were unavailable because they
far exceeded ascertainable expectation damages. Pretrial
Amend. Opinion II, 2023 WL 3790739, at *5. The district court
also invoked “its inherent ‘trial-management discretion’” to
deny the motion, reasoning that “it would be fundamentally
unfair to defendants to require the presentation of evidence and
arguments on an entirely new and substantial issue at the
second trial simply because the jury hung at the first.” Id. at *6.
The Berkley Plaintiffs argue that the district court erred by
holding reliance damages unavailable as a matter of law and
that it abused its discretion by denying their motions based
upon other considerations. As to the first issue, we agree with
the district court’s decision to reject the Berkley Plaintiffs’
motions as a matter of law. The district court relied upon
Delaware and Virginia cases holding that expectation damages
are the standard remedy in contract cases. See, e.g., Duncan v.
Theratx, Inc., 775 A.2d 1019, 1022 (Del. 2001); Est. of Taylor
v. Flair Prop. Assocs., 448 S.E.2d 413, 416 (Va. 1994). The
district court also cited decisions from other courts holding that plaintiffs may not “pursue — let alone recover — reliance
damages in excess of ascertainable expectation damages.”
38
Spring Creek Expl. & Prod. Co., LLC v. Hess Bakken Inv., II,
LLC, 887 F.3d 1003, 1026-27 (10th Cir. 2018) (applying
Colorado law); see also Merry Gentleman, LLC v. George &
Leona Prods., Inc., 799 F.3d 827, 830, 832 (7th Cir. 2015)
(applying Illinois law).
Here the Plaintiffs seek reliance damages of approximately
$48 billion, the same amount they had claimed as restitution
damages and 30 times their expectation damages of $1.6
billion — the decrease in the value of Fannie and Freddie
shares on August 17, 2012. The Berkley Plaintiffs have not
provided us any reason to think Delaware or Virginia courts
would allow a plaintiff to seek reliance damages so far in
excess of ascertainable expectation damages. See Berkley Pls.’
Br. 19 (describing the “paradigmatic use of reliance damages”
as “when the full extent of expectation damages is not
quantifiable”). ††
Rather than dispute this general rule, the Berkley Plaintiffs
argue that, because the district court rejected one of their
theories of expectation damages, the full amount of their
expectation damages was “too uncertain” to quantify. Recall
that the district court held the Plaintiffs could not seek damages based upon their “lost-dividends theory” — i.e., that the Net
Worth Sweep deprived them of dividends they eventually
would have received. According to the Berkley Plaintiffs, this
††
Many jurisdictions similarly hold that expectation damages are the preferred remedy when they can be calculated with reasonable
certainty. See, e.g., ATACS Corp. v. Trans World Comms., Inc., 155 F.3d 659, 669 (3d Cir. 1998) (applying Pennsylvania law); Nashville Lodging Co. v. Resolution Tr. Corp., 59 F.3d 236, 245-46 (D.C. Cir. 1995) (applying Tennessee law); Scapa Tapes N. Am., Inc. v. Avery Dennison Corp., 384 F. Supp. 2d 544, 552 (D. Conn. 2005) (applying Connecticut law).
39
means their expectation damages were too uncertain, thus making their request for reliance damages appropriate after all.
This argument proceeds from the faulty premise that the
district court rejected the lost-dividends theory because the calculation of expectation damages was too uncertain. In fact, the
court held the theory of harm was altogether too speculative.
See Summary Judgment Opinion, 2022 WL 4745970, at *9-10.
As the district court and the FHFA have explained, the Berkley
Plaintiffs “confuse the fact of harm with the measure of damages.” Pretrial Amend. Opinion I, 2022 WL 11110548, at *4.
As to the second issue, the district court did not abuse its
discretion by denying the Plaintiffs’ motions under its trialmanagement discretion. The Berkley Plaintiffs argue that the
district court should have allowed them to amend their pretrial
statement because their failure to include a request for reliance damages amounted to “excusable neglect.” In concluding
otherwise, the district court not only cited concerns about
timing, prejudice to the FHFA, and fairness; it also noted that
the Berkley Plaintiffs had “made no subsequent effort in the
four years” after their initial disclosure to develop their theory of reliance damages. Id. at *3; see Pretrial Amend. Opinion II,
2023 WL 3790739, at *6. These are relevant considerations
under Supreme Court precedent defining “excusable neglect.”
See Pioneer Inv. Servs. Co. v. Brunswick Assocs., Ltd. P’Ship,
507 U.S. 380, 395 (1993) (discussing the risk of prejudice, the
delay of judicial proceedings, and the reason for the delay as
relevant considerations); see also D.D.C. L. Civ. R. 16.5(a)(2)
(allowing an amendment to a pretrial statement based upon
“excusable neglect”). We will not disturb the district court’s
weighing of these considerations. See United States v. MathisGardner, 783 F.3d 1286, 1288 (D.C. Cir. 2015) (“Our review
for abuse of discretion does not permit us to substitute our judgment for that of the trial court” (cleaned up)).
40
III. Conclusion
For the foregoing reasons, the judgment of the district
court is
Affirmed.