IN THE UNITED STATES COURT OF FEDERAL CLAIMS FAIRHOLME FUNDS, INC…blogs.reuters.com/alison-frankel/files/2014/06/... · · 2016-11-29Three documents were inadvertently omitted

IN THE UNITED STATES COURT OF FEDERAL CLAIMS FAIRHOLME FUNDS, INC., et al., Plaintiffs, v. THE UNITED STATES, Defendant.

) ) ) ) ) ) ) ) )

No. 13-465C (Judge Sweeney)

UNOPPOSED MOTION TO CORRECT APPENDIX TO DEFENDANT’S

MOTION FOR PROTECTIVE ORDER Pursuant to Rule 7(b) of the Rules of the United States Court of Federal Claims,

defendant, the United States, respectfully requests that the Court grant this motion to

correct the appendix attached to Defendant’s Motion for Protective Order (Dkt. 49), filed

on May 30, 2014. Three documents were inadvertently omitted from the appendix:

Plaintiffs’ First Set Of Requests For Production, dated April 7, 2014, Defendant’s

Responses To Plaintiffs’ First Set Of Requests For Production, dated May 2, 2014, and

Fairholme Funds, Inc. and the Fairholme Fund’s Answer To Defendant’s First

Interrogatory, dated May 7, 2014. Plaintiffs Fairholme Funds, Inc., et al. do not oppose

the requested correction. The corrected version of the appendix is appended hereto.

Respectfully submitted,

STUART F. DELERY Assistant Attorney General /s/ Robert E. Kirschman, Jr ROBERT E. KIRSCHMAN, JR. Director

Case 1:13-cv-00465-MMS Document 50 Filed 06/02/14 Page 1 of 2

/s/ Kenneth M. Dintzer KENNETH M. DINTZER Acting Deputy Director GREGG M. SCHWIND Senior Trial Counsel ELIZABETH M. HOSFORD Senior Trial Counsel Commercial Litigation Branch Civil Division U.S. Department of Justice P.O. Box 480 Ben Franklin Station Washington, DC 20044 Telephone: (202) 616-0385 Facsimile: (202) 307-0972 Email: [email protected] Attorneys for Defendant

June 2, 2014

2

Case 1:13-cv-00465-MMS Document 50 Filed 06/02/14 Page 2 of 2

Fairholme Funds, Inc. et al. v. United States, No. 13-465C

Corrected Appendix To Defendant’s Motion For Protective Order

dated May 30, 2014

Case 1:13-cv-00465-MMS Document 50-1 Filed 06/02/14 Page 1 of 74

INDEX TO CORRECTED APPENDIX

PAGE(S) Declaration of Melvin L. Watt ...................................................................................................... A1 Declaration of Dr. Michael A. Stegman ....................................................................................... A8 Declaration of Christopher H. Dickerson ................................................................................... A20 Plaintiffs’ First Set of Requests for Production, dated April 7, 2014 ......................................................................................................... A31 Defendant’s Response To Plaintiffs’ First Set of Requests for Production, dated May 2, 2014........................................................................................................... A43 Fairholme Funds, Inc. and the Fairholme Fund’s Answer to Defendant’s First Interrogatory, dated May 7, 2014........................................................................................................... A66


IN THE UNITED STATES COURT OF FEDERAL CLAIMS

FAIRHOLME FUNDS, INC., et al.,

Plaintiffs,

v.

THE UNITED STATES,

Defendant.

) ) ) ) ) ) ) ) )


DECLARATIO~ OF MELVIN L1 W,ATT

I, Melvin L. Watt, hereby declare, based on personal knowledge and/or information and

belief as follows:

1. I am Director of the Federal Housing Finance Agency ("FHFA" or the

"Conservator") and assumed office on January 6, 2014. Prior to assuming office as Director, 1

served as an elected Member of the United States House of Representatives from January 1993

until January 2014.

2. FHFA is an independent federal agency with regulatory authority over the Federal

National Mortgage Association ("Fannie Mae"), the Federal Home Loan Mortgage Corporation

("Freddie Mac") (together, the ''Enterprises") and the 12 Federal Home.Loan Banks. Congress

created FHF A in July 2008 in response to the housing and economic crisis with the goal of

stabilizing the Enterprises and the national housing market. FHP A has served as the Conservator

of the Enterprises since September 6, 2008.

3. I have reviewed Plaintiffs' Requests for Production. I have also reviewed the

Declaration of Christopher H. Dickerson that will be contemporaneously filed in this case, and I

share the concerns expressed about the potential disclosure ofpredecisional documents plaintiffs

seek relating to ongoing and future operations of the conservatorships. The purpose of this

A1


declaration is to set forth some of the significant ways in which Plaintiffs' discovery requests

pursuant to the Court's February 26, 2014 Order would adversely impact the ability ofFHFA to

exercise its powers and functions as Conservator and adversely impact the financial markets.

The disclosure of the information requested will have extraordinarily deleterious consequences

on the Conservator's conduct of the ongoing and future operations of the conservatorships.

4. In my role as Director, I am responsible for making policy decisions on behalf of

the Agency. As such, I am frequently involved in confidential internal deliberations regarding a

wide range of policy matters relating to the management, supervision, operation and function of

the Enterprises, These deliberations, which frequently concern how the conservatorships should

proceed on a wjde variety of fronts, embody issues at the heart of the Conservator's

congressionally-defined missions.

5. I am aware that Plaintiffs' claims and allegations in this case challenge the 1:hird

Amendment to the Preferred Senior Stock Agreements ("PSP As'') between FHF A. on behalf of

the Enterprises, and the U.S. Department of the Treasury. I am also aware of this Court's

February 26, 2014 Discovery Order, and that on April 7, 2014 Plaintiffs served their First Set of

Requests for Production.

6. Plaintiffs' discovery plan -- through document requests, interrogatories and

deposing Agency officials -- seeks to obtain confidential, non-public infonnation concerning a

range of critical issues such as potential courses of action regarding the furore of the

conservatorships that relate directly to the Conservator's ongoing mission. Specifically,

Plaintiffs' document requests 1 [to the extent it seeks documents relating to ongoing and future

operations of the Enterprises], 6, 7, 8, 9 and 10 each seeks information that relates to ongoing or

future conservatorship operations. The disclosure of such information, including information

2

A2


relating to or considered in collllection with past conservatorship decisions or relevant to the

Conservator's conduct of the ongoing and future operations of the conservatorshlps, will affect

the exercise of powers or functions of the Conservator in a number of ways,

7. The Conservator is charged with directing the largest conservatorships in U.S.

history in support of the Nation's multi-trillion dollar mortgage finance system. The disclosure

of any plans relating to ongo:ing and future operation of the conservatorships, including the

projections of the future profitability of Fannie Mae and Freddie Mac (or lack thereof) under a

range of economic, business and policy scenarios, can be anticipated to have a destabilizing

effect on the Nation's housing market and economy.

8. The Enterprises provide critical liquidity to the national housing finance system.

To discharge their missions, the Enterprises purchase residential mortgages originated by banks

and other qualified lenders, which in turn use the proceeds from those sales to engage in further

lending to homebuyers in the primary mortgage market. To finance their purchases of residential

mortgages, the Enterprises borrow funds from investors by issuing debt securities, and they also

bundle the mortgages into mortgage:backed securities that are in turn sold to investors. The

prices at which the Enterprises can sell their debt securities and mortgage-backed securities to

such investors are directly related to market perceptions of the Enterprises' financial viability, If

the market perception is that the Enterprises are not financially viable, they will have greater

difficulty selling their debt and mortgage-backed securities, leading to lower proceeds from such

sales. As less capital becomes available to the Enterprises for their future operations, the

Enterprises become less able to purchase mortgages from loan originators. That effect would in

turn result in higher mortgage rates, reduced loan availability for homebuyers in the primary

3

A3


market, or both, as loan originators find it more difficult to generate capital for further lending

and reduce portfolio risk by re-selling their loans in the secondary market.

9. The disclosure of forward-looking, non-public financial projectioi:is could

immediately alter market expectations and have a destabilizing impact on the housing market in

both the short and long tenn. For example, disclosure of projections that suggested (or that

market participants interpreted as suggesting) that the Enterprises' financial conditions were

worse than previously assumed could, through the mechanism outlined above, increase current

prices in the primary and secondary mortgage mar~ets. Conversely, disclosure of projections

that tended to suggest that the Enterprises' financial viability were enhanced relative to current

market expectations could also impact the sales of the Enterprises' debt and mortgage-backed

securities, and hence the rates available in the primary and secondary markets. In either case,

disclosure of forward-looking, non-public information could result in an array of consequences

such as sharp spikes or declines in the cost of obtaining credit for borrowers and large shifts in

the demand for mortgage-backed securities. This result would undermine FHFA's ability to

direct the conservatorships and detract from Congress's goal of maintaining stability in the

federal housing markets. In sum, making available potentially market-moving information

regarding projections of future profitability (responsive to document request 1) of the

Enterprises, as well as how the oonservatorships may end (responsive to document requests 6, 7,

8, 9 and 10), easily could set off a chain of volatile and unpredictable reactions in the financial

markets that could not be contained.

1 O. The intention of the PSPAs was to instill market confidence in the Enterprises.

Disclosure of confidential infonnation relating to ongoing and future operations of the

conservatorships, which was for internal use by FHF A, and not intended for public disclosure

4

A4


and consumption, would directly undennine that goal and could induce precisely the market

instability that FHF A was created to prevent.

11. Making available in this litigation the type of non-public and confidential

information relating to the Conservator's conduct of the ongoing and future operations of the

conservatorships could also adversely affect the Conservator's ability to operate the

conservatorships because it would enable the Enterprises to gain access to confidential internal

FHF A documents that were not intended to be shared with or reviewed by the Enterprises. It is

essential for the Conservator to be able to restrict access to confidential agency docwnents that

reflect internal policy deliberations, the disclosure of which would affect the Conservator's

ability to direct the ongoing and future operations and activities of the Enterprises. A contrary

result would greatly restrain the unfettered ability Congress conferred upon the Conservator to

continue to develop and implement the most effective policy solutions for the wide array of

operational and other challenges confronting the Enterprises.

12. Disclosure of documents relating to the future of the Enterprises, such as

documents responsive to document requests 6 and 8 pertaining to a possible future wind down

and termination of the conservatorships, could also severely affect employee stability at Fannie

Mae and Freddie Mac, thereby compromising critical policy matters regarding the

conservatorships. Between late 2011 and early 2012, voluntary departures from Freddie Mac

reached 17% in the wake of different proposals to alter its compensation system. Disclosure of

confidential information about the Enterprises' futures could lead to equivalent, or greater,

departure levels.

13. Disclosure of information sought by Plaintiffs concerning a wide range of

operational and other issues about which final decisions have not yet been made or implemented

5

A5


fully, such as documents responsive to requests 8 and 10, would mislead the public and

adversely affect market participants by disseminating raw data and information suggesting

courses of action that may later be rejected or significantly altered. This would be extremely

damaging because of the critical policy matters regarding the conservatorships currently under

examination and evaluation. The release of documents that reflect prior thinking of Agency

personnel concerning matters about which the Agency may follow a different course during my

tenure as Director are likely to lead to the public and market participants second-guessing every

decision, and will make any changes to Agency policy more difficult at both the deliberation and

implementation stages. Thus, the disclosure of such documents and information would

substantially impair my ability to direct the operations of the conservatorships in the manner I

believe to be in the best interests of the conservatorships and the Agency. Accordingly,

disclosure of deliberations of my immediate predecessor and during my tenure could have

adverse impact to the Enterprises and market consequences.

14. In summary, any disclosure of information concerning the Conservator's future

financial projections, strategic analyses, operational plans, and a broad range ofrelated

information responsive to requests 1,. 6, 7, 8, 9 and 10 that relate to the Conservator's conduct of

the ongoing and future operations of the conservatorships would affect the Conservator's ability

to direct the Enterprises. Likewise, the potential negative impact on the Enterprises' financial

health from disclosure of such confidential , nonpublic information would undermine the

Conservator's ability to conserve and preserve the assets and property of the Enterprises and

maintain stability in the housing finance market.

6

A6


I declare under penalty of perjury under the laws of the United States of America that the

foregoing is true and correct.

7

A7




Plaintiffs,

v.

THE UNITED STATES,

Defendant.

) ) ) ) ) ) ) ) )

No. 13~465C (Judge Sweeney)

DECLARATION OF DR. MICHAEL A. STEGMAN

I, Dr. Michael A. Stegman, declare as follows:

1. I am Counselor to the Treasury Secretary for Housing Finance Policy. I have held

this position.at the U.S. Department of the Treasury ("Treasury") since January 3, 2012. I am

responsible for coordinating Treasury's activities relating to the development of housing finance

policy, and for assisting in the implementation of Treasury's housing programs. I chair a

steering committee composed of the senior Treasury participants in these areas. I coordinate

Tl'easury's work in these areas with other agencies and offices within the Executive Branch, in

particular with the Department of Housing and Urban Development ("HUD"), the National

Economic Council, and the Domestic Policy Council. I am also responsible for coordinating

TreasUl'y' s internal and external communications on housing finance reform. In my position at

Treasury, I have been substantively engaged in housing policy and housing finance reform.

2. Pdor to joining Treasury, I served as Director of Policy and Housing for the

Program on Human and Community Development at the John D. and Catherine T. MacArthur

Foundation. Prior to joining the Foundation, I was the MacRac Professor of Public Policy,

Planning, and Business at the University of North Carolina at Chapel Hill, Chairman of the

Department of Public Policy, and founding director of the Center for Community Capitalism.

AS


have served as a consultant to Treasury, the Community Development Financial Institutions

Fund, and the U.S. General Accounting Office (now named the Government Accountability

Office). From 1993-1997, I served as the Assistant Secretary for Policy Development and

Research at HUD.

3. The statements contained in this declaration are made to the best of my

knowledge and belief, and are based upon my personal knowledge and information made

available to me in the course of performing my official duties.

4. Pursuant to Treasury Order 101-05, "the Under Secretaries ... are authorized to

perform any functions the Secretary is authorized to perform .... " In a memorandum dated May

29, 2014, the Deputy Secretary of the Treasury delegated to me for the purposes of this litigation,

the authority to invoke the deliberative process privilege. I therefore possess delegated authority

to assert the deliberative process privilege on behalf of Treasury with respect to documents and

information subject to discovery requests in this lawsuit. A true and correct copy of the

memorandum is attached hereto as Exhibit A.

5. I have reviewed a subset of the documents that could be covered by the vague,

broad, and ambiguous requests for production, and it is clear a number of plaintiffs' document

requests involve solely the production of pre-decisional and deliberative materials. Treasury

invokes the deliberative process privilege for documents responsive to Requests for Production

Nos. 1, 6, 7, 8, 9, and 10.

6. A court order requiring such documents be disclosed would immediately have a

chilling effect on the exchange of opinions and ideas between Treasury staff and senior officials

as well as between Treasury officials and officials tmd staff from other government agencies.

The purpose of this declaration is to describe some of the important ways in which the discovery

2

A9


sought by plaintiffs will have an adverse effect on Treasury's ability to develop policy and will

impede Treasury's ability to help bring about comprehensive reform of the housing finance

system.

Treasury's Role in the GSE Rescue

7. Treasury is the executive agency that acts as the steward of the U.S. economy.

Maintaining a strong economy and creating economic and job opportunities by promoting

conditions that enable economic growth and stability at home and abroad are part of Treasury's

mission.

8. Throughout the first half of 2008, Federal National Mortgage Association

("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac")

(collectively, "OSEs") suffered multi-billion dollar losses on their mortgage portfolios and

guarantees. By late summer 2008, the GSEs faced severe capital shortfalls, and investors

questioned their ability to raise capital to offset credit and market losses.

9. On September 6, 2008, the Federal Housing Finance Agency ("FHFA"), as the

regulator of the GS Es, exercised the power that Congress had granted to it in the Housing and

Economic Recovery Act of2008 ("HERA") to place the OSEs into conservatorship. FHFA, as

conservator, then entered into senior prefen'ed stock purchase agreements ("PSP As") with

Treasury whereby Treasury committed taxpayer funds to the GSEs in exchange for senior

preferred stock and additional economic rights.

10. Initially, Treasury's commitment was capped at $100 billion for each GSE. In

May 2009 and December 2009, FHFA, as conservator, and Treasury amended the PSPAs to

increase Treasury's commitment for each GSE due to the unprecedented losses the GSEs

suffered.

3

A10


11. These losses resulted in the GSEs drawing over $187 billion from Treasury to

prevent mandatory receivership-approximately $116.1 billion for Fannie Mae and $71.3 billion

for Freddie Mac. As of December 31 .• 2012, the remaining funding available from Treasury

became fixed at approximately $117.6 billion for Fannie Mae and $140.5 billion for Freddie

Mac.

12. On August 17, 2012, FHF A, as conservator, and Treasury agreed to modify the

terms of the PSP As, in light of the cap that was set to go into effect at the end of 2012. That

amendment (the "Third Amendment") made several changes to the original agreements to reduce

the risk profile of the GS Es, and, by extension, the risk of future losses that the taxpayers faced.

13. Today, the GSEs remain in conservatorship and their future has not been

determined. It is impossible to predict when or how such final decisions will be made. Treasury

believes that the end to the conservatorships will involve Congressional action.

Treasury's Efforts Toward Housing Finance Reform

14. Treasury has been actively engaged in efforts aimed toward achieving

comprehensive housing finance reform. The flawed system of housing finance that contributed

to the financial crisis is still substantially in place. The current system continues to put the

taxpayer at risk, and we believe that now is the time to reform the system.

15. To further this goal, senior Treasury officials and staff have been continuously

deliberating among themselves and with officials and staff from other government agencies to

develop policies for reforming the existing Fannie Mae and Freddie Mac-centered housing

finance system since 2010. Senior Treasury officials and staff have been engaging with their

counterparts at other government agencies to discuss ~md further develop policy proposals. For

example, Treasury engaged in extensive discussions to prepare the report to Congress, titled

4

A11


"Reforming America's Housing Finance Market A Report to Congress." This work marked the

beginning of a multi-year policy development process that is ongoing.

16. It is cunently anticipated that Congressional action will establish the framework

of the housing finance system going forward. Treasury has worked closely with Congressional

staff during the process of drafting bipartisan legislative proposals for housing finance refo1111.

Senior Treasury officials have provided assistance to the Senate Banking Committee and other

Congressional staff regarding some of the more complex technical issues surrounding housing

finance reform.

17. We believe that this productive engagement is critical to putting in place a

permanent, durable housing finance system. Our intensive efforts to formulate policy in support

of effective housing finance reform have been ongoing since 2010.

18, I am aware of the Court's order dated February 26, 2014, where this Court

authorized Plaintiff to take discovery regarding: (1) Fannie and Freddie's solvency and the

expectations about the future profitability of Fannie Mae and Freddie Mac at the time of the

appointment of a conservator in September 2008; (2) whether FHFA "acted at the direct behest"

of Treasury in executing the August 2012 Third Amendment to the PSP As; and (3) the

Government's current assessment of the foture profitability of Fannie Mae and Freddie Mac and

when and how the conservatorships will end.

19. I have reviewed the plaintiffs' first set of document requests dated April 7, 2014.

The requests demonstrate that the plaintiffs intend to seek extensive discovery on topics that

extend far beyond the scope of the plaintiffs' claims related to the Third Amendment. Many of

plaintiffs' requests seek material at the heart of the current and ongoing policy deliberations

regarding housing finance reform.

5

A12


20. Request No. 1 seeks "[a]ny and all projections, from the time Defendant began

considering whether to place the Companies into conservatorship to the present, including any

models relating to those projections ... " My understanding is that the documents that might be

covered by the above request include spreadsheets, models, emails, presentations (including

drafts), memoranda (including drafts), and assessments reflecting Treasury's ongoing, internal

evaluations and assessments of the GSEs' financial condition. I have reviewed certain

documents covered by this request, and have determined that the documents I have reviewed -

and others that are expected to be covered by the request - reflect Treasury discussions and

deliberations. Many of the documents sought by this request are preliminary, interim, and/or

non-final.

21. Request Nos. 6, 7, 8, and 9 seek documents relating to agency deliberations and

the formulation of policy on the future framework of the housing finance system. Specifically,

these requests seek:

a. any and all documents relating to the standards for determining when, whether, and how to terminate the conservatorships ... including but not limited to documents relating to Treasury's authority to prevent termination of the conservatorships by withholding consent to termination of the conservatorships (Request No. 6);

b. any and all docume.nts relating to Defendant's commitment to ensure that existing equity holders will not have access to positive earnings from the GSEs, including the development of this policy and actions taken pursuant to this policy (Request No. 7);

c. any and all documents relating to Defendant's policies to reduce the [GSEs} role in the mortgage market and to wind the [GSEs] down, including development of those policies and actions taken pmsuant to those policies (Request No. 8);

d. any and all documents reflecting co1n1mmications between FHFA and/or Treasury, on the one hand, and the Companies' board members and executives, on the other hand, relating to termination of the conservatorships (Request No. 9).

6

A13


My understanding is that the documents that might be covered by these requests include emails,

presentations (including drafts), memoranda (including drafts), assessments, recommendations,

and questions and answers prepared for senior officials (including drafts). I have reviewed

certain documents covered by this request, and have determined that the documents I have

reviewed - and others that are expected to be covered by the request - reflect Treastu·y

discussions and deliberations. Preliminary opinions, recommendations, and analyses in these

documents may or may not have been taken into account in developing, or formed the bases for,

any of the policies or activities described in these requests. Moreover, documents related to the

"development" of those policies are inherently pre-decisional. It is currently anticipated that

Congressional action will establish the framework of the housing finance system going forward.

Thus, final decisions regarding when, whether, and how the conservatorships will be terminated

have not been made. In addition, it is impossible to predict when or how such final decisions

will be made. Consequently, documents responsive to Request Nos. 6, 7, 8, and 9 would reflect

pre-decisional deliberations central to the policy-making process and the considerations made by

Treasury officials and staff in connection with these deliberations.

22. Request No. 10 seeks "[a]ny and all documents relating to Defendant's

expectation that the [GSEs] will not continue as they existed before the conservatorships." My

understanding is that the documents that might be covered by these requests include emails .•

presentations (including drafts), memoranda (including drafts), assessments, recommendations,

and questions and answers prepared for senior officials (including drafts). I have reviewed

certain documents covered by this request, and have determined that the documents I have

reviewed - and others that are expected to be covered by the request - reflect Treasury

discussions and deliberations. Preliminary opinions, recommendations, and analyses in these

7

A14


documents may or may not have been taken into account in developing, or formed the bases for,

any of the objectives or strategies that Treasury subsequently adopted. Because, in Treasury's

view, the future of the conservatorships will involve Congressional action (and thus is uncertain),

discussions have evolved and continue to evolve in response to political and economic

developments. For example, over the last several weeks, expectations regarding the future of the

GSEs have changed frequently as the Senate Banking Committee has been considering and

voting on draft legislation. Further, any expressions of expectations contained in responsive

documents do not necessarily represent the expectations of the U.S. government or of Treasury.

23. If Treasury personnel are told that their deliberations will become public instead

of only their final policy decisions, they are unlikely to feel at liberty to offer their opinions.

Relatedly, if Treasury personnel are told that they cannot put their ideas, suggestions, opinions,

and recommendations in writing without those writings being disclosed, it will immediately

become difficult to fully develop policies and strategies.

24. Indeed, because policy efforts in the area of housing finance reform are ongoing,

the documents covered by these requests continue to be created as an ongoing matter. If other

agencies feel that they cannot share information with Treasury without it being subject to

disclosure in the future, they may cease communicating freely with Treasury.

25. As described above, the near-constant work on housing finance refonn over the

last several years has created a huge volume of documents that are covered by plaintiffs'

requests. Based on the documents that I have reviewed and my reading of the plaintiffs'

discovery requests, I am confident tlmt many of the documents requested by plaintiffa contain the

type of pre-decisional and deliberative information described above.

8

A15


26. Moreover, discovery on these topics is also likely to impede the productive

engagement that Treasury staff has had with Congress as it seeks to bring about a legislative

solution. This policy-making process will be at risk if Congressional members and their staff no

longer foel that they can communicate freely with Treasury.

27. Apart from calling for documents that are necessarily deliberative and pre-

decisional in nature, Request Nos. 1, 6, 7, 8, 9 and I 0 all seek disclosure of information that has

the potential to afiect the U.S. markets and, by extension, the U.S. economy, in a number of

ways.

28. Disclosure of deliberations has the potential to result in significant

misunderstanding, disruption, and confusion in the markets. The policy decision-making process

is iterative. It involves evaluation, testing, and re-testing of ideas, options, and strategies. Often

early hypotheses, strategies, suggestions, and ideas prove to be not workable for any number of

reasons. Being required to produce deliberative materials that reflect such discarded

assumptions and ideas could misinform the public and result in unintended market consequences.

Such information has the potential to influence public perception of the OSEs, which could, in

turn, affect mortgage interest rates for home purchasers, and the market values of mortgage

backed securities and GSE debt securities held by investors.

29. In addition, disclosure of views or opinions of individual Treasury officials may

suggest rationales for Treasury's policies and decisions that may or may not have been relied

upon as the basis for final policy positions and decisions. Requiring premature disclosure of

proposed policies could also cause confusion by leading the public to believe that a certain

policy has been adopted or will be adopted when, in fact, it might not be adopted at all.

9

A16


30. The risk associated with being required to disclose pre-decisional, deliberative

documents is especially acute in this context, because housing finance reform is subject to

immense public interest and scrutiny. Requiring disclosure of the details of this evolving policy·

making process before any final decisions have been made will have a profound negative impact

on Treasury's ability to engage in ongoing policy deliberations. As Treasury continues its efforts

to help bring about comprehensive reform of the housing finance system, it is critical that we

preserve the ability to have robust discussions in which we are able to explore sensitive and

important policy decisions from multiple angles.

I declare under penalty of perjury that the foregoing is true and correct. Executed

on May 29, 2014, in Washington, DC.

rn

A17


·Exhibit A

A18


DEPARTMENT OF THE TREASURY WASHINGTON, D.C. 20220

May 29, 2014

MEMORANDUM FOR MICHAEL STEGMAN, COUNSELOR TO THE TREASURY SECRET ARY FOR HOUSING FINANCE POLICY

FROM: Sarah Bloom Raskin <.}j,Jl;fa.-~" Deputy Secretary of the Treasury

SUB,JECT: Delegation of Authority to Invoke the Deliberative Process Privilege: Fairho!me Funds, Inc. v. United Statr;s

This memorandum delegates my authority to invoke the deliberative process privilege to the Counselor to the Treasury Secretary for Housing Finance Policy with respect to documents and information at issue in Fairho/me Funds, Inc. v. United States, No. 13-465C (Fed. Cl.).

The Counselor to the Treasury Secretary for Housing Finance Policy may exercise this delegated authotity with respect to agency records or information that are predecisional and deliberative, including advisory opinions, recommendations, and deliberations that comprise part of the process by which Treasury Department decisions and policies are formulated, when he determines that the release of such records would cause unacceptable haim to that process.

This authority may not be re-delegated.

A19




Plaintiffs,

v.

THE UNITED STATES,

Defendant.

) ) ) ) ) ) ) } }


DECLARATIO~ QF ~HRISTOPH~ll II· DIC~R§O~

I, Christopher H. Dickerson, hereby declare, based on personal knowledge of the facts, as

follows:

1, I am the Senior Associate Director, Division of Enterprise Regulation at the

Federal Housing Finance Agency ("Ff:IFA"). Previously, I was Deputy Director, Division of

Enterprise Regulation at FHP A. FHF A is an independent federal agency with regulatory

authority over the Federal National Mortgage Association ("Fannie Mae"), the Federal Home

Loan Mortgage Corporation ("Freddie Mac") (together, the "Enterprises") and the Federal Home

Loan Banks.

2. For the purposes of this litigation, I have been delegated the authority by FHP A

Director Melvin L. Watt to invoke the deliberative process privilege. I therefore possess

delegated authority to assert the deliberative process privilege on behalf of FHP A with respect to

documents and information subject to discovery requests in this lawsuit. A true and correct copy

of the delegation memorandum is attached hereto as Exhibit A.

3. As Senior Associate Director, Division of Enterprise Regulation, I am involved in

confidential internal deliberations regarding operational, policy and regulatory matters relating to

A20


the supervision of the Enterprises. These deliberations concern the operation and the future of

the conservatorships and reflect judgments and decisions that Congress has entrusted to FHFA.

4. The purpose of this declaration is to set forth some of the significant ways in

which Plaintiffs' discovery requests pursuant to the Court's February 26, 2014 order authorizing

discovery into the Conservator's conduct of the ongoing and future operations of Fannie Mae

and Freddie Mac, including discovery into FHFA's "assessment of [their] future profitability"

and to "answer the question as to when, and how, the conservatorship will end," necessarily

require the production of pre-decisional and deliberative documents from FHFA and will

adversely impact the financial markets.

5. On September 6, 2008, FHFA's Director appointed FHFA as Conservator of the

Enterprises. Among the broad goals of the conservatorships are to help restore confidence in the

Enterprises and avoid the systemic risk that can directly destabilize the national housing finance

market. As Conservator, FHFA focuses on improving the Enterprises' operational efficiency

and effectiveness, promoting and maintaining foreclosure prevention efforts and credit

availability for new and refinanced mortgages and building infrastructure for future mortgage

finance markets. The strategic plan for the conservatorships issued on May 13, 2014 describes

the broad-range of issues on which the Conservator is focusing its direction of the Enterprises.

To achieve the policy goals discussed above, Congress provided FHFA with a broad array of

tools and authorities to enable the Conservator to take the steps it detennines are necessary to

carry out its functions.

6. FHFA is a small government Agency, with approximately six hundred employees,

only a portion of whom work on issues relating to the conservatorships. The Enterprises, with

assets in excess of$5 trillion and a combined 12,000 employees, are among the largest financial

2

A21


institutions in the world. Because resources are limited, it is important that Agency personnel be

able to execute the critical missions of the conservatorships insulated from interference of

outside parties. In fact, Congress provided that the Conservator is statutorily immune from

direction and supervision of any other federal agency and from State intrusions. Nor may any

court take any action to restrain or affect tlie exercise of the Conservator's powers and functions.

Finally, any rights of shareholders, officers, and the board of directors have been expressly given

by Congress to the Conservator so that various stakeholders may not impede the Conservator's

functions or operations.

7. As permitted by the Housing and Economic Recovery Act of2008 ("HERA"), on

September 7, 2008, FHFA, as Conservator of the Enterprises, entered into two materially

identical Senior Preferred Stock Purchase Agreements (''PSPAs") with the Department of

Treasury--one fur Fannie Mae and one for Freddie Mac. The purpose of the PSP As was to

ensure that the net worth of each Enterprise was not negative, thereby avoiding mandatory

statutory receivership. The Conservator is authorized to draw on the Preferred Stock

Agreements at the end of each fiscal quarter to niake up any deficiency in either Enterprise's net

worth that otherwise would mandate the placement of such Enterprise into receivership. To date,

the Conservator has drawn on behalf of the Enterprises over $187 billion from Treasury---$116.1

billion for Fannie Mae, and $71.3 billion for Freddie Mac. As of December 31, 2012, the

remaining funding available from Treasury became fixed at $117.6 billion for Fannie Mae and

$140.5 billion for Freddie Mac.

8. To preserve and conserve this fixed remaining funding, FHFA and Treasury

executed a Third Amendment to the PSPAs that added a quarterly variable dividend in the

3

A22


amount of each Enterprise's net worth to replace the Periodic Commitment Fee and fixed 10%

dividend,

9, I am aware that Plaintiffs' claims and allegations in this case challenge the Third

Amendment to the PSP As.

10. On February 26, 2014, this Court authorized Plaintiff to take discovery regarding:

(1) the Government's assessment of the future profitability of Fannie Mae and Freddie Mac at

the time of the appointment of a conservator in September 2008; (2) whether FHFA "acted at the

direct behest" of Treasury in executing the August 2012 Third Amendment to the PSPAs; and

(3) the Government's current assessment of the future profitability of Fannie Mae and Freddie

Mac and when and how the conservatorships will end.

11. I have reviewed the First Set of Requests for Production that Plaintiffs served on

April 7, 2014. A number of Plaintiffii' document requests will involve solely the production of

pre-decisional and deliberative material. Pursuant to the Director's delegation, FHFA hereby

invokes the deliberative process privilege for documents responsive to Requests for Production

No's. 1 (to the extent it seeks documents relating to ongoing and future operations of the

Enterprises) 6, 7, 8, 9 and 10.

12. Several of the subcategories of documents included within Plaintiffs' First

Request will contain information that relates to the ongoing and future operations of the

Enterprises. For example, Request for Production 1 (i) requests "all documents relating to the

impact that guarantee fee increases would have on the Companies' revenues." Documents

responsive to this request include analyses and projections that underlie Agency deliberations

and are necessarily pre-decisional. Likewise, Request 1 ( d) calls for ')Jrojections prepared by the

Companies and the assumptions, models, data, and analyses relating to those evaluations" and

4

A23


would include forward-looking, deliberative and non-public information. As we discuss below,

disclosure ofhon-public, confidential, pre-decisional pricing documents will impede the ability

ofFHFA to operate and supervise the Enterprises.

13. In Plaintiffs' own words, Requests for Production No's 6-10 seek infonnation

"Relating to Termination ofConservatorships," a category of materials that will necessarily

involve the ongoing and future operations of the Enterprises. For example, Request for

Production No. 6 calls for "all documents relating to the standards fur determining when,

whether, and how to terminate the conservatorships of the [Enterprises]." Request No. 9 calls for

"all documents reflecting communications between FHF A and/or Treasury, on the one hand, and

the Companies' board members and executives, on the other hand, relating to termination of the

conservatorships." It.is presently anticipated that Congressional action will establish the

framework of the structure of the housing finance system going forward. Thus, how and when

the conservatorships will be terminated remains undetermined. The disclosure of information

relating to deliberations, standards and other considerations regarding the future and ultimate

termination of the conservatorships is therefure by definition pre-decisional and documents

responsive to document requests 6 and 9 will be covered by the deliberative process privilege.

14. Likewise, Request for Production No. 8 calls for all "documents relating to

Defendant's policies to reduce the Companies' role in the mortgage market and to wind the

Companies down." Request No. 10 calls for all documents relating to the Government's

"expectation that the Enterprises will not continue as they existed before the conservatorships.''

Documents responsive to these requests include ongoing internal agency analyses and

discussions relating to the development long-term strategic initiatives would therefore

necessarily involve the production of pre-decisional and deliberative documents.

5

A24


15. Besides containing documents that are necessarily deliberative and pre-decisional

in nature, Requests No. 's 1 (to the extent it seeks documents relating to ongoing and future

operations ofthe Enterprises) 6, 7, 8, 9 and 10 all seek information that, if made available, would

threaten the Nation's housing market.

16. Fannie Mae and Freddie Mac serve the critical function of expanding home

ownership to Americans by supplying capital and liquidity in the market for residential

mortgages. The Enterprises purchase mortgages from originating lenders and either hold them in

their own portfolios, or pool the mortgages and sell mortgage-backed securities to investors. The

additional capital and liquidity provided by the Enterprises to private lenders frees up banks'

limited capital, allowing them to make more loans. The disclosure of confidential, non-public

information such as projections of future profitability is plainly relevant to investor perceptions

of the financial health ofFruinie Mae and Freddie Mac and will directly affect the housing

market in a number of ways. For example, prices for mortgage-backed securities in the

mortgage futures market (which are an indicator of investor demand for mortgages) would

change very quickly if information were made available suggesting that the Enterprises would

significantly alter their role in the mortgage market. Because mortgage rates are very sensitive to

price changes in the futures market, the disclosure of the type ofnon-public information

contained in response to Plaintiffs' Requests No. 's 1 (to the extent it seeks documents relating to

ongoing' and future operations of the Enterprises) 6, 7, 8, 9 and 10 would quickly result in higher

costs for borrowers. Over time, the increased costs for mortgages would have significant

repercussions not just for the nationwide housing market, but for the National economy as a

whole.

6

A25


17. FHFA's decision-making process is likely to be significantly hanned by the

forced disclosure in discovery of confidential pre-decisional and deliberative documents. If

senjor policy makers such as I believe that our deliberations and candid advice will be disclosed,

we will be less likely to engage in the thorough, robust and frank discussion required to enable

FHF A to make sound decisions in support of its statutory missions.

18. The potential chilling effect on the FHFA's deliberations from the making

available of confidential, non-public, pre-decisional documents is especially great in this case,

where the future of the conservatorships and policy decisions made by FHFA are the subject of

significant public interest and pre-decisional documents from FHF A would likely be the subject

of intense publicity and national debate. Such chilling effect will negatively impact FHFA

continuing ability to direct and supervise the Enterprises.

19. In addition, disclosure of pre-decisional information is likely to mislead the public

and confuse investors because documents will be made available that discuss courses of action

that may have been under consideration at one time, but were not ultimately taken or were

modified.

20. Although FHFA has not yet reviewed all of the potentially responsive documents,

based on the documents that I have reviewed and Plaintiffs' discovery requests, I am confident

that many of the documents requested by Plaintiffs contain the type of confidential and

potentially market-moving information described above, as well as pertain to matters that are

pre-decisional and deliberative in nature.

21. For example, I have reviewed documents that discuss long-tenn strategic goals for

the conservatorships, including issues pertaining to the Enterprises' future business. These

documents reflect ongoing confidential internal agency deliberations and policy discussions.

7

A26


Making these documents available would immediately have a chilling effect on the free

exchange of opinions and ideas between Agency personnel. Moreover, these documents contain

the type of confidential market-moving information that, if made available, would likely have an

immediate impact on financial markets.

22. In sum, the chilling effect engendered by the making available ofpre-decisiona~

confidential and deliberative documents in this case would undoubtedly have an adverse effect

on FHFA's exercise of its powers in a sphere crucial to the financial health of the housing

finance market. FHFA's internal analysis and deliberations would be inhibited and therefore less

robust, FHFA's strategic and operational decision-making would be less effective as a result, and

the markets that deterinine the value of the Enterprises' assets and property would be adversely

affected.

23. For the reasons discussed above, FHFA asserts the deliberative process privilege

over all of the documents that are responsive to Request for Production No. 1 (to the extent it

seeks documents relating to ongoing and future operations of the Enterprises), as this request

necessarily seeks information that is exclusively pre-decisional and deliberative in nature. For

the same reason, FHP A also asserts the deliberative process privilege over all documents

responsive to Requests No. 's 6, 7, 8, 9, and 10 because these requests seek documents

necessarily relating to plans about the future and ultimate termination of the conservatorships.

Because these documents necessarily contain pre-decisional and deliberative information, an

individualized review of all documents responsive to these Requests would be unnecessary and

unduly burdensome.

8

A27


I declare under penalty of perjury under the laws of the United States of America that the

foregoing is true and correct.

Executed this ~'l~day of __ l!:'l::!:l·_ ~-- 2014 at Washington, D. C.

ti~.!,-~_:_, TOPHER H. DICKERSON

9

A28


EXHIBIT A

A29


SUBJECT: DELEGATION OF AUTHORJTY TO SUBMIT, ON BEHALF OF FHFA, DECLARATIONS ASSERTING PRIVILEGES OVER AGENCY DOCUMENTS

a. Pursuant to 12 U.S.C. § 4513(b), I hereby make the following delegation for the Federal Housing Finance Agency (FHF A):

1. Delegation of Authority to Submit, on Behalf ofFHFA, Declarations Asserting Privileges over Agency Documents. The individuals listed below, as appropriate, hereby are delegated the authority to reYiew FHFA documents for privileges, including the deliberative process privilege and the bank examination privilege, and to submit on behalf of FHF A declarations asserting privileges over such documents, in litigation brought by or against FHF A:

A. Chris Dickerson, Senior Associate Director, Division of Enterprise Regulation, B. Alfred Pollard, General Counsel.

b. The authority herein may not be re-delegated, except as provided in paragraphs a. herein,

c. All actions taken pursuant to the delegations made in paragraph a. shall conform to the internal policies, guidelines, and controls approved by the Director, and shall comply with all applicable requirements oflaw, regulation, directive, guideline, or Executive Order.

d. The delegations made in paragraph a. shall be effective immediately and remain in full force until amended, superseded, or revoked by subsequent order.

Date:

A30



FAIRHOLME FUNDS, Inc., et al.;

Plaintiffs,

v.

THE UNITED STATES,

Defendant.

) ) ) ) ) ) ) ) )


PLAINTIFFS' FIRST SET OF REQUESTS FOR PRODUCTION

Pursuant to Rules 26 and 34, Plaintiffs hereby propound upon Defendant the following

Requests for Production. Defendant is requested to produce and/or permit the Plaintiffs to

inspect and copy each of the requested documents that may be in Defendant's possession,

custody, or control, or those which are in the possession, custody, or control of Defendant's

attorneys, agents, or representatives. Under the Court's order of April 4, 2014 (doc. 40),

responses to these requests are due withiri 30 calendar days. Document production should be

delivered to the offices of Cooper & Kirk, PLLC, 1523 New Hampshire Ave., N.W.,

Washington, D.C. 20036, or at any other location and time to which counsel mutually agree.

DEFINITIONS

As used herein, the following terms shall have the following meanings:

1. "Communication" means any meeting, conversation (face-to-face, telephonic, or

otherwise), discussion, telex message, cable, correspondence, message, electronic mail, voice

mail, exchange, provision or relay of a document, or other occurrence whereby thoughts,

opinions, data, or other information are transmitted between or among more than one person, or

through any photographic, mechanical, electrical or electronic device or devices for receiving,

transmitting, or storing data or other information.

1

A31


2. "Companies" refers to the Federal National M01igage Association (Fannie Mae)

and the Federal Home Loan Mortgage Corporation (Freddie Mac) collectively.

3. "Defendant" refers to the United States, including but not limited to agencies of

the United States such as the Department of Treasury (Treasury) and the Federal Housing

Finance Agency (FHFA).

4. "Document(s)" should be construed in the broadest sense permissible, and

includes all "writings," "recordings," and "photographs," as those terms are defined in Rule 1001

of the Federal Rules of Evidence, as well as all "communications" as defined above.

Accordingly, "document(s)" includes, but is not limited to, all written, printed, recorded or

graphic matter, photographic matter, sound reproductions, electronic mail, or other retrievable

data (whether recorded, taped, or coded electrostatically, electromagnetically, optically or

otherwise on hard drive, diskette, compact disk, primary or backup tape, audio tape or video

tape) from whatever source derived and however and by whomever prepared, produced,

reproduced, disseminated or made. Without limiting the generality of the foregoing,

"document(s)" includes the original and any non-identical copy and also every draft and

proposed draft of all correspondence, internal memoranda, notes of meetings, telegrams, telexes,

facsimiles, electronic mail, reports, transcripts or notes of telephone conversations, diaries,

notebooks, minutes, notes, tests, reports, analyses, studies, testimony, speeches, worksheets,

maps, charts, diagrams, computer printouts, and any other writings or materials of any nature

whatsoever, whether or not divulged to other parties, together with any attachments thereto and

enclosures therewith. In addition, the word "document(s)" encompasses all forms and

manifestations of electronically or optically coded, stored, and/or retrievable information,

2

A32


including but not limited to "email," "voice mail," digital images and graphics, digital or analog

audiotapes and files, and digital or analog videotapes and files.

5. "Government Stock" refers to the Senior Preferred Stock Treasury received from

the Companies pursuant to the PSPAs.

6. "Models" refers to any and all models, assumptions, data, and analyses.

7. "Net Worth Sweep" refers to the provision of the Third Amendment to the PSPAs

that requires the Companies to pay to Treasury each quarter their entire net worth, less a

gradually decreasing capital reserve amount.

8. "Person" means and refers to not only natural persons, but also firms,

partnerships, associations, corporations, subsidiaries, divisions, departments, joint ventures,

proprietorships, syndicates, trusts, groups, and organizations; federal, state, or local government

or government agencies, offices, bureaus, departments, entities, including any court (or judge or

other officer thereof); other legal, business, or government entities; and all subsidiaries, affiliates,

divisions, departments, branches, and other units thereof or any combination thereof. "Person"

includes the present and former officers, executives, partners, directors, trustees, employees,

attorneys, agents, representatives, and all other persons acting or purporting to act on behalf of

the person and also its subsidiaries.

9. "Profitability" refers to any and all information relating to the Companies'

financial performance, prospects, income, and liabilities, including both their profits and losses.

10. "Projections" refers to any and all financial projections, stress tests, forecasts, and

any other evaluations of the Companies' financial condition and/or profitability.

3

A33


11. "PSP As" refers to the Senior Preferred Stock Purchase Agreements under which

Treasury agreed to provide the Companies with funding in exchange for, inter alia, Government

Stock and warrants to purchase 79.9% of the Companies' common stock.

12. The word "including" shall have its ordinary meaning and shall mean "including

but not limited to" and shall not indicate limitation to the examples or items mentioned.

13. The words or phrases "reflect," "refer,'' or "relate to"-or any tense or

combination of those words or ph1:ases-mean reflecting, referring to, relating to, regarding,

discussing, concerning, constituting, mentioning, pertaining to, alluding to, or associated with.

14. The singular of each word shall be construed to include its plural and vice versa,

and the root word and all derivations (i.e., "ing," "ed," etc.) shall be construed to include each

other.

15. The words "and" as well as "or" shall be construed both conjunctively as well as

disjunctively.

16. The word "each" shall be construed to include "every" and vice versa.

17. The word "any" shall be construed to include "all" and vice versa.

18. The present tense shall be construed to include the past tense and vice versa.

19. The "knowledge," "information," "possession," "custody," and "control" of a

person shall be construed to include such person's agents, representatives, and attorneys.

INSTRUCTIONS

1. Pursuant to RCFC 26(e)(l), these Requests are continuing in nature and

Defendant shall provide supplemental answers and documents, which will augment or modify

any answers contained in Defendant's responses.

4

A34


2. Each Request herein constitutes a request for each document referred to or a true,

complete, and legible copy thereof.

3. Each Request seeks documents that are in any way in Defendant's possession,

custody, or control from any source, wherever situated, including, but not limited to, the files,

records, and documents to which the Defendant has access, including all documents in the

possession, custody, or control of contractors, experts, consultants, or the Companies.

4. A document is deemed to be in Defendant's "control" if Defendant or

Defendant's attorneys have the right to secure the document or a copy thereof from another

person or entity having actual possession of the document.

5. If a requested document was, but no longer is, in Defendant's possession, custody,

or control, Defendant shall identify the document, its current location, and the person who has

possession, custody, or control of the document; if such information is unavailable, Defendant

shall identify the last known location and person who had possession, custody, or control of the

document and explain the reason for and circumstances under which the document left

Defendant's possession, custody, or control.

6. If any of the documents requested herein has been destroyed, Defendant shall

furnish a list identifying each such document, its author and addressee, each person to whom

copies of the documents were furnished or to whom the contents thereof were communicated, a

summary of the substance of the document, the date (or approximate date) upon which it was

destroyed, and the reason it was destroyed.

7. If Defendant does not answer any Request or part thereof, on the basis of

privilege, Defendant shall provide with respect to each such document the following:

a. The date of the document;

5

A35


b. The number of pages comprising the document and a description of any

identifying marks or designations (e.g., Bates numbers) if any, on the document;

c. The nature of the document (letter, memorandum, spreadsheet, presentation,

report, etc.);

d. A description of the subject matter of the document;

e. A list of all attachments or enclosures to the document;

f. The name(s) of the author(s) and of any recipient(s) of the document;

g. The name and address of any person who is not included in response to s,ubpart (f)

with respect to such document and who has access to or has seen, read, or heard

any portion of the material in the document; and

h. The nature of the privilege asserted.

8. For each Request or part of a Request that Defendant refuses to answer on

grounds of burdensomeness, Defendant shall explain in as much detail as possible the basis for

its contention.

9. If Defendant objects to any Request, or portion of a Request herein, Defendant

must produce all documents covered by the Request, or portion of the request, not subject to the

objection. Similarly, if Defendant objects to production of a document, Defendant must produce

the parts of the document that are not subject to objection, redacting and clearly indicating the

parts of the document that are subject to the objection.

10. Defendant shall produce all documents as they are kept in the usual course of

business and label them to correspond to the categories in the request.

6

A36


REQUESTS RELATING TO PROFITABILITY1

REQUEST NO. 1: Any and all projections, from the time Defendant began considering

whether to place the Companies into conservatorship to the present, including any models

relating to those projections. This request includes, but is not limited to, the following:

a. Projections produced, reviewed, or provided to FHFA or Treasury in connection with the Companies' conservatorships, see, e.g., T882;

b. Projections produced, reviewed, or provided to FHFA or Treasury in connection with the second amendment to PSPAs, see, e.g., Tl 76;

c. Projections provided to Defendant by Moody's or Grant Thornton, see, e.g., T3285, T3786, T3837;

d. Projections prepared by the Companies and the assumptions, models, data, and analyses relating to those evaluations, see, e.g., FHFA 2421;

e. Any models relating to FHFA's October 2010 (F.HFA 1379) and October 2011 (FHFA 2408) financial projections;

f. Any models relating to Treasury's May 2012 (T3775), June 2012 (T3833), July 2012 (T3884), and August 2012 (T3900) financial projections, including scenarios developed by Treasury staff to produce any such projections, see, e.g., T3887, T3894;

g. Any and all documents relating to scenarios in which Treasury would have received more in some quarters under the Net Worth Sweep than it would have received under the original terms of the PSPAs, see, e.g., T3802;

h. Any models relating to the Office of Management and Budget's recent projections of future Government Stock dividends, see Office of Management & Budget, Fiscal Year 2015 Analytical Perspectives: Budget of the U.S. Government 323 (2014), http://www. whi tehouse.gov /sites/ default/files/ omb/budget/fy2015/assets/ spec. pdf.

1 These requests for production are organized by subject matter, but many of the requests call for information that pertains to more than one topic as to which the Court has authorized discovery. Accordingly, the inclusion of particular requests under particular headings is not intended to suggest, and should not be read to suggest, that those requests do not also pertain to other authorized topics.

2 For ease of i·eference and purely by way of example, we refer herein to documents Defendants submitted in Fairholme Funds, Inc. et al. v. Federal Housing Finance Agency, et al., No. 13-cv-1053 (D.D.C.). Citations to materials included in FHFA's "document compilation" are preceded by "FHFA" and citations to materials included in Treasury's administrative record are preceded by "T."

7

A37


i. Any and all documents relating to the impact that guarantee fee increases would have on the Companies' revenues;

j. Any and all documents relating to the Periodic Commitment Fee authorized by the PSPAs, including without limitation the decision about whether to charge the Periodic Commitment Fee and the costs the Companies were expected to incur in paying the Periodic Commitment Fee, see, e.g., T2359;

k. Any and all documents relating to significant sources of revenue for the Companies, including deferred tax assets, loan loss reserves, and proceeds from private label securities lawsuits.

RESPONSE:

REQUEST NO. 2: Any and all documents relating to the decision to compensate

Treasury for its financial commitment by awarding it warrants to purchase 79.9% of the

Companies' common stock.

RESPONSE:

REQUEST NO. 3: Any and all documents relating to any valuations of Treasury's

warrants to purchase the Companies' common stock, including but not limited to any analyses

underlying valuations of the warrants in the following Treasury reports: Treasury's 2008 Agency

Financial Report (FHFA 204); Treasury's 2009 Agency Financial Report (FHFA 987);

Treasury's 2010 Performance and Accountability Report (FHFA 1395); Treasury's 2011 Agency

Financial Rep01i; Treasury's 2012 Agency Financial Rep01i (FHFA 4073); and Treasury's 2013

Agency Financial Report.

RESPONSE:

REQUEST NO. 4: Any and all documents relating to the decision to leave the

Companies' existing capital structure in place during the conservatorships.

RESPONSE:

8

A38


REQUEST NO. 5: Any and all documents relating to Government Stock dividends,

includi11g without limitation: the circular practice of requesting draws on Treasury's funding

commitment to pay cash dividends to Treasury, requests to make draws on Treasury's funding

commitment, the provisions of the PSP As that permit the Companies to add Government Stock

dividends to Treasury's liquidation preference rather than paying those dividends in cash, and

authorizations to declare dividends during the conservatorships pursuant to 12 C.F.R. § 1237.12.

RESPONSE:

REQUESTS RELATING TO TERMINATION OF CONSERV ATORSHIPS

REQUEST NO. 6: Any and all documents relating to the standards for determining

when, whether, and how to terminate the conservatorships of the Companies, including but not

limited to documents relating to Treasury's authority to prevent termination of the

conservatorships by withholding consent to termination of the conservatorships.

RESPONSE:

REQUEST NO. 7: Any and all documents relating to Defendant's commitment to

ensure that existing equity holders will not have access to positive earnings from the GSEs,

including the development of this policy and actions taken pursuant to this policy. See, e.g.,

T202.

RESPONSE:

REQUEST NO. 8: Any and all documents relating to Defendant's policies to reduce the

Companies' role in the mortgage market and to wind the Companies down, including

development of those policies and actions taken pursuant to those policies. See, e.g., T207.

RESPONSE:

9

A39


REQUEST NO. 9: Any and all documents reflecting communications between FHFA

and/or Treasury, on the one hand, and the Companies' board members and executives, on the

other hand, relating to termination of the conservatorships.

RESPONSE:

REQUEST N0.10: Any and all documents relating to Defendant's expectation that the

Companies will not continue as they existed before the conservatorships. See, e.g., T2390.

RESPONSE:

REQUESTS RELATING TO WHETHER FHFA IS THE UNITED STATES


and Treasury relating to the following subjects: the decision to place the Companies in

conservatorship, the terms of the PSPAs, amendments to the PSPAs, the practice of making

draws on Treasury's funding commitment to fund dividends on Government Stock, the Periodic

Commitment Fees authorized by the PSPAs, and FHFA's strategic plan for the conservatorships

released in February 2012.

RESPONSE:

REQUEST NO. 12: Any and all documents relating to whether and under what

circumstances the Companies could buy back the Government Stock or otherwise reduce the size

of the Government Stock's liquidation preference.

RESPONSE:

REQUEST NO. 13: Any and all documents relating to FHFA's determination that it is

obligated to maximize Treasury's return on its investment in the Companies or otherwise

prioritize the interests of taxpayers. See, e.g., T2376.

RESPONSE:

10

A40


REQUEST NO. 14: Any and all documents relating to FHFA's and/or Treasury's

decision to enter into the Net Worth Sweep.

RESPONSE:

REQUEST NO. 15: Any and all documents reflecting communications between

Treasury and the Justice Depaitment relating to the Net Worth Sweep. See, e.g., T4332.

RESPONSE:

REQUEST NO. 16: Any and all documents relating to the considerations Defendant

took into account when it imposed the Net Worth Sweep and the purposes of the Net Worth

~weep, including:

a. Helping to ensure the Companies' financial stability;

b. Fully capturing benefits for taxpayers;

c. Acting upon the commitment that the Companies will be wound down and not allowed to return to the market in their prior form; and

d. Eliminating the need for the Companies to continue to make draws on Treasury's funding commitment to pay cash dividends on the Government Stock.

REQUEST NO. 17: Any and all documents reflecting communications relating to the Net

Worth Sweep between FHFA and/or Treasury, and:

a. Fannie and Freddie Boards of Directors and Executives;

b. The Companies' lawyers;

c. The Companies' auditors;

d. Rating agencies or other market analysts.

RESPONSE:

REQUEST NO. 18: Any and all documents reflecting communications between members

of the Federal Housing Finance Oversight Board (FHFA Director, Treasury Secretary, HUD

11

A41


Secretary, and SEC Chair) or their staffs, or any other person acting at their direction, relating to

the imposition of the Net Worth Sweep.

RESPONSE:

REQUEST NO. 19: Any and all documents relating to the steps the United States has taken

to ensure that potentially relevant evidence is not destroyed during the pendency of this action.

RESPONSE:

Date: April 7, 2014

12

A42


s/ Charles J. Cooper Charles J. Cooper Counsel of Record for Plaintiffs COOPER & KIRK, PLLC 1523 New Hampshire Avenue, N.W. Washington, D.C. 20036 (202) 220-9600 (202) 220-9601 (fax) [email protected]

Of Counsel: Vincent J. Colatriano David H. Thompson COOPER & KIRK, PLLC 1523 New Hampshire Avenue, N.W. Washington, D.C. 20036 (202) 220-9600 (202) 220-9601 (fax)



FAIRHOLME FUNDS, INC., et al., ) ) ) ) ) ) ) ) )

Plaintiffs,

v.

THE UNITED STATES,

Defendant.


DEFENDANT'S RESPONSE TO PLAINTIFFS' FIRST SET OF REQUESTS FOR PRODUCTION

Pursuant to Rule 34 of the Rules of the United States Court of Federal Claims (RCFC)

and the Court's order dated April 4, 2014, the United States responds as follows to the first

requests for production of documents served by plaintiffs Fairholme Funds, Inc., et al.

(Fairholme). This response should not be construed as a waiver of our objections that discovery

is inappropriate at this stage of the litigation for the reasons stated in o~r February 12, 2014, and

March 17, 2014 filings.

GENERAL OBJECTIONS

The United States asserts and incorporates by reference the following general and

categorical objections to Fairholme's requests for production as if they were set forth in full in

response to each request.

1. The United States objects to the requests on the ground that they seek discovery

beyond the three subjects identified by the Court in its February 26, 2014 order permitting

limited discovery.

2. The United States objects to the requests to the extent that they purport to require

the United States to search for documents in the possession of persons or entities outside the

Government. The United States will not search for or produce such documents.

A43


3. The United States objects to the requests to the extent that they seek to impose an

obligation on the United States to conduct anything beyond a diligent search of files where

responsive documents reasonably would be expected to be found. The United States will

conduct a diligent search of files where responsive documents reasonably would be expected to

be found.

4. The United States objects to the requests to the extent that they seek documents

that are not in the custody or control of the United States Department of the Treasury (Treasury),

the Federal Housing Finance Agency (FHF A), or the Department of Justice. The United States

will not produce documents of other Federal agencies, the Federal National Mortgage

Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), or the

United States Congress.

5. The United States objects to the requests to the extent that they seek the

production of documents that are protected by the attorney-client privilege, the work-product

doctrine, the deliberative process privilege, executive privilege, the bank examination privilege,

or any other applicable privilege, immunity, or doctrine, including without limitation the Privacy

Act of 1974, 5 U.S.C. § 552a. The United States will not produce privileged or protected

documents, materials, or information. Nothing in this response is intended to be or is a waiver of

any of these protections, and the United States reserves the right to retrieve and to prevent the

use of any privileged or protected documents or information inadvertently produced. Moreover,

any inadvertent production of privileged or protected documents, materials, or information shall

not constitute a waiver of privilege or protection concerning the subject matter of the documents,

materials, or information.

2

A44


6. The United States objects to the requests to the extent that any inference can be

drawn from the requests or responses that the documents requested or events referenced in the

requests actually exist or occurred, or are relevant, non-privileged, or admissible in evidence.

The failure to object to each such inference in no way constitutes an admission that such

information exists or that such events actually occurred, or that any statement or characterization

in the request is accurate or complete.

7. The United States objects to the requests to the extent they seek information

regarding claims that are not within the jurisdiction of the Court.

8. The United States objects to the requests because all ofFairholme's shareholder

rights with respect to Fannie Mae and Freddie Mac have been, "by operation of law," transferred

to the conservator, FHFA, for the duration of the conservatorships. See 12 U.S.C.

§ 4617(b )(2)(A) (Upon its appointment, FHP A shall "immediately succeed to all rights, titles,

powers, and privileges of [Fannie Mae and Freddie Mac], and of any stockhoider, officer, or

director of [Fannie Mae and Freddie Mac] .... ").

9. The United States objects to any discovery that restrains or affects the exercise of

the powers and functions of the Conservator and is, therefore, barred by 12 U.S.C. § 4617(±).

10. It is presently anticipated that Congressional action will establish the framework

of the structure of the housing finance system going forward. Thus, how and when the

conservatorships will be terminated is unknown. The production of documents relating to any

deliberations, standards, legislative or other considerations regarding the future of the

conservatorships will affect the ongoing operations of the conservatorships and any ongoing

planning for their ultimate termination. In addition, because how and when the conservatorships

will be terminated is unknown, the requests relating to this issue seek material that is by

3

A45


definition pre-decisional and deliberative. Accordingly, the United States objects to the requests

to the extent that they seek non-public documents containing deliberations as to the future of the

conservatorships. The United States will not produce such documents.

11. The United States objects to the requests to the extent they seek the production of

documents reflecting deliberations relating to the operations, including but not limited to future

profitability, of Fannie Mae and Freddie Mac. The United States will not produce such

documents.

12. The United States objects to the requests to the extent that they seek documents

that are available to the public, were provided to the United States or any Government agency by

plaintiff, or are already in the possession, custody, or control of plaintiff, readily available to

plaintiff, or attainable by plaintiff through public sources, on the ground that the request is

overbroad and unduly burdensome. The United States will not produce such documents.

13. The United States objects to the requests to the extent that they do not include any

restrictions regarding time. The United States will search for and produce documents from the

time periods that are relevant to subjects identified ill the Court's February 26, 2014 order, as

described in responses to specific requests.

14. The United States also objects to the requests to the extent that the term "relating

to" does not identify documents with reasonable specificity.

15. The United States' responses and objections are based upon present knowledge

of, and information provided to, counsel. We reserve the right at any time to revise, supplement,

correct, or add to these responses and objections.

4

A46


OBJECTIONS TO DEFINITIONS AND INSTRUCTIONS

1. The United States objects to the definitions and instructions included with

Fairholme's requests as vague and ambiguous.

2. The United States objects to the definitions and instructions included with

Fairholme' s requests to the extent that they purport to impose requirements beyond those in the

RCFC and the Court's February 26, 2014 order.

3. The United States objects to Fairholme's definitions of the terms

"communication," "document(s)," "person," and the phrase "relate to" to the extent that these

definitions render the requests overbroad, unduly burdensome, or ambiguous.

4. The United States objects to Fairholme's definition of the term "Defendant" to the

extent it includes any agencies or entities beyond Treasury, FHP A, or the Department of Justice.

5. The United States objects to Fairholme's definition of the term "Defendant" to the

extent that it includes FHF A when acting as conservator. Our responses provide for document

discovery from both Treasury and FHFA. We do this to facilitate compliance with the Court's

orders, but do not waive or forfeit our position that FHP A - when acting as conservator - is not

the United States and not subject to this Court's jurisdiction.

6. The United States further objects to Fairholme's definition of the term

"Defendant" to the extent that it includes unspecified Government agencies, ofijces, bodies,

affiliates, contractors, consultants, or individuals. Defining the term "Defendant" to include such

unspecified entities renders all of plaintiffs' discovery requests overly broad, unduly

burdensome, and not reasonably calculated to lead to the discovery of admissible evidence,

because doing so would require the United States to seek information from, and about, more than

one million Federal employees in numerous offices, agencies, and departments, the missions of

5

A47


which have no relation whatsoever to the allegations in plaintiffs' complaint and the locations of

which are scattered across the nation and around the world. Further, the United States objects to

these requests to the extent that they purport to seek information from the files of the entire

Federal Government, without specifying which offices, agencies, or individuals are the subject of

the requests.

7. The United States objects to Fairholme's instruction that purports to create an

obligation to search for and produce documents "in the possession, custody, or control of

contractors, experts, consultants, or the Companies."

8. The United States objects ta Fairholme's instruction to "explain in as much detail

as possible" the basis for any objection on grounds of burdensomeness. The United States will

provide a reasonable explanation for its objections.

9. The United States objects to Fairholme's definitions and instructions to the extent

that they fail to accurately and completely characterize known terms and events. The failure to

object to each use of such terms and events in no way constitutes an admission that any

statement or characterization in the request is accurate or complete.

SPECIFIC OBJECTIONS AND RESPONSES

The United States' objections stated above are hereby incorporated by reference into each

response to a request for documents, and may not be repeated as objections to each request to

which they are applicable. In addition to the above objections, the United States asserts the

specific objections stated below. By stating further specific objections below, the United States

does not waive any of the objections incorporated herein.

6

A48


REQUEST NO. 1: Any and all projections, from the time Defendant began considering

whether to place the Companies into conservatorship to the present, including any models

relating to those projections. This request includes, but is not limited to, the following:

a. Projections produced, reviewed, or provided to FHP A or Treasury in connection with the Companies' conservatorships, see, e.g., T88;

b. Projections produced, reviewed, or provided to FHP A or Treasury in connection with the second amendment to PSPAs, see, e.g., Tl 76;

c. Projections provi~ed to Defendant by Moody's or Grant Thornton, see, e.g., T3285, T3786, T3837;

d. Projections prepared by the Companies and the assumptions, models, data, and analyses relating to those evaluations, see, e.g., FHP A 2421;

e. Any models relating to FHFA's October 2010 (FHFA 1379) and October 2011 (FHFA 2408) financial projections;

f. Any models relating to Treasury's May 2012 (T3775), June 2012 (T3833), July 2012 (T3884), and August 2012 (T3900) financial projections, including scenarios developed by Treasury staff to produce any such projections, see, e.g., T3887, T3894;

g. Any and all documents relating to scenarios in which Treasury would have received more in some quarters under the Net Worth Sweep than it would have received under the original terms of the PSPAs, see, e.g., T3802;

h. Any models relating to the Office of Management and Budget's recent projections of future Government Stock dividends, see Office of Management & Budget, Fiscal Year 2015 Analytical Perspectives: Budget of the U.S. Government 323 (2014), http://www. whitehouse. gov /sites/ default/files/ omb/budget/fy2015/assets/spec. pdf.

i. Any and all documents relating to the impact that guarantee fee increases would have on the Companies' revenues;

j. Any and all documents relating to the Periodic Commitment Fee authorized by the PSP As, including without limitation the decision about whether to charge the Periodic Commitment Fee and the costs the Companies were expected to incur in paying the Periodic Commitment Fee, see, e.g., T2359;

k. Any and all documents relating to significant sources of revenue for the Companies, including deferred tax assets, loan loss reserves, and proceeds from private label securities lawsuits.

7

A49


RESPONSE:

The United States objects to the request on the ground that it seeks discovery beyond the

scope of the Court's February 26, 2014 order permitting limited discovery on three subjects.

Fairholme states that this request relates to "profitability." With respect to profitability, the

Court permitted discovery only as to (1) the Government's current assessment of the future

profitability of Fannie Mae and Freddie Mac; and (2) the Government's assessment of

profitability at the time of the appointment of a conservator in September 2008. The request

impermissibly seeks documents from 2008 to present, encompassing time periods far beyond the

limited periods identified by the Court. In particular, subparts b, e, f, and g request documents

relating to projections and events that clearly fall outside the limited periods identified by the

Court.

The United States further objects to the request because it is vague, overbroa~, unduly

burdensome, and not reasonably calculated to lead to the discovery of admissible evidence. The

United States objects to the use of the term "models," "projections," "scenarios," and "impact"

as vague and ambiguous.

The United States further objects to this request to the extent it seeks the production of

documents reflecting deliberations relating to the operations, including but not limited to future

profitability, of Fannie Mae and Freddie Mac.

Subject to the foregoing general and specific objections, the United States will produce

responsive, non-privileged documents in a manner and at a time that are mutually agreeable to

the parties.

8

A50


REQUEST NO. 2: Any and all documents relating to the decision to compensate

Treasury for its financial commitment by awarding it warrants to purchase 79.9% of the

Companies' common stock.

RESPONSE:



Fairholme states that this request relates to "profitability." With respect to profitability, the

Court permitted discovery only as to (1) the Government's current assessment of the future

profitability of Fannie Mae and Freddie Mac; and (2) the Government's assessment of

profitability at the time of the appointment of a conservator in September 2008. The request

seeks documents unrelated to the issue of the Enterprises' profitability at the time of the

appointment of the conservator in September 2008.

The United States further objects to the request because it misstates the agreement

between FHP A, acting as conservator of the Enterprises, and Treasury.

Given the foregoing general and specific objections, the United States will not produce

documents in response to this request. ·

REQUEST NO. 3: Any and all documents relating to any valuations of Treasury's

warrants to purchase the Companies' common stock, including but not limited to any analyses

underlying valuations of the warrants in the following Treasury reports: Treasury's 2008 Agency

Financial Report (FHFA 204); Treasury's 2009 Agency Financial Report (FHFA 987);

Treasury's 2010 Performance and Accountability Report (FHFA 1395); Treasury's 2011 Agency

9

A51


Financial Report; Treasury's 2012 Agency Financial Report (FHFA 4073); and Treasury's 2013

Agency Financial Report.

RESPONSE:



Fairholme states that the request relates to "profitability." With respect to profitability, the Court

permitted discovery only into (1) the Government's current assessment of the future profitability

of Fannie Mae and Freddie Mac; and (2) the Government's assessment of profitability at the time

of the appointment of a conservator in September 2008. The request seeks documents unrelated

to the issues identified by the Court.

The United States further objects to the request to the extent that it seeks documents

reflecting deliberations relating to the operations, including but not limited to future profitability,

of Fannie Mae and Freddie Mac.


documents in response to this request.

REQUEST NO. 4: Any and all documents relating to the decision to leave the

Companies' existing capital structure in place during the conservatorships.

RESPONSE:

The United States objects to the request to the extent that it seeks documents reflecting

deliberations relating to the operations, including but not limited to future profitability, of Fannie

Mae and Freddie Mac.

10

A52



responsive, non-privileged documents in a manner and at a time that are mutually agreeable to

the parties.

REQUEST NO. 5: Any and all documents relating to Government Stock dividends,

including without limitation: the circular practice ofrequesting draws on Treasury's funding

commitment to pay cash dividends to Treasury, requests to make draws on Treasury's funding

commitment, the provisions of the PSPAs that permit the Companies to add Government Stock

dividends to Treasury's liquidation preference rather than paying those dividends in cash, and

authorizations to declare dividends during the conservatorships pursuant to 12 C.F.R. § 1237.12.

RESPONSE:



Fairholme states that the request relates to "profitability." With respect to profitability, the Court

only permitted discovery into (1) the Government's current assessment of the future profitability

of Fannie Mae and Freddie Mac; and (2) the Government's assessment of profitability at the time

of the appointment of a conservator in September 2008. The request seeks documents unrelated

to the issues identified by the Court.

The United States further objects to the request to the extent that it seeks the production

of documents reflecting deliberations relating to the operations, including but not limited to

future profitability, of Fannie Mae and Freddie Mac.



11

A53


REQUEST NO. 6: Any and all documents relating to the standards for determining

when, whether, and how to terminate the conservatorships of the Companies, including but not

limited to documents relating to Treasury's authority to prevent termination of the

conservatorships by withholding consent to termination of the conservatorships.

RESPONSE:

It is presently anticipated that Congressional action will establish the framework of the

structure of the housing finance system going forward. Thus, how and when the





will be terminated is unknown, the request seeks material that is by definition pre-decisional and

deliberative. Accordingly, the United States objects to the request because it seeks non-public

documents containing deliberations as to the future of the conservatorships.



REQUEST NO. 7: Any and all documents relating to Defendant's commitnwnt to

ensure that existing equity holders will not have access to positive earnings from the GSEs,

including the development of this policy and actions taken pursuant to this policy. See, e.g.,

T202.

12

A54


RESPONSE:

The United States objects to this request on the ground that it seeks discovery beyond the


Fairholme states that this request is related to the "termination of the conservatorships." With

respect to this issue, the Court only permitted discovery "to answer the question as to when and

how the conservatorships will end." This request seeks documents unrelated to the issue

identified by the Court.

The United States also objects to the request because it seeks non-public documents

reflecting deliberations as to the future of the conservatorships. The United States further objects

that the request mischaracterizes the Treasury administrative record material that is cited.



REQUEST NO. 8: Any and all documents relating to Defendant's policies to reduce the

Companies' role in the mortgage market and to wind the Companies down, including

development of those policies and actions taken pursuant to those policies. See, e.g., T207.

RESPONSE:



Fairhohne states that this request is related to the "termination of the conservatorships." With

respect to this issue, the Court only permitted discovery "to answer the question as to when and

how the conservatorships will end." This request seeks documents unrelated to the issue

identified by the Court.

13

A55














and/or Treasury, on the one hand, and the Companies' board members and executives, on the

other hand, relating to termination of the conservatorships.

RESPONSE:



conservatorshlps will be terminated is unknown. The production of documents relating to any





14

A56






REQUEST NO. 10: Any and all documents relating to Defendant's expectation that the

Companies will not continue as they existed.before the conservatorships. See, e.g., T2390.

RESPONSE:












REQUEST NO. 11: Any and all documents reflecting communications between FHP A

and Treasury relating to the following subjects: the decision to place the Companies in

conservatorship, the terms of the PSPAs, amendments to the PSPAs, the practice of making

15

A57


draws on Treasury's funding commitment to fund dividends on Government Stock, the Periodic

Commitment Fees authorized by the PSPAs, and FHFA's strategic plan for the conservatorships

released in February 2012.

RESPONSE:



Fairholme states that the request relates to "whether FHFA is the United States." With respect to

this subject, the Court permitted discovery only into whether, "FHF A acted at the direct behest

of Treasury" in executing the Third Amendment. Fairholme's request seeks documents related

to the conservatorship decisions, the original PSP As, other amendments, and other events which

are clearly outside the scope of the Court's order. The request, therefore, seeks documents

unrelated to the issue identified by the Court.

The United States further objects to the request because it is vague, overbroad, unduly

burdensome, and not reasonably calculated to lead to the discovery of admissible evidence.


responsive, non-privileged documents related to whether FHF A acted at the direct behest of

Treasury in executing the Third Amendment in a manner and at a time that are mutually

agreeable to the parties.

REQUEST NO. 12: Any and all documents relating to whether and under what

circumstances the Companies could buy back the Government Stock or otherwise reduce the size

of the Government Stock's liquidation preference.

16

A58


RESPONSE:



Fairholme states that the request relates to "whether FHP A is the United States." With respect to

this subject, the Court permitted discovery only into whether, "FHP A acted at the direct behest

of Treasury in executing the Third Amendment." The request seeks documents unrelated to the

issue identified by the Court.



REQUEST NO. 13: Any and all documents relating to FHFA's determination that it is

obligated to maximize Treasury's return on its investment in the Companies or otherwise

prioritize the interests of taxpayers. See, e.g., T2376.

RESPONSE:



Fairhohne states that the request relates to "whether FHFA is the United States." With respect to


of Treasury" in executing the Third Amendment. The request seeks documents unrelated to the


The United States further objects to the request because it is vague, overbroad, unduly

burdensome, and not reasonably calculated to lead to the discovery of admissible evidence. The

17

A59


United States further objects that the request mischaracterizes the Treasury administrative record

material that is cited.



REQUEST NO. 14: Any and all documents relating to FHFA's and/or Treasury's

decision to enter into the Net Worth Sweep.

RESPONSE:




this subject, the Court permitted discovery only into whether, "FHFA acted at the direct behest

of Treasury" in executing the Third Amendment. The request seeks documents unrelated to the


The United States further objects to the requ.est because it is vague, overbroad, unduly


The United States further objects that the request mischaracterizes the Third Amendment

as "the Net Worth Sweep."


responsive, non-privileged documents related to whether FHF A acted at the direct behest of

Treasury in executing the Third Amendment, in a manner and at a time that are mutually


18

A60



Treasury and the Justice Department relating to the Net Worth S~eep. See, e.g., T4332.

RESPONSE:





of Treasury in executing the Third Amendment" The request seeks documents unrelated to the


The United States further objects to the request because it seeks documents that are

necessarily protected by the attorney-client privilege and the deliberative process privilege. The

United States further objects that the request mischaracterizes the Third Amendment as "the Net

Worth Sweep."

Given the foregoing general and specific objections, the United S~ates will not produce


REQUEST NO. 16: Any and all documents relating to the considerations Defendant

took into account when it imposed the Net Worth Sweep and the purposes of the Net Worth

Sweep, including:

a. Helping to ensure the Companies' financial stability;

b. Fully capturing benefits for taxpayers;

c. Acting upon the commitment that the Companies will be wound down and not allowed to return to the market in their prior form; and

19

A61


d. Eliminating the need for the Companies to continue to make draws on Treasury's funding commitment to pay cash dividends on the Government Stock.

RESPONSE:




this subject, the Court permitted discovery only into whether "FHP A acted at the direct behest of

Treasury" in executing the Third Amendment. The request seeks documents unrelated to the


The United States further objects to the term "impose" to describe the agreement between

FHFA, on behalf of the Enterprises, and Treasury. The United States also objects that the

request mischaracterizes the Third Amendment as "the Net Worth Sweep,'' as well as the reasons

for FHP A and Treasury entering into the Third Amendment.


responsive, non-privileged documents related to whether FHP A acted at the direct behest of

Treasury in executing the Third Amendment in a manner and at a time that are mutually


REQUEST NO. 17: Any and all documents reflecting communications relating to the

Net Worth Sweep between FHFA and/or Treasury, and:

a. Fannie and Freddie Boards of Directors and Executives;

b. The Companies' lawyers;

c. The Companies' auditors;

d. Rating agencies or other market analysts.

20

A62


RESPONSE:


s.cope of the Court's February 26, 2014 order permitting limited discovery on three subjects.


this subject, the Court permitted discovery only into whether "FHP A acted at the direct behest of






documents in response to this request except to the extent that they have been produced in

response to another request.


members of the Federal Housing Finance Oversight Board (FHFA Director, Treasury Secretary,

HUD Secretary, and SEC Chair) or their staffs, or any other person acting at their direction,

relating to the imposition of the Net Worth Sweep.

RESPONSE:




this subject, the Court permitted discovery only into whether "FHFA acted at the direct behest of

21

A63




The United States fur.ther objects to the request because it is vague, overbroad, unduly





documents in response. to this request except to the extent that they have been produced in

response to another request.

REQUEST NO. 19: Any and all documents relating to the steps the United States has

taken to ensure that potentially relevant evidence is not destroyed during the pend ency of this

action.

RESPONSE:


scope of the Court's February 26, 2014 order permitting limited discovery on three subjects. The

Court permitted plaintiffs to engage in only limited discovery, and this request does not seek

information within a topic identified by the Court.· The United States also objects to this request

on the basis that it seeks information irrelevant to the issues being litigated in this case, and is

beyond the scope of the United States' obligations under the RCFC at any stage of proceedings.

The United States further objects to the request because it calls for privileged information, such

as that protected by the attorney client privilege and the work product doctrine, and because it is

22

A64


unduly burdensome and not reasonably calculated to lead to the discovery of admissible

evidence.



May 2, 2014

23

A65

STUART F. DELERY Assistant Attorney General

s/ Robert E. Kirschman, Jr. ROBERT I;:. KIRSCHMAN, JR. Director

s/ Kenneth M. Dintzer KENNETH M. DINTZER Acting Deputy Director Commercial Litigation Branch Civil Division U.S. Department of Justice P.O. Box 480 Ben Franklin Station Washington, D.C. 20044 (202) 616-0385 (202) 307-0972 fax [email protected]

Attorneys for Defendant



FAIRHOLME FUNDS, Inc., et al.,

Plaintiffs,

v.

THE UNITED STATES,

Defendant.

) ) ) ) ) ) ) ) )


FAIRHOLME FUNDS INC. AND THE FAIRHOLME FUND'S ANSWER TO DEFENDANT'S FIRST INTERROGATORY

Interrogatory No. 1: Identify all shares of stock in the Enterprises owned by plaintiffs at

any time. For each share identified, describe in detail the following information:

The parties to the transaction in which the share was acquired;

A description of the share including the type or class of share;

The date of acquisition;

The terms of the acquisition including the purchase price; and

All post-acquisition transactions related to the share.

Response: Fairholme Funds, Inc. and the Fairholme Fund ("Fairholme Plaintiffs")

reasse11 their objections of April 21, 2014, and the response to this interrogatory is not a waiver

of those objections. Except where indicated, the Fairholme Plaintiffs do not know the identities

of the counter-parties to the listed transactions. Additionally, because the transactions listed

below occurred electronically, the Fairholme Plaintiffs could not identify an address or location

for the listed transactions. Plaintiffs have provided only the information that could be obtained

through a reasonable investigation. Thus, they have not included the identity and actions of

every person involved in the listed transactions.

1

A66


The Fairholme Fund - Fannie Preferred Security Trade Date Activity Quantity Price

fnmao 6/4/2013 Purchase 256,000 11.60

fnmah 5/8/2013 Purchase 300,000 4.10 fnmah. 5/15/2013 Purchase 3,163,097 4.84 fnmah 617/2013 Purchase 95,000 4.60

fnmai 5/15/2013 Purchase 1,250,000 4.84 fnmai 6/7/2013 Purchase 70,000 4.60 fnmai 617/2013 Purchase 237,500 4.50

fnmfn 5/14/2013 Purchase 1,700,000 9.08 fnmfn 5/14/2013 Purchase 1,000,000 8.98 fnmfn 6/20/2013 Purchase 1,000,000 8.50 fnmfn 7/2/2013 Purchase 151,900 8.00 fnmfn 7/15/2013 Purchase 275,000 8.00 fnmfn 8/14/2013 Purchase 1,045,443 7.27

fnmaj 5/14/2013 Purchase 1,500,000 4.75

fnmas 5/2/2013 Purchase 100,000 4.40 fnmas 5/3/2013 Purchase 350,000 4.54 fnmas 5/6/2013 Purchase 2,334,000 4.60 fnmas 5/7/2013 Purchase 1,000,000 4.60 fnmas 517/2013 Purchase 8,663,766 4.60 fmnas 5/8/2013 Purchase 15,075,000 4.65 fnmas 5114/2013 Purchase 9,851,000 5.10 fnmas 5/21/2013 Purchase 1,549,000 4.92 fnmas 5/21/2013 Purchase 1,067,953 4.85 fnmas 5/22/2013 Purcbase 850,000 4.86 fnmas 6/4/2013 Purchase 1,900,000 6.33 fnmas 6/25/2013 Purchase 2,000,000 4.85 fnmas 6/25/2013 Purchase 2,678,300 4.92 fnmas 8/5/2013 Purchase 1,158,500 5.15 fnmas 8/5/2013 Purchase 400,000 5.10 fnmas 81612013 Purchase 1,000,000 4.97 fnmas 8/13/2013 Purchase 500,000 4.71

2

A67


The Fairholme Fund - Fannie Common Trade Date Activity Quantity Price

5/8/2013 Purchase 50,000 0.89 5/9/2013 Purchase 950,000 0.93 5/10/2013 Purchase 1,542,000 0.87 5/22/2013 Purchase 2,000,000 1.77 5/23/2013 Purchase 1,500,000 2.07 5/30/2013 Purchase 1,000,000 1.63 6/5/2013 Sale ( 1,500,000) 1.92 6/5/2013 Sale (2,000,000) 1.92 6/5/2013 Sale (512,300) 1.92 6/6/2013 Sale (487,700) 1.86 6/6/2013 Sale (950,000) 1.86 6/6/2013 Sale (50,000) 1.86 6/6/2013 Sale (1,542,000) 1.86 9/30/2013 Purchase 1,898,200 1.29 10/1/2013 Purchase 3,628,700 1.36 10/2/2013 Purchase 6,515,600 1.46 10/3/2013 Purchase 2,259,000 1.55 10/4/2013 Purchase 699,000 1.48"

10/7/2013 Purchase 1,304,600 1.54 10/8/2013 Purchase 5,000,000 1.61 11/26/2013 Sale (819,800) 2.76 3/11/2014 Sale1 (6,828,000) 4.03

The Fairholme Fund - Freddie Pref erred Security Trade Date Activity Quantity Price fmccm 6/4/2013 Purchase 1,614,250 11.60

fmcci 6/4/2013 I Purchase I 1,308,929 I 11.60 I

fmccl 6/4/2013 I Purchase I 519,142 I 11.60 I

fmckk · 1 5/8/2013 I Purchase I 200,000 8.12

fmcch 5/8/2013 Purchase 334,600 8.20 fmcch 7/24/2013 Purchase 560,000 8.05

I fmckm I 5/23/2013 I Purchase I 2;000,000 I 5.00 I

1 The Fairholme Fund sold 3,242,468 shares to Icahn Partners LP; 2,219,932 shares to Icahn Partners Master Fund LP; and 1,365,600 shares to High River Limited Partnership.

3

A68


fmckm 5/28/2013 Purchase 2,966,575 5.85 fmckm 8/22/2013 Purchase 164,000 3.53 fmckm 9/10/2013 Purchase 620,000 4.55

fmckn 5/21/2013 [ Purchase [ 437,340 4.27

fmcko 5/8/2013 Purchase 250,000 4.10 fmcko 8/22/2013 Purchase 200,000 3.53

fmcki 5/28/2013 Purchase 1,535,000 5.75 fmcki 5/31/2013 Purchase 335,000 5.18

.fmcki 6/4/2013 Purchase 228,100 5.31 ·fmcki 6/7/2013 Purchase 285,000 4.50

fmckj 5/1/2013 Purchase 1,000,000 4.55 fmckj 5/6/2013 Purchase 1,500,000 4.60 fmckj 517/2013 Purchase 250,000 4.60 fmcki 5/8/2013 Purchase 5,000,000 4.70 fmckj 5/20/2013 Purchase 5,000,000 4.90 fmckj 5/21/2013 Purchase 5,936,000 4.96 fmckj 5/21/2013 Purchase 2,606,000 4.92 fmckj 5/21/2013 Purchase 2,702,000 4.85 fmckj 5/22/2013 Purchase 5,830,000 4.86 fmckj 6/4/2013 Purchase 1,900,000 6.33 fmckj 6/4/2013 Purchase 546,200 6.30 fmckj 8/5/2013 Purchase 453,300 5.15 fmckj 8/6/2013 Purchase 750,000 4.95 fmckj 8/13/2013 Purchase 500,000 4.71

The Fairholme Fund - Freddie Common Trade Date Activity Quantity Price

5/8/2013 Purchase 50,000 0.90 5/9/2013 Purchase 950,000 0.91

5/10/2013 Purchase 1,517,800 0.84 5/22/2013 Purchase 2,000,000 1.61 5/23/2013 Purchase 1,500,000 1.96 5/30/2013 Purchase 1,000,000 1.62 5/31/2013 Purchase 200,400 1.30 6/5/2013 Sale (273,000) 1.80 6/6/2013 Sale (1,227,000) 1.79 6/6/2013 Sale (665,800) 1.79

4

A69


6/7/2013 Sale (334,200) 1.90 6/7/2013 Sale (1,587,000) 1.90

6/10/2013 Sale (413,000) 1.79 6/10/2013 Sale (200,400) 1.79 6/10/2013 Sale (950,000) 1.79 6/10/2013 Sale (50,000) 1.79 6/10/2013 Sale (152,800) 1.79 6/11/2013 Sale (833,200) 1.85 6/12/2013 Sale (531,800) 1.81 9/30/2013 Purchase 1,279,000 1.25 10/1/2013 Purchase 2,267,000 1.31 10/2/2013 Purchase 2,696,500 1.37 10/3/2013 Purchase 870,800 1.45 10/4/2013 Purchase 251,700 1.41 10/7/2013 Purchase 597,400 1.44 10/8/2013 Purchase 2,975,100 1.51 10/9/2013 Purchase 2,710,000 1.55 10/10/2013 Purchase 7,000 1.48 10/11/2013 Purchase 64,300 1.54 10/15/2013 Purchase 628,000 1.55 10/16/2013 Purchase 966,400 1.53 10/17/2013 Purchase . 789,400 1.49 10/18/2013 Purchase 169,200 1.46 10/21/2013 Purchase 380,800 1.55 10/22/2013 Purchase 753,600 1.63 10/23/2013 Purchase 222,300 1.84 11/26/2013' Sale (222,300) 2.52 11/26/2013 Sale (180,600) 2.52 3/11/2014 Sale2 (5,742,000) 4.04

2 The Fairholme Fund sold 2,726,750 shares to Icahn Partners LP; 1,866,850 shares to Icahn Partners Master Fund LP; and 1,148,400 shares to High River Limited Partnership.

5

A70


Date: May 7, 2014

6

A71


Isl Charles J. Cooper Charles J, Cooper Counsel of Record for Plaintiffs COOPER & KIRK, PLLC 1523 New Hampshire A venue, N.W. Washington, D.C. 20036 (202) 220-9600 (202) 220-9601 (fax) [email protected]

Of Counsel: Vincent J. Colatriano David H. Thompson Peter A. Patterson COOPER & KIRK, PLLC 1523 New Hampshire Avenue, N.W. Washington, D.C. 20036 (202) 220-9600 (202) 220-9601 (fax)


VERIFICATION

I state under penalty ofpetjury that the information contained in the foregoing response

has been collected and the response prepared with the advice and assistance of counsel, and that,

subject to any inadvertent or undiscovered errors, and based 011 the records and information still

in existence and thus far discovered, the response is true and correct to the best of my

knowledge, recollections, and belief based upon the information known or made available to me.

A72

Q(LQ.~ Paul R. Thomson May 6, 2014
