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Plaintiffs Score a Victory in GSE Profit Sweep Suits

Gavel BHThe U.S. Judicial Panel on Multidistrict Litigation on Thursday issued an order denying the Federal Housing Finance Agency (FHFA)’s request [1] to transfer four cases filed by GSE preferred stockholders over the sweeping of GSE profits, aka the “Net Worth Sweep,” into Treasury.

The FHFA was seeking to move the four cases, which were filed in district courts in Delaware, Illinois, Iowa, and Kentucky, to the U.S. District Court in Washington, D.C. The panel’s refusal to transfer the four cases is viewed as a major victory for the plaintiffs, since the cases would have likely been heard by D.C. District Judge Royce Lamberth—who in September 2014 dismissed a suit [2] filed by GSE shareholder Fairholme Funds over the Net Worth Sweep.

“Plaintiffs opposing centralization argue that there are not sufficient common disputed facts to warrant centralization, and that discovery will be minimal,” the panel wrote in its order on Thursday. “Defendants have not persuasively refuted these arguments. We have held that, ‘where only a minimal number of actions are involved, the proponent of centralization bears a heavier burden to demonstrate that centralization is appropriate.’”

The panel concluded, “On the basis of the papers filed and hearing session held, we conclude that centralization is not necessary for the convenience of the parties and witnesses or to further the just and efficient conduct of the litigation.”

Fairholme and other plaintiffs in similar cases claim that the sweeping of GSE profits into Treasury, which began in August 2012 as an amendment to the bailout agreement, equates to taking private property for public use without “just compensation,” a practice forbidden by the Fifth Amendment of the U.S. Constitution.

After an appeal, Fairholme’s suit was revived by Judge Margaret Sweeney [3] in the U.S. Court of Federal Claims in January 2015 and is still pending to this day as Sweeney continues to order the unsealing of several documents [4] related to the case.

Click here [1] to see the complete order from the U.S. Judicial Panel on Multidistrict Litigation issued on Thursday.