First Mortgage Corporation v. Government National Mortgage Association et al

MEMORANDUM in Opposition to NOTICE OF MOTION AND MOTION to Dismiss Case and Memorandum of Points and Authorities 20

C.D. Cal.November 13, 2017

LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Jennifer L. Gray (CA Bar No. 287855) jennifer.gray@gtlaw.com GREENBERG TRAURIG, LLP 1840 Century Park East, Suite 1900 Los Angeles, California 90067 Telephone: (310) 586-7700 Facsimile: (310) 586-7800 Jacob D. Bundick (NV Bar No. 9772) (Admitted PHV) bundickj@gtlaw.com GREENBERG TRAURIG, LLP 3773 Howard Hughes Parkway, Ste. 400 N Las Vegas, Nevada 89169 Telephone: (702) 792-3773 Facsimile: (702) 792-9002 Jerry Stouck (MD Bar No. 8306010299) (PHV App Pending) stouckj@gtlaw.com GREENBERG TRAURIG, LLP 2101 L Street, N.W., Suite 1000 Washington, DC 20037 Telephone: 202-331-3173 Facsimile: 202-261-4751 Attorneys for Plaintiff FIRST MORTGAGE CORPORATION UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA EASTERN DIVISION FIRST MORTGAGE CORPORATION, Plaintiff, v. GOVERNMENT NATIONAL MORTGAGE ASSOCIATION; UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, Defendants. CASE NO. 5:17-cv-01225 JGB (KKx) PLAINTIFF’S OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS THE COMPLAINT UNDER RULE 12(b)(1) AND 12(b)(6); MEMORANDUM OF POINTS AND AUTHORITIES Date: December 11, 2017 Time: 9:00 a.m. Courtroom: 1 Judge: Hon. Jesus G. Bernal Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 1 of 30 Page ID #:448 i LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF CONTENTS Page INTRODUCTION ............................................................................................................... 1 FACTUAL BACKGROUND .............................................................................................. 2 A. GNMA’s MBS Program ....................................................................... 2 B. Loan Repurchases ................................................................................. 3 C. GNMA Abruptly Terminates FMC’s Issuer Status and Demands Fire Sale of its Assets............................................................ 5 ARGUMENT ....................................................................................................................... 6 I. THIS COURT HAS JURISDICTION OVER PLAINTIFF’S CONTRACT CLAIMS. .................................................................................. 6 A. The Court of Federal Claims Does Not Have Exclusive Jurisdiction over Contract Claims Against the United States. .............. 7 B. Defendants’ “Sue-and-Be-Sued Clauses” Waive Sovereign Immunity. ............................................................................................ 10 C. Federal Subject Matter Jurisdiction Exists. ........................................ 11 1. Defendants’ Sue-and Be-Sued Clauses .................................... 12 2. 28 U.S.C. § 1331....................................................................... 13 3. 28 U.S.C. § 1349....................................................................... 14 D. The Court has Jurisdiction Over the Due Process Claims. ................. 15 II. THE COMPLAINT STATES CLAIMS FOR BREACH OF CONTRACT. ................................................................................................ 18 A. The Complaint States a Claim for Breach of the Guaranty Agreements. ........................................................................................ 18 B. The Complaint States a Claim for Breach of the Cure Agreement. .......................................................................................... 21 C. The Complaint states a claim for breach of the covenant of good faith and fair dealing. ................................................................. 23 Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 2 of 30 Page ID #:449 ii LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES Page(s) Federal Cases Alvarado v. Table Mountain Rancheria, 509 F.3d 1008 (9th Cir. 2007) ........................................................................................ 7 Am. Int’l Enters. v. FDIC, 3 F.3d 1263 (9th Cir. 1993) ............................................................................................ 9 Am. Nat’l Red Cross v. S.G., 505 U.S. 247 (1992) ...................................................................................................... 12 B. C. Morton Int’l Corp. v. FDIC, 305 F.2d 692 (1st Cir. 1962) ........................................................................................... 8 C.D. Barnes Assocs. Inc. v. Grand Haven Hideaway Ltd. P’ship, 406 F.Supp.2d 801 (W.D. Mich. 2005) ........................................................................ 11 Cathedral Square Partners Ltd. P’ship v. S.D. Hous. Dev. Auth., 966 F. Supp. 2d 862 (D.S.D. 2013) .............................................................................. 14 Church of Scientology Int’l v. Kolts, 846 F. Supp. 873 (C.D. Cal. 1994) ............................................................................... 15 City of El Centro v. the United States, 922 F.2d 816 (Fed.Cir.1990) ........................................................................................ 21 Conille v. HUD, 840 F.2d 105 (1st Cir. 1988) ......................................................................................... 13 D’Oench, Duhme & Co. v. FDIC, 315 U.S. 447 (1942) ............................................................................................ 8, 12, 13 DSI Corp. v. Secty of Housing & Urban Dev., 594 F.2d 177 (9th Cir. 1979) ........................................................................................ 11 Englewood Terrace Ltd. P’ship v. United States, 79 Fed. Cl. 516 (2007) .................................................................................................. 19 FDIC v. Meyer, 510 U.S. 471 (1994) ............................................................................................ 7, 16, 17 Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 3 of 30 Page ID #:450 iii LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Fed. Hous. Admin. v. Burr, 309 U.S. 242 (1940) ............................................................................................... passim Flagship Federal Savings Bank v. Wall, 748 F. Supp. 742 (S.D.Cal.1990) .................................................................................... 9 Franchise Tax Board of Cal. v. U.S. Postal Serv., 467 U.S. 512 (1984) ........................................................................................................ 7 Goodsell v. United States, No. 17-171 C, 2017 WL 4873652 (Fed. Cl. Oct. 30, 2017) ......................................... 23 Gov’t Nat’l Mortg. Ass’n v. Terry, 608 F.2d 614 (5th Cir. 1979) ........................................................................................ 15 Hancock Fin. Corp. v. Fed. Sav. & Loan Ins. Corp., 492 F.2d 1325 (9th Cir. 1974) ...................................................................................... 15 Indus. Indem., Inc. v. Landrieu, 615 F.2d 644 (5th Cir. 1980) ........................................................................................ 10 Int’l Primate Prot. League v. Adm’rs of Tulane Educ. Fund, 500 U.S. 72 (1991) ........................................................................................................ 17 Jackson v. Tennessee Valley Auth., 462 F. Supp. 45 (M.D. Tenn. 1978) .............................................................................. 14 Katz v. Cisneros, 16 F.3d 1204 (Fed. Cir. 1994) ................................................................................ 10, 14 In re Liberty Const., 9 F.3d 800 (9th Cir. 1993) .............................................................................................. 8 Lightfoot v. Cendant Mortg. Corp., 137 S. Ct. 553 (2017) .............................................................................................. 12, 13 Loeffler v. Frank, 486 U.S. 549 (1988) ........................................................................................................ 6 Mann v. Pierce, 803 F.2d 1552 (11th Cir. 1986) ...................................................................................... 8 Marceau v. Blackfeet Housing Authority, 455 F.3d 974 (9th. Cir. 2006) ......................................................................................... 9 Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 4 of 30 Page ID #:451 iv LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Marcus Garvey Square, Inc. v. Winston Burnett Const. Co. of Cal., Inc., 595 F.2d 1126 (9th Cir. 1979) ...................................................................................... 11 McGuire v. United States, 550 F.3d 903 (9th Cir. 2008) .......................................................................................... 9 Munoz v. Small Bus. Admin., 644 F.2d 1361 (9th Cir. 1981) .............................................................................. 8, 9, 10 N. Side Lumber Co. v. Block, 753 F.2d 1482 (9th Cir. 1985) ...................................................................................... 13 Normandy Apartments., Ltd. v. U.S. Dep’t of Hous. & Urban Dev., 554 F.3d 1290 (10th Cir. 2009) ...................................................................................... 8 PacifiCorp v. Fed. Energy Regulatory Comm’n, 795 F.2d 816 (9th Cir. 1986) .................................................................................... 9, 10 Precision Pine & Timber, Inc. v. United States, 596 F.3d 817 (Fed. Cir. 2010) ...................................................................................... 23 Presbyterian Church v. United States, 870 F.2d 518 (9th Cir. 1989) ........................................................................................ 16 S.S. Silberblatt, Inc. v. East Harlem Pilot Block, 608 F.2d 28 (2d Cir. 1979) ........................................................................................... 10 San Carlos Irr. & Drainage Dist. v. United States, 877 F.2d 957 (Fed. Cir. 1989) ...................................................................................... 18 Staacke v. U.S. Sec’y of Labor, 841 F.2d 278 (9th Cir. 1988) ........................................................................................ 16 W. Sec. Co. v. Derwinski, 937 F.2d 1276 (7th Cir. 1991) ........................................................................................ 8 Waddell v. Trek Bicycle Corp., No. SA-CV-152082, 2016 WL 7507770 (C.D. Cal. Apr. 7, 2016) .............................. 19 Yost v. Nationstar Mortg., LLC, 2013 WL 4828590 (E.D. Cal. Sept. 9, 2013) ............................................................... 10 Federal Statutes 12 U.S.C.A. § 1819 .............................................................................................................. 8 Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 5 of 30 Page ID #:452 v LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 12 U.S.C. § 1702 ...................................................................................................... 9, 10, 11 12 U.S.C. § 1716 .................................................................................................................. 2 12 U.S.C. § 1723 ................................................................................................................ 12 12 U.S.C. § 1723(a) ........................................................................................................... 12 12 U.S.C. § 1723a ........................................................................................................ 11, 12 12 U.S.C. § 1723a(a) .......................................................................................................... 10 12 U.S.C. § 1730(k)(1)....................................................................................................... 15 28 U.S.C. § 1331 ......................................................................................................... passim 28 U.S.C. § 1331(a) ............................................................................................................. 8 28 U.S.C. § 1332 ................................................................................................................ 15 28 U.S.C. § 1346(b) ..................................................................................................... 16, 17 28 U.S.C. § 1349 .................................................................................................... 13, 14, 15 28 U.S.C. § 2679(a) ........................................................................................................... 17 Rules Federal Rules of Civil Procedure, Rule 12(b)(6) ............................................................... 19 Constitutional Provisions U.S. Constitution ............................................................................................................ 1, 15 U.S. Constitution, First Amendment ................................................................................. 16 U.S. Constitution, Fourth Amendment .............................................................................. 16 U.S. Constitution, Fifth Amendment ................................................................................. 16 Other Authorities Restatement (Second) of Agency § 7................................................................................. 22 Restatement (Second) of Contracts § 329, cmt. a, 335 (1981) .......................................... 18 Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 6 of 30 Page ID #:453 1 LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 INTRODUCTION This action involves egregious conduct by Defendants Government National Mortgage Association (“Ginnie Mae” or “GNMA”) and United States Department of Housing and Urban Development (“HUD”) (collectively, “Defendants” or the “United States”) in terminating a 40-year relationship with Plaintiff First Mortgage Corporation (“Plaintiff or “FMC”), an issuer of GNMA-backed securities, without any justification. The reasons given by GNMA for terminating FMC were not based in fact and were clearly pretextual. GNMA offered to forbear from terminating FMC if FMC agreed to a long list of new obligations and restrictions. Although FMC did not believe that it had done anything wrong, it accepted GNMA’s offer. FMC responded to GNMA’s offer by a signed writing that accepted the terms, including agreeing to provide GNMA with specific details, documents, and monitoring access. Within days of entering into this forbearance agreement, GNMA notified FMC that it had been terminated without any right of appeal. GNMA ordered FMC to sell all its assets within 90 days. In an instant, FMC was out of business. It was forced to sell its assets at a loss of $150 million. It fired 500 employees and shut the doors at its 50 locations. FMC’s senior managers, many of whom had been employed with the company for their entire careers, suffered irreparable personal and financial losses. To this day, GNMA has never provided a reasonable explanation for wrongfully, and without cause, terminating FMC from its decades-long participation in GNMA’s mortgage-backed securities program (the “MBS Program”). FMC filed this action to recover the losses it incurred because of GNMA’s egregious conduct. The complaint asserts claims for breach of the Guaranty Agreements that governed the parties’ relationship, breach of the “Cure Agreement” that the parties entered just prior to FMC’s termination, breach of the covenant of good faith and fair dealing, and due process violations. It also asserts claims for a violation of FMC’s due process rights under the United States Constitution. Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 7 of 30 Page ID #:454 2 LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Defendants move to dismiss the contract and due process claims for lack of subject matter jurisdiction and the contract claims for failure to state a claim. Defendants’ Motion should be denied in its entirety. First, Defendants wrongfully assert that this Court lacks jurisdiction over FMC’s contract claims because the Tucker Act purportedly vests exclusive jurisdiction over FMC’s contract claims in the Court of Federal Claims. In the Ninth Circuit, jurisdiction in the Court of Federal Claims is not exclusive where, as here, there is an alternative waiver of sovereign immunity and a basis for federal court jurisdiction. Second, Defendants claim that the Court lacks jurisdiction over FMC’s due process claims because the Federal Tort Claims Act provides the exclusive channel to bring such claims. But, Defendants’ own cases establish that FMC’s due process claim is not cognizable under the FTCA, and thus jurisdiction in this Court is proper. Third, Defendants argue that the Complaint fails to state a claim for breach of the Guaranty Agreements because GNMA claims that it was justified in terminating FMC. But this argument goes to the merits—the Complaint plainly alleges sufficient facts to state a claim for breach of the Guaranty Agreements. Defendants move to dismiss FMC’s claim for breach of the Cure Agreement, claiming that there was no binding contract because the GNMA officer who offered to forebear lacked authority to do so and the agreement was not supported by consideration. These arguments are belied by GNMA’s own documents, which were attached to the Complaint. FACTUAL BACKGROUND A. GNMA’S MBS PROGRAM GNMA is a wholly-owned corporation within HUD. (Compl., ¶ 2.) Its powers are prescribed by Title III of the National Housing Act (“NHA”), as amended, Pub. L. 73- 479 codified at 12 U.S.C. § 1716 et seq. (Id.) Through its MBS Program, authorized under Section 306(g) of the NHA, GNMA guarantees securities backed by pools of government-insured mortgages. (Id.) Authorized GNMA issuers may pool loans they originate and issue securities, guaranteed by GNMA, collateralized by the pooled loans. Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 8 of 30 Page ID #:455 3 LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 (Id., Ex. A, Ch. 1.) If the issuer of a security is unable to make payments due to investors, GNMA guarantees that it will make those payments. FMC is a privately-held mortgage lender founded in 1975 by Clement Ziroli, Sr. (Id., ¶ 18.) For over 40 years, FMC’s primary business consisted of originating and servicing FHA and VA insured mortgage loans and issuing GNMA-backed securities collateralized by the loans it originated. (Id., ¶ 4.) FMC was a GNMA-approved Issuer of MBS securities. GNMA’s and FMC’s respective contractual obligations were set forth in the GNMA Mortgage-Backed Securities Guide, GNMA 5500.1 Rev. 4 (“Issuer Guide”), and the individual Guaranty Agreements for each security (collectively, the “Guaranty Agreements”) (Comp., Ex. A). B. LOAN REPURCHASES GNMA-backed securities risk losing their GNMA guarantee if the delinquency rate of the loans in the pool exceeds thresholds set by GNMA. (Issuer Guide, § 18-3(B).) To aid Issuers in managing pool delinquency rates, GNMA permits them to purchase delinquent loans out of a pool, thereby reducing the pool’s delinquency rate. (Compl., ¶ 30.) For loans backing a Ginnie Mae security with an issue date on or after January 1, 2003, GNMA permitted Issuers to repurchase “any pooled loan without written permission from Ginnie Mae if the borrower fails to make any payment for three consecutive months.” MBS Guide § 18-3(B)(1)(c) (2009 and 2011). FMC began repurchasing loans in late 2011, following a GNMA audit in which the GNMA representative noted that a number of FMC’s pools were approaching the maximum allowed delinquency rate. (Compl., ¶¶ 33-34.) In or around late 2013, an employee raised a compliance question concerning repurchases to senior management. In some cases, FMC received a payment sufficient to bring a loan current after the loan had been delinquent for 90 consecutive days and earmarked for repurchase. (Id., ¶ 35.) The employee asked if these loans could still be repurchased. The benefit of repurchasing a loan out of a pool even after the delinquency is cured is to reduce the pool’s historical delinquency rate and risk of the same loan becoming delinquent again. Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 9 of 30 Page ID #:456 4 LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Although the Guide did not appear to restrict loan repurchases based upon receipt of a reinstatement payment, FMC reached out to its primary GNMA contact, Paul St. Laurent, seeking clarification of its question. (Compl., ¶ 35.) In a series of communications, Mr. St. Laurent confirmed that there were no restrictions based on payments received after the delinquency period. Id. Unrelated to FMC’s inquiry, GNMA issued an advisory letter to Issuers in May 2014, entitled “Clarification to the General Loan Buyout Policy” (the “Clarification”). The Clarification did not directly address FMC’s question but nevertheless supported FMC’s interpretation of GNMA’s position. It stated, in relevant part: The intent of the current policy is to permit defaulted loans to be bought out of pools when a loan is 90 or more days, i.e., three consecutive months, past- due . . . To clarify, loans collateralizing Ginnie Mae Mortgage-Backed Securities may be bought out of pools if the loan is due, but unpaid for three consecutive months. For example, if the last paid installment on a loan was December 1, and no payments are received and applied by the Issuer for January 1, February 1, and March 1, the loan is eligible to be bought out of the pool on April 1. (Compl. Ex. D [May 16, 2014 Clarification], at 1.) The Clarification appeared to relate to payments received before a loan became eligible for repurchase, whereas FMC’s question concerned payments received after a loan became eligible. (Compl., ¶ 36.) Nevertheless, it reaffirmed FMC’s understanding that the only requirement for repurchase was that a loan be delinquent for 90+ consecutive days. In their Motion to Dismiss, Defendants claim that FMC’s interpretation of the Guide was wrong and that a loan was not eligible for repurchase unless it was in default at the time of repurchase. They base this on an erroneous reading of the clause: “loans … may be bought out of pools if the loan is due, but unpaid for three consecutive months.” (Compl. Ex. D [May 16, 2014 Clarification], at 1.) This clause does not, as Defendants maintain, mean that the loan must be “due” at the time of repurchase—it means that payments were due at the time they went unpaid. For example, if a borrower pre-pays three payments on his or her mortgage, and then makes no payments during the months Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 10 of 30 Page ID #:457 5 LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 that were prepaid, the loan would not be eligible for repurchase because payments on the loan were not “due” for payment in the months during which no payments were remitted. C. GNMA ABRUPTLY TERMINATES FMC’S ISSUER STATUS AND DEMANDS FIRE SALE OF ITS ASSETS On May 12, 2015, FMC received a letter from GNMA entitled “Notice of Violation – Event of Default” (the “Notice”). (Compl., ¶ 40.) The Notice claimed that FMC was in default of Sections 10.01(a)(7) and 10.01(a)(9) of the Guaranty Agreement, which dealt with “unauthorized use of Custodial Funds” and “submission of false reports” respectively, with respect to loan repurchases. (Compl., Exhibit F.) FMC was shocked to receive this Notice. It had cleared its loan repurchase procedures with Paul St. Laurent and would have changed its practice had GNMA asked it to. Moreover, the alleged violations were not true and did not even make sense in the context of repurchased loans. For example, GNMA accused FMC of not moving “borrower payments into GNMA custodial accounts within 48 hours of receipt” and “falsely report[ing] that loans were eligible for repurchase when they were not properly delinquent.” (Compl., ¶ 41.) But, the Guide did not require that reinstatement payments be “moved into custodial accounts” within 48 hours of receipt, nor did the timing of deposit into a custodial account have any bearing on whether a loan was delinquent. Further, FMC did not falsely report that loans were eligible for repurchase when they were not. As discussed above, FMC believed that every loan it repurchased was eligible. In the Notice, GNMA asserted that it had the right to terminate FMC immediately for these purported violations, but it offered, “pursuant to Section 10.03 of the Guaranty Agreement” to “forbear from immediately effectuating the termination and extinguishment of FMC provided that FMC deliver[ed] to GNMA, within 14 days of this letter, a detailed written response that affirms its intent to comply with the conditions established by GNMA in this letter and otherwise address each of the items identified below” and “provide GNMA with specific details, documents, and monitoring access.” (Id. ¶¶ 6, 45.) Although FMC did not believe that it had violated any GNMA policies— Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 11 of 30 Page ID #:458 6 LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 much less engaged in conduct that triggered a default or remotely justified termination— it accepted GNMA’s offer. (Id., ¶ 48.) On May 26, 2015, FMC delivered a detailed written, signed response to GNMA affirming its intent to comply with the conditions established by GNMA in this letter and providing GNMA with specific details, documents, and monitoring access requested in the Notice. (Id.) GNMA’s offer and FMC’s acceptance effected a “Cure Agreement.” Despite the parties’ agreement (the “Cure Agreement”), and without any warning, on June 11, 2015, GNMA notified FMC that it was extinguishing FMC’s rights to the mortgages pooled in GNMA securities and terminating its authority to issue GNMA MBS. (“Termination Letter,” Exhibit H at 1.) The Termination Letter identified no event of default other than the same baseless charges contained in the Notice of Violation, which had been resolved by the Cure Agreement. FMC asked GNMA whether it could appeal the termination decision and was told: “Not in this case.” (Compl., ¶ 50.) GNMA directed FMC to negotiate the sale of FMC’s GNMA portfolio to an acceptable counterparty within 90 days. (Id., ¶ 51.) FMC was forced to engage in a fire sale and rapidly find a buyer to purchase nearly all of FMC’s assets and loan portfolio within the prescribed 90 days. (Id.) FMC sold its assets at a tremendous loss – specifically for $150 million less than the same buyer offered FMC in 2014. (Id.) It was forced to fire over 500 employees and close its 50 branch offices. (Id., ¶¶ 53-54.) The sale resulted in an enormous personal loss for the owners and senior management, many of whom were in their 60’s and 70’s and had been employed by FMC for nearly their entire careers. (Id.) ARGUMENT I. THIS COURT HAS JURISDICTION OVER PLAINTIFF’S CONTRACT CLAIMS. For a district court to exercise jurisdiction over a claim against a government agency, there must be both a waiver of sovereign immunity and subject matter jurisdiction. Loeffler v. Frank, 486 U.S. 549, 554 (1988); Fed. Hous. Admin. v. Burr, 309 Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 12 of 30 Page ID #:459 7 LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 U.S. 242, 244 (1940); see also Alvarado v. Table Mountain Rancheria, 509 F.3d 1008, 1016 (9th Cir. 2007) (“To confer subject matter jurisdiction in an action against a sovereign, in addition to a waiver of sovereign immunity, there must be statutory authority vesting a district court with subject matter jurisdiction.”). A. THE COURT OF FEDERAL CLAIMS DOES NOT HAVE EXCLUSIVE JURISDICTION OVER CONTRACT CLAIMS AGAINST THE UNITED STATES. Defendants contend that FMC’s contract claims must be brought under the Tucker Act because it supplies both the necessary waiver of immunity and grant of federal jurisdiction over contract claims against the government and is the exclusive means for asserting such claims. Defendants are incorrect. The Tucker Act is not the exclusive means for bringing contract claims against a federal entity if there is an independent waiver of sovereign immunity and basis for federal jurisdiction. This Court has jurisdiction over FMC’s contract claims because there is both a waiver of sovereign immunity and a basis for federal jurisdiction in this Court. Congress commonly includes “sue-and-be-sued” clauses in the federal charters or enabling statutes of agencies that engage in commerce with the public. “Agencies authorized to ‘sue-and-be-sued’ are presumed to have fully waived immunity.” FDIC v. Meyer, 510 U.S. 471, 475 (1994) (“By permitting FSLIC to sue and be sued, Congress effected a ‘broad’ waiver of FSLIC’s immunity from suit.”). As the Supreme Court explained in Burr, “it must be presumed that when Congress launche[s] a governmental agency into the commercial world and endow[s] it with authority to ‘sue or be sued’, that agency is not less amenable to judicial process than a private enterprise under like circumstances would be.” Burr, 309 U.S at 245; see also Franchise Tax Board of Cal. v. U.S. Postal Serv., 467 U.S. 512, 520 (1984) (“[W]e must presume that the [Postal] Service’s liability is the same as that of any other business.”) Based on these principles, the Supreme Court and Circuit Courts have consistently interpreted sue-and-be-sued clauses to waive sovereign immunity. See Meyer, 510 U.S. at 480-81 (FSLIC’s sue-and-be-sued clause constituted a broad waiver of immunity); Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 13 of 30 Page ID #:460 8 LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 D’Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 455-56 (1942) (upholding district court exercise of jurisdiction where federal charter authorized FDIC to sue or be sued “in any court of law or equity, State or Federal.”); Mann v. Pierce, 803 F.2d 1552, 1557 (11th Cir. 1986) (sue-and-be-sued clause waived HUD’s immunity in district court suit on tenants’ contract claims). When coupled with an independent basis for federal jurisdiction, district courts commonly exercise jurisdiction over claims against federal agencies that have waived sovereign immunity under sue-and-be-sued clauses. See, e.g., Normandy Apartments., Ltd. v. U.S. Dep’t of Hous. & Urban Dev., 554 F.3d 1290, 1295 n.2 (10th Cir. 2009) (“‘[F]or matters outside the scope of the Tucker Act, section 1331 gives district courts jurisdiction to review agency action, such as Normandy’s claim that HUD violated its regulations . . .”); W. Sec. Co. v. Derwinski, 937 F.2d 1276, 1280 (7th Cir. 1991) (“Jurisdiction is saved by the fact that Western’s suit, being a suit against the Veterans’ Administration to enforce the loan guaranty, arises under federal law and is therefore within the original jurisdiction of the federal district court by virtue of 28 U.S.C. § 1331.”); B. C. Morton Int’l Corp. v. FDIC, 305 F.2d 692, 694 (1st Cir. 1962) (“The District Court correctly noted its jurisdiction over the action based upon the combined effect of 12 U.S.C.A. § 1819 [sovereign immunity waiver] . . . and 28 U.S.C. § 1331(a)”). The Ninth Circuit has upheld district court jurisdiction over contract claims against government agencies that have waived sovereign immunity under sue-and-be-sued clauses. In Munoz v. Small Bus. Admin., 644 F.2d 1361, 1364-65 (9th Cir. 1981), the Ninth Circuit rejected the defendant’s argument that the Tucker Act required contract claims to be brought in the Court of Federal Claims in view of the SBA’s enabling statute, which allowed the SBA to “sue-and-be-sued” in any state or federal court. Through this clause, the SBA had waived its sovereign immunity and consented to suit in any state or federal court independent of the Tucker Act. Id. at 1365 n.3; see also In re Liberty Const., 9 F.3d 800, 802 (9th Cir. 1993) (reaffirming Munoz and holding that the Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 14 of 30 Page ID #:461 9 LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 district court had jurisdiction over a contract claim asserted against the SBA for damages in the amount of $500,000); Am. Int’l Enters. v. FDIC, 3 F.3d 1263, 1266–67 (9th Cir. 1993) (affirming a district court’s exercise of jurisdiction over contract claims brought against the FDIC based on immunity waiver in FIRREA). Under Munoz and its progeny, the Ninth Circuit’s position is clear: “Jurisdiction under the Tucker Act is not exclusive where other statutes independently confer jurisdiction and waive sovereign immunity.” PacifiCorp v. Fed. Energy Regulatory Comm’n, 795 F.2d 816, 826 (9th Cir. 1986) (Wallace, J. concurring); see also Flagship Federal Savings Bank v. Wall, 748 F. Supp. 742, 746 (S.D.Cal.1990) (“[W]here there is an alternative waiver of sovereign immunity and a specific grant of jurisdiction to the district court, the district court will have jurisdiction.”) Defendants ignore this Ninth Circuit authority and instead rely on inapposite, cherry-picked cases where courts decided that they lacked jurisdiction over a contract claim against a government entity. None of Defendant’s cases contradict the basic premise that jurisdiction under the Tucker Act is not exclusive where other statutes independently confer jurisdiction and waive sovereign immunity. Defendants’ cases all involve sui generis situations where a court found that there had not been a waiver of sovereign immunity. In Marceau v. Blackfeet Housing Authority, 455 F.3d 974 (9th. Cir. 2006), the Ninth Circuit reviewed the district court’s dismissal of a contract claim against an Indian Tribe and HUD on jurisdictional grounds. The Court reversed the dismissal of the claims against the Tribe because the Tribe’s enabling statute included a sue-and-be- sued clause, which constituted a “clear and unambiguous waiver of tribal immunity.” Id. at 978-79. The Ninth Circuit upheld the dismissal of contract claims against HUD without any discussion of HUD’s sue-and-be-sued clause. Given the Court’s broad interpretation of the Tribe’s sue-and-be-sued clause waiver, it might have found a valid waiver under Section 1702, had the issued been raised. Id.1 1 Although the Marceau court broadly referred to the Tucker Act as exclusive, the Ninth Circuit has acknowledged that some of its decisions loosely refer to the Tucker Act as Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 15 of 30 Page ID #:462 10 LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 B. DEFENDANTS’ “SUE-AND-BE-SUED CLAUSES” WAIVE SOVEREIGN IMMUNITY. HUD’s enabling statute, 12 U.S.C. § 1702, states: “The Secretary [of Housing and Urban Development] shall . . . be authorized, in his official capacity, to sue-and-be-sued in any court of competent jurisdiction, State or Federal.” GNMA’s enabling statute, 12 U.S.C. § 1723a(a), states: “[The Government National Mortgage Association] . . . shall have the power in its corporate name, to sue-and-be-sued, and to complain and to defend, in any court of competent jurisdiction, State or Federal . . .” Defendants’ respective sue-and-be-sued clauses waive sovereign immunity. See Burr, 309 U.S. at 245. Under 12 U.S.C. § 1723a(a), GNMA has the power “to sue and to be sued, and to complain and to defend, in any court of competent jurisdiction.”; see also Indus. Indem., Inc. v. Landrieu, 615 F.2d 644, 646–47 (5th Cir. 1980) (sue-and-be-sued clause authorized suit in the district court against HUD by the contractor’s assignees to recover payment for construction work on HUD-insured property.); S.S. Silberblatt, Inc. v. East Harlem Pilot Block, 608 F.2d 28, 35-36 (2d Cir. 1979) (HUD immunity is waived under 12 U.S.C. § 1702); Katz v. Cisneros, 16 F.3d 1204, 1208 (Fed. Cir. 1994) (the Housing Act served as a waiver of HUD’s sovereign immunity); Yost v. Nationstar having “exclusive jurisdiction,” but these cases did not raise alternative waivers of sovereign immunity and federal jurisdiction. McGuire v. United States, 550 F.3d 903, 911-13 (9th Cir. 2008) (observing that “the Tucker Act’s grant of jurisdiction to the Court of Federal Claims is frequently referred to as ‘exclusive,’ but [that Court’s] jurisdiction is ‘exclusive’ only to the extent that Congress has not granted any other court authority to hear the claims that may be decided by the Claims Court.”) (citations omitted); PacifiCorp, 795 F.2d at 826-27 (“It is true that we referred in North Side to the Tucker Act’s exclusive jurisdiction. But our holding that the contractual claim was subject to the Tucker Act can be reconciled with Munoz, because in North Side no other statutes independently conferred jurisdiction and waived sovereign immunity with respect to the claim.”) (internal quotation marks and citations omitted). Here, because Defendants’ cases do not involve independent waivers and grants of jurisdiction, they have no application. Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 16 of 30 Page ID #:463 11 LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Mortg., LLC, 2013 WL 4828590, *3 (E.D. Cal. Sept. 9, 2013) (GNMA’s sue-and-be-sued clause waived sovereign immunity for claims for money damages). Defendants also rely on several readily distinguishable cases where courts declined to find that Section 1702 waived HUD’s sovereign immunity. See DSI Corp. v. Secty of Housing & Urban Dev., 594 F.2d 177, 180 (9th Cir. 1979) (holding that Section 1702 did not waive sovereign immunity on HUD because any recovery would need to come from the United States Treasury, and thus was a suit against the United States); Marcus Garvey Square, Inc. v. Winston Burnett Const. Co. of Cal., Inc., 595 F.2d 1126 (9th Cir. 1979) (declining to hold that undisbursed mortgage proceeds constituted a separate fund and finding that a contract claim against HUD was one against the United States). These cases both rely on a largely defunct line of cases that looked to the source of funds that would pay a judgment to determine whether there was a valid waver of immunity. If the funds would come from the United States Treasury, any agency’s sue-and-be-sued clause would not be an effective waiver. Most courts now reject this framework because it is illogical and came about due to a misapplication of Burr, which noted that the FHA’s waiver was limited, by its text, to claims that could be paid only from funds provided to the Federal Housing Administration. Courts also reject the treasury funds/agency funds tests because it is illogical—since public funds appropriated to federal agencies remain public funds, to say that suits against agencies are suits against the United States and not the agency is to make “sue-or-be-sued” clauses nullities. See, e.g., C.D. Barnes Assocs. Inc. v. Grand Haven Hideaway Ltd. P’ship, 406 F.Supp.2d 801, 818 (W.D. Mich. 2005) (rejecting treasury funds/agency funds test “because, to hold that public monies appropriated to HUD or any other governmental agency can never be used to satisfy a judgment obtained by a waiver under a sue and be sued clause would render such clauses ineffectual”). C. FEDERAL SUBJECT MATTER JURISDICTION EXISTS. Defendants argue that even if 12 U.S.C. § 1723a waives GNMA’s immunity from suit, no grounds exist for federal subject matter jurisdiction. They are incorrect. Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 17 of 30 Page ID #:464 12 LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1. DEFENDANTS’ SUE-AND BE-SUED CLAUSES In some cases, the Supreme Court has found that a sue-and-be-sued clause confers federal jurisdiction, as well as waives sovereign immunity. See, e.g., D’Oench, 315 U.S. at 455 (holding that federal jurisdiction existed based on the FDIC’s sue-and-be-sued clause); Am. Nat’l Red Cross v. S.G., 505 U.S. 247, 255 (1992) (“a congressional charter’s ‘sue and be sued’ provision may be read to confer federal court jurisdiction if, but only if, it specifically mentions the federal courts.”). According to Defendants, however, “any suggestion that the sue-and-be-sued clause in § 1723a grants subject matter jurisdiction is plainly wrong,” in light of the Supreme Court’s decision in Lightfoot v. Cendant Mortg. Corp., 137 S. Ct. 553, 561 (2017). Motion to Dismiss at 13 n.8. Lightfoot involved the sue-and-be-sued clause found in 12 U.S.C. 1723(a), which applies to both Fannie Mae and GNMA. Although both entities were created under Title III of the National Housing Act, in 1968 Fannie Mae became fully privately owned, while Ginnie Mae “remain[ed] in the Government.” Id. at 557. Section 1723(a) permits Fannie Mae and GNMA “to sue and to be sued, and to complain and to defend, in any court of competent jurisdiction.” Id. at 556. The issue before the Court was whether Section 1723(a) operated as a grant of federal jurisdiction over all claims brought by or against Fannie Mae. Id. The Court focused on the text of the clause. While Fannie Mae’s sue-and-be-sued clause “specifically mentions the federal courts,” it differed from clauses held sufficient to grant federal jurisdiction because it referred to “any court of competent jurisdiction, State or Federal.” Id. at 559-60. Based on this difference, the Court held that Section 1723 did not automatically confer federal jurisdiction over claims brought by or against Fannie Mae. Id. at 561-63. The Court did not extend its holding to cover GNMA, and it is far from clear that the Court would reach the same result if the case involved GNMA. Fannie Mae had noted that the sue and be sued clause of its sibling, the Federal Home Loan Mortgage Corporation (“Freddie Mac”) did not contain the words “court of competent jurisdiction.” Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 18 of 30 Page ID #:465 13 LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Id. at 564. Fannie Mae argued, “[t]here is no good reason to think that Congress gave Freddie Mac fuller access to the federal courts than it (Fannie Mae) has.” Id. The Court disagreed, explaining: “[W]hen Freddie Mac’s sue-and-be-sued clause and related jurisdictional provisions were enacted, Freddie Mac was a Government-owned corporation. Fannie Mae, on the other hand, had already transitioned into a privately owned corporation.” Id. (citation omitted). Unlike both Fannie Mae and Freddie Mac, GNMA is currently, and always has been, a federally-owned corporation. Despite Lightfoot’s focus on literal text, the Court’s analysis should factor in public or private status of the entity covered by the sue-and-be- sued clause. Extending Lightfoot to a government corporation such as GNMA would lead to the bizarre result that Freddie Mac’s sue-and-be-sued clause confers automatic federal jurisdiction, while GNMA’s does not. Where the Supreme Court has considered the jurisdictional reach of a government agency’s sue-and-be-sued clause, it has construed the clauses to confer federal jurisdiction. See, e.g., D’Oench, 315 U.S. at 455- 56. Accordingly, Lightfoot should not be extended to GNMA. In any event, this Court need not decide whether Defendants’ sue-and-be-sued clauses confer federal jurisdiction because this case falls within the general grant of jurisdiction over civil actions “arising under the Constitution, laws, or treaties of the United States.” 28 U.S.C. § 1331. This Court also has jurisdiction under 28 U.S.C. § 1349. 2. 28 U.S.C. § 1331 This Court has jurisdiction over FMC’s contract claims because they “arise under” federal law. The “federal common law of contracts applies to contracts with the federal government, and the federal common law is part of the laws . . . of the United States for the purpose of § 1331 jurisdiction.” N. Side Lumber Co. v. Block, 753 F.2d 1482, 1484 (9th Cir. 1985) (case arose under federal law because “the federal common law of contracts applies to contracts with the federal government.”); see also Conille v. HUD, 840 F.2d 105, 109 (1st Cir. 1988) (holding that claims “arise under” federal law because Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 19 of 30 Page ID #:466 14 LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 they “involv[e] the rights and obligations of the United States … under a contract, entered into pursuant to authority conferred by federal statute.”) Plaintiff’s claims also arise under federal law because they require the interpretation of HUD and GNMA guidelines and policies. See Katz v. Cisneros, 16 F.3d 1204, 1208 (Fed. Cir. 1994) (claims arose under Section 1331 because they required interpretation of HUD regulations); Cathedral Square Partners Ltd. P’ship v. S.D. Hous. Dev. Auth., 966 F. Supp. 2d 862, 870 (D.S.D. 2013) (“There is a grant of subject matter jurisdiction under 28 U.S.C. § 1331, in that this action seeks establishment of the responsibilities and liability of a federal agency and the interpretation and application of the 1994 amendments to Section 8 and corresponding HUD directives.”). Defendants contend that the Ninth Circuit has rejected 28 U.S.C. § 1331 as an alternative basis for subject matter jurisdiction over breach of contract claims against the United States. Motion to Dismiss at 13-14. Not so. Defendants again fail to distinguish between cases in which there is a waiver of sovereign immunity other than the Tucker Act and those where there is not. The cases cited by GNMA on this point do not involve alternative waivers of sovereign immunity, and thus are inapposite here. 3. 28 U.S.C. § 1349 This Court also has jurisdiction over Plaintiff’s claims against GNMA under 28 U.S.C. § 1349 because GNMA is a wholly owned, government-controlled corporation incorporated by an Act of Congress. Under Section 1349, the district courts have jurisdiction over any civil action by or against a corporation if the corporation is (i) “incorporated by or under an Act of Congress” and (ii) “the United States is the owner of more than one-half of [the corporation’s] capital stock.” 28 U.S.C. § 1349. Although GNMA does not have identifiable “capital stock,” most courts that have considered the issue have held that Section 1349 applies to all government-controlled corporations. See Jackson v. Tennessee Valley Auth., 462 F. Supp. 45, 52 (M.D. Tenn. 1978), aff’d 595 F.2d 1120 (6th Cir. 1979). Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 20 of 30 Page ID #:467 15 LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 A substantial body of case law confirms that Section 1349 covers situations precisely like this one where a corporation is owned and controlled by the Government. See, e.g., Gov’t Nat’l Mortg. Ass’n v. Terry, 608 F.2d 614 (5th Cir. 1979). Defendants challenge Section 1349 as a basis for jurisdiction but fail to provide reasons or supporting authorities. The few cases they rely upon are inapposite and sui generis. For example, Hancock Fin. Corp. v. Fed. Sav. & Loan Ins. Corp., 492 F.2d 1325, 1329 (9th Cir. 1974) involved a district’s courts refusal to exercise jurisdiction over an action to enjoin the FDIC from liquidating certain assets. The Court refused to exercise jurisdiction under Section 1331 or 1349, among others, because of the “specific and controlling language” contained in 12 U.S.C. § 1730(k)(1), which provided that “[n]otwithstanding any other provision of law,” actions involving the FSLIC as a receiver, “shall not be deemed to arise under the laws of the United States.” The Court reasoned that given the specificity of § 1730(k)(1), Congress intended that the specific limitations set forth therein would trump general grants of federal jurisdiction. Hancock has no application here because HUD and GNMA are not subject to any statutes that place specific jurisdictional constraints on claims involving HUD or GNMA. The Tucker Act is a statute of general application, not specifically directed at HUD or GNMA. And, Defendant’s sue-and-be- sued clauses, are expansive, not restrictive. This case does not involve any jurisdictional limiting statutes like § 1730(k)(1). D. THE COURT HAS JURISDICTION OVER THE DUE PROCESS CLAIMS. Defendants contend that no court has subject matter jurisdiction over the due process claims asserted in Counts Four and Five. However, none of the reasons provided have any merit. First, Defendants claim that “FMC mistakenly attempts to rely upon the diversity statute, 28 U.S.C. § 1332, and 28 U.S.C. § 1349 for jurisdiction over its claims against GNMA.” See Mtn. to Dismiss at 16 n.10. This argument is nonsensical. Jurisdiction plainly exists over FMC’s due process claims under 28 U.S.C. § 1331 because they arise under the United States Constitution. See Church of Scientology Int’l v. Kolts, 846 F. Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 21 of 30 Page ID #:468 16 LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Supp. 873, 886, 878 (C.D. Cal. 1994) (“Because Plaintiff states a claim arising under the Constitution (Plaintiff contends its Fifth Amendment due process rights were violated), Plaintiff’s complaint meets the requirement of ‘arising under’ the Constitution required by 28 U.S.C. § 1331.”); Presbyterian Church v. United States, 870 F.2d 518, 524 (9th Cir. 1989) (holding that the court had jurisdiction over a claim for declaratory relief because plaintiff alleged a violation of the First and Fourth Amendments); Staacke v. U.S. Sec’y of Labor, 841 F.2d 278, 281 (9th Cir. 1988) (finding jurisdiction under section 1331 where the plaintiff has a substantial constitutional claim). Next, Defendants claim that FMC’s due process claims are barred under FDIC v. Meyer, 510 U.S. 471 (1994), which purportedly held that no court has subject matter jurisdiction over constitutional claims under the Due Process Clause for damages directly against a federal agency, even if the agency has waived sovereign immunity through a sue-and-be-sued clause. But this is not what Meyer holds. The case involved a due process claim filed against the FSLIC in the Northern District of California. Id. at 474. The Court considered whether the claim was “cognizable” under the Federal Tort Claims Act, which waives the sovereign immunity of the United States for certain torts committed by federal employees. Id. at 475-77. If the claim was “cognizable” under the FTCA, the FTCA provides the exclusive remedy, and the federal agency cannot be sued “in its own name, despite the existence of a sue-and-be-sued clause.” Id. at 476. The Supreme Court held that the plaintiff’s due process claim was not cognizable under the FTCA and therefore properly filed in the district court. Id. Like Meyer’s claim, FMC’s due process claims are not cognizable under the FTCA. A claim is cognizable under the FTCA if it is: “[1] against the United States, [2] for money damages, ... [3] for injury or loss of property, or personal injury or death [4] caused by the negligent or wrongful act or omission of any employee of the Government [5] while acting within the scope of his office or employment, [6] under circumstances where the United States, if a private person, would be liable to the claimant in accordance with the law of the place where the act or omission occurred.” Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 22 of 30 Page ID #:469 17 LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 28 U.S.C. § 1346(b). FMC’s due process claims are not “cognizable” under § 1346(b) “because it is not actionable under § 1346(b)—that is, § 1346(b) does not provide a cause of action for such a claim.” Meyer, 510 U.S. at 477. “[T]o be actionable under § 1346(b), a claim must allege, inter alia, that the United States ‘would be liable to the claimant’ as ‘a private person’ ‘in accordance with the law of the place where the act or omission occurred.’” Id. FMC’s claim does not allege that the United States would be liable to the claimant as a private person in accordance with the law of California. “[F]ederal law, not state law, provides the source of liability for a claim alleging the deprivation of a federal constitutional right.” Id. at 478. Because FMC’s constitutional damages claim is not cognizable under § 1346(b), the FTCA does not constitute an “exclusive” remedy, and FMC’s claim is properly brought against HUD and GNMA in their own name. 28 U.S.C. § 2679(a). Further, because FMC’s claim is not cognizable under § 1346(b), Defendants’ sue- and-be-sued clauses waive the Defendants’ sovereign immunity regarding the due process claims. Defendants’ sue-and-be-sued clauses are identical to the FSLIC’s clause considered in Meyer. Citing Burr, supra, the Meyer Court explained that “sue-and-be- sued clauses cannot be limited by implication unless there has been a “clea[r] show[ing] that certain types of suits are not consistent with the statutory or constitutional scheme, that an implied restriction of the general authority is necessary to avoid grave interference with the performance of a governmental function, or that for other reasons it was plainly the purpose of Congress to use the ‘sue-and-be-sued’ clause in a narrow sense.” Id. at 480. Absent such a showing, agencies “authorized to ‘sue-and-be-sued’ are presumed to have fully waived immunity.” Int’l Primate Prot. League v. Adm’rs of Tulane Educ. Fund, 500 U.S. 72, 86 n.8 (1991) (describing the holding in Burr). Defendants do not make the “clear” showing of a congressional purpose to overcome the presumption that immunity has been waived. Because no showing has been made to overcome the presumption that the sue-and-be-sued clause “fully waived” Defendants’ immunity in this case, there is no question that the sue-and-be-sued clauses Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 23 of 30 Page ID #:470 18 LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 waive Defendants’ sovereign immunity for FMC’s constitutional claims. And, since FMC’s claims arise directly under the Constitution, they arise under federal law. Since there is both a waiver of immunity and a basis for federal jurisdiction, the Court has jurisdiction over FMC’s due process claims.2 II. THE COMPLAINT STATES CLAIMs FOR BREACH OF CONTRACT. The Complaint alleges that Defendants and GNMA breached the Guaranty Agreements and the “Cure Agreement.” FMC also asserts a claim for breach of the covenant of good faith and fair dealing. Defendants contend that the Complaint fails to state claims for breach of these agreements. A. THE COMPLAINT STATES A CLAIM FOR BREACH OF THE GUARANTY AGREEMENTS. The Complaint alleges that GNMA breached two distinct provisions of the Guaranty Agreements: (i) Section 10.03 (the “Default Provision”), which prohibits GNMA from terminating an Issuer except “[o]n the occurrence or development of any event of default” (Exhibit A, at ¶ 23-1 [remedy of termination only available “in the 2 Even if this Court determines that it does not have subject matter jurisdiction over this action, which it does, FMC respectfully requests that the Court transfer this action to the Court of Federal Claims pursuant to 28 U.S.C. § 1631, rather than grant the government’s motion to dismiss. When a court finds that it lacks jurisdiction, “the court shall, if it is in the interest of justice, transfer such action or appeal to any other such court in which the action or appeal could have been brought at the time it was filed or noticed.” 28 U.S.C. § 1631. Here, the Court of Federal Claims has jurisdiction over FMC’s claims. See, e.g., United States v. Mitchell, 463 U.S. 206, 215 (1983) (Court of Federal Claims has jurisdiction over cases premised on breach of contract). In addition, the Court of Federal Claims would have pendent jurisdiction over the related Due Process claims because federal courts, including the Court of Federal Claims, are authorized to exercise supplemental jurisdiction. See 28 U.S.C. § 1367(a); Trek Leasing, Inc. v. United States, 62 Fed. Cl. 673, 678 (2004). Finally, transferring this action is in the interest of justice because, as the Ninth Circuit has held, another court’s exclusive jurisdiction makes transfer appropriate. See, e.g., McGuire v. United States, 550 F.3d 903, 914 (9th Cir. 2008). Accordingly, even if jurisdiction is lacking in this Court—which it is not—the interest of justice would be best served by allowing the Court of Federal Claims to address this case on the merits. Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 24 of 30 Page ID #:471 19 LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 event of default”]); and (ii) Section 10.04, which prohibited GNMA from terminating an Issuer where “arrangements under Section 10.03 above are mutually agreed upon by and between Ginnie Mae and the Issuer and placed in written contractual form duly executed by Ginnie Mae.” The elements of a breach of contract claim under federal common law are: “(1) a valid contract between the parties, (2) an obligation or duty arising out of the contract, (3) a breach of that duty, and (4) damages caused by the breach.” San Carlos Irr. & Drainage Dist. v. United States, 877 F.2d 957, 959 (Fed. Cir. 1989); Restatement (Second) of Contracts §§ 329 cmt. a, 335 (1981). Defendants do not dispute: (1) the existence of a valid contract; (2) that GNMA owed duties to FMC under the Guaranty Agreements; or (3) that the Complaint alleges that GNMA’s breach caused FMC monetary damages. Defendants instead contend that the Complaint fails to allege a breach because GNMA was purportedly justified in terminating FMC. Specifically, they assert that GNMA was permitted to terminate the Guaranty Agreement because First Mortgage “submitted false and deceptive information about its repurchasing and re-pooling practices.” (Mot. at 19.) As a preliminary matter, Defendants arguments go to the merits, not the sufficiently of FMC’s pleading. Nothing in the Complaint’s factual allegations supports Defendants’ unfounded assertions regarding the purported default, and Defendants cannot contest issues of fact concerning what is essentially an affirmative defense (Plaintiff’s breach). See Waddell v. Trek Bicycle Corp., No. SA-CV-152082 DOC(JCGx), 2016 WL 7507770, at *2 (C.D. Cal. Apr. 7, 2016) (“A motion to dismiss under Rule 12(b)(6) cannot be granted based upon an affirmative defense unless that defense raises no disputed issues of fact.”); see also Englewood Terrace Ltd. P'ship v. United States, 79 Fed. Cl. 516, 548 (2007), aff’d, 479 F. App’x 969 (Fed. Cir. 2012) (ultimately denying HUD's default defense to a termination where the default “[wa]s not supported by the record and, therefore, d[id] not provide justification for the breach”).. Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 25 of 30 Page ID #:472 20 LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Second, the Complaint alleges facts that are not only plausible but that, if accepted as true, establish that GNMA breached the Guaranty Agreements. GNMA was prohibited, under the Guaranty Agreement, from terminating an issuer unless an event of default occurs. While the May 12 letter did purport to terminate FMC based on an event of defaul, the Complaint alleges that these charges were merely pretexts for terminating FMC and no default existed. (Compl. ¶ 70.) The conduct that GNMA cited—Plaintiff’s repurchasing program—dealt only with a small portion of the loans FMC serviced (loans repurchased from GNMA pools). GNMA presumed, without showing, that FMC’s repurchases were improper when they were in fact entirely permissible under GNMA’s own guidelines. Further, FMC’s interpretation of GNMA’s repurchase policy wholly followed the text of the Issuer Guide, the Clarification, and the guidance it had received from Mr. St. Laurent. The baseless nature of the charges is apparent from the face of the Notice of Violation. Regarding “custodial accounts,” GNMA asserted that FMC “held payments made by delinquent borrowers, rather than timely depositing the payments to the appropriate custodial accounts, creating the false impression that the payments were three months in arrears.” Although the Court need not decide the merits of FMC’s termination on this motion, GNMA's accusations (both now and at the time of the termination) are highly suspect and did not pass the “smell test.” The May 12 letter provided no factual or legal support for the accusations—particularly because a loan’s delinquency status is not determined by the date on which payment is deposited into a “custodial account,” but the date the payment was received by the server, as recorded in the servicing platform. GNMA has never alleged that FMC failed to timely park payments as received on its servicing platform. Next, the Guide did not impose a 48-hour time limit for depositing funds into custodial accounts, nor did the Guide even require that reinstatement payments received after the Issuer had advanced those funds be held in custodial accounts. A reinstatement payment follows one or more missed payments. Since FMC was obligated, Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 26 of 30 Page ID #:473 21 LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 as an Issuer, to advance missed payments to investors from its own funds, a reinstatement payment would reimburse the Issuer. Finally, even if GNMA had a legitimate basis for sending the Notice of Violation—which it did not—it unequivocably breached Section 10.04 of the Guaranty Agreements by terminating FMC after signing a forbearance arrangement under Section 10.03. Section 10.04 permits GNMA to extinguish the rights of any Issuer on any event of default, unless arrangements under Section 10.03 are mutually agreed upon by and between Ginnie Mae and the Issuer and placed in written contractual form duly executed by Ginnie Mae. Taken together, Sections 10.03 and 10.04 allow GNMA to extinguish the Issuer’s rights or enter a 10.03 arrangement—not both. Yet, this is what GNMA did. In the Notice of Violation, GNMA offered to “forbear from immediately effectuating the termination and extinguishment of FMC” if FMC delivered specified items. Exhibit F. Although FMC did not believe that it had violated any GNMA guidelines or committed an event of default, FMC accepted GNMA’s offer of forbearance by delivering a detailed, written, signed response to GNMA affirming its intent to comply with the conditions established by GNMA and providing GNMA with specific details, documents, and monitoring access requested in the Letter. (Compl. ¶¶ 6, 45.) These commitments went above and beyond the normal duties imposed on Issuers. Despite this arrangement, and despite FMC’s performance, GNMA then later terminated FMC. In doing so, GNMA breached the Guaranty Agreement. B. THE COMPLAINT STATES A CLAIM FOR BREACH OF THE CURE AGREEMENT. GNMA’s Notice included an offer to forbear from terminating FMC, which FMC accepted in writing and through its performance. This mutual exchange of promises, supported by consideration, created a contract between GNMA and FMC separate and apart from the Guaranty Agreements—the “Cure Agreement.” See City of El Centro v. United States, 922 F.2d 816, 820 (Fed. Cir. 1990) (“A binding contract with the United States is formed when there is a mutual intent to contract including an offer, acceptance, Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 27 of 30 Page ID #:474 22 LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 and consideration.”). GNMA breached this contract by terminating FMC despite its promise not to do so. Defendants seek dismissal of this claim on several grounds, none of which have merit. First, Defendants contend there was no Cure Agreement because there was no new consideration given for the agreement and because the GNMA official who signed the Notice of Violation allegedly lacked authority to bind GNMA to a forbearance arrangement. (Mot. at 22.) These arguments border on frivolous. There is no question that the Parties entered into a binding, valid Cure Agreement. Through the May 12, 2015 Notice (the offer) and FMC’s May 26, 2015 response (the acceptance), GNMA agreed to forego terminating FMC in exchange for FMC’s promise to provide particular information and access and take certain actions outlined in the agreement. Defendants’ claim that “GNMA would receive nothing under this supposed bargain that it was not already entitled to under the Guaranty Agreement” is absurd. (Mot. at 22.) The Notice of Violation (Compl., Ex F, p. 333) sets forth no less than 18 steps FMC had to agree to in exchange for GNMA’s agreement to forbear. These steps included providing documents, access to data, written responses to questions, and affirmations of actions taken, none of which FMC was required to do prior to entering into the Cure Agreement. GNMA’s contention that it already possessed these items defies common sense—if so, why would GNMA have required that FMC produce these items by a specific date as a condition of forbearance? Second, Defendants claim that there was no valid Cure Agreement because there was no authority to enter such an agreement. This argument also borders on the frivolous. A copy of GNMA’s “offer” (i.e., the Notice) was attached to the Complaint. (Compl., Ex. F.) The letter is drafted on GNMA letterhead and was signed by Michael R. Drayne, Senior Vice President for the Office of Issuer and Portfolio Management. The same letter declares FMC in default and threatens to terminate FMC as an issuer if FMC does not agree to the terms set forth therein. Not surprisingly, GNMA does not claim that Mr. Drayne lacked authority to terminate (or threaten to terminate) FMC. An Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 28 of 30 Page ID #:475 23 LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 agent has actual authority if he has the power “to affect the legal relations of the principal.” Restatement (Second) of Agency § 7. Accordingly, Mr. Drayne possessed authority to bind GNMA to the Cure Agreement. Third, GNMA argues that even if a “Cure Agreement” existed, GNMA performed by not immediately terminating FMC (Mot. at 21). Not so. The Cure Agreement became effective on May 26, 2015, when FMC returned its signed acceptance. FMC reasonably believed that, by agreeing to the extensive undertaking demanded by GNMA as consideration for its agreement not to terminate, that the prior allegations were “cured” and that GNMA would not terminate FMC absent a new event of default. Yet, GNMA terminated FMC a mere sixteen days after the parties signed the cure agreement, without any new alleged default. Fourth, and finally, Defendants argue that even if a Cure Agreement was created, GNMA reserved the right to terminate. (Mot. at 22-23.) While cast as a separate argument, this is merely a restatement of GNMA’s argument that it performed under the Cure Agreement by not immediately terminating GNMA. By invoking Section 10.03 and then signing an arrangement under Section 10.03, GNMA relinquished its right to terminate GNMA for the same offenses that prompted the Section 10.03 arrangement. (Compl., Ex. F.) C. THE COMPLAINT STATES A CLAIM FOR BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING. Finally, Defendants assert that First Mortgage’s claim for breach of the implied covenant of good faith and fair dealing fails because it “merely restate[s] its claim for breach of contract.” (Mot. at 23-24.) But the Complaint alleges ample factual support that, besides a mere breach, GNMA’s conduct in violating its contractual duties rises to the level of bad faith required to implicate this distinct right of action. The Complaint alleges that GNMA tolerated and even approved of First Mortgage’s repurchasing program while acknowledging the Guidelines’ potential ambiguity (Compl. ¶¶ 34-38), only to abruptly reverse course and call the program a “default” as a pretext for Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 29 of 30 Page ID #:476 24 LV421015762 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 terminating First Mortgage (see id., ¶ 70). This disingenuous, brazen reversal supports a plausible claim for breach of GNMA’s duty to deal with First Mortgage fairly and in good faith. Defendants’ own case—Precision Pine & Timber, Inc. v. United States, 596 F.3d 817 (Fed. Cir. 2010)—demonstrates why. While that case held that the implied covenant of good faith “could not expand a party's contractual duties beyond those in the express contract or create duties inconsistent with the contract's provisions,” id. at 831, that is not what the Complaint does. Rather, the Complaint’s allegations demonstrate the “double- crossing” and “specific targeting” that Precision Pine notes will support a claim for breach of the implied covenant. See id. at 829; see also Goodsell v. United States, No. 17-171 C, 2017 WL 4873652, at *5 (Fed. Cl. Oct. 30, 2017) (holding that a plaintiff stated a claim for breach of the implied covenant where it was alleged that a lease termination was pretextual and the purported default was actually generated by the defendant). Accordingly, First Mortgage’s Complaint states a plausible claim for breach of the implied covenant of good faith and fair dealing. Dated: November 13, 2017. GREENBERG TRAURIG, LLP By: /s/ Jennifer L. Gray Jennifer L. Gray Jerry Stouck Jacob D. Bundick Attorneys for Plaintiff FIRST MORTGAGE CORPORATION Case 5:17-cv-01225-JGB-KK Document 24 Filed 11/13/17 Page 30 of 30 Page ID #:477