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Speaker 1: This is Bloomberg Law with June Grasso from Bloomberg Radio.

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Speaker 1: The stakes are incredibly high in a lawsuit before the

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Speaker 1: Supreme Court, billions of dollars for shareholders of Fannie Mae

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Speaker 1: and Freddie Mack and the push to end government control

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Speaker 1: of the mortgage giants. Investors are challenging the twelve agreements

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Speaker 1: that let the federal government collect more than three billion

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Speaker 1: dollars in profits from Fannie and Freddie, the mortgage giants

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Speaker 1: that keep the US housing market humming. A big askue,

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Speaker 1: as noted by several justices, including Samuel Alito, Neil Gorsuch,

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Speaker 1: and Clarence Thomas, the way in which the agency carries

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Speaker 1: out its responsibility as conservator has a profound effect on

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Speaker 1: the housing market and therefore a profound effect on ordinary people. Council,

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Speaker 1: your remedial ask is a big one and and hard

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Speaker 1: hard trust to swallow. I know, but how would we

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Speaker 1: unscrambled egg here? How do we put the parties back

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Speaker 1: into uh the position they were in prior to Amendment three?

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Speaker 1: And Chief Justice John Roberts seemed to completely reject the

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Speaker 1: investor's argument that the companies had been nationalized and their

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Speaker 1: stock was worthless. But I checked this morning and Fanny

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Speaker 1: May was trading at two dollars and sixty nine cents

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Speaker 1: and Freddie Mack at two dollars and fifty six cents.

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Speaker 1: And your shares are not worthless. They're worth something. Uh,

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Speaker 1: presumably largely based on judgments about what the future holds.

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Speaker 1: My guest is Jonathan Macy, a professor at Yale Law School.

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Speaker 1: John the investors were pressing multiple arguments, angling to have

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Speaker 1: at least one survive so the case can move forward.

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Speaker 1: Which were the most important legal issues. There really two

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Speaker 1: big legal issues in the case. The case essentially involves

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Speaker 1: a complaint by shareholders that the government has get away

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Speaker 1: the entire value of their investment by implementing a rule

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Speaker 1: change that instead of having dividends being paid to these shareholders,

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Speaker 1: all the money is being swept out of these organizations

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Speaker 1: and just sent directly to the treasury. And they have

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Speaker 1: two basic sort of complaints. What is a corporate law complaint,

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Speaker 1: which essentially says, but you can't do this, This is

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Speaker 1: an abuse of power. If you're a controlling shareholder like

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Speaker 1: the government, it can't just transfer all the value of

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Speaker 1: the company to yourself and then the second claim is

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Speaker 1: that the government bureaucracy that is running these organizations is unconstitutional,

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Speaker 1: and as a consequence of that, the rules and decisions

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Speaker 1: and actions that they take are invalid. This company, the bureaucracy,

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Speaker 1: it's called the Federal Housing Finance Agency. We'll call it

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Speaker 1: the f hf A. And the basic attack is the

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Speaker 1: same attack that was used in a recent case called

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Speaker 1: sela law against Consumer Financial Protection ord that claimed that

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Speaker 1: the CFPP was unconstitutional because the head of the agency

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Speaker 1: couldn't be removed by the president and this violated a

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Speaker 1: separation of powers constitutional principle. In that case involving the

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Speaker 1: CFPB last term, the justice is simply struck down a

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Speaker 1: provision in the Dodd Frank Act that protected the director

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Speaker 1: from being fired and left the agency intact. So might

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Speaker 1: the same thing happened here with the f h f A.

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Speaker 1: We have a similar set up with the f h

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Speaker 1: f A, which is that there's some obstacles to the

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Speaker 1: president removing the head of this bureaucracy. The trick is, however,

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Speaker 1: that it's a little bit easier to remove the head

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Speaker 1: of the f h f A. The head of that

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Speaker 1: agency can be removed for laus so it's possible that

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Speaker 1: that even though the Consumer Financial Protection Bureau structure was

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Speaker 1: ruled unconstitutional, it's possible that the structure of this agency,

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Speaker 1: just because of some details in the way that president's

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Speaker 1: removal power is structured, this one might pass constitutional muster.

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Speaker 1: Suppose the justices did declare the f A j f

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Speaker 1: A unconstitutional, would the plaintiffs get the windfall remedy they're seeking? Now?

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Speaker 1: The big problem that the plaintiffs have is, even if

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Speaker 1: this thing is ruled unconstitutional. The justices during the oral

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Speaker 1: argument appeared both on the right and the left to

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Speaker 1: be very skeptical that ruling the organization unconstitutional would mean

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Speaker 1: that the actions that it's taken are invalidated. The justices

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Speaker 1: seem to be inclined to the view that you could

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Speaker 1: simply kind of saved this organization from a constitutional perspective

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Speaker 1: by saying, well, okay, the president gets to remove ahead

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Speaker 1: of it, so now it's constitutional, we don't have a

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Speaker 1: separation of powers problem anymore, and the stuff that the

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Speaker 1: agency did could still go forward. The relief that the

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Speaker 1: plaintiffs in this case are asking for the amount of

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Speaker 1: money would be staggering if you took it to its

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Speaker 1: logical conclusion something like a hundred and twenty four billion dollars. Well,

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Speaker 1: do you see the relief that the plaintets are asking

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Speaker 1: for is extreme? Well, you know, these are very big

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Speaker 1: companies that are generating a lot of money. It's a lot.

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Speaker 1: You know, there's a basis for the damages calculation. Basically,

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Speaker 1: it's like a river of money, right, and the river

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Speaker 1: of money the plaintets are saying that river should be

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Speaker 1: flowing to us, and the government saying, no, this river's

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Speaker 1: flowing to the US tradition. So if you divert the river,

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Speaker 1: you know, you get to very big numbers, and you know,

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Speaker 1: over a hundred bill. Many of the justices seemed concerned

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Speaker 1: about the effect of striking down the restrictions on the

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Speaker 1: president's ability to remove the f h f A director,

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Speaker 1: the ripple effects and justice is Samuel Alito and Elena

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Speaker 1: Kagan compared to calling into question the leadership structure of

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Speaker 1: the Social Security Administration. Do you think it would follow

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Speaker 1: that everything ever done by a Social Security Administrator, or

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Speaker 1: everything ever done by the FCC or one of the

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Speaker 1: other multi member commissions was void. Having this show, they

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Speaker 1: would all be wiped off the books. The Essays has

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Speaker 1: been led by a single commissioner since ninete and ever

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Speaker 1: since then it's rendered sifty thousand decisions every year, So

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Speaker 1: that's about seventeen million decisions. So are we really going

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Speaker 1: to avoid all of those decisions? I don't think Justice

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Speaker 1: Kagan's intervention it was particularly logical. There's no litigation involving

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Speaker 1: Social Security Administration, and nobody is arguing that the Social

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Speaker 1: Security Administration is unconstitutional, so it doesn't really have anything

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Speaker 1: to do with this. On the other hand, the General

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Speaker 1: concerned that at least with respect to this agency, we'd

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Speaker 1: have to strike out everything it did. You know, that's

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Speaker 1: a fair concern that people have. Justices on the left,

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Speaker 1: I think justice so to Mayor and on the right

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Speaker 1: justice course that just have that concern. It's a legitimate concern.

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Speaker 1: So how do you think the Court will decide? I

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Speaker 1: think the conservative block will decide the structure of this

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Speaker 1: agency violates the separation of powers. They want a strong,

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Speaker 1: unitary executive. But then they'll say that the agency will continue,

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Speaker 1: the President will remove the head of it, and the

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Speaker 1: regulations that have been promulgated will continue. A worst case

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Speaker 1: scenario you can have, you know, the newly constitutional structure

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Speaker 1: as mandated by this Supreme Court will be in place,

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Speaker 1: and the agency could just ratify all the stuff it

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Speaker 1: did in terms of taking away the shareholder's money. Wasn't

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Speaker 1: the unitary executive theory once considered pretty radical and only

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Speaker 1: endorsed on the Court by the late Justice Antonin Scalia. Yeah, well,

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Speaker 1: you know that we have a brave new world on

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Speaker 1: the Supreme Court, right with Amy Coney Barrett's appointment and

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Speaker 1: a newly in bolden conservative block. Justice John Roberts is

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Speaker 1: now viewed as a left leading centrist, at least against

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Speaker 1: the backdrop of this court. So yeah, I think the

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Speaker 1: idea that we're plucking up old constitutional arguments that have

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Speaker 1: been suggested by Justice Scalia and generally rejected or ignored

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Speaker 1: their back at the center of the conversation, there's been

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Speaker 1: a push under the Trump administration to release Fannie and

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Speaker 1: Freddie from the government's control, and Treasury Secretary Stephen Manuchan

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Speaker 1: and fhf A director Mark Calabria are in talks to

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Speaker 1: amend the company's bailout agreements before President Elect Joe Biden's inauguration.

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Speaker 1: Do you agree with that push and is it going anywhere.

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Speaker 1: That is a very good question. I don't think it's

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Speaker 1: going anywhere. Do I agree with it? You know, I

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Speaker 1: think these organizations have been not recently, but leading up

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Speaker 1: to the oh seven or eight financial crisis. The amount

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Speaker 1: of mismanagement and crony capitalism, the idea that Fannie May

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Speaker 1: and Freddie mac almost with under given a business structure

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Speaker 1: that it seems just absolutely impermeable to failure. There's really

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Speaker 1: a testament just to how grotesquely mismanaged these organizations were.

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Speaker 1: So I think it's very important, given the vital roles

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Speaker 1: that these entities play, and that's just the housing market,

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Speaker 1: but in the broader economy, that we have some kind

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Speaker 1: of reasonable corporate governance and incurnability. And it's definitely improved

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Speaker 1: since the reforms made in the wake of the financial crisis.

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Speaker 1: But the trick is to get a lot of private

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Speaker 1: sector kind of incentives working on these organizations, but still

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Speaker 1: have sort of stall off the government backing that gives

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Speaker 1: the financing and the securities these entities issues some meaningful

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Speaker 1: credibility in the marketplace. Thanks so much for being on

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Speaker 1: the Bloomberg Law Show, Jonathan. That's Professor Jonathan Macy of

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Speaker 1: Yale Law School radio. This week, the Supreme Court considered

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Speaker 1: whether families of Holocaust victims can sue foreign countries in

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Speaker 1: US courts for seizing property from Jewish citizens during World

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Speaker 1: War Two. In one case, the airs of Jewish art

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Speaker 1: dealers are suing Germany to recover collection of medieval relics,

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Speaker 1: which they say the Nazis forced the dealers to sell

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Speaker 1: for thirty five percent of its value. In another case,

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Speaker 1: the families of Holocaust victims are suing Hungry for seizing

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Speaker 1: property from Jewish citizens before sending them to death camps.

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Speaker 1: Many of the jostices were concerned that exercising jurisdiction over

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Speaker 1: disputes involving foreign countries might open up the floodgates. Here's

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Speaker 1: Justice Stephen Bryer. I mean, the list goes on and

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Speaker 1: on of what biolates international law, and many of them

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Speaker 1: involved property. And if we can bring these kinds of

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Speaker 1: actions here, well, so can these other countries do the

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Speaker 1: same and accuse us? I mean, what about Japanese internment,

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Speaker 1: which involved thirty thousand people in World War Two who

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Speaker 1: were not American citizens. Other justices, like Elena Kagan, suggested

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Speaker 1: the State Department should be making the decisions in cases

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Speaker 1: like these. I mean some might say that what's going

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Speaker 1: on here is that the State Department is expecting the

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Speaker 1: courts to do the difficult and sensitive, and some might

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Speaker 1: say dirty work for you. My guest is Mary Christine's

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Speaker 1: and Guila, chair of the Appellate Practice at buck Alter.

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Speaker 1: To put this into context, MC how much art transferred

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Speaker 1: hands during World War two. One third of art holdings

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Speaker 1: changed hands during World War two. So there is a

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Speaker 1: lot of art that is impacted by these decisions whether

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Speaker 1: claims can be made or not. There's estimated to be

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Speaker 1: at least a hundred thousand pieces worth over a billion

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Speaker 1: dollars still unfound and out there that claimants could make

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Speaker 1: claims on. So I think that's an important framework to

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Speaker 1: understand the party's positions in these cases. There's potential floodgates

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Speaker 1: of art moving once again after this I claims are

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Speaker 1: allowed to be brought, and those who hold those pieces

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Speaker 1: of art are very concerned about potentially losing them. So

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Speaker 1: it isn't just these individual cases. I think that's the

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Speaker 1: backdrop that both the litigants are thinking about, particularly the institutions,

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Speaker 1: and I think also the court is wondering, you know,

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Speaker 1: how many of these are we going to impact? How

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Speaker 1: are the Foreign Sovereign Immunities Act. Plaintiffs are generally prohibited

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Speaker 1: from suing foreign countries in US courts, but the plaintiffs

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Speaker 1: here are relying on an exception. Tell us about it.

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Speaker 1: So the Foreign Foreign Immunities Act set forth when and

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Speaker 1: under what circumstances you can do a foreign government in

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Speaker 1: the United States, And the general principle is you can't.

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Speaker 1: They're generally immune. But the issue here is whether there

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Speaker 1: is an exception in this case for appropriation that would

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Speaker 1: allow the government to be sued in US federal court.

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Speaker 1: One cases involving the Foreign Sovereign Immunities Act and the

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Speaker 1: other involving Comedy, whether that survives and how that operates

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Speaker 1: alongside the Foreign Sovereign Immunities Act. What would you say

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Speaker 1: The main focus of the justices questions was a lot

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Speaker 1: of the argument focused on who is suing and where

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Speaker 1: everything happened and where the property was. So the arguments

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Speaker 1: in favor of immunity says, well, you know, these were

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Speaker 1: actions in a foreign country, not involving the United States.

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Speaker 1: There's sort of no other interests we're talking about not

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Speaker 1: US citizens making the claim. In other words, this is

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Speaker 1: totally a dispute that should be a creature of only

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Speaker 1: one other countries interests and laws, and should we interfere

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Speaker 1: with that? And part of the argument with regard to

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Speaker 1: that would be yes, because this is a form of

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Speaker 1: appropriation in connection with genocide, and we should be allowed

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Speaker 1: to hear those kinds of claims in US courts. That's

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Speaker 1: a special kind of carve out that Congress allowed for

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Speaker 1: in the Foreign Sovereign Immunities and in fact reference Holocaust

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Speaker 1: era situations. In particular, the Jump administration sided with Germany

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Speaker 1: and Hungry in these cases. And there's a concern about

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Speaker 1: potential foreign policy implications here in the delicate context in

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Speaker 1: which these cases occur. So there's always that overlaying concern

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Speaker 1: which you also heard an argument, and which is why

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Speaker 1: the US government and States Department are always asked to

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Speaker 1: weigh in in these cases, which is, are we interfering

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Speaker 1: always that concern of foreign relations, and when you have

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Speaker 1: might have a stronger foreign relations concerned there because there

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Speaker 1: in the United States, and so we have heightened concerns

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Speaker 1: about our relationship with other countries. And as the descent

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Speaker 1: in the dcs are get indicated, there's also a concern

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Speaker 1: that perhaps this could happen to us. Right if we

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Speaker 1: allow suits against other countries that really don't have any

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Speaker 1: direct connection territorially to the US. What will we say

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Speaker 1: if we're called into another country's court for a similar situation,

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Speaker 1: And do we want that to happen in return to us.

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Speaker 1: So there's all of those delicate considerations, even though we're

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Speaker 1: dealing with the text of a statute written by the

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Speaker 1: legislative branch. And I think that's another factor here too,

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Speaker 1: is not only where can you see, but to decide

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Speaker 1: whether you can see there. There's a lot of debate

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Speaker 1: with regards whether the Court should appropriately be making certain

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Speaker 1: considerations or whether really it should be left to Congress.

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Speaker 1: And we're interpreting what the executive branch says, both with

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Speaker 1: regard to the language of the statute and also with

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Speaker 1: some deference to what the executive branch through the State Department,

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Speaker 1: is also saying with regard to these cases. Well, several

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Speaker 1: justices questioned why judges should be making these decisions, not diplomats,

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Speaker 1: And it seemed as if the Chief Justice was sort

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Speaker 1: of annoyed by the fact that the government was not

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Speaker 1: saying the specific foreign policy issues that could arise in

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Speaker 1: this case. Yes, I remember that that portion of the argument.

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Speaker 1: I think in particular, the Chief Justice was concerned because

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Speaker 1: the um they had asked for the US government to

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Speaker 1: weigh in. The Flister General was there and this is

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Speaker 1: the time to have a position, right to be able

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Speaker 1: to say we've investigated things, whether we what our position

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Speaker 1: is in this particular case. But moreover, um, what do

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Speaker 1: you think about Have you investigated whether you think there's

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Speaker 1: an appropriate procedure in another country? What's your view about

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Speaker 1: that procedure? And they have no view and they have

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Speaker 1: the claim as they don't have haven't had any time

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Speaker 1: to investigate that. That seems I think frustrating for the

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Speaker 1: Court because the Court, well, the time is now to

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Speaker 1: investigate that, because we are being asked to determine those

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Speaker 1: questions and the Court needs your input now, not later.

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Speaker 1: Hanging over the argument is, of course, you know, the

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Speaker 1: atrocities that the Nazis committed and the fact that Jewish

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Speaker 1: people's possessions were taken from them. Did any of the

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Speaker 1: justices discuss that or express some kind of sympathy for

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Speaker 1: that point? Yes, there were a few times where where

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Speaker 1: that was reference. UM, I would say, you know, directly

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Speaker 1: by Justice Corsage at one point, and UM, indirectly I

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Speaker 1: think by uh Justice Thomas a few times with regard

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Speaker 1: to the statelessness aspect of Jews in Germany that that

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Speaker 1: they were they were not German citizens at that time.

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Speaker 1: So uh, so there was some reference to it, but uh,

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Speaker 1: for those with a significant amount of empathy, probably not

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Speaker 1: enough reference to that. Right. UM. I think that uh,

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Speaker 1: that that is, UM should be overhanging all of this

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Speaker 1: much more significantly than it was during the argument, which

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Speaker 1: was quite technical with regard to UM the immunity concerns.

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Speaker 1: So I think that would be you know, a little

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Speaker 1: bit disappointing to folks who feel strongly about these issues. UM.

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Speaker 1: And these issues do persist, I think in part because

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Speaker 1: of the way the UM original uh, the way the

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Speaker 1: US and Europe originally dealt with this from the beginning.

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Speaker 1: So the US was very significant moving forth in the

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Speaker 1: war and was able to recover a lot of this

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Speaker 1: art instead of at that time, immediately after the war

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Speaker 1: setting up a uniform commission or setting up from uniform approach,

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Speaker 1: or returning that property to individual owners. The US even

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Speaker 1: back to the countries of origin. The best they could

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Speaker 1: assess the country of origin, and then each of those

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Speaker 1: countries was to set up their own program and figure

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Speaker 1: out how to do this. But what they really ended

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Speaker 1: up doing was quite patchwork and insufficience in many cases

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Speaker 1: and only covered certain types of of objects. And even

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Speaker 1: today the European Parliament is still figuring out how they're

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Speaker 1: they're going to deal with this and potentially a more

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Speaker 1: uniform way. So from all of that comes a patchwork

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Speaker 1: where there, uh, there may not be other remedies. And

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Speaker 1: so people are trying to come to the United States

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Speaker 1: for the United States to once again be the leader

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Speaker 1: um for justice in this arena. What statute of limitations

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Speaker 1: applies in these cases? Well, that's a good question, um,

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Speaker 1: depending on what your your claim is and what law

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Speaker 1: you're bringing it under. That could vary. In the US

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Speaker 1: Congress through the Here Act, attempted to make a uniform

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Speaker 1: uh extension of the sentral notations period for a few

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Speaker 1: years to allow all claims to be brought and aired on,

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Speaker 1: you know, moving forward on the merits. And in the

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Speaker 1: document case itself, the Second Circuit said, well, that didn't

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Speaker 1: preclude common law uh series of bar and so we're

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Speaker 1: going to invoke a state common law theory with regard

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Speaker 1: to buying claim and that that overrides Congress's view under

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Speaker 1: the Here Act. So there's definitely efforts to make it

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Speaker 1: uniform and to make that clear, but it really uh

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Speaker 1: still even under the Here Act in the US, depends

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Speaker 1: on where you're bringing it and what law. So there

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Speaker 1: are two cases here, one against Hungary and one against Germany.

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Speaker 1: So could the Supreme Court rule differently in these cases?

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Speaker 1: Could they grant one and not grant the other? Well, yes,

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Speaker 1: that was the question. That was a lot of the

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Speaker 1: interplay yesterday was Okay, what if we find this way

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Speaker 1: in one of the cases, what happens to what happens

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Speaker 1: to your case? And that that in part depends on

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Speaker 1: the interplay between the two um the two legal bases

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Speaker 1: for the claims. So one of the statutory foreign sovereign

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Speaker 1: Immunity Act. The other is common law if the court agrees.

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Speaker 1: But essentially the F s i A takes over the

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Speaker 1: field and the question of comedy was not enveloped within

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Speaker 1: it and did and didn't pre exist S S i A.

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Speaker 1: Then those arguing for international comedy as a ground to

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Speaker 1: decline to hear the case, they wouldn't prevail. But it's

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Speaker 1: possible that the court could, say, could split the baby

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Speaker 1: and UH and find for UH the plaintiffs in one case,

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Speaker 1: but against the plaintiffs in the other. It's not entirely

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Speaker 1: clear from arguments, but it seems that the court is

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Speaker 1: interested in parody and how it treats UH different kinds

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Speaker 1: of litigant and different kinds of claims. But came up,

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Speaker 1: for example, with comparing with regard to the Alien Towards Statute.

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Speaker 1: If if we're very cautious about allowing corporations for extra

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Speaker 1: territorial conduct to be sued in the US, why should

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Speaker 1: we make it easier to see foreign sovereigns in the

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Speaker 1: United States? We can't see our own corporation for extra

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Speaker 1: territorial duct And then similarly there was the question of okay, well,

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Speaker 1: the S s I A involved suing foreign government. UH.

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Speaker 1: The international comedy applies applies also to private individuals. So

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Speaker 1: what if we say you can't see foreign governments, but

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Speaker 1: you can see um private folks under the International comedy.

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Speaker 1: So I think they're paying attention to that, is they're

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Speaker 1: going to be some sort of some results that they're

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Speaker 1: uncomfortable with between distinguishing between the different kinds of defendants.

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Speaker 1: I think it's a very tough road for the claimants

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Speaker 1: in both of these cases, based on the arguments yesterday,

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Speaker 1: But I think it's not without some hope that at

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Speaker 1: least one side of them will get to continue with

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Speaker 1: their claims. In your mind, which plaintiffs have the strongest case,

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Speaker 1: It's possible that the Germany claim and the Foreign Sovereign

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Speaker 1: Immunities Act, I think UH is one that the court

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Speaker 1: is perhaps more low to allow to continue. It's possible

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Speaker 1: that the Hungry Action may be able to proceed if

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Speaker 1: the UH. As Sarah Harrington was arguing yesterday that whatever

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Speaker 1: the International comedy standard is, that it only has a

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Speaker 1: few prompts to it, that it's it's narrow and you

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Speaker 1: only consider a couple of items. Even the lawyer on

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Speaker 1: the other side, though acknowledge. It's possible that case could

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Speaker 1: continue to survive even if the court found that the

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Speaker 1: comedy doctor and applied. If down the line it was

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Speaker 1: discovered that, you know, hungry actually has a terrible form

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Speaker 1: and you can't proceed there or recover anything, and you

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Speaker 1: could come back to the United States. That's not a

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Speaker 1: sat fully satisfactory answer, because that is a very long

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Speaker 1: road and a lot of litigation for these claimants to

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Speaker 1: go through, which seems unfair given the circumstances of the

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Speaker 1: Holocaust to put that many hurdles in front of them,

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Speaker 1: but that's often the case in a lot of these

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Speaker 1: Holocaust cases, whether their art recovery or other types. That

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Speaker 1: is a very long road to victory. Thanks MC. That's

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Speaker 1: Mary Christine sung Guila of buck Alter and that's it

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Speaker 1: for this edition of The Bloomberg Law Show. Remember you

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Speaker 1: can always get the latest legal news by listening to

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Speaker 1: our Bloomberg Lawn Podcast. You can find them on Apple Podcasts, Spotify,

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Speaker 1: or at www dot Bloomberg dot com, slash podcast Slash Law.

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Speaker 1: I'm June Grosso. Thanks so much for listening, and please

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Speaker 1: tune into The Bloomberg Lawn Show every week night at

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Speaker 1: ten pm Eastern right here on Bloomberg Radio h M