Three shareholders of a company sued the Federal Housing Finance Agency (FHFA) and the Department of the Treasury (Treasury), claiming that an “unconstitutional director-removal limitation” provided for in the Housing and Economic Recovery Act of 2008 had caused them harm. The shareholders specifically objected to the Treasury’s “liquidation preference,” which would allow the Treasury “to recover the full amount of its preference before any other stockholder receives payment” Bhatti v. Fed Hous. Fin. Agency, 646 F. Supp. 3d 1003, 1008 (D. Minn. 2022). The shareholders argued that if President Trump had been able to remove the current Treasury director, he would have appointed a new director to discontinue the “liquidation preference” practice. The district court dismissed the shareholders’ four claims for failure to state a claim, and the shareholders appealed, arguing that circumstantial evidence, including a letter from former President Trump, would justify relief under the Supreme Court’s holding in Collins v. Yellen, 141 S.Ct. 1761 (2021). The Collins decision had set forth two “hypotheticals” where an “unconstitutional removal restriction” may cause a plaintiff harm. Id. at 1789. First, harm can be shown when a President is unable to remove a director because a lower court held the President “did not have ‘cause’ for removal.” Id. Second, harm could arise when a President has not yet attempted to remove a director but publicly expresses displeasure and a desire to remove them, if not for the “unconstitutional director-removal limitation.” Id. Thus, the Court of Appeals had to decide whether the shareholders’ claims were valid under a “Collins hypothetical scenario[].”
In Bhatti v. Fed. Hous. Fin. Agency, 97 F.4th 556 (8th Cir. 2024), the court affirmed the district court’s decision to dismiss the shareholder’s claims because the President Trump’s post-presidency letter and circumstantial evidence were insufficient to allege harm under Collins. First, the court began by discussing count 1, which claimed that the FHFA’s director-removal restriction harmed the shareholders because it prevented President Trump from ending the “liquidation preference” by appointing a new director. The shareholders argued they were entitled to an order ending the Treasury’s liquidation preference because the statute unconstitutionally limits the president’s removal authority, and harm can be shown under the “second Collins hypothetical.” As evidence of a “public statement expressing displeasure,” the shareholders relied on a post-presidency letter from President Trump to a sitting U.S. Senator addressing the Collins opinion. However, the court found that the statement was likely not public, was not made during his presidency, and the letter did not state that the president would remove the director if not for the statute, and thus, did not satisfy the hypothetical situation in Collins. See Collins, 141 S.Ct. at 1789. Second, the court held that the shareholder’s circumstantial evidence of harm “was speculative and failed to plausibly state a claim for relief.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Specifically, the shareholders did not “plausibly allege that the inability to remove [a director] frustrated the administration’s goals of ending the conservatorship” and did not “plausibly plead that Trump’s inability to remove [the director] harmed the shareholders. Therefore, the Eighth Circuit affirmed the dismissal of all shareholders’ claims.
By Ashley Boyce, [email protected]
Edited By Hayden Mariott, [email protected]