Freddie Mac 2011 Annual Report Download - page 313

be sold to Freddie Mac or Fannie Mae. The lawsuit contends that the PACE programs create liens superior to such
mortgages and that, by affirming Freddie Mac and Fannie Mae’s positions, FHFA has violated the National Environmental
Policy Act, or NEPA, and the Administrative Procedure Act, or APA. The complaint seeks declaratory and injunctive
relief, costs and such other relief as the court deems proper.
Similar complaints have been filed by other parties. On July 26, 2010, the County of Sonoma filed a lawsuit against
Fannie Mae, Freddie Mac, FHFA, and others in the U.S. District Court for the Northern District of California, alleging
similar violations of California law, NEPA, and the APA. In a filing dated September 23, 2010, the County of Placer
moved to intervene in the Sonoma County lawsuit as a party plaintiff seeking to assert similar claims, which motion was
granted on November 1, 2010. On October 1, 2010, the City of Palm Desert filed a similar complaint against Fannie Mae,
Freddie Mac, and FHFA in the Northern District of California. On October 8, 2010, Leon County and the Leon County
Energy Improvement District filed a similar complaint against Fannie Mae, Freddie Mac, FHFA, and others in the
Northern District of Florida. On October 12, 2010, FHFA filed a motion before the Judicial Panel on Multi-District
Litigation seeking an order transferring these cases as well as a related case filed only against FHFA, for coordination or
consolidation of pretrial proceedings. This motion was denied on February 8, 2011. On October 14, 2010, the defendants
filed a motion to dismiss the lawsuits pending in the Northern District of California. Also on October 14, 2010, the
County of Sonoma filed a motion for preliminary injunction seeking to enjoin the defendants from giving any force or
effect in Sonoma County to certain directives by FHFA regarding energy retrofit loan programs and other related relief.
On October 26, 2010, the Town of Babylon filed a similar complaint against Fannie Mae, Freddie Mac, and FHFA, as
well as the Office of the Comptroller of the Currency, in the U.S. District Court for the Eastern District of New York.
The defendants filed motions to dismiss these lawsuits. The courts have entered stipulated orders dismissing the
individual officers of Freddie Mac and Fannie Mae from the cases. On December 17, 2010, the judge handling the cases
in the Northern District of California requested a position statement from the United States, which was filed on
February 8, 2011. On June 13, 2011, the complaint filed by the Town of Babylon was dismissed. On August 11, 2011, the
Town of Babylon filed a notice of appeal to the U.S. Court of Appeals for the Second Circuit. On August 26, 2011, the
California federal court granted in part defendants’ motion to dismiss, leaving only plaintiffs’ APA and NEPA claims
against FHFA. The California federal district court cases were thereafter consolidated and the plaintiffs in those cases
filed a joint motion for summary judgment on January 23, 2012. FHFA cross-moved for summary judgment on
February 27, 2012.
Sonoma County’s motion for preliminary injunction was granted in part, requiring FHFA to provide a notice and
comment period with regard to its directives. FHFA filed an appeal of the injunction on September 15, 2011, and the
District Court granted FHFA a 10-day stay of the injunction to allow FHFA to request a further stay from the U.S. Court
of Appeals for the Ninth Circuit, which occurred on October 11, 2011. By order dated December 20, 2011, the Ninth
Circuit denied the request for a stay with respect to the notice and comment period. Accordingly, on January 26, 2012,
FHFA issued an advance notice of proposed rulemaking and notice of intent to prepare an environmental impact
statement.
On October 17, 2011 the City of Palm Desert voluntarily dismissed any remaining claims it might have had against
Freddie Mac. The complaint filed by Leon County was dismissed by the Court on September 30, 2011. Leon County filed
a notice of appeal to the U.S. Court of Appeals for the Eleventh Circuit on November 28, 2011.
At present, it is not possible for us to predict the probable outcome of these lawsuits or any potential impact on our
business, financial condition or results of operations. In addition, we are unable to reasonably estimate the possible loss or
range of possible loss in the event of an adverse judgment in the foregoing matters due to the following factors, among
others: the inherent uncertainty of pre-trial litigation; and the fact that the appeals filed by the Town of Babylon and Leon
County are still pending.
Government Investigations and Inquiries
On December 15, 2011, the SEC and Freddie Mac entered into a non-prosecution agreement related to an
investigation by the SEC’s Division of Enforcement into possible violations of the federal securities laws by Freddie Mac
and others that occurred prior to Freddie Mac’s entry into conservatorship, arising from, among other things, public
statements concerning Freddie Mac’s exposure to subprime and Alt-A mortgages.
Under the non-prosecution agreement, without admitting or denying liability, Freddie Mac has agreed to accept
responsibility for its conduct and to not dispute, contest, or contradict a set of factual statements in the non-prosecution
agreement, except in legal proceedings in which the SEC is not a party. Freddie Mac also has agreed to cooperate fully
and truthfully in the SEC’s investigation and any other related enforcement litigation or proceeding to which the SEC is a
308 Freddie Mac