A former Fannie Mae employee who filed a whistleblower case against the government-sponsored enterprise is highlighting some of the difficulties plaintiffs face when dealing with agencies under conservatorship.
The case also shows the Federal Housing Finance Agency utilizing its statutory powers to avoid penalties and large pay-outs that could adversely effect U.S. taxpayers.
The former employee, Caroline Herron, lost her most recent push for the inclusion of punitive damage claims in a pending lawsuit against Fannie.
While the case is not precedent in most jurisdictions, it does illustrate some of the legal battles ahead for counties and other parties that sue GSEs in the future. These lawsuits may prove difficult given the fact that it’s difficult to ascertain when the GSEs will be classified as government entities with certain immunities or as private corporations.
In the original suit, former Fannie employee Caroline Herron sued the GSE, saying she was wrongfully terminated after bringing attention to allegations that Fannie “acted inappropriately” when assisting the Treasury with home loan modifications. She also accused the GSE of wasting public funds and violating terms of a Treasury contract, according to court records.
In her initial complaint, Herron, a former Fannie Mae vice president and a consultant to the GSE after it entered conservatorship, argued if Fannie is a public entity then she should be able to bring a Constitutional First Amendment violation claim against the mortgage giant in its government capacity.
However, the United States District Court for the District of Columbia threw out the First Amendment claim against Fannie earlier this year, saying the GSE functions as a private entity and even though the Federal Housing Finance Agency took over as conservator, it essentially stepped into the GSE’s role as a private institution.
This legal analysis, which gave Fannie Mae private status, barred the Constitutional claims.
However, Herron still has several claims of wrongful discharge, civil conspiracy and tortious interference pending against Fannie Mae in the same case.
The Federal Housing Finance Agency as conservator filed its own motion with the court, asking them to dismiss Herron’s claims for punitive damages to be included in the remaining suit. It’s here where the classification of the GSEs turns, creating much confusion on how courts and attorneys view the agencies.