KTMC Prevails in Federal Appeal, Successfully Defending Its $812 Million Jury Verdict for Fannie and Freddie Shareholders
On July 24, 2026, the U.S. Court of Appeals for the D.C. Circuit issued a ruling upholding the $812 million trial verdict and judgment for plaintiff shareholders of the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”). This major victory is the latest in our long-running litigation stemming from the August 2012 “Net Worth Sweep,” in which the Federal Housing Finance Agency (“FHFA”) agreed to permit the U.S. Treasury to “sweep” 100% of Fannie and Freddie’s profits in perpetuity, thereby depriving Fannie Mae and Freddie Mac shareholders of any opportunity to benefit from those future profits in the form of dividends or through building net worth at the companies.
KTMC, along with co-counsel, achieved the unanimous jury verdict at the center of this appeal in August 2023, after a three-week trial in the U.S. District Court for the District of Columbia. The jury found that FHFA breached the implied covenant of good faith and fair dealing in the Fannie and Freddie shareholder contracts because the Net Worth Sweep was an “arbitrary and unreasonable” violation of shareholders’ reasonable expectations. Of the many lawsuits challenging the “Net Worth Sweep,” our litigation brought the only successful cause of action. We have litigated Fannie Mae and Freddie Mac stockholders’ implied covenant claim through multiple rounds of pleadings, prior appeals, and a prior three-week trial that ended in a mistrial in 2022.
In this most recent appellate victory, a three-judge panel of the D.C. Circuit rejected Defendants’ arguments that: (i) the implied covenant claim was unavailable as a matter of law, (ii) Plaintiffs failed to prove they were harmed by the Net Worth Sweep, and (iii) certain Plaintiffs lack standing to bring their claims. In so doing, the D.C. Circuit specifically rejected Defendants’ argument that the U.S. Supreme Court’s decision in Collins v. Yellen was fatal to stockholders’ implied covenant claim.
KTMC’s appeal team was comprised of the same attorneys who served on the trial team: Lee Rudy, Eric Zagar, Grant Goodhart, and Lauren Lummus.