Fairholme Funds, Inc v. FHFA

United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT Argued April 21, 2026 Decided July 24, 2026 No. 25-5113 FAIRHOLME FUNDS, INC, ON BEHALF OF ITS SERIES, THE FAIRHOLME FUND, ET AL., APPELLEES v. FEDERAL HOUSING FINANCE AGENCY, IN ITS CAPACITY AS CONSERVATOR OF THE FEDERAL NATIONAL MORTGAGE ASSOCIATION AND THE FEDERAL HOME LOAN MORTGAGE CORPORATION, ET AL., APPELLANTS Consolidated with 25-5121, 25-5154, 25-5155 Appeals from the United States District Court for the District of Columbia (No. 1:13-cv-01053) (No. 1:13-mc-01288) John P. Elwood argued the cause for appellants/cross- appellees. With him on the briefs were R. Stanton Jones, Anthony Franze, Orion de Nevers, Meaghan M. VerGow, and  2 Michael J. Ciatti. David B. Bergman and Taylor T. Lankford entered appearances. Hamish Hume argued the cause for Class appellees. With him on the brief were Adam H. Wierzbowski, Robert Kravetz, Michael J. Barry, David H. Thompson, Brian W. Barnes, and John Ramer. Craig L. Briskin and Jonathan M. Shaw entered appearances. Brian W. Barnes argued the cause for Berkley appellees/cross-appellants. With him on the briefs were David H. Thompson and John Ramer. Charles J. Cooper and Peter A. Patterson entered appearances. Before: WALKER and CHILDS, Circuit Judges, and GINSBURG, Senior Circuit Judge. Opinion for the Court filed by Senior Circuit Judge GINSBURG.  3 I. Background .................................................................... 5 A. The Housing and Economic Recovery Act ........... 5 B. The Net Worth Sweep ........................................... 7 C. Procedural History ................................................ 9 II. Analysis........................................................................ 11 A. The Implied Covenant of Good Faith and Fair Dealing ........................................................ 12 1. Collins v. Yellen ......................................... 12 2. “Gap” in the shareholder agreements ........ 19 3. Anticipatory breach .................................... 21 B. Harm Caused by the Net Worth Sweep .............. 23 C. Standing of Post-Third Amendment Purchasers ........................................................... 26 D. Cross-Appeal....................................................... 33 1. Restitution .................................................. 34 2. Reliance damages....................................... 36 III. Conclusion ................................................................... 40  4 GINSBURG, Senior Circuit Judge: In the midst of the 2008 housing crisis, the Congress established the Federal Housing Finance Agency (FHFA or Agency) and authorized its Director to place into conservatorship the Federal National Mortgage Association (Fannie) and the Federal Home Loan Mortgage Corporation (Freddie). After doing so, the Director entered into a stock purchase agreement with the United States Department of the Treasury to make capital available to the companies. In exchange, Fannie and Freddie would pay the Treasury a quar- terly dividend at a fixed rate based upon the funds drawn from the Treasury. In 2012 the FHFA and the Treasury abandoned the fixed- rate dividend and instead required the companies to pay the Treasury a quarterly dividend equal to the amount by which their net worth exceeded their capital reserve. On the day the FHFA announced this arrangement, known as the “Net Worth Sweep,” the value of Fannie and Freddie shares dropped pre- cipitously. In the years that followed, the companies paid the Treasury significantly more money than they would have under the fixed-rate dividend formula. Perhaps least surprising, shareholders of Fannie and Freddie sued the FHFA, Fannie, and Freddie (the Defendants) for damages. After a decade of litigation, one claim made its way to trial: By adopting the Net Worth Sweep, the FHFA, as conservator of Fannie and Freddie, violated the covenant of good faith and fair dealing implicit in its contract with shareholders. A jury agreed, and the district court entered a final judgment of $812 million including prejudgment interest. On appeal, the FHFA argues the implied covenant claim was unavailable as a matter of law, the Plaintiffs failed to prove they were harmed by the Net Worth Sweep, and certain Plaintiffs lack standing to bring their claims. One group of  5 Plaintiffs cross-appealed, asserting that the district court should have allowed them to seek restitution or reliance damages in the amount of $48 billion. Because these arguments lack merit, we affirm the judgment of the district court. I. Background We fully recounted the background events giving rise to this litigation in Perry Capital LLC v. Mnuchin, 864 F.3d 591 (2017). We restate here only the information relevant to this appeal. A. The Housing and Economic Recovery Act Fannie and Freddie are government-sponsored entities the shares of which have been publicly traded since 1968 and 1989, respectively. During the 2008 housing crisis, the Congress “concluded that resuscitating Fannie Mae and Freddie Mac was vital for the Nation’s economic health.” Id. at 598. In order to prevent the companies from defaulting, the Congress enacted the Housing and Economic Recovery Act of 2008, Pub. L. No. 110-289, 122 Stat. 2654, which created the FHFA and author- ized its Director to appoint the FHFA as their conservator. See Collins v. Yellen, 594 U.S. 220, 226-27 (2021) (citing 12 U.S.C. §§ 4511, 4617). The Recovery Act “invests [the] FHFA as conservator with broad authority and discretion over the operation of” Fannie and Freddie. Perry, 864 F.3d at 600. Two provisions of the Act are central to this appeal:  6 • The “Best Interests” Provision, 12 U.S.C. § 4617(b)(2)(J)(ii), authorizes the FHFA as conservator to “take any action authorized by this section, which the Agency deter- mines is in the best interests of the regulated entity or [of] the Agency.” Therefore, “when the FHFA acts as a conservator, it may aim to rehabilitate the regulated entity in a way that, while not in the best interests of the regulated entity, is beneficial to the Agency and, by extension, the public it serves.” Collins, 594 U.S. at 238. • The Bar to Judicial Review, 12 U.S.C. § 4617(f), provides that, with exceptions not here relevant, “no court may take any action to restrain or affect the exercise of powers or functions of the Agency as a conservator.” The Recovery Act also temporarily authorized the Treasury to purchase shares of Fannie and Freddie “if it determined that infusing the companies with capital would protect taxpayers and be beneficial to the financial and mortgage markets.” Collins, 594 U.S. at 229; see §§ 1455(l)(1), (4), 1719(g)(1), (4). Because the companies are federally char- tered, the provisions of the Recovery Act are incorporated in the contracts between the companies and their shareholders. See Fairholme Funds, Inc. v. FHFA (MTD Opinion), Nos. 13- cv-1053, 1439, 2018 WL 4680197, at *8-9 (D.D.C. Sept. 28, 2018) (“[A]n investor’s contract with [a] corporation includes not only documents such as the stock certificate, certificate of designations, the corporate charter, and bylaws, but also the  7 corporate law under which the corporation is formed and regulated”). B. The Net Worth Sweep In September 2008 the Director of the FHFA placed Fannie and Freddie into conservatorship and entered into Senior Preferred Stock Purchase Agreements (PSPAs) with the United States Department of the Treasury, which agreed to make $100 billion available to Fannie and Freddie in exchange for one million preferred shares in each company. As relevant here, the Treasury was also entitled to receive (1) “a dollar-for- dollar increase in [its] liquidation preference each time Fannie and Freddie drew upon Treasury’s funding commitment,” and (2) a quarterly dividend “at a rate of 10% of Treasury’s liquidation preference or a commitment to increase the liquidation preference by 12%.” Perry, 864 F.3d at 601. Fannie and Freddie could not pay dividends to their shareholders with- out the consent of the Treasury. As Fannie and Freddie continued to incur losses, the FHFA and the Treasury twice amended the PSPAs to increase the capital available to Fannie and Freddie. When Fannie and Freddie drew upon this capital, however, it increased the Treasury’s liquidation preference which, in turn, increased the dividend owed to the Treasury. This resulted in “the circular practice of [Fannie and Freddie] drawing funds from Treasury’s capital commitment just to hand those funds back as a quarterly dividend.” Collins, 594 U.S. at 233. On August 17, 2012 the FHFA and the Treasury amended the PSPAs for a third time to “ensure[] that Fannie Mae and Freddie Mac would never again draw money from Treasury just to make their quarterly dividend payments.” Id. at 234. The Third Amendment replaced the 10% dividend with a dividend  8 based upon Fannie’s and Freddie’s net worth. If either com- pany’s net worth at the end of a quarter exceeded its capital reserve, then the company would pay the surplus to the Treasury. If the company’s net worth did not exceed the reserve or if the company lost money during the quarter, then it was not required to pay any dividend to the Treasury. See id. This new arrangement, known as the Net Worth Sweep, “meant that the companies would not be able to accrue capital in good quarters,” id., and that shareholders would never receive any dividends. “In simple terms, the Third Amendment require[d] Fannie and Freddie to pay quarterly to Treasury a dividend equal to their net worth — however much or little that might be.” Perry, 864 F.3d at 602. The Third Amendment also required Fannie and Freddie to accelerate the reduction of their retained mortgage portfo- lios. Before the Third Amendment, Fannie and Freddie were already required to reduce their portfolios at a rate of 10% annually, capped at $250 billion per company. The Third Amendment increased the reduction rate to 15% annually while retaining the $250 billion cap. On the day the Net Worth Sweep was announced in 2012, the value of Fannie and Freddie common and junior preferred shares decreased by approximately $1.6 billion. * In 2013 Fannie and Freddie paid the Treasury $130 billion in dividends under the Net Worth Sweep. If the 10% dividend had been in effect, then the companies would have owed the Treasury only $19 billion. By the end of 2022 the companies had paid $151.2 * Both Fannie and Freddie have issued several classes of preferred shares that are junior to the preferred shares issued to the Treasury. See Perry, 864 F.3d at 601 (explaining that the PSPAs gave the Treasury “a priority right above all other stockholders, whether preferred or otherwise, to receive distributions from assets if the entities were dissolved”).  9 billion more under the Net Worth Sweep than they would have paid under the fixed-rate dividend. Although the companies no longer pay a cash dividend to the Treasury, all their profits are added to the Treasury’s liquidation preference. C. Procedural History In 2013 two lawsuits were filed challenging the Net Worth Sweep: (1) a class action brought by holders of Freddie com- mon shares and of Fannie and Freddie junior preferred shares, and (2) an individual action brought by holders of Fannie and Freddie junior preferred shares (the “Berkley Plaintiffs”). The lawsuits alleged violations of the Administrative Procedure Act and of the Takings Clause of the Fifth Amendment to the Constitution of the United States as well as various contract claims. The district court dismissed the complaints for failure to state a claim. We affirmed that decision in most respects, but we remanded for further consideration of some of the Plaintiffs’ contract claims. See id. at 633-34. On remand, the district court dismissed all claims except the implied covenant claim with respect to the shareholders’ right to receive dividends. MTD Opinion, 2018 WL 4680197, at *7-14. The district court denied the FHFA’s motion for reconsideration, which argued that the implied covenant claim was effectively a non-cognizable claim for anticipatory breach. Consistent with the parties’ later stipulation, the district court certified three classes of plaintiffs consisting of: (1) holders of “junior preferred stock in Fannie,” (2) holders of “junior preferred stock in Freddie,” and (3) holders of “common stock in Freddie.” Each class included the shareholders “as of the date of certification, or their successors  10 in interest to the extent shares are sold after the date of certifi- cation and before any final judgment or settlement.” In October 2022 the district court granted in part and denied in part the FHFA’s motion for summary judgment. Summary Judgment Opinion, 2022 WL 4745970. The district court rejected the FHFA’s arguments that the implied covenant claim was foreclosed by the Supreme Court’s decision in Collins v. Yellen and that the implied covenant did not apply because the Recovery Act left no gaps in the shareholder agree- ments. Id. at *5-7. The court held, however, that the Plaintiffs could not seek damages based upon their “lost-dividends theory” — that “the Third Amendment [had] deprived plaintiffs of dividends that they would have eventually received.” Id. at *9-10. The court also held the Plaintiffs could not seek restitution of what they had paid for their shares. Id. at *11-12. The parties therefore proceeded to trial on the implied covenant claim with the Plaintiffs seeking damages based upon their “lost-value theory” — that “the Third Amendment, by eliminating any possibility of future dividends for [the Plaintiffs], deprived [their] shares of much of their value, even if such dividends were not reasonably certain to occur in the foreseeable future.” Id. at 11. The Plaintiffs pointed to the $1.6 billion drop in the value of Fannie and Freddie shares on the date the Net Worth Sweep was announced as the measure of harm. Before trial the Plaintiffs filed a motion to amend their pre- trial statement by adding a request for reliance damages. The district court denied that motion. See Pretrial Amend. Opinion I, 2022 WL 11110548, at *3-4 (D.D.C. Oct. 19, 2022). The first jury trial took place in the Fall of 2022 and ended in a hung jury. The Berkley Plaintiffs filed a motion before the second trial again seeking to present evidence on reliance dam-  11 ages, which the district court denied. See Pretrial Amend. Opinion II, 2023 WL 3790739, at *5-6 (D.D.C. June 2, 2023). The second trial took place in the Summer of 2023; the jury found the FHFA had violated the implied covenant of good faith and fair dealing with respect to all Plaintiffs. The jury awarded the Plaintiffs a total of $612.4 million, and the district court entered a final judgment of $812 million after adding pre- judgment interest. The district court then rejected the FHFA’s Rule 50(b) motion for judgment as a matter of law. See Rule 50(b) Opinion, 2025 WL 823938 (D.D.C. Mar. 14, 2025). II. Analysis We have jurisdiction under 28 U.S.C. § 1291. We review de novo the district court’s conclusions on the motion to dis- miss, the motion for summary judgment, and the motion for judgment as a matter of law. See Vasquez v. District of Columbia, 110 F.4th 282, 287, 290 (D.C. Cir. 2024); Liff v. Off. of Inspector Gen. for U.S. Dep’t of Lab., 881 F.3d 912, 918 (D.C. Cir. 2018). When reviewing the district court’s conclu- sions on the motion for judgment as a matter of law, however, “we apply to the jury’s decision the same forgiving standard as did the district court.” Vasquez, 110 F.4th at 290. “Judgment as a matter of law is appropriate only if the evidence and all reasonable inferences that can be drawn therefrom are so one- sided that reasonable men and women could not have reached a verdict in plaintiff’s favor.” Id. (cleaned up). As for the district court’s denial of the Berkley Plaintiffs’ motions to amend their pretrial statement, we review the court’s legal con- clusions de novo and its trial-management decisions for abuse of discretion. See Bauer v. FDIC, 38 F.4th 1114, 1121 (D.C. Cir. 2022); Teneyck v. Omni Shoreham Hotel, 365 F.3d 1139, 1155-56 (D.C. Cir. 2004).  12 The parties agree that Delaware law applies to claims regarding Fannie and Virginia law applies to claims regarding Freddie. Perry, 864 F.3d at 626 n.24. A. The Implied Covenant of Good Faith and Fair Dealing The implied covenant of good faith and fair dealing applies “when the party asserting the implied covenant proves that the other party has acted arbitrarily or unreasonably, thereby frustrating the fruits of the bargain that the asserting party reasonably expected . . . . at the time of contracting.” Nemec v. Shrader, 991 A.2d 1120, 1126 (Del. 2010); see Drummond Coal Sales, Inc. v. Norfolk S. Ry. Co., 3 F.4th 605, 611 (4th Cir. 2021). The jury found the FHFA’s adoption of the Net Worth Sweep violated this implied covenant. The FHFA does not challenge the sufficiency of the evi- dence with respect to the parties’ reasonable expectations. Instead, it argues the implied covenant claim fails as a matter of law for three reasons. First, Supreme Court precedent forecloses the implied covenant claim. Second, the implied covenant cannot apply to the shareholder agreements because those agreements leave no gap for the implied covenant to fill. Third, the implied covenant claim is really a non-cognizable claim for anticipatory breach. 1. Collins v. Yellen The FHFA’s opening argument is that the Supreme Court’s decision in Collins v. Yellen forecloses the Plaintiffs’ implied covenant claim. That decision rested upon 12 U.S.C. § 4617(f): “Except as provided in this section . . . no court may take any action to restrain or affect the exercise of powers or functions of the Agency as a conservator or a receiver.” First, relying upon the Court’s holding that § 4617(f) protects the  13 FHFA’s business decisions from judicial review, Collins, 594 U.S. at 254, the FHFA reasons that the jury could not second-guess the Net Worth Sweep because it was a “core exercise” of the FHFA’s “broad” powers under the Recovery Act. Second, because Collins held the FHFA “could have reasonably concluded” that the Net Worth Sweep was in the public’s interest, id. at 239, the FHFA says “Collins squarely rejected the central element of Plaintiffs’ implied covenant claim — that FHFA acted ‘arbitrarily or unreasonably’ in agreeing to the Net Worth Sweep.” The Plaintiffs respond that the FHFA overreads Collins. In their view, Collins simply involved a claim under the APA about the scope of the FHFA’s authority; it said nothing about how § 4617(f) would apply to a claim for contract damages or whether the Net Worth Sweep was consistent with the reason- able expectations of the parties. † We agree with the Plaintiffs that Collins did not foreclose the implied covenant claim in this case. We begin with our pre-Collins decision in Perry. There we held that § 4617(f) barred the Plaintiffs’ claims that the FHFA’s adoption of the Third Amendment violated the Recovery Act and the APA, among other claims. 864 F.3d at 604-16. In response to our dissenting colleague’s concern that † The Plaintiffs also argue the FHFA waived its reliance upon § 4617(f) because it did not invoke this provision on remand after Perry. Wrong. The district court addressed the FHFA’s Collins argument and the Supreme Court’s discussion of § 4617(f) in its summary judgment opinion, 2022 WL 4745970, at *5-6; the FHFA then renewed this argument in its Rule 50(a) motion “for preservation purposes”; and the district court declined to reconsider its holding when denying the FHFA’s Rule 50(b) motion, explaining that “[i]f Defendants wish to re-open this purely legal challenge, they must do so with the D.C. Circuit,” 2025 WL 823938, at *7. Just so.  14 our decision would “foreclose[] any opportunity for meaningful judicial review of FHFA’s actions,” id. at 642 (Brown, J.), we pointed out that § 4617(f) “only limits judicial remedies (banning injunctive, declaratory, and other equitable relief) after a court determines that the actions taken fall within the scope of [the FHFA’s] statutory authority.” Id. at 613-14. We did not interpret the Recovery Act to preclude “judicial review through cognizable actions for damages like breach of contract.” Id. at 614. We also rejected the FHFA’s argument that the Recovery Act preempted state laws imposing an implied covenant of good faith and fair dealing. Id. at 630. We noted that the Act authorized the FHFA to “disaffirm or repudiate any contract” executed by Fannie and Freddie before the conservatorship “which the conservator determines to be burdensome within a reasonable period following the agency’s appointment as conservator.” Id. (cleaned up). “That the Recovery Act permits the FHFA in some circumstances to repudiate contracts,” we explained, “indicates that the Companies’ contractual obliga- tions otherwise remain in force.” Id. We therefore remanded the implied covenant claim, “insofar as it seeks damages,” to the district court for further proceedings. Id. at 631. Our pre-Collins decision therefore recognized that the Recovery Act leaves room for an implied covenant claim for damages against the FHFA as conservator. See also Jacobs v. FHFA, 908 F.3d 884, 895 (3d Cir. 2018) (citing an “appropriate damages claim” for breach of contract as the type of claim courts may allow to proceed against the FHFA). This brings us to Collins. As relevant here, a group of shareholders alleged the FHFA’s adoption of the Net Worth Sweep exceeded its authority under the Recovery Act because the Sweep “did not actually serve the best interests of the  15 FHFA or the public.” 539 U.S. at 239-40. At the outset, the Court explained that § 4617(f), which it referred to as the “anti- injunction clause,” applies “only where the FHFA exercised its powers or functions as a conservator or a receiver.” Id. at 237 (cleaned up). The Court then considered whether the FHFA had done so and concluded that it had. Given Fannie’s and Freddie’s repeated inability to make their dividend payments without drawing on the Treasury’s capital commitment, the FHFA “could have reasonably concluded that [the Net Worth Sweep] was in the best interests of members of the public,” id. at 239; hence the Agency acted within its authority under § 4617(b)(2)(J)(ii), and § 4617(f) barred the shareholders’ statutory claim, id. at 242. As we said, the FHFA reads Collins as foreclosing the implied covenant claim in this case. Insofar as Perry supports a different result, the FHFA says Collins “eliminated” that part of Perry. We disagree. As the Plaintiffs note, in Collins the Court never consid- ered how § 4617(f) would apply to a contract claim for damages; that case involved a statutory claim for declaratory and injunctive relief. See 594 U.S. at 227. In the Court’s own words, it “conclude[d] only that under the terms of the Recovery Act, the FHFA did not exceed its authority as a conservator, and therefore the anti-injunction clause bars the shareholders’ statutory claim.” Id. at 242. The Court’s later statement that the FHFA’s “business decisions are protected from judicial review,” id. at 254, must therefore be read in the context of its narrow holding on the statutory claim. The Court also adopted the parties’ framing of § 4617(f) as an “anti- injunction clause,” id. at 237, further indicating that it was not deciding how § 4617(f) would apply to other forms of relief, such as damages.  16 Nor did Collins address whether the Net Worth Sweep was reasonable based upon the expectations of the parties. When the Court held that “the FHFA could have reasonably concluded” the Net Worth Sweep was in the public interest, id. at 239, it was considering whether the Sweep was within the scope of the FHFA’s statutory authority to act in the public interest. Answering that question “involve[d] a different type of reasonableness analysis” than the one implicated here by the implied covenant claim. Summary Judgment Opinion, 2022 WL 4745970, at *5. As the district court correctly explained in denying the Defendants’ motion for summary judgment: Collins does not resolve the issue here, because although reasonableness factors into both analyses, it is reasonableness with respect to different matters. At issue in Collins was whether FHFA could reasonably have deter- mined that adopting the Third Amendment was in the best interests of the regulated entity or [of] the Agency and thus acted within its statutory authority as conservator of [Fannie and Freddie] in so doing. Here, in contrast, the issue is whether FHFA violated the reasonable expectations of the parties by adopting the Third Amendment. Id. (cleaned up). The FHFA offers two responses to the district court’s dis- tinction. First it invokes the similarities between the arguments raised by the Collins plaintiffs and those raised by the Plaintiffs here. Doing so again overlooks that the underlying questions differ. Even if the arguments overlap, the question whether the FHFA acted within its statutory authority is not coextensive  17 with the question whether it acted in accordance with the share- holders’ reasonable expectations. For example, the FHFA determined the Net Worth Sweep would benefit the public, but the jury also heard testimony that such a step was “unprecedented.” The Plaintiffs also introduced evidence that two weeks before the Net Worth Sweep was announced, the Treasury and the FHFA had received a report showing that Fannie and Freddie had generated profits exceeding the 10% dividend owed to the Treasury in the most recent quarter. Despite this indication that the companies might be returning to longer-term profitability, the Treasury and the FHFA responded by making a “renewed push” to implement the Net Worth Sweep. The jury therefore could conclude the Net Worth Sweep was not consistent with the reasonable expectations of the parties, regardless whether it was consistent with the FHFA’s authority under the Recovery Act. The FHFA next argues that the scope of the FHFA’s statutory authority necessarily affects the expectations of the shareholders. Fair enough. Recall that the Recovery Act authorized the FHFA to act “in the best interests of the regulated entity or [of] the Agency,” § 4617(b)(2)(J)(ii), and the shareholder agreements incorporate this provision. From this, the FHFA reasons that the shareholders should have rea- sonably expected it to “act in the public interest without regard for whether doing so [was] in shareholders’ interests.” We agree the FHFA’s authority under the Recovery Act may inform the parties’ reasonable expectations, but that does not require a different outcome here. In Perry we specifically instructed the district court on remand to consider whether “the enactment of the Recovery Act and the FHFA’s appointment as conservator affected these expectations.” 864 F.3d at 631. At trial, the district court duly informed the jury that the Recovery Act “amends or informs the shareholder contracts,”  18 so the jury could consider the terms of the Act when assessing the reasonable expectations of the shareholders. It also informed the jury that, under the Recovery Act, the FHFA was authorized to act in the best interests of Fannie and Freddie or of itself and hence the public. The district court then explained that the FHFA could “still have violated the implied covenant of good faith and fair dealing if it exercised that authority in a way that arbitrarily or unreasonably violated plaintiffs’ reasonable expectations under the contract” as amended by incorporation of the Act. The jury was thus allowed to consider the extent to which the Recovery Act informed the parties’ rea- sonable expectations, but it was not required to reject the claim based upon the FHFA’s statutory authority. That instruction was consistent with Perry, and nothing in Collins suggests a contrary result. Finally, we do not view this outcome as incompatible with the outcome in Collins. It is easy to understand how granting the statutory claim in Collins would have “restrain[ed] or affect[ed]” the FHFA’s exercise of its authority. § 4617(f). Holding that the FHFA lacked the authority to implement the Net Worth Sweep would have forced the Agency to abandon the Sweep and would have prevented it from implementing a future sweep. Awarding damages, on the other hand, does not require the FHFA to undo any action, nor does it restrain the FHFA from implementing a future sweep. After all, an implied covenant claim is based upon the reasonable expectations of the parties at the time of contracting. Nemec, 991 A.2d at 1126. Here the Plaintiffs introduced undisputed evidence that the Net Worth Sweep was “unprecedented” and therefore could not reasonably have been expected. If, however, the FHFA were now to sell new shares and afterwards implement a new sweep, then a future shareholder could no longer argue the sweep was unprecedented; the FHFA having demonstrated that it views  19 the Net Worth Sweep as a reasonable option would have informed that future shareholder’s expectations. In sum, Collins did not abrogate our holding in Perry that the Recovery Act does not bar “judicial review through cog- nizable actions for damages like breach of contract.” 864 F.3d at 614. We therefore reject the FHFA’s argument that Collins foreclosed the implied covenant claim as a matter of law. 2. “Gap” in the shareholder agreements The FHFA next argues the implied covenant does not apply because the shareholder contracts “specify the scope of FHFA’s contractual discretion.” Under Delaware and Virginia law, a party “generally cannot base a claim for breach of the implied covenant on conduct authorized by the terms of the agreement.” Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434, 441 (Del. 2005); see Ward’s Equip., Inc. v. New Holland N. Am., Inc., 493 S.E.2d 516, 520 (Va. 1997). As the FHFA puts it, the implied covenant cannot apply when there is no “gap” in the contract for it to fill. There is no gap here, says the FHFA, because the Recovery Act provides that the FHFA may act “in the best interests of the regulated entity or [of] the Agency.” § 4617(b)(2)(J)(ii). According to the Plaintiffs, how- ever, that provision “merely enhances the already broad discretion conferred” on the FHFA; it does not specify in any meaningful way how the FHFA should exercise that discretion. The Plaintiffs again have the better argument. When a con- tract authorizes a party to act in its “sole discretion,” we have recognized the party may still violate the implied covenant if it exercises that discretion “arbitrarily or unreasonably.” Perry, 864 F.3d at 631. Delaware and Virginia law are clear on this point: “Terms that enhance the level of discretion . . . do not eliminate the implied duty. When a party has sole discretion to  20 make a decision, that setting provides more reason for the implied covenant to apply, not less.” Cygnus Opportunity Fund, LLC v. Wash. Prime Grp., LLC, 302 A.3d 430, 460 (Del. Ch. 2023) (cleaned up); see Historic Green Springs, Inc. v. Brandy Farm, Ltd., No. 4872-C, 1993 WL 13029827, at *3 (Va. Cir. Ct. Sept. 28, 1993); see also Drummond Coal Sales, 3 F.4th at 611-12; Va. Vermiculite, Ltd. v. W.R. Grace & Co- Conn., 156 F.3d 535, 542 (4th Cir. 1998). This case is a perfect example of that sort. The Recovery Act does not specifically authorize the conduct giving rise to this appeal. Rather, the Recovery Act is “framed in terms of expansive grants of permissive, discretionary authority for [the] FHFA to exercise as the ‘Agency determines is in the best interests of the regulated entity or [of] the Agency.’” Perry, 864 F.3d at 607 (quoting § 4617(b)(2)(J)(ii)). The FHFA claims the “best interests” phrase “defines the scope of [its] contractual discretion,” but that phrase does not render the implied cove- nant inapplicable. On the contrary, per the Supreme Court of Delaware, the implied covenant “encompasses the principle of contract construction that if one party is given discretion in determining whether a condition in fact has occurred, that party must use good faith in making that determination.” Baldwin v. New Wood Res. LLC, 283 A.3d 1099, 1116 (2022) (cleaned up). That is precisely the circumstance here: The FHFA unilaterally determined what was in the “best interests” of the Agency. As the Plaintiffs note, the statute does not contain any standard limiting how the FHFA is to make that determination. The FHFA relies upon three cases in which a court held the implied covenant did not apply, but those cases are inappo- site. In two of those cases, the relevant contracts provided a more specific process or standard that restrained the party’s discretion. See Policemen’s Annuity & Benefit Fund of Chi. v. DV Realty Advisors LLC, No. 7204, 2012 WL 3548206, at *3  21 (Del. Ch. Aug. 16, 2012) (agreement providing for removal of a general partner if “75% of the Limited Partnership Interests” consented to the removal and made a “good faith” determina- tion that removal was necessary for the partnership’s best interests); Khan v. Warburg Pincus, LLC, No. 2024-0523, 2025 WL 1251237, at *6-7 (Del Ch. Apr. 30, 2025) (agreement allowing majority investors to “act exclusively in their own interests” provided that any amendment that “disproportion- ately affected” one class of investors “in a material and adverse manner” be supported by the “prior written consent of a major- ity of the affected class” (cleaned up)). The third case is even further afield because the agreement gave “both parties com- plete discretion in deciding whether” to execute a repurchase of a minority shareholder’s shares, which required approval by a majority of the board of directors or 70% of the shareholders. Blaustein v. Lord Balt. Cap. Corp., 84 A.3d 954, 959 (Del. 2014). The Recovery Act does not contain any comparable fea- ture or limitation on the FHFA’s discretion. We see no reason the implied covenant does not apply under these circumstances. 3. Anticipatory breach Lastly, the FHFA argues the implied covenant claim is really an “unripe claim for anticipatory breach.” “Anticipatory breach is a doctrine of accelerated ripeness” that “gives a plaintiff the option to have the law treat a promise to breach or an act rendering performance impossible as the breach itself.” Perry, 864 F.3d at 632-33 (cleaned up). In the FHFA’s view, the Plaintiffs raise a claim for anticipatory breach because they “claim that the Net Worth Sweep prevented [Fannie and Freddie] from possibly paying dividends at some unspecified point in the future.” The Plaintiffs dispute this characterization of their claim, arguing that they seek to hold the FHFA liable for a present breach of contract.  22 The FHFA’s argument misapprehends the nature of the Plaintiffs’ claim. The implied covenant imposes an ongoing obligation to act in good faith. It “requires a party in a contractual relationship to refrain from arbitrary or unreasonable conduct which has the effect of preventing the other party to the contract from receiving the fruits of the bargain.” Dunlap, 878 A.2d at 442 (cleaned up). A party that violates the implied covenant thus commits a present breach of its contract. See Restatement (Second) of Contracts § 235 cmt. b (1981) (“Non-performance of a duty when performance is due is a breach whether the duty is imposed by a promise stated in the agreement or by a term supplied by the court, as in the case of the duty of good faith and fair dealing”). We therefore agree with the district court that the Plaintiffs “seek to hold defendants presently accountable for a present breach of an implied promise” rather than for a “future breach of an express provision.” Partial Reconsideration Order, at 3 (D.D.C. May 16, 2019), Class Pls. ECF No. 104, Berkley Pls. ECF No. 99. The FHFA’s argument to the contrary rests upon its mis- placed emphasis on the future effect of the Net Worth Sweep. The Plaintiffs alleged the Net Worth Sweep deprived them of the opportunity to receive future dividends; they do not, how- ever, claim the FHFA breached a promise to pay them future dividends. Instead, they claim that by eliminating any possibil- ity of dividends, the FHFA violated its ongoing obligation to act in good faith. This is what distinguishes the implied cove- nant claim from the Plaintiffs’ claim for breach of their “contractual rights to receive a liquidation preference,” which alleged the FHFA had repudiated a future contractual obliga- tion and which the district court dismissed as a claim for anticipatory breach. MTD Opinion, 2018 WL 4680197, at *5- 6. That the breach also had a future effect does not turn the implied covenant claim into a claim for anticipatory breach. We agree with the Plaintiffs that “what matters is when the  23 breach occurred, not whether the harm caused by the breach persists in the future.” The FHFA speculates that this conclusion will allow future plaintiffs to recast their claims of anticipatory breach as implied covenant claims. This matters, it says, because Virginia and Delaware law do not allow claims for anticipatory breach of unilateral contracts, see Fairfax-Falls Church Cmty. Servs. Bd. v. Herren, 337 S.E.2d 741, 744 (Va. 1985); cf. Meso Scale Diagnostics, LLC v. Roche Diagnostics GmbH, 62 A.3d 62, 78 n.102 (Del. Ch. 2013), and the contracts here became unilateral when the shareholders completed their performance by purchasing the shares. We do not share this concern. The FHFA does not direct us to a single case in which a court has incorrectly conflated these claims. Even if a future plaintiff attempted this maneuver, it would still have to satisfy the standard for stating an implied covenant claim. We see no reason our holding today will cause courts to mistake an implied covenant claim for a claim of anticipatory breach involving a unilateral contract. B. Harm Caused by the Net Worth Sweep In order to prevail on their implied covenant claim, the Plaintiffs needed t