The Center for Individual Freedom yesterday filed an amicus brief in the United States Court of Appeals for the District of Columbia Circuit in the case of Perry Capital LLC v. Lew.

The brief, authored by Myron T. Steele, the former Chief Justice of the Delaware Supreme Court and now a partner at the Delaware law firm of Potter Anderson & Corroon LLP, was filed in support of private stockholders of Fannie Mae and Freddie Mac who effectively lost all value in their shares when the government opted for a conservatorship that granted the Treasury Department senior preferred stock status that allows for a “Net Worth Sweep” of the corporations’ net profits in perpetuity.

The brief demonstrates that “[t]he ‘Net Worth Sweep’ is unenforceable and void ab initio under Section 151 of the Delaware General Corporation Law.”  In addition to discussing how the Net Worth Sweep is invalid, the brief reminds the court of protections under Delaware law that preclude preferred stockholders from obtaining a perpetual claim on all the residual earnings of the companies to the exclusion of common stockholders.

The amicus brief can be found here (PDF).