By Jonathan Stempel
(Reuters) - A new federal appeals court decision could clear the way for the U.S. government to turn over many documents sought by investors suing over its 2012 decision to seize the profits of mortgage giants Fannie Mae <FNMA.PK> and Freddie Mac <FMCC.PK>.
The Federal Circuit Court of Appeals on Monday said a lower court judge mostly acted within her discretion in ordering the disclosure to Fairholme Funds and other investors of 56 documents, which had been sampled from roughly 12,000 that the government withheld on privilege grounds.
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Writing for a three-judge panel, Circuit Judge Kathleen O'Malley said eight of the documents could be withheld on the basis of either presidential privilege, or privilege of the deliberative process.
Chuck Cooper, a lawyer for the investors, in a statement called the decision "a sweeping victory" that would lead to the disclosure of the "vast bulk" of documents his clients sought.
"We are confident that many of these documents will further discredit the government's defense narrative," he said.
A spokeswoman for U.S. Department of Justice said that agency is reviewing the decision.
The government seized Fannie Mae and Freddie Mac in September 2008 as mortgage losses mounted, and put them into a conservatorship under the Federal Housing Finance Agency.
Both companies have since become profitable, and according to court papers have returned roughly $68 billion more to the government than they drew down during the financial crisis.
Fairholme, overseen by Bruce Berkowitz, countered that such profit belonged to stockholders such as itself, and that the sweeping of that profit to the U.S. Treasury Department was an unconstitutional taking of private property.
Its 2013 lawsuit focused on the companies' preferred stock, which threw off 10 percent dividends before being eliminated.
Monday's decision stemmed from former President Barack Obama administration's appeal of an October ruling by Judge Margaret Sweeney of the Federal Court of Claims requiring the disclosure of the 56 sampled documents.
The government said that ruling "casts a cloud" over whether all 12,000 documents were properly withheld, and in practice could chill White House deliberations on sensitive subjects.
But O'Malley said the government did not offer specific objections to Sweeney's findings on most of the documents at issue. Monday's decision focused on the 16 documents that she said the government addressed "expressly" in its appeal.
The case is Fairholme Funds Inc et al v. U.S., U.S. Federal Circuit Court of Appeals, No. 2017-104.
(Reporting by Jonathan Stempel in New York; Editing by Andrew Hay and Lisa Shumaker)