Filed: May 05, 2011
Latest Update: Feb. 22, 2020
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 09-1973 LOUISIANA MUNICIPAL POLICE EMPLOYEES RETIREMENT SYSTEM, derivatively and on behalf of Federal Home Loan Mortgage Corporation; R.S. BASSMAN, derivatively on behalf of Freddie Mac aka Federal Home Loan Mortgage Corporation and its shareholders, Plaintiffs - Appellants, and ADAMS FAMILY TRUST, derivatively on behalf of nominal defendant Federal Home Loan Mortgage Corporation; ELNA ADAMS, Trustee, derivatively on behalf of
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 09-1973 LOUISIANA MUNICIPAL POLICE EMPLOYEES RETIREMENT SYSTEM, derivatively and on behalf of Federal Home Loan Mortgage Corporation; R.S. BASSMAN, derivatively on behalf of Freddie Mac aka Federal Home Loan Mortgage Corporation and its shareholders, Plaintiffs - Appellants, and ADAMS FAMILY TRUST, derivatively on behalf of nominal defendant Federal Home Loan Mortgage Corporation; ELNA ADAMS, Trustee, derivatively on behalf of ..
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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 09-1973
LOUISIANA MUNICIPAL POLICE EMPLOYEES RETIREMENT SYSTEM,
derivatively and on behalf of Federal Home Loan Mortgage
Corporation; R.S. BASSMAN, derivatively on behalf of
Freddie Mac aka Federal Home Loan Mortgage Corporation and
its shareholders,
Plaintiffs - Appellants,
and
ADAMS FAMILY TRUST, derivatively on behalf of nominal
defendant Federal Home Loan Mortgage Corporation; ELNA
ADAMS, Trustee, derivatively on behalf of nominal defendant
Federal Home Loan Mortgage Corporation; KEVIN TASHJIAN,
derivatively on behalf of nominal defendant Federal Home
Loan Mortgage Corporation,
Plaintiffs,
v.
FEDERAL HOUSING FINANCE AGENCY,
Plaintiff - Appellee,
and
RICHARD F. SYRON; PATRICIA COOK; ANTHONY PISZEL; EUGENE M.
MCQUADE; STEPHEN A ROSS; SHAUN F. O’MALLEY; FEDERAL HOME
LOAN MORTGAGE CORPORATION; PRICEWATERHOUSE COOPERS, LLP;
FREDDIE MAC, nominal defendant also known as Federal Home
Loan Mortgage Corporation; ROBERT R. GLAUBER; BARBARA T.
ALEXANDER; MARTIN F. BAUMANN; WILLIAM M. LEWIS, JR.;
JEFFREY M. PEEK; GEOFFREY T. BOISI; RONALD F. POE; MIKE
PERLMAN; KIRK S. DIE; JAMES R. EGAN; PAUL G. GEORGE;
MICHAEL MAY; HOLLIS S. MCLOUGHLIN; PAUL E. MULLINGS; ANURAG
SAKSENA; JERRY WEISS; RALPH F. BOYD, JR.; JOSEPH A.
SMIALWOSKI; ROBERT Y. TSIEN; ROBERT E. BOSTROM; MICHELLE
ENGLER; THOMAS S. JOHNSON; NICHOLAS P. RETSINAS; JEROME P.
KENNEY,
Defendants - Appellees.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Leonie M. Brinkema,
District Judge. (1:08-cv-00773-LMB-TCB)
Argued: January 28, 2011 Decided: May 5, 2011
Before TRAXLER, Chief Judge, and MOTZ and KEENAN, Circuit
Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: Matthew Evan Miller, CUNEO, GILBERT & LADUCA, LLP,
Washington, D.C., for Appellants. Howard N. Cayne, ARNOLD &
PORTER, LLP, Washington, D.C., for Appellees. ON BRIEF:
Jonathan W. Cuneo, CUNEO, GILBERT & LADUCA, LLP, Washington,
D.C.; Steven E. Fineman, Daniel P. Chiplock, LIEFF, CABRASER,
HEIMANN & BERNSTEIN, LLP, New York, New York; Richard D.
Greenfield, Marguerite R. Goodman, GREENFIELD & GOODMAN, LLC,
New York, New York, for Appellant R. S. Bassman; Kevin Oufnac,
Lewis S. Kahn, Albert M. Myers, KAHN, SWICK & FOTI, LLC, New
Orleans, Louisiana, Mark Hanna, MURPHY ANDERSON PLLC,
Washington, D.C., for Appellant Louisiana Municipal Police
Employees Retirement System. David B. Bergman, Ian S. Hoffman,
Christopher A. Jaros, ARNOLD & PORTER, LLP, Washington, D.C.;
Stephen E. Hart, FEDERAL HOUSING FINANCE AGENCY, Washington,
D.C., for Appellee Federal Housing Finance Agency.
Unpublished opinions are not binding precedent in this circuit.
2
PER CURIAM:
This appeal arises out of consolidated derivative actions
that shareholders filed on behalf of the Federal Home Loan
Mortgage Corporation (“Freddie Mac”) against former directors
and officers. 1 The shareholders allege that the defendants
breached their fiduciary duties, wasted company assets, and
grossly mismanaged the company, resulting in significant
financial losses. Acting as conservator of Freddie Mac pursuant
to federal law, the Federal Housing Finance Agency successfully
moved in the district court to substitute itself as plaintiff in
those actions. The shareholders appeal this ruling. We affirm.
I.
In 1970, Congress established Freddie Mac to promote
homeownership by competing with the Federal National Mortgage
Association (“Fannie Mae”) in the secondary residential mortgage
market. See Fed. Home Loan Mortgage Corp. Act, Pub. L. No. 91-
351, § 301, 84 Stat. 450, 451 (1970) (codified as amended at 12
1
Two of the actions -- Adams Family Trust v. Syron, and
Louisiana Municipal Police Employees Retirement System v. Syron
-- were filed in the Eastern District of Virginia in July and
August 2008, respectively, and consolidated on October 15, 2008.
The third action -- Bassman v. Syron -- was originally filed in
the Southern District of New York in March 2008, ordered
transferred to the Eastern District of Virginia on November 20,
2008, and consolidated with the other two cases on December 12,
2008.
3
U.S.C. §§ 1451 et seq.); Fed. Nat’l Mortgage Ass’n Charter Act,
ch. 847, § 301, 48 Stat. 1246, 1252 (1934) (codified as amended
at 12 U.S.C. §§ 1716 et seq.). Although both enterprises are
structured as private corporations, Freddie Mac and Fannie Mae
are government-sponsored institutions. Id. They “have an
affirmative obligation to facilitate the financing of affordable
housing for low- and moderate-income families in a manner
consistent with their overall public purposes, while maintaining
a strong financial condition and a reasonable economic return.”
12 U.S.C. § 4501(7).
To provide “more effective Federal regulation” of Freddie
Mac and Fannie Mae, Congress created the Office of Federal
Housing Enterprise Oversight (the “Office”) in 1992. See Pub.
L. No. 102-550, §§ 1302, 1311, 106 Stat. 3672, 3941-44 (1992);
12 U.S.C. § 4501(2). The Office was responsible for making
annual reports to Congress on “the financial safety and
soundness” of Freddie Mac and Fannie Mae. Pub. L. No. 102-550,
§§ 1317, 1319B, 106 Stat. at 3949, 3950. In 2007 and 2008, the
Office conveyed positive reports on the fiscal health of both
enterprises, describing them as “adequately capitalized.” See
In re Fed. Home Mortgage Corp. Derivative Litig., 643 F. Supp.
2d 790, 792 (E.D. Va. 2009) (“In re Freddie Mac”). In reality,
however, Freddie Mac was poised to report considerable losses:
$3.1 billion in 2007 and $50.1 billion in 2008. See
id.
4
In 2008, amid these extensive losses, Congress passed and
President George W. Bush signed the Housing and Economic
Recovery Act of 2008 (the “Act”). The Act abolished the Office
and another government entity, the Federal Housing Finance
Board, and in their stead created the Federal Housing Finance
Agency (the “Agency”). See Pub. L. No. 110-289 §§ 1301-1314,
122 Stat. 2654, 2794-99 (2008). The shareholders allege, and
the Agency does not dispute, that the Agency’s leadership and
staff is “substantially unchanged” from that of the Office. See
Appellants’ Br. at 10. Indeed, the Agency’s director, James
Lockhart, is the former director of the Office.
The Act grants the Agency’s director the authority to
appoint the Agency as conservator or receiver of Freddie Mac in
the event the enterprise becomes “critically undercapitalized.”
12 U.S.C. § 4617. Pursuant to this authority, on September 6,
2008, Lockhart appointed the Agency as conservator of Freddie
Mac. See In re Freddie Mac, 643 F. Supp. 2d at 793. As such,
the Agency “succeed[ed] to all rights, titles, powers, and
privileges of [Freddie Mac], and of any stockholder, officer, or
director of [Freddie Mac] with respect to [Freddie Mac] and the
assets of [Freddie Mac],” and is empowered to “take over the
assets of and operate [Freddie Mac] with all the powers of the
shareholders, the directors, and the officers of [Freddie Mac]
and conduct all business of [Freddie Mac].” 12 U.S.C.
5
§ 4617(b)(2)(A)(i), (B)(i). The Act further provides that,
except under limited circumstances not at issue here, “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.”
Id. § 4617(f).
After its appointment as conservator, the Agency
successfully moved to substitute itself as plaintiff in the
consolidated actions in place of the shareholders. Thereafter,
upon the Agency’s motion, the district court dismissed the
actions without prejudice.
II.
The district court, interpreting the Act, concluded that
“the plain meaning of the statute is that all rights previously
held by Freddie Mac’s stockholders, including the right to sue
derivatively, now belong exclusively to the [Agency].” In re
Freddie Mac, 643 F. Supp. 2d at 795 (emphasis in original). The
court found support in the Act’s provision explicitly granting
conservators and receivers “all rights, titles, powers, and
privileges” of “any stockholder,” 12 U.S.C. § 4617(b)(2)(A)(i),
and the provision barring courts from “restrain[ing] or
affect[ing] the exercise of powers or functions of the [Agency]
as a conservator or receiver,”
id. § 4617(f). See In re Freddie
Mac,
643 F. Supp. 2d at 797 (“This language clearly demonstrates
6
Congressional intent to transfer as much control of Freddie Mac
as possible to the [Agency], including any right to sue on
behalf of the corporation.”). Further, the district court
relied on case law interpreting the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989, which has similar
provisions transferring stockholders’ “rights, titles, powers,
and privileges” to federal bank receivers and conservators. See
12 U.S.C. § 1821(d)(2)(A)(i), (B)(i); see also Pareto v. FDIC,
139 F.3d 696, 700 (9th Cir. 1998) (“Congress has transferred
everything it could to the FDIC, and that includes a
stockholder’s right, power or privilege to demand corporate
action or to sue directors or others when action is not
forthcoming.”).
III.
The shareholders appeal the substitution order, contending
that under the Act the appointment of a receiver or conservator
does not preclude a shareholder’s derivative action. Our
jurisdiction to hear this appeal arises under 28 U.S.C. § 1291.
See Chao v. Rivendell Woods, Inc., 415 F.3d 342, 345 (4th Cir.
2005) (explaining voluntary dismissal of entire action without
prejudice is a final decision appealable under § 1291). We
review questions of statutory interpretation de novo. United
States v. Abuagla,
336 F.3d 277, 278 (4th Cir. 2003).
7
Having carefully considered the record, the briefs and
arguments of the parties, and the controlling and persuasive
authorities, we conclude that the district court’s analysis was
correct. Accordingly, we affirm on the basis of the district
court’s well reasoned opinion. See In re Freddie Mac, 643 F.
Supp. 2d 790. 2
AFFIRMED
2
The shareholders originally sought immediate review of the
substitution order, noting their appeal before the district
court entered the dismissal order. The Agency moved to dismiss
the appeal, contending this court lacked jurisdiction to review
the merits of the interlocutory order. Because, during the
pendency of this appeal, the district court entered a final
order dismissing the action, we deny as moot the Agency’s motion
to dismiss the appeal. See Digital Equip. Corp. v. Desktop
Direct, Inc., 511 U.S. 863, 868 (1994) (describing “general
rule” that “claims of district court error at any stage of the
litigation may be ventilated” upon entry of final judgment).
8
