Fannie Mae-No Politics (FNMA)

[10bambam]

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
LOUISE RAFTER
,
et al
.,
Plaintiffs,
v.
THE DEPARTMENT OF THE
TREASURY
,
et al.
,
Defendants.
Civil Action No. 1:14-cv-01404-RCL
PLAINTIFFS’ OPPOSITION TO DEFENDANTS’ MOTION TO STRIKE
PLAINTIFFS’ NOTICE OF VOLUNTARY DISMISSAL
Defendants ask this Court to rule retr
oactively that Plaintiffs were drafted
into a set of different cases several mont
hs ago without anyone—the parties or the
Court—realizing it, and then to hold, again
retroactively, that Plaintiffs are bound
by the Court’s dismissal of those other ca
ses. Defendants seek such a result
notwithstanding that Plaintiffs never receiv
ed notice of or an opportunity even to
contest this secret consolidation, let alone to file a merits brief in
any
of the various
cases. The basis for this argument is a
Consolidation Order that, by its own terms,
could not have been applied to Plaintiffs’
case without following a set of specific
procedures and providing Plaintiffs an
opportunity to respond, none of which
occurred here. Defendants thus attempt to
revive Plaintiffs’ case—which Plaintiffs
voluntarily dismissed more than a month
ago—so that it can be reinterred on
Defendants’ preferred terms. Moreover, as
Defendants imply (Mot. to Strike at 2–3),
they seek this relief solely so that they
can try to use the resulting order to their
advantage in proceedings before
other
courts.
Case 1:14-cv-01404-RCL Document 18 Filed 12/22/14 Page 1 of 12
- 2 -
Defendants’ position is entirely me
ritless. Few Federal Rules are as
straightforward as that governing voluntar
y dismissals: “before the opposing party
serves either an answer or a motion
for summary judgment,” a plaintiff “may
dismiss an action without a court order” and “without prejudice.” Fed. R. Civ. P.
41(a)(1). Here, it is undisputed that Defendants
never
served an answer or
summary-judgment motion on Plaintiffs. Thus
, as a result of Rule 41(a)’s “simple,
self-executing mechanism,”
Randall v. Merrill Lynch
, 820 F.2d 1317, 1320 (D.C. Cir.
1987), this case is closed, as the docket reflects.
See Rafter v. Dep’t of Treasury
, No.
14-1404 (D.D.C.) (“Date Terminated: 11/03/2014”);
see also
Carter v. U.S. Dep’t of
Navy
, 258 F. App’x 342, 343 (D.C. Cir. 2007) (per
curiam) (“[N]o fu
rther action is
required when a plaintiff voluntarily dismi
sses his case before the defendant serves
an answer or motions for summary judgment.”).
1
Defendants attempt to evade the unequivoc
al effect of Rule 41(a) by insisting
that Plaintiffs’ case was silently consolid
ated with other Net
Worth Sweep actions,
such that Defendants’ summary-judgment motions in those
other
cases applied
here
.
In other words, Defendants claim that Pl
aintiffs’ right to take a non-suit was
extinguished by summary-judgment motions
never served
on Plaintiffs, by virtue of
a Consolidation Order that itself was
never served
on Plaintiffs, and that as a result
Plaintiffs’ claims were disp
osed of by an order that
also
was
never served
on
Plaintiffs. This position contradicts the ex
plicit terms of the Consolidation Order on
which Defendants purport to rely and black-letter law regarding voluntary
1
Plaintiffs are filing this brief solely to respond to Defendants’ motion, and
do not in so doing reopen this case.
Case 1:14-cv-01404-RCL Document 18 Filed 12/22/14 Page 2 of 12
- 3 -
dismissals. If adopted, it would also constitute a manifest violation of Plaintiffs’
due-process rights. The Court should reject Defendants’ absurd theory of
retroactive,
sub silentio
consolidation followed by retroactive,
sub silentio
dismissal.
First
, Plaintiffs’ case indisputably was not consolidated with any
other Net Worth Sweep cases.
Under the plain terms of the Consolidation Order
this Court entered in other Net Worth
Sweep cases—but not here—consolidation
was by no means automatic. To the co
ntrary, even if Plaintiffs had pleaded
derivative claims, which they did not, consolidation still could not be imposed
without following several crucial procedures. First, the Court would have had to
actually implement the consolidation: th
e Clerk of the Court would have had to
“file a copy of th[e Consolidation] Order in
the separate file for
[Plaintiffs’] action,”
“mail a copy of th[e] Order to” Plaintiffs
’ counsel, and “make the appropriate entry
in the docket for th[e consolidated] action.” Order for Consolidation and
Appointment of Interim Co-Lead Class Counsel at ¶ 6,
In re Fannie Mae/Freddie
Mac
, No. 13-mc-1288 (D.D.C. Nov. 18, 2013), ECF
No. 1 (“Consolidation Order”).
None of those things occurred.
Moreover, even if they had, Plaint
iffs would then have received an
opportunity to seek “relief from
th[e Consolidation] Order.”
Id.
¶ 7. But because
the Court rightly did not take any of the required steps to consolidate Plaintiffs’
case, Plaintiffs obviously received no such opportunity. It is thus impossible to
square the plain terms of the Consolidation Order with Defendants’ claim that
“Plaintiffs’ action was immediately upon filin
g consolidated.” Mot. to Strike at 5.
Case 1:14-cv-01404-RCL Document 18 Filed 12/22/14 Page 3 of 12
- 4 -
Furthermore, the Consolidation Order also
calls for “the assistance of counsel
in calling to the attention of the Clerk of th
is Court the filing or transfer of any case
which might properly be consolidated as pa
rt of this Consolidated Class Action.”
Consolidation Order at ¶ 3.
So far as Plaintiffs are aw
are, despite the involvement
of literally dozens of attorneys in the co
nsolidated cases, at no point did anyone—
whether representing a plaintiff or
Defendants—do any such thing.
Defendants’ present position also contradicts their own prior treatment of
Plaintiffs’ claims. Until now, Defendan
ts appropriately treated this case as
separate from the other Net Worth Sw
eep matters on the Court’s docket.
2
For
example, even after the Court dismissed
the consolidated actions, Defendants
sought an extension of time “to respond to
the complaint in this action,” explaining
that they “intend[ed] to prepare a disposit
ive motion.” Motion for Enlargement of
Time at 1 (Oct. 14, 2014), ECF No. 8. This
request (and the envisioned dispositive
motion) would have been wholly unnecessary if the Consolidation Order applied,
because that Order states that “defendant
s shall not be required to answer, move,
or otherwise respond to any
complaints filed in ... any action subsequently filed and
2
Nearly two weeks after Plaintiffs
filed their complaint—and were
supposedly “immediately ... consolidated,”
as Defendants now contend—Defendants
FHFA and its director Melvin L. Watt subm
itted a notice of supplemental authority
pertaining to the consolidated actions. Notice,
In re Fannie Mae/Freddie Mac
, No.
13-1288 (D.D.C. Aug. 26, 2014), ECF
No. 44. That filing was entered on the dockets
of each of the individual actions subject to the Consolidation Order (
see, e.g.
,
Liao v.
Lew
, No. 13-1094, ECF No. 36), but not on
this
docket, in proper recognition of the
fact that this case was never consolidated. Nor did Defendants
serve
Plaintiffs with
this notice, thus further confirming that
Defendants never thought Plaintiffs had
been consolidated into these cases.
Case 1:14-cv-01404-RCL Document 18 Filed 12/22/14 Page 4 of 12
- 5 -
consolidated.”
3
Consolidation Order at ¶ 8. Although Defendants now claim that
the Court’s order disposing of the consolidated cases “also dismissed this action”
(Mot. to Strike at 1), they
previously—and rightly—recognized that order as nothing
more than “a decision in relate
d litigation.” ECF No. 8 at 1.
In the separate Net Worth Sweep litigation pending before the Court of
Federal Claims, Defendants similarly indicated that Plaintiffs’ case had not been
consolidated with others before this Cour
t. Specifically, when Defendants filed
their motion to stay one of the Net Wort
h Sweep cases pending before that court,
they distinguished Plaintiffs’ case here fr
om the consolidated actions, and explained
that they “ha[d] not yet responded to” Plaint
iffs’ complaint. Defs.’ Motion to Stay
Proceedings at 4 n.3,
Fairholme Funds, Inc. v. United States
, No. 13-465 (Fed. Cl.
Oct. 28, 2014), ECF No. 103. This, of co
urse, directly cont
radicts Defendants’
present representation that their summary
-judgment motions in the consolidated
actions “applied to this action” (Mot. to Strike at 2)—a contradiction Defendants
have not even attempted to explain. Nor could they do so coherently, because
Plaintiffs’ case was never consolidated, and so Defendants would have been
obligated to respond to Plaintiffs’ complaint
had Plaintiffs not voluntarily dismissed
it. Because Plaintiffs properly filed their
notice of dismissal before any such filing
by Defendants, that notice was
valid and this case is closed.
Second
, Plaintiffs’ case cannot now be consolidated retroactively
because this Court lacks jurisdiction over both it and the consolidated
3
Indeed,
this
is
precisely
the
position
Defendants
now
take.
Mot.
to
Strike
at
2.
Case 1:14-cv-01404-RCL Document 18 Filed 12/22/14 Page 5 of 12
- 6 -
cases.
Conceding that the Court had not previously “formally consolidated
Plaintiffs’ action,” Defendants now as
k the Court to declare a retroactive
consolidation. Mot. to Strike at 1, 5.
But there is nothing for this Court to
consolidate, as Plaintiffs are no longer befo
re the Court. It is black-letter law that a
voluntary dismissal under Rule 41(a)(1) “tak
es effect automatically: the trial judge
has no role to play at all.”
Randall
, 820 F.2d at 1320. Here, Defendants concede
that this case was never consolidated before
Plaintiffs filed their notice of dismissal.
Mot. to Strike at 5. Thus, the plain te
rms of Rule 41(a) govern, and the Court’s
docket is correct in declaring this case “CLOSED.”
What Defendants really seek is to r
eopen this closed matter, which would
require them to seek relief under Rule 60. Defendants have made no such
argument, but even if they had, Rule 60
relief is categorically unavailable to them
here. “[N]otices of dismissal filed in conf
ormance with the explicit requirements of
Rule 41(a)(1)(i) are not subject to vacatur” on a defense motion.
Thorp v. Scarne
,
599 F.2d 1169, 1176 (2d Cir. 1979);
see also, e.g.
,
Netwig v. Georgia Pac. Corp.
, 375
F.3d 1009, 1011 (10th Cir. 2004) (holding that
district court “lacked jurisdiction to
reinstate” a case “over plaintiff’s objection” where plaintiff had voluntarily
dismissed without prejudice).
4
4
Cf.
Marex Titanic, Inc. v. The Wrecked & Abandoned Vessel
, 2 F.3d 544,
547–48 (4th Cir. 1993) (“[T]he di
strict court had no disc
retion to allow Titanic
Ventures to intervene in the defunct
action filed by Marex.”). Notably,
Randall
distinguished
Thorp
and permitted vacatur because Rule 60 relief was sought “on
the original
plaintiff’s
motion.” 820 F.2d at 1320 (empha
sis added). That, of course,
is not the case here. Furthermore,
Randall
permitted Rule 60 relief explicitly
because the second voluntary dismissal in th
at case “operated as an adjudication on
Case 1:14-cv-01404-RCL Document 18 Filed 12/22/14 Page 6 of 12
- 7 -
Moreover, even if Rule 60
could
somehow override Plaintiffs’ unilateral right
to dismiss, Defendants still could not succeed. Vacatur under Rule 60 is improper
where it would be “an empty exe
rcise or a futile gesture.”
Murray v. District of
Columbia
, 52 F.3d 353, 355 (D.C. Cir. 1995). Here
, the plaintiffs in the other Net
Worth Sweep cases have all filed notices of appeal.
See, e.g.
, Notice of Appeal,
In re
Fannie Mae/Freddie Mac
, No. 13-1288 (D.D.C. Oct. 15, 2014) (ECF No. 49). “The
filing of a notice of appeal ... ‘confers juri
sdiction on the court of appeals and divests
the district court of control over those aspe
cts of the case involved in the appeal.’”
United States v. DeFries
, 129 F.3d 1293, 1302 (D.C. Cir.
1997) (per curiam) (citation
omitted). Thus, even if the Court acce
pted Defendants’ argument, there is simply
nothing to consolidate Plaintiffs’ case
into
, since the Court no longer has jurisdiction
over the consolidated cases. Exhuming Plai
ntiffs’ suit would be entirely pointless,
and could not possibly accomplish
Defendants’ desired result.
Third
, adopting Defendants’ position would plainly violate due
process.
For the reasons above,
the outcome Defendants seek is factually
unsupported and legally impossible. Mor
eover, retroactive consolidation—to say
nothing of retroactive dismissal—would depr
ive Plaintiffs of their fundamental due-
process right to “notice and opportunity to be heard.”
Hansberry v. Lee
, 311 U.S. 32,
40 (1940).
(continued...)
the merits” or a “final judgment” for purposes of Rule 60.
Id.
; Fed. R. Civ. P.
41(a)(1)(B);
see also, e.g.
,
Warfield v. AlliedSign
al TBS Holdings, Inc.
, 267 F.3d 538,
541–42 (6th Cir. 2001).
Defendants
cannot use Rule 60 to vacate a voluntary
dismissal over Plaintiffs’ objection, much
less a first voluntary dismissal without
prejudice. And in any event, Defe
ndants have never invoked Rule 60.
Case 1:14-cv-01404-RCL Document 18 Filed 12/22/14 Page 7 of 12
- 8 -
Both
Hansberry
and its descendant,
Martin v. Wilks
, 490 U.S. 755 (1989),
demonstrate why the Consolidation Order re
quired a copy of that Order to be
served on future plaintiffs, and such plainti
ffs to be given an opportunity to object to
its application: such service was necessary
to bind any future plaintiff as a party to
the rulings in the consolidated actions.
See Hansberry
, 311 U.S. at 40 (“It is a
principle of general application in Anglo-
American jurisprudence that one is not
bound by a judgment
in personam
in a litigation in which he is not designated as a
party or to which he has not been made a party
by service of process
.” (emphasis
added));
Martin
, 490 U.S. at 765 (“Joinder as a part
y, rather than knowledge of a
lawsuit and an opportunity to intervene, is the method by which potential parties
are subjected to the jurisdiction of the court and bound by a judgment or decree.”).
5
Having received neither notice nor an opportunity to be heard in the consolidated
matter, Plaintiffs cannot, consistent with
due process, be bound by the decision in
that matter. Indeed, this is precisely wh
y the rule governing consolidation requires
cases to be actively pending “before the co
urt” in order to be consolidated (Fed. R.
Civ. P. 42(a)): consolidating yet-to-be-
filed cases, without any opportunity for
parties to those cases to seek
relief from consolidation,
would fly in the face of the
due-process principles outlined in
Hansberry
and
Martin
.
See also, e.g.
,
Jaars v.
Gonzales
, 148 F. App’x 310, 319–20 (6th Cir.
2005) (rejecting “retroactive
5
See also Old Wayne Mut.
Life Ass’n v. McDonough
, 204 U.S. 8, 17 (1907)
(“‘[N]o one shall be personally bound until he
has had his day in court, by which is
meant, until he has been duly cited to appear,
and has been afforded an opportunity
to be heard
.’”) (quoting
Galpin v. Page
, 85 U.S. 350, 368-69 (1873)).
Case 1:14-cv-01404-RCL Document 18 Filed 12/22/14 Page 8 of 12
- 9 -
consolidation” and explaining that “when a person has no hearing or opportunity to
be heard whatsoever, the process
is automatically inadequate”).
Here, retroactively consolidating Plaintiffs’ case would leave Plaintiffs
without any opportunity to be heard on a num
ber of issues. As an initial matter, it
would deprive Plaintiffs of their right, set
forth in the Consolidation Order, to make
“an application for relief from [that] Order.”
6
Consolidation Order ¶ 7. Moreover, if
the Court had rejected their application,
Plaintiffs would have had the option,
under Rule 15(a), to amend their complai
nt so as to dismiss the supposedly
derivative claims, at which point there obviously would have been no basis for
consolidating Plaintiffs’ case. Likewise, even
if Plaintiffs had proceeded as part of
the consolidated action, the Consolidation Order would have given them the right to
seek “permi[ssion] by the Court” to proceed on their own complaint (
id.
¶ 8), and at
the very least they could have submitted briefing on the merits of their unique
6
Plaintiffs would have had several bases
for seeking relief from consolidation.
Plaintiffs specifically pleaded direct—not
derivative—claims based on the “unique
harm” they suffered as a result of the expr
opriation of the economic value of their
common shares by the companies’ controlling shareholder (Treasury) and their
conservator (FHFA and its director).
Complaint at ¶¶ 137, 153 (Aug. 15, 2014),
ECF No. 1. Under well-established state-law principles, Defendants’ conduct can
give rise to direct or derivative claims.
See
Gentile v. Rossette
, 906 A.2d 91, 99–100
(Del. 2006);
Carsanaro v. Bloodhound Techs., Inc.
, 65 A.3d 618, 655–61 (Del. Ch.
2013);
In re Nine Sys. Corp. S’holders Litig.
, 2014 WL 4383127, at *21–32 (Del. Ch.
Sept. 4, 2014). Plaintiffs pleaded only di
rect claims. Under such circumstances,
consolidating Plaintiffs’ claims with purely
derivative claims would not have been
justified. In any event, the nature of shareholder claims challenging the Net Worth
Sweeps is, at minimum, a debatable poin
t of law that was addressed in a
different
case. Plaintiffs’ complaint included cl
aims—for example,
a books-and-records
claim—that were unique and unquestionably not derivative. There is no basis for
simply assuming, as Defendants apparently
do, that Plaintiffs could not have been
entitled to relief from consolidation.
Case 1:14-cv-01404-RCL Document 18 Filed 12/22/14 Page 9 of 12
- 10 -
claims (challenging, for example, the conver
sion of Defendants’ preferred stock into
a novel form of super-common stock).
7
Defendants, however, would have the Court
deprive Plaintiffs of an opportunity to be heard on
any
of these issues, instead
treating dismissal as a foregone conclusion.
8
Defendants’ argument would also deprive Plaintiffs of due process with
respect to their appellate rights. If Plaint
iffs’ claims truly had been adjudicated by
the Court’s order in the consolidated cases,
Plaintiffs would have had 60 days to file
a notice of appeal from that order. Fed.
R. App. P. 4(a)(1)(B).
Defendants, however,
waited until
65
days after that order to file a br
ief for the first time suggesting that
the order also disposed of Plaintiffs’ claims, which would thus leave Plaintiffs
without any avenue to secure relief from that binding judgment. Alternatively,
7
Furthermore, the Consolidation Orde
r specifically states that it was
“entered without prejudice to the rights of any party to apply for severance of any
claim or action, for good
cause shown”—yet another o
pportunity that Defendants
would deny Plaintiffs.
Id.
¶ 8.
8
In a footnote at the end of their brief, Defendants attempt to draw a
similarity between this case and the “Freddie Derivative Action,” which asserted
derivative claims. Mot. to Strike at 12 n.6. But the cases could not be more
different, and indeed illustrate why Defend
ants’ current motion is without factual
or legal basis. Plaintiffs in the Freddie Derivative Action had already filed a
complaint that had been consolidated—in
fact, those plaintiffs had joined in
requesting the Consolidation Order.
See, e.g.
, Joint Status Report,
Cacciapelle v.
Fed. Nat’l Mortgage Ass’n
(D.D.C. Nov. 6,
2013), ECF No. 33. Moreover, those
plaintiffs filed the Freddie Derivative
Action in the Master Docket for the
consolidated action—
i.e.
, as a part of the consolidated
case. The procedures spelled
out in the Consolidation Order were thus
neither necessary nor warranted. Indeed,
they were moot, since the plaintiffs file
d the Freddie Derivative Action in the
consolidated case. The Freddie Derivative Action thus implicates none of the issues
here. That case was in fact consolidated
at the time, and the parties and the Court
treated it as such. The Court had jurisdic
tion over it at the time. Neither its
consolidation at the time nor its subseq
uent dismissal violated due process.
Case 1:14-cv-01404-RCL Document 18 Filed 12/22/14 Page 10 of 12
- 11 -
because the Court’s order did not dispose of Plaintiffs’ books-and-records claim
(which is unsurprising, since the Court neve
r consolidated Plaintiffs’ case), treating
Plaintiffs as consolidated would mean that
there is not yet a final judgment not only
in Plaintiffs’ case, but in
any
of the consolidated cases.
9
This would have significant
implications, as it would mean that the D.C.
Circuit lacks jurisdiction over all of the
appeals in the other cases, and that Defend
ants have defaulted on Plaintiffs’ books-
and-records claim (since they never filed
a responsive pleading in this case).
If Defendants respond to this last point by contending that Plaintiffs could
appeal this Court’s order on their motion, they will have revealed that their
consolidation argument is just a fig leaf, and that their true objective is to alchemize
a dismissal without prejudice into a dismissal with prejudice.
10
While such a result
would have no effect on the situation before
this Court, given that Plaintiffs have
already dismissed their claims, it would be
worth its weight in gold to Defendants,
who would then advise the Court of Federal Claims to ignore Plaintiffs’ recent
amicus brief opposing a stay of a differe
nt Net Worth Sweep case pending in that
court. In this way, what Defendants real
ly seek is an advisory opinion from this
Court that they can then rely on for
res judicata
effect on Plaintiffs’ claims in an
entirely different court.
The Court should deny Defendants’ motion.
9
Indeed, Defendants concede that the Court did not rule on Plaintiffs’ books-
and-records claim. Mot.
to Strike at 10 n.3.
10
This is obviously improper.
See, e.g., In re Wolf
, 842 F.2d 464, 466 (D.C.
Cir. 1988) (granting petition for writ of
mandamus where district court converted
voluntary dismissal without prejudice
into a dismissal with prejudice).
Case 1:14-cv-01404-RCL Document 18 Filed 12/22/14 Page 11 of 12
- 12 -
December 22, 2014
Respectfully submitted,
/s/ James E. Gauch
Thomas F. Cullen (D.C. Bar No. 224733)
Michael A. Carvin (D.C. Bar No. 366784)
James E. Gauch (D.C. Bar No. 447839)
Paul V. Lettow (D.C. Bar No. 502440)
JONES DAY
51 Louisiana Avenue, N.W.
Washington, D.C. 20001

http://www.valuewalk.com/wp-content/plugins/pdfjs-viewer-shortcode/web/viewer.php?file=http://www.valuewalk.com/wp-content/uploads/2014/12/Pershing-Response.pdf&download=true&print=true&openfile=false