Fannie Mae: Lamberth Rules For Pershing v Treasury

Fannie Mae: Lamberth Rules For Pershing v Treasury
By User:AgnosticPreachersKid (Own work) [CC BY-SA 3.0], via Wikimedia Commons

‘Ole Royce got this one right….Pershing has prevailed and is free to file its suit again at a later time.  This isn’t a huge victory as I think no rational person expected Pershing might lose….’cept maybe these folks.

Lamberth (full ruling at end):

This defined process for consolidation is especially important for cases, such as the one at present, where it is necessary for the Court to determine whether claims styled as direct in the wording of a complaint are, in fact, derivative and, therefore, qualify for consolidation under the Consolidation Order. The defendants contend that the Court’s Perry Capital decision resolved that the Rafter plaintiffs’ claims are derivative. It is true that there are apparent similarities in the nature of the fiduciary duty claims brought by both the plaintiffs in the instant suit, see Compl. Counts V-VII, and the Fairholme plaintiffs as part of the Perry Capital case, see Compl. Count VII, Fairholme Funds, Inc. v. FHFA, No. 13 Civ. 1053 (D.D.C. July 10, 2013), ECF No. 1.

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Yet the portions of the Perry Capital Opinion that, according to the defendants, allegedly “settled any debate” as to the nature of the Rafter plaintiffs’ fiduciary duty claims are dicta that have no dispositive effect here. See Reply 2 (citing Perry Capital, 2014 WL 4829559, at *12 n.24, *16n.39, *17, *19 n.45). Indeed, the Perry Capital Opinion explained that it was unnecessary for the Court to decide the question of whether the Fairholme plaintiffs’ claims were direct or derivative. Perry Capital, 2014 WL 4829559, at *12 n.24 (“[T]here is no requirement for the Court to decide whether such claims are derivative or direct.”). Rather, the Opinion only noted that if it had been necessary to decide such a question, the Court would have characterized the Fairholme plaintiffs’ fiduciary duty claims, in the context of that lawsuit, as derivative. Id.2

Here, the defendants never posed such a question to the Court. Consequently, the Court had no occasion to decide whether the plaintiffs’ purportedly direct fiduciary duty claims were actually derivative and, thus, should be consolidated.


Finally, the Court feels obligated to respond to the government defendants’ apparent suggestion that the Rafter case was properly closed, presumably in accordance with the Consolidation Order, only to be reopened again at the ex parte insistence of the Rafter plaintiffs’ counsel. See Reply 3 & n.4. In truth, the Clerk’s Office inadvertently terminated the Rafter case on October 10, 2014—the same day it correctly terminated the multiple cases involved in the Court’s Perry Capital decision. This error was likely due to the fact that, following a notice submitted by the Rafter plaintiffs on August 15, 2014, ECF No. 3, Rafter was designated as
“related” to the numerous plaintiffs whose claims the Court dismissed in Perry Capital. What is certain, however, is that, some hours later, the Clerk’s Office reopened the Rafter case because the Court, upon receiving a termination notice as to Rafter through the ECF email system, informed the Clerk’s Office of its blunder. Conspiracy theories aside, the defendants should rest assured that the Clerk’s Office was not acting at the unilateral behest of the Rafter plaintiffs’ counsel when it corrected its mistaken closure of the case. Since the defendants never raised the issue of consolidation, and the Court never filed any order on the docket, sua sponte, consolidating this case, it is inconceivable that the Clerk’s Office decided, on its own accord, to
terminate this case because it believed that Rafter’s purportedly direct claims were, in fact, derivative.3

Frustrated by the fact that the plaintiffs’ voluntary dismissal occurred “one business day before Defendants’ planned filing of dispositive motions,” Mot. 6, and aware that the purpose of voluntary dismissal may have been to permit the plaintiffs to argue that preclusion does not apply to a separate action filed in another federal court, id. at 6-7; see also Amicus Brief 2-3 & 3  Case 1:14-cv-01404-RCL Document 20 Filed 01/21/15 Page 6 of 77 n.1, Fairholme, No. 13 Civ. 465 (Fed. Cl. Nov. 21, 2014), ECF No. 107-1, the defendants seek to
unwind the plaintiffs’ voluntary dismissal of this case. There is no doubt that the plaintiffs voluntarily dismissed their case as part of a broader litigation strategy—and not because they suddenly decided their claims had no merit. But strategic conduct in the face of high-stakes litigation is not a punishable offense.

For the foregoing reasons, it is hereby ORDERED that the defendants’ motion to strike the plaintiffs’ notice of voluntary dismissal [17] is DENIED. This case remains dismissed.
Signed by Royce C. Lamberth, United States District Judge, on January 21, 2015.

Fannie Mae – Lamberth ruling Rafter v Treasury


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Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.

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