UNITED STATES DISTRICT COURT FORTHE DISTRICT OF COLUMBIA



### In re Federal National Mortgage Association Securities, Derivative, and "ERISA" Litigation

Federal Housing FinanceAgency as Conservatorfor the Federal National MortgageAssociation v. Raines, etal.

Kellmer

### III MDL No. 1668

Civil CaseNo. 07-1173 (RJL)

### ~~ MEMORANDUM OPINION (July

## 2a, 2010) Before the Court are four motions arising from two nearly identical derivative lawsuits brought originally by plaintiffshareholder James Kellmer. The two lawsuits

were originally captioned as Kellmer v. Marron, Civ. No. 05-0037 (D.D.C., filed Jan. 10, 2005) ("Kellmer 11'), and Kellmer v. Raines, Civ. No. 07-1173 (D.D.C., filed June 29, 2007) ("'Kellmer 111'). I dismissed KellmerIIas part ofa consolidated action in which Kellmer's derivative suit wasjoinedwith other shareholder derivative suits. See In re Fannie Mae Derivative Litig., 503 F. Supp. 2d 9 (D.D.C. 2007). My decision to dismiss the consolidated action has been affirmedby our Circuit Court. See PirelliArmstrong Tire Corp. Retiree Med. Benefits Trust v. Raines, 534 F.3d 779 (D.C. Cir. 2008). Instead ofappealing my consolidation order and subsequent dismissal ofhis case, Kellmer filed the complaint in KellmerIII, which is substantially the same as the complaint in KellmerII. Kellmer also moved for clarification ofthe order dismissing the consolidated case or, alternatively, for relieffrom thejudgmentpursuant to Federal Rule ofCivil Procedure 60(b). The nominal defendant Federal National Mortgage Association ("Fannie Mae") opposed Kellmer's motion and moved to dismiss the KellmerIIIcomplaint for lack of subject matterjurisdiction or, in the alternative, for claim preclusion. Three ofthe defendants in KellmerIII-Franklin D. Raines, J. Timothy Howard, and Leanne G. Spencer (collectively, "the individual defendants")-joinedFannie Mae'sMotion to Dismiss. Since these motions were filed, the Court has replaced Kellmer as the derivative shareholderplaintiffwith the Federal Housing Finance Agency ("FHFA"), the statutory conservator ofFannie Mae. FHFA initially adopted Kellmer's response to the Motion to Dismiss but has since moved for voluntary dismissal ofKellmerIIIwithoutprejudice. Not surprisingly, the individual defendants opposed FHFA's Motion for Approval of Voluntary Dismissal and have moved to dismiss KellmerIIIwithprejudice for failure to prosecute. Having considered the parties' arguments, the Court finds that the individual defendants would suffer prejudice ifthe Court were to grant FHFA's motion now that the individual defendants havejustifiablyrelied on Fannie Mae's fully briefed Motion to Dismiss, which, ifgranted, would dispose ofthe case against them. Accordingly, FHFA's Motion for Approval ofVoluntary Dismissal is DENIED. At the same time, the individual defendants' Motion to Dismiss with Prejudice for Failureto Prosecute is also

2DENIED because they have failed to show that FHFA's conduct is egregiously dilatory. Finally, regarding the merits ofFannie Mae'spending Motion to Dismiss, the Court concludes that KellmerIIwas properly dismissed in light ofthe Court's earlier consolidation order and that Kellmer IIIis barred by the doctrine ofclaim preclusion. Thus, Kellmer's Motion for Clarification or, in the Alternative, for Relieffrom Judgment is DENIED, and Fannie Mae's Motion to Dismiss, which wasjoinedby the individual defendants, is GRANTED. 

### BACKGROUND Both KellmerIIand KellmerIIIarise from allegations that Fannie Mae engaged in improper accountingpractices. These allegations are exhaustively explained in my previous opinions. See, e.g., In re Fannie Mae DerivativeLitig., 503 F. Supp. 2d at 11- 14. Beginning in September 2004, ten plaintiffs, including Kellmer, commenced shareholder derivative actions against former and then-current officers and directors of Fannie Mae. Id. at 13 & n.3. l Various parties promptly moved to consolidate these actions. Although Kellmer did not oppose consolidation, he did oppose filing a consolidated complaint, and he soughtto have his counsel appointed as one ofthe co-lead counsel. (PI. Kellmer's Formal Position [Civ. No. 05-37, Dkt. # 7] at 10, 5,4). He argued that it was necessary to distinguish his derivative suit, the only one in which a

1Kellmer also brought a books and records action against Fannie Mae under Delaware law. See Kellmer v. Fed. Nat 'IMortgageAss'n, Civ. No. 04-2084 (D.D.C., filed Dec. 1,2004) ("Kellmer F'). 3shareholder made a demand on Fannie Mae'sboard ofdirectors under Federal Rule of Civil Procedure 23.1, from the other derivative suits, in which the shareholders declined to make such a demand on the theory that doing so would have been futile. (Id. at 4). In February 2005, I granted the motions to consolidate and appointed Pirelli Armstrong Tire Corporation Retiree Medical Benefits Trust and Wayne County Employees' Retirement System as co-lead plaintiffs. (Feb. 14,2005 Mem. Op. and Order [Civ. No. 05-37, Dkt. #25] at 3-4). I explicitly addressed Kellmer's argument that "demand made" and "demand futile" cases should not be consolidated into one action but decided nevertheless "thatthis distinction is insufficientto necessitate separate actions at this point in the litigation." (Id. at 4-5). As a result, I issued Pretrial OrderNo.1, which consolidated Kellmer IIand the other shareholder derivative actions "for all purposes through finaljudgment." (Pretrial OrderNo. 1 [Civ. No. 05-37, Dkt. #26] at 4). I also ordered that the dockets for the individual cases be closed, (id.), and that the co-lead plaintiffs file a consolidated complaintthat would "supersede all existing complaints filed in this action," (id. at 7). Pursuant to that Order, the co-leadplaintiffs filed an initial consolidated complaint in September 2005, which they later amended in September 2006. The Amended Complaint asserts two types ofclaims: (1) "breach offiduciary duties and gross mismanagement arising out ofthe company's misapplication ofFAS 91 and 133 (,accounting-related claims')," (Am. Compi. [Civ. No. 04-1783, Dkt. #127] Counts I-IV);

4and (2) "claims for corporate waste and unjust enrichmentrelatingto the Board's approval ofcertain executives' compensation (,compensation-related claims')," (Am. CompI. [Civ. No. 04-1783, Dkt. #127] Counts V-VIII). In re Fannie Mae Derivative Litig., 503 F. Supp. 2d at 13-14. The co-leadplaintiffs proceeded on a theory that it would have been futile to make a successful pre-suit demand on Fannie Mae'sboard as required by Rule 23.1. The defendants moved to dismiss the consolidated complaint claiming, among other things, thatthe co-lead plaintiffs failed to allege sufficient facts to establish futility. In February 2007, before Iruled on the defendants' Motion to Dismiss, Kellmer sought to intervene in the case. (Kellmer's Mot. to Intervene [Civ. No. 04-1783, Dkt. #175] at 3). He argued that "adismissal ofthe present action may bind Mr. Kellmer and thus preclude him from asserting his claims though he, unlike the named representative plaintiffs, properly made apre-suit demand upon Fannie Mae'sDirectors pursuant to Rule 23.1 FRCP." (Id. at 6). Both the co-leadplaintiffs and the defendants opposed this request. In his reply, Kellmer advocated that the Court deferruling on his Motion to Intervene and only consider it ifthe Court intended to grantthe Motion to Dismiss on the ground that pre-suit demand was not futile. (Kellmer's Reply in Support ofMot. to Intervene [Civ. No. 04-1783, Dkt#183] at 1). Ultimately, on May 31, 2007, the Court dismissed the consolidated derivative complaint because the plaintiffs failed "to make the requisite Rule 23.1 demand upon the

5Board ofDirectors ofFannieMae priorto filing this derivative suit." In re Fannie Mae DerivativeLitig., 503 F. Supp. 2d at 14. My Memorandum Opinion specifical1y lists Kellmer 11as among the cases that had been consolidated, (id. at 13 & n.3), and as indicated in the accompanying Order, the consolidated case was dismissed as to all defendants, (id. at 24).2 Before the deadline for filing an appeal expired, the co-lead plaintiffs filed a Notice ofAppeal as to "ALL ACTIONS." (Notice ofAppeal [Civ. No. 04-1783, Dkt. #201

### D. Kellmer neither filed his own appeal norrequested that the Court consider his pending Motion to Intervene. Instead, a day after the co-lead plaintiffs docketed their appeal, Kellmer filed a new lawsuit ("Kellmer 11F'). (See CompI. [Civ. No. 07-1173, Dkt. # 1 

### D. By Kellmer's own admission, the claims in that lawsuit "relate back in all respects to the original filing" in Kellmer

### 11. (Jd.**~** 9). He commenced the new lawsuit in part because the Clerk's Office had marked the docket in Kellmer

### 11 as "CLOSED." (Jd.). In the Complaint, Kellmer contends that the Court's Order dismissing the consolidated action did not, and could not, dismiss his case because, unlike the other cases, he had properly made a demand on Fannie Mae'sboard. (Jd.**~** 8). Reiterating the same argument, Kellmer moved on September 20, 2007, for clarification or for relieffrom the judgment in Kellmer 11pursuantto Federal Rule ofCivil Procedure 60(b). (See PI.

2Although the Memorandum Opinion and Orderwere not filed on the docket in Kellmer 11, Kellmer's attorneys were added to the docket for the consolidated case, and as aresult, they received notice ofthe dismissal. 6Kellmer's Mot. for Clarification, or, in the Alternative, for Relieffrom 1. [Civ. No. 05-37, Dkt. #27]). Fannie Mae,joinedby the individual defendants, opposed the motion and at the same time moved to dismiss the complaint in Kellmer III. (Fannie Mae's Omnibus Mot. to Dismiss and Opp'nto Mot. for Relieffrom J. [Civ. No. 07-1173, Dkt. #24]; Ind. Defs.' Mot. to Dismiss and Opp'n to Mot. for Relieffrom J. [Civ. No. 07-1173, Dkt. #28]). They argued thatthe Court lacked subject matterjurisdictionwhile its decision in Kellmer IIwas on appeal in our Circuit Court. Even though the filing ofa notice of appeal "confersjurisdiction on the court ofappeals and divests the district court of control overthose aspects ofthe case involved in the appeal," the district courtregains jurisdiction afterthe court ofappeals issues its mandate. UnitedStates v. Defries, 129 F.3d 1293, 1302 (D.C. Cir. 1997). Now that the Circuit Court has upheld dismissal ofthe consolidated action and has issued its mandate, this Court has regainedjurisdictionthus rendering the defendants'jurisdictional argument moot. Still standing, however, is the defendants' alternative argument that KellmerIIIshould be dismissed on the ground of claim preclusion. Subsequent developments in the case arising from FHFA's appointment as Fannie Mae's conservator have raised questions about whetherthis Court should still decide the defendants' pending Motion to Dismiss. On September 6, 2008, months after the Circuit Court upheld my decision to dismiss the consolidated derivative action, Fannie Mae, with authorization from FHFA, moved to stay all cases related to the Fannie Mae multi-district

7litigation. (Mot. for Stay ofAll Proceedings [Civ. No. 07-1173, Dkt. #61

## D. The Court approved the stay for 45 days. (Order Granting Stay ofAll Proceedings [Civ. No. 07- 1173, Dkt. #65]). On January 22,2009, the Court granted FHFA's Motion to Intervene as Conservator for Fannie Mae. (Minute Order entered in Civ. No. 07-1173 on Jan. 22, 2009). Several months later, on June 25, the Court granted FHFA'smotion to substitute itselffor Kellmer and ordered FHFA to notify the Court ofits position on the defendants' pending Motion to Dismiss in KellmerIII. (Mem. Order [Civ. No. 07-1173, Dkt. #82] at 6-7). FHFA did so on July 27, 2009, announcing "forthe present"that it would "adopt[]" the pleadings filed by Kellmer. (Status Report on the Mots. to Dismiss in Middleton and Kellmer's Shareholder Derivative Compls. [Civ. No. 07-1173, Dkt. #88] at 2). FHFA

soon altered course. Claiming that it needed more time to decide whether prosecuting KellmerIIIwould advance the statutory purpose ofthe conservatorship to preserve and protect Fannie Mae's assets, FHFA moved on September 25 to dismiss the case without prejudice under Federal Rules 23.1(c) and 41(a).3 Alternatively, FHFA requested a 180- day stay. In response, the individual defendants filed a Motion to Dismiss withprejudice under Rule 41(b) on the ground thatFHFAhas failed to prosecute the lawsuit diligently.

3KellmerIIIis one offour shareholder derivative actions still pendingbefore this Court as part ofthe Fannie Mae multi-district litigation. The other cases were originally captioned as Middleton v. Raines (Civ. No. 07-1221),Arthur v. Mudd(Civ. No. 07-2130), andAgnes v. Raines (Civ. No. 08-1093). FHFA seeks to dismiss each ofthese cases withoutprejudice. 8DISCUSSION I. Individual Defendants' Motion For Involuntary Dismissal With Prejudice Last to be filed, but first to be addressed, is the individual defendants' Motion to Dismiss with Prejudice for Failure to Prosecute. Rule 41(b) provides for involuntary dismissal ifthe plaintiff"fails to prosecute" its case. Fed. R. Civ. P. 41(b). Typically, dismissal is without prejudice. Under Local Civil Rule 83.23, "[a]n order dismissing a claim for failure to prosecute shall specify that the dismissal is withoutprejudice, unless the Court determines thatthe delay in prosecution ofthe claim has resulted in prejudice to

an opposing party." LcvR 83.23 (emphasis added). Thus, whetherthe Court should dismiss the case with prejudice depends on whetherthe defendants can show that FHFA "has not manifested reasonable diligence in pursuing the cause,"Bomate v. FordMotor Co., 761 F.2d 713,714 (D.C. Cir. 1985), and that the resulting delay has caused them prejudice. The individual defendants have not shown to the Court's satisfaction that FHFA has failed to exercise reasonable diligence under the circumstances in prosecuting Kellmer's derivative claims. FHFAdid not formally replace the original derivative plaintiffuntil as late as June 2009, and since then, its conduct has not been so "dilatory or contumacious" as tojustify the stiffpenalty ofdismissal with prejudice. See Bristol Petroleum Corp. v. Harris, 901 F.2d 165, 167 (D.C. Cir. 1990). FHFA has responded to all ofthe Court's orders in a timely and reasonable fashion. 

### It certainly has not disobeyed

9any Court order. Furthermore, FHFA'sMotion for Approval ofVoluntary Dismissal

comes less than a mere three months afterFHFA officially replaced the original plaintiff and well before the eve oftrial. The real issue, therefore, is not whether FHFA's conduct until now has been egregiously dilatory (ithas not) butwhetherFHFA's decision to dismiss its claims with the option ofbringing them again in the future is itselfso dilatory as to warrant dismissal with prejudice. The individual defendants contend that in moving for voluntary dismissal FHFA has stubbornly refused to announce whether or not it intends to proceed with Kellmer's derivative action and thatthis intentional delayjustifies involuntary dismissal with prejudice. Itgoes without saying that a decision to move for voluntary dismissal cannot-by itself-be abasis for granting involuntary dismissal. Were that so, then voluntary dismissal under Rule 41(a)(2) would be a nullity. The question then is whether FHFA's motion to dismiss withoutprejudice is an unwarranted deferral ofa decision that this Court has required FHFAto make. Ifso, then the Court mayproperly deem FHFA's motion as an obstinate refusal to prosecute and thereby dismiss the case withprejudice. Although I directed FHFA to submit a status report stating its position on the defendants' pending Motion to Dismiss, I never gave FHFA the choice to proceed with Kellmer's derivative claims or face the prospect ofinvoluntary dismissal with prejudice. Itwould "upset[] notions offundamental fairness" for this Court, "inresponse to [FHFA's] request for dismissal withoutprejudice," to dismiss the case with prejudice,

10"while failing to give [FHFA] notice ofits inclination to impose this extreme remedy." Andes v. Versant Corp., 788 F.2d 1033, 1037 (4th Cir. 1986). Having never warned FHFAthat arefusal to pursue Kellmer's claims in this litigation could result in dismissal

on the merits, I will not grant the individual defendants' Motion for Dismissal with Prejudice under Rule 41(b). II. FHFA's Motion For Voluntary Dismissal Without Prejudice Whetherthe Court should grant the individual defendants' motion for involuntary dismissal is, however, a separate question from whetherthe Court should grant FHFA's motion for voluntary dismissal. Denying the former does not mean that the Court should grant the latter. Under the Federal Rules, a derivative action may be "voluntarily dismissed

... only with the court's approval." Fed. R. Civ. P. 23.1(c). Voluntary dismissal by court order is withoutprejudice unless the court states otherwise. Fed. R. Civ. P. 41(a)(2). Before granting a motion for voluntary dismissal, the Court must satisfy itself: (1) that the motion is sought in good faith, and (2) thatthe defendants will not suffer "legal prejudice" ifthe case is dismissed. In re VitaminsAntitrustLitig., 198 F.R.D. 296, 304 (D.D.C. 2000). "Legal prejudice" is determined by considering four factors: (1) the defendants' effort and expense in preparation for trial; (2) excessive delay

or lack ofdiligence on the plaintiffs' part in prosecuting the action; (3) the adequacy of the plaintiffs' explanation for voluntary dismissal; and (4) the stage ofthe litigation at the time the motion to dismiss is made. Id. Voluntary dismissal is generally "granted in the

11federal courts unless the defendant would sufferprejudice otherthan the prospect ofa second lawsuit or some tactical disadvantage." Conafay v. Wyeth Labs., 793 F.2d 350, 353 (D.C. Cir. 1986). Notwithstanding that courts typically grant voluntary dismissal, this Court is not convinced that FHFA's motion isjustified at thisjuncture. Even though the Court has no

reason to believe that FHFA is acting in bad faith, it has plenty ofreason to believe that the individual defendants will suffer legal prejudice ifthe Court grants FHFA'sMotion for Approval ofVoluntary Dismissal without first resolving the defendants' dispositive Motion to Dismiss, which had been pending for nearly two years before FHFA filed its motion. To be sure, the individual defendants' efforts preparing for trial do not support a finding oflegal prejudice because the preparations made in this case can be used in other

cases that are part ofthe Fannie Mae multi-district litigation. Furthermore, the Court has already determined that FHFA has been sufficiently diligent underthe circumstances in prosecuting Kellmer's claims. Notwithstandingthatthe first two ofthe four factors for determining legal prejudice weigh in favor ofFHFA's motion, the Court finds that FHFA's explanation for requesting voluntary dismissal, coupled with the fact that the defendants had already filed dispositive motions in this case, is enough to tip the balance against FHFA's motion. Before addressing FHFA's rationale for seeking voluntary dismissal, the Court must first address FHFA's claim that it is entitled toprevail on its motion because the

12Housing and Economic Recovery Act of2008 ("HERA"), 12 U.S.C. §§ 4501 

### etseq., precludesjudicial review ofFHFA's chosen course ofaction. FHFA contends that, as the conservator ofFannie Mae, it is vested with the sole authority underHERAto protect and preserve the assets ofFannie Mae and that its decision to seek voluntary dismissal is the best means for accomplishing that end. Furthermore, according to FHFA, that decision is notjudiciallyreviewable by virtue ofa provision in HERA that specificallyprovides: "[N]o court may take any action to restrain or affectthe exercise ofpowers or functions ofthe Agency as a conservator." 12 U.S.C. §4617(f). FHFA construes this provision much too broadly. A careful reading reveals that the Court is barred only from interfering with the powers or functions ofFHFA "as a conservator." All that means is that I cannot affect FHFA'spower and authority to manage Fannie Mae orto act on its behalf. It does not mean, however, that I am barred from treating FHFA the same as any other litigant when FHFA invokes the authority of this Court. Nothing in the language ofSection 4617(f) purports to suspend the operation ofthe Federal Rules as applied to FHFA. Nor does any language in thatprovision entitle FHFA to differenttreatment as a litigant than Fannie Mae or its shareholders would have received had FHFA not been appointed Fannie Mae's conservator. There being no convincingbasis for casting aside the usual standards governing motions for voluntary dismissal under Rule 41(a)(2), this Courtwill not simply rubber stamp FHFA's motion.

13Because FHFA is subjectto the same rules as any otherplaintiffseekingvoluntary dismissal, the Court will scrutinize the merits ofFHFA's request as it would any other. FHFA claims that dismissal without prejudice "is necessary to allow for the Conservator to thoroughly and effectively evaluate whether continuedprosecution ofthe claims would further the statutorypurpose ofthe conservatorship to preserve and protect these assets." (FHFA's Mem. in Support ofMot. for Approval ofVoluntary Dismissal without Prejudice [Civ. No. 07-1173, Dkt. #95] at 2). In light ofCongress's decision to extend the statute oflimitations as long as three years for tort claims and six years for contract claims from the date ofthe conservator's appointment, see 12 U.S.C. §4617(b)(12), FHFA's explanation for withdrawing Kellmer's derivative claims is not wholly unreasonable. By extending the limitations period, Congress seems to have contemplated that FHFA might need more time to decide whether and how to pursue any claims it inherited as Fannie Mae's newly-appointed conservator. While FHFA's reason for seeking voluntary dismissal is not unreasonable, it is not particularly compelling. As the regulatory body that oversees Fannie Mae, FHFA and its predecessor the Office ofFederal Housing Enterprise Oversight are already quite familiar with the facts underlying Kellmer's derivative claims. Moreover, even though FHFA did not substitute itselffor Kellmer until three months before it moved for voluntary dismissal, it intervened as Fannie Mae's conservator a full five months earlier. Thus, FHFA was a party in the case for eight months before it filed its motion to dismiss

14withoutprejudice. Given that FHFA had at least eight months to contemplate how this

case shouldproceed, the Court is notparticularlypersuadedby FHFA'srequest for more time. In addition to FHFA's less-than-compelling explanation for seeking non-suit, its decision to move for voluntary dismissal nearly two years after the defendants had filed their dispositive Motion to Dismiss weighs heavily against granting dismissal without prejudice. One factor that courts have recognized as abasis for denying a motion for voluntary dismissal under Rule 41(a)(2) is the existence ofan already-pending motion for summaryjudgment. See, e.g., Pace v. 

### S. Express Co., 409 F.2d 331, 334 (7th Cir. 1969); Conafay, 793 F.2d at 352. The Court sees little reason not to extend that rule to a defendant's fully briefed motion to dismiss, so long as that motion is alreadypending and would actually dispose ofthe case on the merits. Defendants have areasonable expectation that when they file a motion that could resolve the case against them-whetherthat motion is for dismissal or for summaryjudgment-thecourts will address it. Allowing plaintiffs to move successfully for voluntary dismissal afterthe motion is ripe would deprive defendants oftheirreasonable expectation in aresolution of theirpending motion. Thus, it is fair to conclude that granting a motion for voluntary dismissal that was filed after the defendants had already filed their dispositive motion would indeedprejudice the defendants. As such, were the Courtto grant FHFA's Motion for Approval ofVoluntary Dismissal, which FHFA had filed nearly two years afterthe

15defendants' pendingMotion to Dismiss, the individual defendants would sufferprejudice. Voluntary dismissal in favor ofFHFA is, therefore, not appropriate at this time. III. Kellmer's Motion For Clarification Or For ReliefFrom Judgment Having declined to dismiss Kellmer 111under Rule 41, I will considerthe merits of the pending Motion to Dismiss filed by Fannie Mae andjoinedby the individual defendants. First, however, I will address Kellmer's Motion for Clarification or for Relieffrom Judgment in Kellmer11.4 Kellmer contends that this Court erred to the extent that it dismissed his claims as part ofthe consolidated derivative action. I dismissed the consolidated action because the plaintiffshareholders failed to make the requisite pre-suit demand on Fannie Mae'sboard ofdirectors pursuant to Rule 23.1. According to Kellmer, that rationale does not apply to his claims because he, unlike the other shareholder derivative plaintiffs, had made the required pre-suit demand. Consequently, he asks this Court for an order clarifying that it did not actually dismiss his claims butthat it dismissed only those claims where the shareholder failed to make a demand on Fannie Mae'sboard.

4 Even though FHFA, as Fannie Mae's conservator, has taken Kellmer's place as the shareholder derivative plaintiff, the Courtwill treat Kellmer's pleadings as adopted by FHFA. Now that the Court has rejected FHFA'sMotion for Approval ofVoluntary Dismissal, the Court relies on FHFA's earlier representation that it would adopt Kellmer's pleadings. (See Status Report on the Mots. to Dismiss in Middleton and Kellmer's ShareholderDerivative Compls. [Civ. No. 07-1173, Dkt. #88] at 2). 16There is no need for clarification because it is quite clearthatthis Court did indeed dismiss Kellmer's case as part ofthe consolidated action. In granting consolidation, I specifically determined that the distinction between "demand made" and "demand futile"

cases is insufficient to necessitate separate actions. (Feb. 14,2005 Mem. Op. and Order [Civ. No. 05-37, Dkt. #25] at 4-5). As a result, I entered an order consolidatingKellmer 11 with other shareholderderivative actions "forall purposes through finaljudgment." (Pretrial OrderNo.1 [Civ. No. 05-37, Dkt. #26] at 3-4). I also directed thatthe dockets for the individual cases be closed, (id. at4), and thatthe plaintiffs file a consolidated complaintthat would "supersede all existing complaints filed in this action," (id. at 7). When the plaintiffs, acting through co-lead counsel, filed their consolidated complaint, they proceeded on a "demand futile" theory, not on a "demandmade" theory. In re Fannie Mae DerivativeLilig., 503 F. Supp. 2d at 14. Not convincedby the theory advocated by the plaintiffs in their consolidated complaint, I dismissed their case for failure to make apre-suit demand as required by Rule 23.1. Id. MyMemorandum Opinion specifically lists Kellmer11as among the cases that had been consolidated, id. at 13 & n.3, and the accompanying Order indicates thatthe consolidated case was dismissed

as to all defendants, id. at 24. Because it is clear from the my rulings and the procedural history ofthis case that I dismissed Kellmer 11as part ofthe consolidated action, Kellmer's request for clarification is wholly unnecessary.

17Undaunted, Kellmer raises an alternative argument, claiming that he is entitled to relieffrom thejudgmentunder Rule 60(b). The Rule provides in relevantpartthat "the court may relieve a party or its legal representative from a finaljudgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect;

... (4) thejudgment is void;

... or (6) any otherreason thatjustifiesrelief." Fed. R. Civ. P. 60(b). In deciding a motion brought underthis Rule, a district court has substantial discretion. See Richardson v. Nat'/R.R. Passenger Corp., 49 F.3d 760, 765 (D.C. Cir. 1995). A court "mustbalance the interest injustice with the interest in protecting the finality of judgments." Summers v. Howard Univ., 374 F.3d 1188,1193 (D.C. Cir. 2004). None ofKellmer's arguments convince me that the interest injustice outweighs the interest in protecting the finality ofthejudgment in this case, especially now that our Circuit Court has affirmed thejudgment. At bottom, Kellmer's motion boils down to one simple argument: Thejudgmentviolates due process and is manifestly unjust as applied to him because it dismissed his case on grounds that were wholly inapplicable to the demand-made theory he was advocating. By Kellmer's own admission, he does not challenge the Court's decision to consolidate the derivative cases; rather, he challenges the Court's decision to renderjudgment against him based on a consolidated complaint filed by counsel for the co-leadplaintiffs that failed to advance his distinctive, demandmade theory. (Kellmer's Reply [Civ. No. 07-1173, Dkt. #36] at 3). Kellmer contends

18that he cannotbe divested ofhis right to advance thattheory by merging his case with demand-futile cases. See Cablevision Sys. Dev. Co. v. Motion PictureAss 'n of Am., Inc., 808 F.2d 133, 135 (D.C. Cir. 1987) ("'[C]onsolidation is permitted as a matter of convenience and economy in administration, but does not merge the suits into a single cause, or change the rights ofthe parties, or make those who are parties in one suitparties in another.", (quotingJohnson v. Manhattan Railway Co., 289 U.S. 479, 496-97 (1933)). Kellmer's argument would have much greater force ifthe right he asserts were truly his own. In a shareholder derivative action, the "plaintiffshareholder sues on behalf ofthe corporation," not on his own behalf. Henik ex reI. LaBranche & Co., Inc. v. LaBranche, 433 F. Supp. 2d 372, 380 (S.D.N.Y. 2006); see also DailyIncome Fund, Inc.

v. Fox, 464 U.S. 523, 528 (1984) (stating that "aderivative action allows a stockholder to step into the corporation's shoes and to seek in its right the restitution he could not demand in his own" (internal quotation marks omitted)). Because the collection of derivative suits brought on behalfofFannie Mae arose from the same operative facts and involved the same legal claims, this Court consolidated them and appointed co-lead plaintiffs that it believed would fairly and adequately representthe interests ofall shareholders, including Kellmer, in enforcing Fannie Mae'srights pursuant to Rule 23.1. In prosecuting the consolidated action, the co-lead plaintiffs opted to forego Kellmer's demand-made theory and instead relied on a demand-futility theory to establish their standing to bring the derivative claims.

19That Kellmer disagrees with that decision does not entitle him to relieffrom the judgment. All the shareholders must live with the strategic choices ofthe representative shareholders ultimately charged with prosecuting the derivative action on behalfofthe corporation and its shareholders. A derivative action, whetherbrought by one ormore, or by all, ofthe shareholders '''is really the action ofall the stockholders, as it is necessarily commenced in their behalfand for their benefit,'" and '"it inevitably follows that there

can be but one adjudication on the rights ofthe corporation.'" Henik, 433 F. Supp. 2d at 380 (quotingDana v. Morgan, 232 F. 85, 89 (2d Cir. 1916)). As a practical matter, because all shareholder derivative plaintiffs act on behalfofthe corporation and because the corporation cannotbe at odds with itself, there is a particular need for the consolidation ofderivative suits based on the same claims and for the appointment ofa representative shareholderplaintiffto prosecute those claims. And where there is a disagreement between the representative shareholder and other shareholders, one side must necessarily give way. Itis not, therefore, unfair orprejudicial to Kellmerto subject him to the same fate as all the other shareholders who must also subordinate their wishes to those ofthe representative shareholders. Nevertheless, even ifKellmer did suffer prejudice, the Court finds that the interest in remedying the harm does not overcome the interest in preserving the finality ofajudgmentthat Kellmer did not appeal and that has since been affirmed by the Circuit Court.

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### IV. Defendants' Motion To Dismiss All that now remains to be decided is the Motion to Dismiss Kellmer IIIfiled by Fannie Mae andjoinedby the individual defendants. The complaint in that case is substantially the same as the complaint in Kellmer ll. Indeed, Kellmer even admits that the claims in the new lawsuit "relate back in all respects to the original filing." (See Compi. [Civ. No. 07-1173, Dkt. #1]**~** 9). The individual defendants argue, as aresult, that KellmerIIIis barred by the doctrine ofclaim preclusion. Kellmer argues, however, that his derivative claims, which are predicated on a demand-futility theory, are not precluded because the Court never actually adjudicated them. In areplay ofhis argument for relieffrom thejudgment in Kellmer 11, Kellmer contends thatthe Courtresolved only the demand-futile claims, not his demand-made claim. This argument is not any more persuasive the second time around. Kellmer's obvious attemptto relitigate the very claims that the Court dismissed in Kellmer IIis foreclosed by the doctrine ofclaim preclusion. Underthat doctrine, a "final judgment on the merits ofan action precludes the parties ortheirprivies from relitigating issues that were or could have been raised in that action." FederatedDep 'tStores v. Moitie, 452 U.S. 394, 398 (1981). The elements for establishing claim preclusion are well known: "[A] subsequent lawsuit will be barred ifthere has been prior litigation (1) involving the same claims or cause ofaction, (2) between the same parties ortheir privies, and (3) there has been a final, validjudgment on the merits, (4) by a court of

21competentjurisdiction." CapitolHill Group v. Pillsbury, Winthrop, Shaw, Pittman, LLC, 569 F.3d 485,490 (D.C. Cir. 2009). There seems to be no dispute regarding these elements except that Kellmer contends that there is not a finaljudgment on the merits of his demand-made claims. This argument, however, does not withstand even passing scrutiny. Forreasons that have already been explored, it is clear from the record that the Court dismissed Kellmer's derivative claims on the merits in KellmerII. That the Court did not entertain litigation on his demand-made theory, however, does not make the relitigation ofhis claims in KellmerIIIproper. "[C]laimpreclusionprecludes the relitigation ofclaims, notjustarguments." NaturalRes. De! Councilv. EPA, 513 F.3d 257,261 (D.C. Cir. 2008) (emphasis in original). Its purpose is to preventthe relitigation, not only ofmatters or arguments that were in fact litigated, but ofmatters or arguments that could have been litigated butwere not. Id. Because Kellmer's demand-made theory could have been litigated as part ofthe consolidated action that disposed ofKellmerII, the fact that it was not actually litigated cannot revive Kellmer's derivative claims. Accordingly, those claims are precluded. 5

5 Kellmer also argues thatKellmerIIIis viable as an "independent action" for obtaining relieffrom "ajudgment, order, or proceeding"pursuant to Rule 60(d)( 1). As Kellmerpoints out, this rule is designed "toprevent a grave miscarriage of justice." UnitedStates v. Beggerly, 524 U.S. 38,47 (1998). Forreasons already given, the Court's dismissal ofKellmer's derivative claims in KellmerIIis hardly a miscarriage of justice, much less agrave miscarriage of justice. Thus,just as the Court rejected Kellmer's Rule 60(b) motion for relieffromjudgment, the Court also rejects this maneuverto obtain the same relief. 

### 22CONCLUSION Forthe foregoing reasons, the individual defendants' Motion to Dismiss with Prejudice for Failure to Prosecute and FHFA's Motion for Approval ofVoluntary Dismissal are both DENIED. In addition, Kellmer's Motion for Clarification or, in the Alternative, for Relieffrom Judgment is also DENIED. Finally, the long-pending Motion to Dismiss filed by Fannie Mae andjoined by the individual defendants is GRANTED. An appropriate Order consistent with this ruling is attached herewith.

## I# ~~**RICHARD~** United States District Judge

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