UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF COLUMBIA 

In re Federal National Mortgage 

Association Securities, Derivative, and 

"ERISA" Litigation 

Federal Housing Finance Agency as 

Conservator for the Federal National 

Mortgage Association v. Raines, et al. 

Kellmer III 

MDL No. 1668 

Civil Case No. 07-1173 (RJL) 

~~ MEMORANDUM OPINION 

(July 2a, 2010) 

Before the Court are four motions arising from two nearly identical derivative 

lawsuits brought originally by plaintiff shareholder 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 Kellmer II as part of a consolidated action in which 

Kellmer's derivative suit was joined with 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 affirmed by our Circuit Court. See Pirelli Armstrong 

Tire Corp. Retiree Med. Benefits Trust v. Raines, 534 F.3d 779 (D.C. Cir. 2008). Instead 

of appealing my consolidation order and subsequent dismissal of his case, Kellmer filed 

the complaint in Kellmer III, which is substantially the same as the complaint in Kellmer 
II. Kellmer also moved for clarification of the order dismissing the consolidated case or, 

alternatively, for relief from the judgment pursuant to Federal Rule of Civil Procedure 

60(b). The nominal defendant Federal National Mortgage Association ("Fannie Mae") 

opposed Kellmer's motion and moved to dismiss the Kellmer III complaint for lack of 

subject matter jurisdiction or, in the alternative, for claim preclusion. Three of the 

defendants in Kellmer III-Franklin D. Raines, J. Timothy Howard, and Leanne G. 

Spencer (collectively, "the individual defendants")-joined Fannie Mae's Motion to 

Dismiss. Since these motions were filed, the Court has replaced Kellmer as the derivative 

shareholder plaintiff with the Federal Housing Finance Agency ("FHF A"), the statutory 

conservator of Fannie Mae. FHFA initially adopted Kellmer's response to the Motion to 

Dismiss but has since moved for voluntary dismissal of Kellmer III without prejudice. 

Not surprisingly, the individual defendants opposed FHFA's Motion for Approval of 

Voluntary Dismissal and have moved to dismiss Kellmer III with prejudice for failure to 

prosecute. 

Having considered the parties' arguments, the Court finds that the individual 

defendants would suffer prejudice if the Court were to grant FHFA's motion now that the 

individual defendants have justifiably relied on Fannie Mae's fully briefed Motion to 

Dismiss, which, if granted, would dispose of the case against them. Accordingly, 

FHFA's Motion for Approval of Voluntary Dismissal is DENIED. At the same time, the 

individual defendants' Motion to Dismiss with Prejudice for Failure to Prosecute is also 

2 
DENIED because they have failed to show that FHFA's conduct is egregiously dilatory. 

Finally, regarding the merits of Fannie Mae's pending Motion to Dismiss, the Court 

concludes that Ke llmer II was properly dismissed in light of the Court's earlier 

consolidation order and that Kellmer III is barred by the doctrine of claim preclusion. 

Thus, Kellmer's Motion for Clarification or, in the Alternative, for Relief from Judgment 

is DENIED, and Fannie Mae's Motion to Dismiss, which was joined by the individual 

defendants, is GRANTED. 

BACKGROUND 

Both Kellmer II and Kellmer III arise from allegations that Fannie Mae engaged in 

improper accounting practices. These allegations are exhaustively explained in my 

previous opinions. See, e.g., In re Fannie Mae Derivative Litig., 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 sought to have his counsel appointed as one of the 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 

1 Kellmer also brought a books and records action against Fannie Mae under 

Delaware law. See Kellmer v. Fed. Nat 'I Mortgage Ass 'n, Civ. No. 04-2084 (D.D.C., 

filed Dec. 1,2004) ("Kellmer F'). 

3 
shareholder made a demand on Fannie Mae's board of directors 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 "that this distinction is insufficient to necessitate separate actions at 

this point in the litigation." (Id. at 4-5). As a result, I issued Pretrial Order No.1, which 

consolidated Kellmer II and the other shareholder derivative actions "for all purposes 

through final judgment." (Pretrial Order No. 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 complaint that would "supersede all existing complaints filed 

in this action," (id. at 7). 

Pursuant to that Order, the co-lead plaintiffs filed an initial consolidated complaint 

in September 2005, which they later amended in September 2006. The Amended 

Complaint asserts two types of claims: (1) "breach of fiduciary duties and gross 

mismanagement arising out of the company's misapplication ofFAS 91 and 133 

(,accounting-related claims')," (Am. Compi. [Civ. No. 04-1783, Dkt. #127] Counts I-IV); 

4 
and (2) "claims for corporate waste and unjust enrichment relating to the Board's 

approval of certain 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-lead plaintiffs proceeded on a theory that it 

would have been futile to make a successful pre-suit demand on Fannie Mae's board as 

required by Rule 23.1. The defendants moved to dismiss the consolidated complaint 

claiming, among other things, that the co-lead plaintiffs failed to allege sufficient facts to 

establish futility. 

In February 2007, before I ruled 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 "a dismissal of the present action may bind Mr. Kellmer and 

thus preclude him from asserting his claims though he, unlike the named representative 

plaintiffs, properly made a pre-suit demand upon Fannie Mae's Directors pursuant to Rule 

23.1 FRCP." (Id. at 6). Both the co-lead plaintiffs and the defendants opposed this 

request. In his reply, Kellmer advocated that the Court defer ruling on his Motion to 

Intervene and only consider it if the Court intended to grant the Motion to Dismiss on the 

ground that pre-suit demand was not futile. (Kellmer's Reply in Support of Mot. 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 

5 
Board of Directors of Fannie Mae prior to filing this derivative suit." In re Fannie Mae 

Derivative Litig., 503 F. Supp. 2d at 14. My Memorandum Opinion specifical1y lists 

Kellmer 11 as 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 of Appeal as to "ALL ACTIONS." (Notice of Appeal [Civ. No. 04-1783, Dkt. 

#201 D. Kellmer neither filed his own appeal nor requested 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's board. (Jd. ~ 8). Reiterating the same 

argument, Kellmer moved on September 20, 2007, for clarification or for relief from the 

judgment in Kellmer 11 pursuant to Federal Rule of Civil Procedure 60(b). (See PI. 

2 Although the Memorandum Opinion and Order were not filed on the docket in 

Kellmer 11, Kellmer's attorneys were added to the docket for the consolidated case, and as 

a result, they received notice of the dismissal. 

6 
Kellmer's Mot. for Clarification, or, in the Alternative, for Relief from 1. [Civ. No. 05-37, 

Dkt. #27]). Fannie Mae, joined by 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'n to Mot. for Relief from J. [Civ. No. 07-1173, Dkt. #24]; Ind. 

Defs.' Mot. to Dismiss and Opp'n to Mot. for Relief from J. [Civ. No. 07-1173, Dkt. 

#28]). They argued that the Court lacked subject matter jurisdiction while its decision in 

Kellmer II was on appeal in our Circuit Court. Even though the filing of a notice of 

appeal "confers jurisdiction on the court of appeals and divests the district court of 

control over those aspects of the case involved in the appeal," the district court regains 

jurisdiction after the court of appeals issues its mandate. United States v. Defries, 129 

F.3d 1293, 1302 (D.C. Cir. 1997). Now that the Circuit Court has upheld dismissal of the 

consolidated action and has issued its mandate, this Court has regained jurisdiction thus 

rendering the defendants' jurisdictional argument moot. Still standing, however, is the 

defendants' alternative argument that Kellmer III should 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 whether this 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 FHF A, moved to stay all cases related to the Fannie Mae multi-district 

7 
litigation. (Mot. for Stay of All Proceedings [Civ. No. 07-1173, Dkt. #61 D. The Court 

approved the stay for 45 days. (Order Granting Stay of All 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's motion to substitute 

itself for Kellmer and ordered FHFA to notify the Court of its position on the defendants' 

pending Motion to Dismiss in Kellmer III. (Mem. Order [Civ. No. 07-1173, Dkt. #82] at 

6-7). FHF A did so on July 27, 2009, announcing "for the 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 

Kellmer III would advance the statutory purpose of the 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, FHF A requested a 180-

day stay. In response, the individual defendants filed a Motion to Dismiss with prejudice 

under Rule 41(b) on the ground that FHFA has failed to prosecute the lawsuit diligently. 

3 Kellmer III is one of four shareholder derivative actions still pending before this 

Court as part of the 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), 

and Agnes v. Raines (Civ. No. 08-1093). FHFA seeks to dismiss each of these cases 

without prejudice. 

8 
DISCUSSION 

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 if the 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 without prejudice, unless 

the Court determines that the delay in prosecution of the claim has resulted in prejudice to 

an opposing party." LcvR 83.23 (emphasis added). Thus, whether the Court should 

dismiss the case with prejudice depends on whether the defendants can show that FHF A 

"has not manifested reasonable diligence in pursuing the cause," Bomate v. Ford Motor 

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. FHFA did not formally replace the original derivative 

plaintiff until as late as June 2009, and since then, its conduct has not been so "dilatory or 

contumacious" as to justify the stiff penalty of dismissal with prejudice. See Bristol 

Petroleum Corp. v. Harris, 901 F .2d 165, 167 (D.C. Cir. 1990). FHF A has responded to 

all of the Court's orders in a timely and reasonable fashion. It certainly has not disobeyed 

9 
any Court order. Furthermore, FHFA's Motion for Approval of Voluntary Dismissal 

comes less than a mere three months after FHF A officially replaced the original plaintiff 

and well before the eve of trial. 

The real issue, therefore, is not whether FHFA's conduct until now has been 

egregiously dilatory (it has not) but whether FHFA's decision to dismiss its claims with 

the option of bringing them again in the future is itself so dilatory as to warrant dismissal 

with prejudice. The individual defendants contend that in moving for voluntary dismissal 

FHF A has stubbornly refused to announce whether or not it intends to proceed with 

Kellmer's derivative action and that this intentional delay justifies involuntary dismissal 

with prejudice. It goes without saying that a decision to move for voluntary dismissal 

cannot-by itself-be a basis 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 without prejudice is an unwarranted deferral of a decision that 

this Court has required FHFA to make. If so, then the Court may properly deem FHFA's 

motion as an obstinate refusal to prosecute and thereby dismiss the case with prejudice. 

Although I directed FHF A to submit a status report stating its position on the 

defendants' pending Motion to Dismiss, I never gave FHF A the choice to proceed with 

Kellmer's derivative claims or face the prospect of involuntary dismissal with prejudice. 

It would "upset[] notions of fundamental fairness" for this Court, "in response to 

[FHFA's] request for dismissal without prejudice," to dismiss the case with prejudice, 

10 
"while failing to give [FHFA] notice of its inclination to impose this extreme remedy." 

Andes v. Versant Corp., 788 F.2d 1033, 1037 (4th Cir. 1986). Having never warned 

FHFA that a refusal 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 

Whether the Court should grant the individual defendants' motion for involuntary 

dismissal is, however, a separate question from whether the 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 without prejudice 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) that the defendants will not 

suffer "legal prejudice" if the case is dismissed. In re Vitamins Antitrust Litig., 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 of diligence on the plaintiffs' part in prosecuting the action; (3) the adequacy of 

the plaintiffs' explanation for voluntary dismissal; and (4) the stage of the litigation at the 

time the motion to dismiss is made. Id. Voluntary dismissal is generally "granted in the 

11 
federal courts unless the defendant would suffer prejudice other than the prospect of a 

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 is justified at this juncture. Even though the Court has no 

reason to believe that FHF A is acting in bad faith, it has plenty of reason to believe that 

the individual defendants will suffer legal prejudice if the Court grants FHFA's Motion 

for Approval of Voluntary Dismissal without first resolving the defendants' dispositive 

Motion to Dismiss, which had been pending for nearly two years before FHF A filed its 

motion. To be sure, the individual defendants' efforts preparing for trial do not support a 

finding of legal prejudice because the preparations made in this case can be used in other 

cases that are part of the Fannie Mae multi-district litigation. Furthermore, the Court has 

already determined that FHF A has been sufficiently diligent under the circumstances in 

prosecuting Kellmer's claims. Notwithstanding that the first two of the four factors for 

determining legal prejudice weigh in favor of FHF A'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 FHF A's motion. 

Before addressing FHF A's rationale for seeking voluntary dismissal, the Court 

must first address FHFA's claim that it is entitled to prevail on its motion because the 

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

precludes judicial review of FHF A's chosen course of action. FHF A contends that, as the 

conservator of Fannie Mae, it is vested with the sole authority under HERA to protect and 

preserve the assets of Fannie Mae and that its decision to seek voluntary dismissal is the 

best means for accomplishing that end. Furthermore, according to FHF A, that decision is 

not judicially reviewable by virtue of a provision in HERA that specifically provides: 

"[N]o court may take any action to restrain or affect the exercise of powers or functions 

of the 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 of FHF A "as a 

conservator." All that means is that I cannot affect FHF A's power and authority to 

manage Fannie Mae or to act on its behalf. It does not mean, however, that I am barred 

from treating FHF A the same as any other litigant when FHF A invokes the authority of 

this Court. Nothing in the language of Section 4617(f) purports to suspend the operation 

of the Federal Rules as applied to FHFA. Nor does any language in that provision entitle 

FHF A to different treatment as a litigant than Fannie Mae or its shareholders would have 

received had FHFA not been appointed Fannie Mae's conservator. There being no 

convincing basis for casting aside the usual standards governing motions for voluntary 

dismissal under Rule 41(a)(2), this Court will not simply rubber stamp FHFA's motion. 

13 
Because FHFA is subject to the same rules as any other plaintiff seeking voluntary 

dismissal, the Court will scrutinize the merits of FHF A's request as it would any other. 

FHF A claims that dismissal without prejudice "is necessary to allow for the Conservator 

to thoroughly and effectively evaluate whether continued prosecution of the claims would 

further the statutory purpose of the conservatorship to preserve and protect these assets." 

(FHF A's Mem. in Support of Mot. for Approval of Voluntary Dismissal without 

Prejudice [Civ. No. 07-1173, Dkt. #95] at 2). In light of Congress's decision to extend 

the statute of limitations as long as three years for tort claims and six years for contract 

claims from the date of the conservator's appointment, see 12 U.S.C. § 4617(b)(12), 

FHF A's explanation for withdrawing Kellmer's derivative claims is not wholly 

unreasonable. By extending the limitations period, Congress seems to have contemplated 

that FHF A 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 of Federal Housing Enterprise Oversight are already quite familiar 

with the facts underlying Kellmer's derivative claims. Moreover, even though FHFA did 

not substitute itself for Kellmer until three months before it moved for voluntary 

dismissal, it intervened as Fannie Mae's conservator a full five months earlier. Thus, 

FHF A was a party in the case for eight months before it filed its motion to dismiss 

14 
without prejudice. Given that FHF A had at least eight months to contemplate how this 

case should proceed, the Court is not particularly persuaded by FHFA's request for more 

time. 

In addition to FHF A'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 a basis for denying a motion for 

voluntary dismissal under Rule 41(a)(2) is the existence of an already-pending motion for 

summary judgment. 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 already pending and 

would actually dispose of the case on the merits. Defendants have a reasonable 

expectation that when they file a motion that could resolve the case against 

them-whether that motion is for dismissal or for summary judgment-the courts will 

address it. Allowing plaintiffs to move successfully for voluntary dismissal after the 

motion is ripe would deprive defendants of their reasonable expectation in a resolution of 

their pending 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 indeed prejudice the defendants. As such, were the Court to grant FHFA's Motion 

for Approval of Voluntary Dismissal, which FHF A had filed nearly two years after the 

15 
defendants' pending Motion to Dismiss, the individual defendants would suffer prejudice. 

Voluntary dismissal in favor of FHF A is, therefore, not appropriate at this time. 

III. Kellmer's Motion For Clarification Or For Relief From Judgment 

Having declined to dismiss Kellmer 111 under Rule 41, I will consider the merits of 

the pending Motion to Dismiss filed by Fannie Mae and joined by the individual 

defendants. First, however, I will address Kellmer's Motion for Clarification or for 

Relief from Judgment in Kellmer 11.4 

Kellmer contends that this Court erred to the extent that it dismissed his claims as 

part of the consolidated derivative action. I dismissed the consolidated action because the 

plaintiff shareholders failed to make the requisite pre-suit demand on Fannie Mae's board 

of directors 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 but that it dismissed only those claims where the 

shareholder failed to make a demand on Fannie Mae's board. 

4 Even though FHFA, as Fannie Mae's conservator, has taken Kellmer's place as 

the shareholder derivative plaintiff, the Court will treat Kellmer's pleadings as adopted by 

FHFA. Now that the Court has rejected FHFA's Motion for Approval of Voluntary 

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 Shareholder Derivative Compls. [Civ. No. 07-1173, Dkt. #88] at 2). 

16 
There is no need for clarification because it is quite clear that this Court did indeed 

dismiss Kellmer's case as part of the 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 consolidating Kellmer 

11 with other shareholder derivative actions "for all purposes through final judgment." 

(Pretrial Order No.1 [Civ. No. 05-37, Dkt. #26] at 3-4). I also directed that the dockets 

for the individual cases be closed, (id. at 4), and that the plaintiffs file a consolidated 

complaint that 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 "demand made" theory. In re 

Fannie Mae Derivative Lilig., 503 F. Supp. 2d at 14. Not convinced by the theory 

advocated by the plaintiffs in their consolidated complaint, I dismissed their case for 

failure to make a pre-suit demand as required by Rule 23.1. Id. My Memorandum 

Opinion specifically lists Kellmer 11 as among the cases that had been consolidated, id. at 

13 & n.3, and the accompanying Order indicates that the consolidated case was dismissed 

as to all defendants, id. at 24. Because it is clear from the my rulings and the procedural 

history of this case that I dismissed Kellmer 11 as part of the consolidated action, 

Kellmer's request for clarification is wholly unnecessary. 

17 
Undaunted, Kellmer raises an alternative argument, claiming that he is entitled to 

relief from the judgment under Rule 60(b). The Rule provides in relevant part that "the 

court may relieve a party or its legal representative from a final judgment, order, or 

proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable 

neglect; ... (4) the judgment is void; ... or (6) any other reason that justifies relief." 

Fed. R. Civ. P. 60(b). In deciding a motion brought under this 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 "must balance the interest in justice with the interest in 

protecting the finality of judgments." Summers v. Howard Univ., 374 F.3d 1188,1193 

(D.C. Cir. 2004). 

None of Kellmer's arguments convince me that the interest injustice outweighs 

the interest in protecting the finality of the judgment in this case, especially now that our 

Circuit Court has affirmed the judgment. At bottom, Kellmer's motion boils down to one 

simple argument: The judgment violates 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 render judgment against him based on a consolidated complaint 

filed by counsel for the co-lead plaintiffs that failed to advance his distinctive, demandmade theory. (Kellmer's Reply [Civ. No. 07-1173, Dkt. #36] at 3). Kellmer contends 

18 
that he cannot be divested of his right to advance that theory by merging his case with 

demand-futile cases. See Cablevision Sys. Dev. Co. v. Motion Picture Ass '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 of the parties, or make those who are parties in one suit parties 

in another. ", (quoting Johnson v. Manhattan Railway Co., 289 U.S. 479, 496-97 (1933)). 

Kellmer's argument would have much greater force if the right he asserts were 

truly his own. In a shareholder derivative action, the "plaintiff shareholder sues on behalf 

of the 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 Daily Income Fund, Inc. 

v. Fox, 464 U.S. 523, 528 (1984) (stating that "a derivative 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 behalf of Fannie 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 represent the interests of all 

shareholders, including Kellmer, in enforcing Fannie Mae's rights 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. 

19 
That Kellmer disagrees with that decision does not entitle him to relief from the 

judgment. All the shareholders must live with the strategic choices of the representative 

shareholders ultimately charged with prosecuting the derivative action on behalf of the 

corporation and its shareholders. A derivative action, whether brought by one or more, or 

by all, of the shareholders '''is really the action of all the stockholders, as it is necessarily 

commenced in their behalf and for their benefit, '" and '" it inevitably follows that there 

can be but one adjudication on the rights of the corporation.'" Henik, 433 F. Supp. 2d at 

380 (quoting Dana v. Morgan, 232 F. 85, 89 (2d Cir. 1916)). As a practical matter, 

because all shareholder derivative plaintiffs act on behalf of the corporation and because 

the corporation cannot be at odds with itself, there is a particular need for the 

consolidation of derivative suits based on the same claims and for the appointment of a 

representative shareholder plaintiff to prosecute those claims. And where there is a 

disagreement between the representative shareholder and other shareholders, one side 

must necessarily give way. It is not, therefore, unfair or prejudicial to Kellmer to subject 

him to the same fate as all the other shareholders who must also subordinate their wishes 

to those of the representative shareholders. Nevertheless, even if Kellmer did suffer 

prejudice, the Court finds that the interest in remedying the harm does not overcome the 

interest in preserving the finality of a judgment that 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 III filed by 

Fannie Mae and joined by 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 a result, 

that Kellmer III is barred by the doctrine of claim 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 a replay of his argument 

for relief from the judgment in Kellmer 11, Kellmer contends that the Court resolved only 

the demand-futile claims, not his demand-made claim. This argument is not any more 

persuasive the second time around. 

Kellmer's obvious attempt to relitigate the very claims that the Court dismissed in 

Kellmer II is foreclosed by the doctrine of claim preclusion. Under that doctrine, a "final 

judgment on the merits of an action precludes the parties or their privies from relitigating 

issues that were or could have been raised in that action." Federated Dep 't Stores v. 

Moitie, 452 U.S. 394, 398 (1981). The elements for establishing claim preclusion are 

well known: "[A] subsequent lawsuit will be barred if there has been prior litigation (1) 

involving the same claims or cause of action, (2) between the same parties or their 

privies, and (3) there has been a final, valid judgment on the merits, (4) by a court of 

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competent jurisdiction." Capitol Hill 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 final judgment on the merits of 

his demand-made claims. This argument, however, does not withstand even passing 

scrutiny. For reasons that have already been explored, it is clear from the record that the 

Court dismissed Kellmer's derivative claims on the merits in Kellmer II. That the Court 

did not entertain litigation on his demand-made theory, however, does not make the 

relitigation of his claims in Kellmer III proper. "[C]laim preclusion precludes the 

relitigation of claims, not just arguments." Natural Res. De! Council v. EPA, 513 F .3d 

257,261 (D.C. Cir. 2008) (emphasis in original). Its purpose is to prevent the relitigation, 

not only of matters or arguments that were in fact litigated, but of matters or arguments 

that could have been litigated but were not. Id. Because Kellmer's demand-made theory 

could have been litigated as part of the consolidated action that disposed of Kellmer II, 

the fact that it was not actually litigated cannot revive Kellmer's derivative claims. 

Accordingly, those claims are precluded. 5 

5 Kellmer also argues that Kellmer III is viable as an "independent action" for 

obtaining relief from "a judgment, order, or proceeding" pursuant to Rule 60( d)( 1). As 

Kellmer points out, this rule is designed "to prevent a grave miscarriage of justice." 

United States v. Beggerly, 524 U.S. 38,47 (1998). For reasons already given, the Court's 

dismissal of Kellmer' s derivative claims in Kellmer II is hardly a miscarriage of justice, 

much less a grave miscarriage of justice. Thus, just as the Court rejected Kellmer's Rule 

60(b) motion for relief from judgment, the Court also rejects this maneuver to obtain the 

same relief. 

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CONCLUSION 

For the foregoing reasons, the individual defendants' Motion to Dismiss with 

Prejudice for Failure to Prosecute and FHFA's Motion for Approval of Voluntary 

Dismissal are both DENIED. In addition, Kellmer's Motion for Clarification or, in the 

Alternative, for Relief from Judgment is also DENIED. Finally, the long-pending Motion 

to Dismiss filed by Fannie Mae and joined by the individual defendants is GRANTED. 

An appropriate Order consistent with this ruling is attached herewith. 

IUnited 

RICHARD~ ~~States District Judge 

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