Court Opinion

ID: 216212
Source: CourtListenerOpinion
Date Created: 2011-05-05 20:11:38+00
Date Added: 2024-06-11T17:28:27.441897
License: Public Domain

UNPUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                              No. 09-1973

LOUISIANA MUNICIPAL POLICE EMPLOYEES RETIREMENT SYSTEM,
derivatively and on behalf of Federal Home Loan Mortgage
Corporation; R.S. BASSMAN, derivatively on behalf of
Freddie Mac aka Federal Home Loan Mortgage Corporation and
its shareholders,

                Plaintiffs - Appellants,

          and

ADAMS FAMILY TRUST, derivatively on behalf of nominal
defendant Federal Home Loan Mortgage Corporation; ELNA
ADAMS, Trustee, derivatively on behalf of nominal defendant
Federal Home Loan Mortgage Corporation; KEVIN TASHJIAN,
derivatively on behalf of nominal defendant Federal Home
Loan Mortgage Corporation,

                Plaintiffs,

          v.

FEDERAL HOUSING FINANCE AGENCY,

                Plaintiff - Appellee,

          and

RICHARD F. SYRON; PATRICIA COOK; ANTHONY PISZEL; EUGENE M.
MCQUADE; STEPHEN A ROSS; SHAUN F. O’MALLEY; FEDERAL HOME
LOAN MORTGAGE CORPORATION; PRICEWATERHOUSE COOPERS, LLP;
FREDDIE MAC, nominal defendant also known as Federal Home
Loan Mortgage Corporation; ROBERT R. GLAUBER; BARBARA T.
ALEXANDER; MARTIN F. BAUMANN; WILLIAM M. LEWIS, JR.;
JEFFREY M. PEEK; GEOFFREY T. BOISI; RONALD F. POE; MIKE
PERLMAN; KIRK S. DIE; JAMES R. EGAN; PAUL G. GEORGE;
MICHAEL MAY; HOLLIS S. MCLOUGHLIN; PAUL E. MULLINGS; ANURAG
SAKSENA; JERRY WEISS; RALPH F. BOYD, JR.; JOSEPH A.
SMIALWOSKI; ROBERT Y. TSIEN; ROBERT E. BOSTROM; MICHELLE
ENGLER; THOMAS S. JOHNSON; NICHOLAS P. RETSINAS; JEROME P.
KENNEY,

                Defendants - Appellees.

Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria.     Leonie M. Brinkema,
District Judge. (1:08-cv-00773-LMB-TCB)

Argued:   January 28, 2011                      Decided:   May 5, 2011

Before TRAXLER,   Chief   Judge,   and   MOTZ    and   KEENAN,   Circuit
Judges.

Affirmed by unpublished per curiam opinion.

ARGUED: Matthew Evan Miller, CUNEO, GILBERT & LADUCA, LLP,
Washington, D.C., for Appellants.     Howard N. Cayne, ARNOLD &
PORTER, LLP, Washington, D.C., for Appellees.          ON BRIEF:
Jonathan W. Cuneo, CUNEO, GILBERT & LADUCA, LLP, Washington,
D.C.; Steven E. Fineman, Daniel P. Chiplock, LIEFF, CABRASER,
HEIMANN & BERNSTEIN, LLP, New York, New York; Richard D.
Greenfield, Marguerite R. Goodman, GREENFIELD & GOODMAN, LLC,
New York, New York, for Appellant R. S. Bassman; Kevin Oufnac,
Lewis S. Kahn, Albert M. Myers, KAHN, SWICK & FOTI, LLC, New
Orleans,   Louisiana,   Mark   Hanna,   MURPHY   ANDERSON  PLLC,
Washington, D.C., for Appellant Louisiana Municipal Police
Employees Retirement System. David B. Bergman, Ian S. Hoffman,
Christopher A. Jaros, ARNOLD & PORTER, LLP, Washington, D.C.;
Stephen E. Hart, FEDERAL HOUSING FINANCE AGENCY, Washington,
D.C., for Appellee Federal Housing Finance Agency.

Unpublished opinions are not binding precedent in this circuit.

                                   2
PER CURIAM:

       This appeal arises out of consolidated derivative actions

that       shareholders    filed      on   behalf    of   the   Federal     Home     Loan

Mortgage      Corporation       (“Freddie    Mac”)     against   former         directors

and    officers. 1        The   shareholders        allege   that    the    defendants

breached       their   fiduciary       duties,      wasted   company      assets,    and

grossly       mismanaged        the    company,      resulting      in     significant

financial losses.          Acting as conservator of Freddie Mac pursuant

to federal law, the Federal Housing Finance Agency successfully

moved in the district court to substitute itself as plaintiff in

those actions.         The shareholders appeal this ruling.                We affirm.

                                            I.

       In     1970,    Congress       established      Freddie      Mac    to     promote

homeownership by competing with the Federal National Mortgage

Association (“Fannie Mae”) in the secondary residential mortgage

market.       See Fed. Home Loan Mortgage Corp. Act, Pub. L. No. 91-

351, § 301, 84 Stat. 450, 451 (1970) (codified as amended at 12

       1
       Two of the actions -- Adams Family Trust v. Syron, and
Louisiana Municipal Police Employees Retirement System v. Syron
-- were filed in the Eastern District of Virginia in July and
August 2008, respectively, and consolidated on October 15, 2008.
The third action -- Bassman v. Syron -- was originally filed in
the Southern District of New York in March 2008, ordered
transferred to the Eastern District of Virginia on November 20,
2008, and consolidated with the other two cases on December 12,
2008.

                                            3
U.S.C. §§ 1451 et seq.); Fed. Nat’l Mortgage Ass’n Charter Act,

ch. 847, § 301, 48 Stat. 1246, 1252 (1934) (codified as amended

at 12 U.S.C. §§ 1716 et seq.).                   Although both enterprises are

structured as private corporations, Freddie Mac and Fannie Mae

are   government-sponsored          institutions.         Id.       They   “have     an

affirmative obligation to facilitate the financing of affordable

housing     for   low-     and    moderate-income        families    in    a     manner

consistent with their overall public purposes, while maintaining

a strong financial condition and a reasonable economic return.”

12 U.S.C. § 4501(7).

      To provide “more effective Federal regulation” of Freddie

Mac   and    Fannie   Mae,       Congress   created      the   Office     of    Federal

Housing Enterprise Oversight (the “Office”) in 1992.                           See Pub.

L. No. 102-550, §§ 1302, 1311, 106 Stat. 3672, 3941-44 (1992);

12 U.S.C. § 4501(2).              The Office was responsible for making

annual      reports   to     Congress       on    “the   financial      safety      and

soundness” of Freddie Mac and Fannie Mae.                  Pub. L. No. 102-550,

§§ 1317, 1319B, 106 Stat. at 3949, 3950.                  In 2007 and 2008, the

Office conveyed positive reports on the fiscal health of both

enterprises, describing them as “adequately capitalized.”                           See

In re Fed. Home Mortgage Corp. Derivative Litig., 643 F. Supp.

2d 790, 792 (E.D. Va. 2009) (“In re Freddie Mac”).                      In reality,

however, Freddie Mac was poised to report considerable losses:

$3.1 billion in 2007 and $50.1 billion in 2008.                  See id.

                                            4
       In 2008, amid these extensive losses, Congress passed and

President       George   W.   Bush       signed      the     Housing    and    Economic

Recovery Act of 2008 (the “Act”).                   The Act abolished the Office

and    another     government       entity,       the   Federal    Housing      Finance

Board, and in their stead created the Federal Housing Finance

Agency (the “Agency”).          See Pub. L. No. 110-289 §§ 1301-1314,

122 Stat. 2654, 2794-99 (2008).                    The shareholders allege, and

the Agency does not dispute, that the Agency’s leadership and

staff is “substantially unchanged” from that of the Office.                         See

Appellants’ Br. at 10.              Indeed, the Agency’s director, James

Lockhart, is the former director of the Office.

       The   Act   grants     the    Agency’s        director     the   authority    to

appoint the Agency as conservator or receiver of Freddie Mac in

the event the enterprise becomes “critically undercapitalized.”

12 U.S.C. § 4617.         Pursuant to this authority, on September 6,

2008, Lockhart appointed the Agency as conservator of Freddie

Mac.    See In re Freddie Mac, 643 F. Supp. 2d at 793.                         As such,

the    Agency    “succeed[ed]       to   all       rights,    titles,    powers,    and

privileges of [Freddie Mac], and of any stockholder, officer, or

director of [Freddie Mac] with respect to [Freddie Mac] and the

assets of [Freddie Mac],” and is empowered to “take over the

assets of and operate [Freddie Mac] with all the powers of the

shareholders, the directors, and the officers of [Freddie Mac]

and    conduct     all   business        of       [Freddie    Mac].”      12     U.S.C.

                                              5
§ 4617(b)(2)(A)(i),        (B)(i).       The      Act    further       provides    that,

except under limited circumstances not at issue here, “no court

may take any action to restrain or affect the exercise of powers

or functions of the [Agency] as a conservator or a receiver.”

Id. § 4617(f).

       After     its      appointment        as     conservator,         the      Agency

successfully      moved    to   substitute        itself    as    plaintiff       in   the

consolidated actions in place of the shareholders.                        Thereafter,

upon   the     Agency’s    motion,     the    district         court   dismissed       the

actions without prejudice.

                                        II.

       The district court, interpreting the Act, concluded that

“the plain meaning of the statute is that all rights previously

held by Freddie Mac’s stockholders, including the right to sue

derivatively, now belong exclusively to the [Agency].”                             In re

Freddie Mac, 643 F. Supp. 2d at 795 (emphasis in original).                            The

court found support in the Act’s provision explicitly granting

conservators      and   receivers      “all       rights,      titles,    powers,      and

privileges” of “any stockholder,” 12 U.S.C. § 4617(b)(2)(A)(i),

and    the     provision     barring     courts         from     “restrain[ing]        or

affect[ing] the exercise of powers or functions of the [Agency]

as a conservator or receiver,” id. § 4617(f).                     See In re Freddie

Mac, 643 F. Supp. 2d at 797 (“This language clearly demonstrates

                                         6
Congressional intent to transfer as much control of Freddie Mac

as   possible    to     the    [Agency],         including       any   right      to   sue    on

behalf   of     the    corporation.”).                 Further,     the    district         court

relied   on     case     law       interpreting         the   Financial        Institutions

Reform, Recovery, and Enforcement Act of 1989, which has similar

provisions transferring stockholders’ “rights, titles, powers,

and privileges” to federal bank receivers and conservators.                                  See

12 U.S.C. § 1821(d)(2)(A)(i), (B)(i); see also Pareto v. FDIC,

139 F.3d 696, 700 (9th Cir. 1998) (“Congress has transferred

everything      it      could       to     the        FDIC,   and      that    includes        a

stockholder’s         right,       power   or        privilege    to     demand    corporate

action   or     to     sue     directors         or    others     when    action       is    not

forthcoming.”).

                                            III.

       The shareholders appeal the substitution order, contending

that under the Act the appointment of a receiver or conservator

does   not    preclude         a    shareholder’s         derivative       action.           Our

jurisdiction to hear this appeal arises under 28 U.S.C. § 1291.

See Chao v. Rivendell Woods, Inc., 415 F.3d 342, 345 (4th Cir.

2005) (explaining voluntary dismissal of entire action without

prejudice is a final decision appealable under § 1291).                                       We

review questions of statutory interpretation de novo.                                   United

States v. Abuagla, 336 F.3d 277, 278 (4th Cir. 2003).

                                                 7
     Having   carefully   considered    the   record,   the   briefs   and

arguments of the parties, and the controlling and persuasive

authorities, we conclude that the district court’s analysis was

correct.   Accordingly, we affirm on the basis of the district

court’s well reasoned opinion.         See In re Freddie Mac, 643 F.

Supp. 2d 790. 2

                                                                AFFIRMED

     2
       The shareholders originally sought immediate review of the
substitution order, noting their appeal before the district
court entered the dismissal order. The Agency moved to dismiss
the appeal, contending this court lacked jurisdiction to review
the merits of the interlocutory order.       Because, during the
pendency of this appeal, the district court entered a final
order dismissing the action, we deny as moot the Agency’s motion
to dismiss the appeal.     See Digital Equip. Corp. v. Desktop
Direct, Inc., 511 U.S. 863, 868 (1994) (describing “general
rule” that “claims of district court error at any stage of the
litigation may be ventilated” upon entry of final judgment).

                                  8