Case 1:13-cv-00465-MMS Document 114 Filed 12/05/14 Page 1 of 10

UNITED STATES COURT OF FEDERAL CLAIMS

FAIRHOLME FUNDS, INC., et al.,

C.A. No. 13-cv-00465C

Plaintiffs,

Judge Margaret M. Sweeney

v.

(Leave to file granted Nov. 26, 2014)

THE UNITED STATES OF AMERICA,

Defendant.
WASHINGTON FEDERAL PLAINTIFFS AMICUS BRIEF
REGARDING DEFENDANTS MOTION TO STAY
This Court should not stay this case because it would unnecessarily fragment the cases
the Court coordinated over a year ago, and would unnecessarily complicate and delay their
resolution, prejudicing the interests of Amici (Washington Federal, Michael McCredy Baker, and
City of Austin Police Retirement System, referred to as the Washington Federal Plaintiffs).
The Governments motion to stay is premised on the contention that the decision by the United
States District Court for the District of Columbia in Perry Capital LLC v. Lew, __ F. Supp. 3d
__, 2014 WL 4829559 (D.D.C. Sept. 30, 2014) (District Court Opinion), precludes the
Fairholme Plaintiffs from litigating certain issues before this Court.

The Governments

contention is tenuous with respect to the Fairholme Plaintiffs, and it is clearly inapplicable to
Amici who are differently situated. Specifically, the District Court Opinion has no preclusive
effect on Amicis claims because: (1) Amici have not filed an action in the District Court and
(2) certain of Amicis claims relate to the imposition of the conservatorship itself and actions
conducted by the Government during the conservatorship, while the District Courts Opinion
primarily relates to the Net Worth Sweep.
Moreover, granting the Governments Motion would unfairly prejudice Amici. If the
Governments Motion to Stay is granted, one of two things will most likely happen vis--vis the

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jurisdictional discovery already progressing in this action: either the discovery will be stayed for
all plaintiffs before this Court or it will continue to proceed with regard to only certain plaintiffs
who do not have cases filed in the District Court or have other arguments why the District Court
Opinion should have no preclusive effect on their claims.1 Neither option would promote
judicial efficiency. Staying discovery for all plaintiffs will further delay the briefing of our
motion to dismiss, which is currently stayed pending the completion of jurisdictional discovery
in this action. On the other hand, staying discovery for all but the plaintiffs whose claims are not
precluded by the District Court Opinion would require plaintiffs who have not participated in
jurisdictional discovery to date to complete the process the Fairholme Plaintiffs initially began.
This would create duplicative efforts, and it would be inefficient and prejudicial to all parties
involved.
I.
A.

BACKGROUND2

The Washington Federal Plaintiffs

On June 10, 2013, Amici filed a case in this Court, challenging conduct by the

Government, acting through Treasury and FHFA, in imposing and operating conservatorships
over Fannie Mae and Freddie Mac (the Companies). See Complaint, Washington Federal v.
United States, No. 13-385C (Fed. Cl.), Dkt. No. 1. The Washington Federal action was the first
action to be filed against the Government on behalf of the Companies shareholders. Like the
actions subsequently filed in this Court, the Washington Federal action also challenges the Third

The Rafter Plaintiffs, common shareholders of the Companies who challenge the Net Worth
Sweep, have argued that they would be entitled to jurisdictional discovery on the same basis such
discovery was awarded to the Fairholme Plaintiffs. See Dkt. No. 107-1 (proposed Amicus, leave
granted Nov. 24, 2014) at 6-9.
2

Because the Fairholme Plaintiffs Opposition to the Motion to Stay was filed under seal,
Amici have not seen that Opposition. We have tried to avoid any inadvertent duplication by
reviewing the Governments Motion and Reply Brief.

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Amendment to the Senior Preferred Stock Purchase Agreements (Third Amendment) between
the Government and the Companies, under which the Companies were later required to sweep
the full amount of their net worth to the Treasury. However, unlike the other actions filed in this
Court, the Washington Federal action, brought on behalf of preferred and common shareholders
of both Fannie Mae and Freddie Mac, alleges that the initial imposition of the conservatorships
constituted a taking and an illegal exaction.
B.

The Governments First Motion to Stay

On August 9, 2013, the Government filed its first motion to stay the actions filed in this

Court and argued that the pendency of District Court actions justified the stay. See Defendants
Motion to Stay, Washington Federal v. United States, No. 13-385C (Fed. Cl.), Dkt. No. 12.
Amici opposed that motion, and contended there was no basis for staying any of the cases
pending before this Court. See Br. of Plfs. Washington Federal, Michael McCredy Baker and
City of Austin Police Retirement System in Opp. to the Govts Mot. to Stay, Washington
Federal v. United States, No. 13-385C (Fed. Cl.), Dkt. No. 18 at 2. There, Amici argued:
Contrary to what the Government claims, no determination regarding the validity
of the Third Amendment by the District Court will affect the ability of the
plaintiffs who filed in this Court to pursue their Takings claims. And the
Government provides no basis, factual or legal, for staying the case brought by
these Plaintiffs who challenge the Governments imposition of the
conservatorships based on conduct that led up to the 2008 financial crisis, in
addition to challenging the Third Amendment.
Id. at 2-3. Amici contended their claims were broader than the claims alleged in the District
Court actions and involved conduct by the Government over a greater period of time, going back
to September 2008. Id. at 9. Amici pointed out that the Government had acknowledged as much
when, in its Opposition to Plaintiffs (since withdrawn) Motion to Consolidate, it candidly
observed:

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The Washington Federal complaint raises distinct claims and involves a longer
time period and broader array of Government actions. In addition to its challenge
to the Governments actions in 2012, Washington Federal challenges the
Governments policies and actions before, during, and after the 2008 financial
crisis. Specifically, Washington Federal raises unique claims related to the
placement of the Enterprises into conservatorship in 2008, the subsequent
operation of those conservatorships, and the terms of the 2008 stock agreements.
Thus, its complaint (1) challenges Government actions that occurred over five
years, and (2) is largely focused on actions taken in 2008. Washington Federal
also alleges that each of the four Government actions identified in the complaint
constitutes an illegal exaction, a completely separate cause of action.
See Defendants Opposition to Plaintiffs Motion to Consolidate, Washington Federal v. United
States, No. 13-385C (Fed. Cl.), Dkt. No. 11 at 4-5; see also id. at 6 (the measure of damages for
common shareholders is separate from that for preferred shareholders; the question of
compensation, if any, due to shareholders as of September 2008 is also wholly distinct from the
compensation, if any, due to shareholders as of August 2012). This Court thereafter denied the
Governments first motion to stay for the reasons set forth in plaintiffs response in opposition.
See Order, Washington Federal v. United States, No. 13-385C (Fed. Cl.), Dkt. No. 22.
C.

This Courts Order Coordinating Related Actions

On October 29, 2013, this Court entered an order consolidating and coordinating certain

related actions in this Court. See Order, Washington Federal v. United States, No. 13-385C
(Fed. Cl.), Dkt. No. 28. That Order:
1.

Consolidated the actions captioned Cacciapalle, et al. v. United States, No. 13-cv00466, American European Ins. Co. v. United States, No. 13-cv-00496, and
Dennis v. United States, No. 13-cv-00542, under the Cacciapalle caption (the
Cacciapalle Consolidated Action) ( A.1);

2.

Coordinated the Cacciapalle Consolidated Action with Fisher, et al. v. United

States, et al., No. 13-cv-00608, Shipmon v. United States, et al., No. 13-cv-00672
and with the Washington Federal action (collectively, the Representative
Actions) ( B.1.1); and

3.

Coordinated the Representative Actions with this action and Arrowood Indemnity
Co., et al. v. United States, No. 13-cv-00698 (Arrowood) (collectively, the
Individual Actions). B.2.

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D.

The Washington Federal Plaintiffs Agreed Stay of Their Action

Before the Government filed its Reply Brief in support of its Motion to Dismiss, in

response to this Courts order requesting Plaintiffs position, Amici agreed to stay their case
pending any deadline set in this action for an opposition to the Governments motion to dismiss.
Amici stated that doing so would give [Washington Federal] Plaintiffs the opportunity to review
any discovery obtained in the Fairholme action and, if necessary, supplement their opposition to
the Governments motion to dismiss.

See Plaintiffs Response to Order Regarding

Jurisdictional Discovery, Washington Federal v. United States, No. 13-385C (Fed. Cl.), Dkt. No.
42 at 2. Accordingly, on February 7, 2014, this Court entered an order staying this action
currently with the Cacciapalle action (Case No. 13-466) in order to promote the efficient
administration of justice and to prevent inconsistent rulings. See Order, Washington Federal v.
United States, No. 13-385C (Fed. Cl.), Dkt. No. 43.
II.

ARGUMENT

A stay is appropriate if it will avoid conflicting opinions and promote judicial

efficiency, while at the same time it does not unduly prejudice a partys interest. New York
Power Auth. v. United States, 42 Fed. Cl. 795, 799 (1999). Against this authority, granting the
Governments request for a stay here would create conflicting opinions, fragment the previously
coordinated proceedings, further delay the ongoing discovery process, and unduly prejudice
Amicis interests.
A.

Entering a Stay Would Unduly Prejudice Amicis Interests Because the District
Court Opinion Does Not Preclude Amicis Claims
Because Amici have no action filed in the District Court, they are not bound by the

District Courts opinion.

[C]ollateral estoppel [] protects the finality of judgments by

preclud[ing] relitigation in a second suit of claims actually litigated and determined in the first

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suit. Laguna Hermosa Corp. v. United States, 671 F.3d 1284, 1288 (Fed. Cir. 2012) (quoting
In re Freeman, 30 F.3d 1459, 1465 (Fed. Cir. 1994)) (alteration in original). Because Amici do
not have any claims pending in the District Court, they were not and could not have been
actually litigated and determined there. Therefore, Amicis claims cannot be precluded under
the doctrine of collateral estoppel by the District Court Opinion.
The Government concedes this point (Motion to Stay at 9), but argues that this Court
should treat the District Court Opinion as persuasive.

The Government, however, does not

provide any basis why the District Court Opinion would be persuasive to any arguments
regarding the original imposition of the conservatorships. Similarly, in its Reply Brief, the
Government claims this Court can enter a stay without deciding issues of the District Court
Opinions preclusive effect, by instead only reaching the issue of whether the Federal Circuit
would suggest a stay in similar circumstances. Dkt. No. 110 at 2. But the Governments own
(unpublished) authority for this proposition makes clear that such a stay is only suggested when
there is a possible preclusion issue. See Berman v. Dept of Interior, 447 F. Appx 186, 195
(Fed. Cir. 2011) (The District of Columbia Circuit has cautioned that a court asked to accord a
judgment preclusive effect may be well-advised to stay its own proceedings to await the ultimate
disposition of the judgment on appeal.) (citation omitted) (emphasis added). Therefore, in
order to decide whether the Federal Circuit would mandate a stay, this Court must determine
whether the District Court Opinion would have a preclusive effect on the plaintiffs before it.
In addition to the fact that Amici never filed an action in the District Court, the
Governments preclusion argument, based on the District Court Opinion, focuses on the
Fairholme Plaintiffs District Court claims for damages caused exclusively by the Third
Amendment in the form of lost liquidation preferences and the right to receive dividends. See

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Motion to Stay at 2 (The D.D.C. Actions, like the actions in this Court, involve legal challenges
to the Third Amendment to the Preferred Stock Purchase Agreements (PSPAs) executed by
FHFA and Treasury on August 17, 2012.). Unlike the Fairholme Plaintiffs, substantial portions
of the Washington Federal Plaintiffs Complaint challenge the initial imposition of the
conservatorships, as well as the Governments actions during them, including before the Third
Amendment, which were not addressed by the District Court. See, e.g., Compl. V(E), V(F)(1),
VI(A) and VI(B), Washington Federal v. United States, No. 13-385C (Fed. Cl.), Dkt. No. 1.
B.

Staying the Coordinated Actions Would Not Promote Judicial Efficiency Because It
Would Unnecessarily Disrupt Jurisdictional Discovery and Would Create
Inconsistent Opinions
Granting the Governments request for a stay would not promote judicial efficiency. It

would wreak havoc on the effective structure this Court created in consolidating and
coordinating related cases, severely impeding the judicial efficiency that has been achieved thus
far. As currently structured, jurisdictional discovery is proceeding in this action while related
actions, like Amicis, are stayed. In contrast, staying discovery for all plaintiffs would ensure
that Amicis motion to dismiss, which is currently stayed pending the completion of
jurisdictional discovery in this action, while nearly fully briefed since December 16, 2013, would
not be decided for years, unduly prejudicing Amicis interests by causing an unreasonable delay
to the resolution of their claims. And staying discovery only for plaintiffs who do not have
actions pending in the District Court or other arguments against the preclusive effect of the
District Court Opinion would require those plaintiffs3 to retread the ground already covered by

For example, the Rafter Amici make clear that, even if this action is stayed, because the
same grounds exist for granting the Rafter Plaintiffs jurisdictional discovery as existed for the
Fairholme Plaintiffs, jurisdictional discovery would remain necessary in the Rafter case. See
Dkt. No. 107-1 (proposed amicus, leave granted Nov. 24, 2014) at 6-9.

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the Fairholme Plaintiffs in navigating discovery for the past year.4 Doing so would also further
delay the resolution of Amicis case, while the plaintiffs charged with assuming jurisdictional
discovery from the Fairholme Plaintiffs essentially restart this discovery process and,
understandably, take the necessary time to get up to speed on previous negotiations between the
Fairholme Plaintiffs and the Government. This would be prejudicial to Amici because, while
Amici have stated that they do not intend to seek jurisdictional discovery in addition to the
discovery sought in Fairholme, when we agreed to stay our action pending the jurisdictional
discovery being conducted in this action, we did so to have the opportunity to review any
discovery obtained in the Fairholme action and, if necessary, supplement [our] opposition to the
Governments motion to dismiss. See Plaintiffs Response to Order Regarding Jurisdictional
Discovery, Washington Federal v. United States, No. 13-385C (Fed. Cl.), Dkt. No. 42 at 2.
Finally, even if Fairholme Funds counsel is permitted to continue the discovery because
Continental Western Insurance Company is not a plaintiff in the District Court, the additional
plaintiffs participating in jurisdictional discovery will still need to be brought up to speed.
Moreover, after jurisdictional discovery, the Court will be faced with motions seeking the
dismissal of Amicis claims relating to the conservatorship and the dismissal of the Rafter
Plaintiffs claims related to the Net Worth Sweep. Since the Governments motion to dismiss
Amicis claims is already largely briefed (save for the filing of its Reply brief) and the
Government has not yet responded to the Rafter Plaintiffs complaint, the Court would be faced
with two motions to dismiss on different briefing schedules. In addition, even if the Court
granted the Governments motion to dismiss our claims in their entirety, the Court would either

This point is particularly pertinent given the Governments Reply Brief representation that
discovery is largely complete, but what remains is substantial discovery-related briefing and
depositions. See Dkt. No. 110 at 14.

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have to limit the scope of that Motion to our conservatorship-based claims, resulting in a partial
judgment, or would risk inconsistent opinions on our claims related to the Third Amendment.
Both results defeat the Governments argument that a stay will prevent duplicative litigation and
inconsistent decisions, and conserve judicial and party resources.
III.

CONCLUSION

While the Governments Motion to Stay posits a straight line between the District Court
Opinion and all the actions in this Court, that line is far more circuitous. Judicial efficiency can
only be achieved by maintaining the case management structure already carefully crafted by the
Court. And the interests of all parties to this Court can only be protected by denying the
Governments Motion.
Dated: December 5, 2014

Respectfully submitted,
By /s / Steve W. Berman
Steve W. Berman
Attorney of Record
HAGENS BERMAN SOBOL SHAPIRO LLP
1918 Eighth Avenue, Suite 3300
Seattle, WA 98101
Telephone: (206) 623-7292
Facsimile: (206) 623-0594
E-mail: steve@hbsslaw.com
OF COUNSEL:
Jennifer Fountain Connolly
HAGENS BERMAN SOBOL SHAPIRO LLP
1701 Pennsylvania Ave. NW, Suite 300
Washington, D.C. 20006
Telephone: (202) 248-5403
Facsimile: (202) 580-6559
Email: jenniferc@hbsslaw.com

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Robert M. Roseman
Joshua B. Kaplan
SPECTOR ROSEMAN KODROFF &
WILLIS, P.C.
1818 Market Street, Suite 2500
Philadelphia, PA 19103
Telephone: (215) 496-0300
Facsimile: (215) 496-6611
E-mail: rroseman@srkw-law.com
E-mail: jkaplan@srkw-law.com
Mark S. Willis
James McGovern
SPECTOR ROSEMAN KODROFF &
WILLIS, P.C.
1101 Pennsylvania Avenue, N.W.
Suite 600
Washington, D.C. 20004
Telephone: (202) 756-3601
Facsimile: (202) 756-3602
E-mail: mwillis@srkw-law.com
E-mail: jmcgovern@srkw-law.com
Attorneys for Amici Washington Federal,
Michael McCredy Baker, and City of Austin Police
Retirement System

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