Escolar Documentos
Profissional Documentos
Cultura Documentos
No. 13-465C
(Judge Sweeney)
OF COUNSEL:
KENNETH M. DINTZER
Acting Deputy Director
PETER A. BIEGER
Assistant General Counsel
KATHERINE M. BRANDES
Attorney Advisor
Department of Treasury
1500 Pennsylvania Avenue, N.W.
Washington, D.C. 20220
ELIZABETH M. HOSFORD
GREGG M. SCHWIND
Senior Trial Counsel
Commercial Litigation Branch
Civil Division
U.S. Department of Justice
P.O. Box 480
Ben Franklin Station
Washington, DC 20044
Telephone: (202) 616-0385
Facsimile: (202) 307-0972
kenneth.dintzer@usdoj.gov
TABLE OF CONTENTS
PAGE(S)
INTRODUCTION ...........................................................................................................................1
ARGUMENT ..................................................................................................................................4
I.
II.
III.
B.
C.
D.
B.
CONCLUSION ..............................................................................................................................19
TABLE OF AUTHORITIES
CASES
PAGE(S)
Abbott Laboratories v. Gardner,
387 U.S. 136 (1967) .......................................................................................................... 10
Abraxis Bioscience, Inc. v. Navinta, LLC,
625 F.3d 1359 (Fed. Cir. 2010)........................................................................................... 8
Bayou Des Familles Dev. Corp. v. United States,
130 F.3d 1034 (Fed. Cir. 1997)......................................................................................... 10
Beard v. United States,
101 Fed. Cl. 100 (2011) .............................................................................................. 15, 18
Berman v. Dept of the Interior,
447 F. Appx 186 (Fed. Cir. 2011) .................................................................................... 6
Brighton Vill. Assocs. v. United States,
52 F.3d 1056 (Fed. Cir. 1995)............................................................................................. 5
Cal. Hous. Sec., Inc. v. United States,
959 F.2d 955 (Fed. Cir. 1992)........................................................................................... 13
Cherokee Nation of Oklahoma v. United States,
124 F.3d 1413 (Fed. Cir. 1997).................................................................................. passim
Comair Rotron, Inc. v. Nippon Densan Corp.,
49 F.3d 1535 (Fed. Cir. 1995)........................................................................................... 11
Golden Pac. Bancorp v. United States,
15 F.3d 1066 (Fed. Cir. 1994)........................................................................................... 13
In re Ho Keung Tse,
552 F. App'x 979 (Fed. Cir. 2014) .................................................................................... 15
In re Prof'l Air Traffic Controllers Org.,
699 F.2d 539 (D.C. Cir. 1983) ............................................................................................ 6
In re Sacramento Mun. Utility Dist.,
395 F. App'x 684 (Fed. Cir. 2010) ...................................................................................... 5
Innovative Therapies , Inc. v. Kinetic Concepts, Inc.,
599 F.3d 1377 (Fed. Cir. 2010)........................................................................................... 8
ii
MISCELLANEOUS
Restatement (Second) of Judgments [16] cmt. b ......................................................................... 6
Restatement (Second) of Judgments, 27, cmt. i, Illustration ................................................... . 12
iii
)
)
)
)
)
)
)
)
)
No. 13-465C
(Judge Sweeney)
On November 25, 2015, the Court granted a Motion for Leave to File Amicus Brief
Regarding Defendants Motion to Stay filed by plaintiffs in Rafter v. United States, No. 14740C. Order, ECF No. 108. Due to the timing of the Rafter amicus brief and the fact that the
brief presents a number of issues distinct from those in Fairholmes response, we intend to seek
an enlargement of time to respond to the Rafter amicus brief in a separate filing.
We demonstrated in our moving brief that a stay of proceedings pending the outcome of
the Perry Capital appeals is warranted, and is the course preferred by the Federal Circuit,
because the Court will be guided by the D.C. Circuits resolution of issues common to both
cases. In response, Fairholme does not and cannot dispute that that there is significant overlap
between this case and the district court cases, or that the district court has decided issues raised in
both cases. Eleven of 12 plaintiffs in this action are also plaintiffs in the D.D.C. Actions, and
every one of these plaintiffs, including Fairholme, has challenged the August 2012 execution of
the Third Amendment to the Senior Preferred Stock Purchase Agreements (PSPAs).
Instead of addressing this core reason for a stay (and Federal Circuit precedent on stays in
similar circumstances), Fairholme attempts to distract the Court with several inaccurate or
irrelevant arguments. First, Fairholme contends that we seek an indefinite stay, and that, as a
result, our burden should be higher. But the stay we seek is not indefinite. Rather, we seek a
stay only until the D.C. Circuit decides the Perry Capital appeals. Second, Fairholme suggests
that a stay is not warranted unless the Court finds that the Perry Capital decision has preclusive
effect on Fairholmes complaint in this Court. Our position is that Fairholmes complaint is
precluded, but it is not necessary for this Court to adjudicate that question in this motion. Rather,
the only question before this Court is whether it is more efficient to follow the course preferred
by the Federal Circuit in these circumstances and stay the case so that this Courts decision can
be informed by the D.C. Circuits resolution of the common issues. Finally, Fairholmes attempt
to argue that it will be prejudiced by a stay is particularly unpersuasive in light of the limited
duration of the stay we have requested, the fact that Fairholme chose to file in multiple fora, and
that Fairholmes litigation team will be representing Fairholme in its appeal to the D.C. Circuit.
Although it is not necessary for the Court to reach the application of issue preclusion to
resolve this motion, it bears noting that Fairholmes arguments as to why there is no issue
preclusion lack merit. Fairholmes main argument is that one of the 12 plaintiffs in this case,
Continental Western Insurance Company, is not a plaintiff in the D.D.C. Actions. This fact, of
course, does not apply to the other eleven plaintiffs, who are plaintiffs in this case. And while
not a false statement, it is not relevant for preclusion purposes. Continental Western is a wholly
owned operating unit of Berkley Insurance Company, a plaintiff in both the D.D.C. Actions
and this case. Moreover, Continental Westerns shares were actually owned by Plaintiff Berkley
Insurance Company on the date that suit was filed in this Court. Continental Western held not a
single share on that critical date, and the only shares it now owns were acquired from Berkley the
day after this suit was filed. That share transfer allowed plaintiff Berkley, through Continental
Western, to engage in blatant forum shopping by filing a case materially identical to the D.D.C.
Actions in Iowa, where a motion to dismiss based on preclusion, as well as other grounds, is
already pending. Given these facts, Fairholme cannot credibly dispute that the resolution of the
D.D.C. Actions will have exactly the same legal effect on Continental Western that it will have
on plaintiffs Fairholme and Berkley.
Consistent with Federal Circuit precedent that Fairholme has ignored, the prudent
course is for this Court to stay proceedings so that the Court may be guided by the D.C. Circuits
resolution of the issues that are common to all three parallel, overlapping cases. In the
alternative, the Court should stay the case to permit full briefing on the Perry Capital decisions
immediate preclusive effect.
ARGUMENT
I.
The Court Should Reject Fairholmes Arguments And Stay Proceedings In This
Case Pending The D.C. Circuits Resolution Of The Pending Appeals
A.
As an initial matter, Fairholme urges the Court to apply the wrong standard of review to
our motion. Pls. Resp. at 4-5. 2 The Supreme Court has held that a court may not grant a stay
of indefinite duration in the absence of a pressing need. Landis v. N. Am. Co., 299 U.S. 248,
255 (1936) (emphasis added). The stay we seek, however, is limited in duration. We have asked
the Court to stay proceedings in this case only until the D.C. Circuit decides the Perry Capital
appeals. Briefing of the appeals is anticipated to be completed early next year, and a decision
could be issued by the end of next summer.
Thus, the stay sought here has nothing in common with the indefinite stay sought in
Cherokee Nation v. United States, 124 F.3d 1413, 1416 (Fed. Cir. 1997). The stay requested in
that case was deemed indefinite because the Government sought to stay the action pending the
resolution of as-yet unfiled state court quiet title actions that the Government was expected to
initiate. Id. at 1415-16. In other words, the Cherokee Nation had absolutely no control over the
duration of the stay, and the Government was in a position to render the stay indefinite merely by
failing to file the state court quiet title actions. Id. at 1418. As the Federal Circuit noted, the
stay. . . [had] the cruel effect of placing the Tribes at the mercy of the party against whom they
seek redress. Id. Here, in contrast, Fairholme and the other district court plaintiffs have already
appealed the Perry Capital decision, so the appeals are certain, and plaintiffs have some control
2
over the appeals in that they can seek to avoid undue delay. See In re Sacramento Mun. Util.
Dist., 395 F. Appx 684, 687-88 (Fed. Cir. 2010) (stay is not indefinite in duration if the party
opposing the stay may litigate and resolve its second claim in an efficient and expeditious
manner and avoid delays to the extent possible). Thus, because the duration of the stay we seek
is not indefinite in the sense that the term was used in Cherokee Nation, Fairholme errs in
urging the Court to apply a pressing need standard.
2013 WL 5315694, at *1 (Fed. Cl. Sept. 20, 2013) (quoting Cherokee Nation, 124 F.3d at 1416)
(accepting the Governments position that only in the case of a stay of indefinite duration must
the court identify a pressing need for the stay).
Not only does the Court enjoy considerable discretion in determining whether to grant a
stay in this situation, but, as we demonstrated in our moving brief, it is common practice to
stay suits filed in this Court while companion district court actions proceed. See United States v.
Tohono OOdham Nation, 131 S. Ct. 1723, 1739-40 (2011) (Ginsburg, J., dissenting); Pa. R.R.
Co. v. United States, 363 U.S. 202, 206 (1960); Brighton Vill. Assocs. v. United States, 52 F.3d
1056, 1060 (Fed. Cir. 1995); Defs Mot. at 12.
B.
Fairholme unconvincingly argues that a stay is not warranted because Perry Capital has
no preclusive effect on its takings complaint. Fairholmes approach misses the point because the
Courts final determination regarding the preclusive effect of the Perry Capital decision is not a
prerequisite to the Courts grant of a stay. In our moving brief, we demonstrated that a stay is
warranted here because, as the Federal Circuit has recognized, it is well-advised for a court
that is asked to accord a judgment preclusive effect . . . to stay its own proceedings to await the
ultimate disposition of the [trial court] judgment on appeal. Berman v. Dept of the Interior,
447 F. Appx 186, 195 (Fed. Cir. 2011) (quoting In re Profl Air Traffic Controllers Org., 699
F.2d 539, 544 n.18 (D.C. Cir. 1983) (citing Restatement (Second) of Judgments [16] cmt. b);
Rogers v. Desiderio, 58 F.3d 299, 302 (7th Cir. 1995) (a stay rather than immediate decision is
the prudent course in case presenting possible preclusion issue).
Fairholmes lengthy and tortured endeavor to persuade the Court that it is not collaterally
estopped by any of the Perry Capital holdings serves only to illuminate the complexity of that
issue and the need to await appellate review of Perry Capital. Moreover, as demonstrated
below, Fairholmes eagerness to force the issue before we have even filed a preclusion motion is
undermined by the weakness of its arguments and serves only to reinforce our showing that a
stay is the only prudent course of action at this juncture.
C.
As established above, the Court need not decide that issue preclusion applies before
properly staying the case pending the D.C. Circuits resolution of the appeals. The serious
preclusion issues in this case stem from plaintiffs litigation strategy, and should be resolved by
the Court only following full briefing. It is worth noting, however, that many of Fairholmes
arguments against the proposed stay all of which relate to details of the preclusion doctrine,
and not the basic point that the cases are overlapping and parallel are based on facts presented
without context and on fundamental misapplications of the law.
A party seeking to invoke issue preclusion based on the doctrine of collateral estoppel
must satisfy four elements: (1) the issue sought to be precluded must be the same as the issue
involved in the prior action (identity of issues); (2) the issue sought to be precluded must have
been actually litigated in the prior action; (3) the determination in the prior action must have
6
been essential to the decision; and (4) the party defending against issue preclusion had a full and
fair opportunity to litigate the issue in the previous action (identity of parties). Shell Petroleum,
Inc. v. United States, 319 F.3d 1334, 1338 (Fed. Cir. 2003).
As an initial matter, Fairholme does not deny that there is identity of parties with respect
to 11 of the 12 plaintiffs named in its complaint in this Court because these plaintiffs were also
parties to the D.D.C. Actions. Pls. Resp. at 2. Instead, in an attempt to demonstrate that the
Perry Capital decision has no preclusive effect here, Fairholme dwells upon the fact that one
plaintiff in this Court, Continental Western Insurance Company (Continental Western), is not a
plaintiff in the D.D.C. Actions. Id. Fairholme suggests that, even if the Perry Capital decision
is preclusive with respect to 11 of 12 plaintiffs, the Court should allow the continuation of
expensive, labor-intensive discovery and, ultimately, decide the case in a manner that may
conflict with the district courts decision, simply because one of the parties Continental
Western is not a party in the D.D.C. Actions. Such an approach defies both logic and longaccepted concepts of judicial economy and uniformity.
Moreover, Fairholme, in its effort to demonstrate that a stay will somehow prejudice
Continental Westerns rights as a plaintiff in this action, fails to mention that Continental
Western did not even own shares in the Federal National Mortgage Association (Fannie Mae)
and the Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively, the Enterprises)
when the company filed its complaint in this Court. Continental Western is a wholly-owned
operating unit of plaintiff Berkley Insurance Company. See Ex. A, attached hereto; Compl.
18. Continental Western purchased its shares of the Enterprises stock from its corporate parent,
Berkley Insurance Company, on July 10, 2013, the day after Continental Western and the other
11 plaintiffs filed their complaint in this Court. See Berkley Plaintiffs Answer to Defendants
First Interrogatory at 6 (attached as Ex. B). Thus, although we have not yet moved to dismiss
Continental Western from the case on this basis, as we plan, it is likely that the company lacked
standing to sue when the complaint was filed. A court may exercise jurisdiction only if a
plaintiff has standing to sue on the date it files suit. Innovative Therapies, Inc. v. Kinetic
Concepts, Inc., 599 F.3d 1377, 1383 (Fed. Cir. 2010) (affirming dismissal of complaint when
plaintiff had no standing at time suit was filed even though events occurring after filing and
before dismissal would have established standing); Abraxis Bioscience, Inc. v. Navinta, LLC, 625
F.3d 1359, 1364 (Fed. Cir. 2010) (vacating denial of motion to dismiss in patent infringement
action when plaintiff filed suit eight months before it received assignment of the relevant
patents). Thus, Fairholmes reliance upon Continental Westerns presence in this action does not
weigh in favor of denial of our motion to stay.
Further, Continental Westerns absence from the D.D.C. Actions is ultimately irrelevant
to our motion to stay because, as Fairholme acknowledges, Continental Western filed a
complaint similar to the D.D.C. Fairholme complaint in the District Court for the Southern
District of Iowa. Pls. Resp. at 2. A motion to dismiss the Iowa case on the ground it is
precluded by the D.D.C. judgment is pending. 3 Thus, contrary to plaintiffs contention,
Continental Western is pursuing the same claims as those in the D.D.C. Actions.
The pendency of Continental Westerns complaint in Iowa is a strong sign that plaintiffs
are engaging in a plan of forum shopping. Continental Western purchased its shares in the
Enterprises from Berkley on the same day that the Fairholme and Berkley plaintiffs filed their
complaint in the D.C. district court. In essence, the Berkley plaintiffs, through their ownership
of Continental Western, positioned themselves to bring identical claims in the Iowa and D.C.
3
Motions to dismiss the Iowa complaint also have been filed on various jurisdictional
grounds. Oral Argument on the motions is scheduled for December 16, 2014.
8
district courts, and were unsuccessful in the D.C. court. This is a quintessential situation that
imposes needless costs on ones adversary, on the judicial system, and on other litigants, who
must endure a longer queue. Rogers, 58 F.3d at 300 ([t]o discourage the tactic, judges award
plaintiffs not the better outcome, but the first outcome). Fairholmes litigation strategy of
filing substantially similar claims in three different courts presents a classic case of the type of
forum shopping that merits a stay. See Rogers, 58 F.3d at 301 (Plaintiffs themselves, by
choosing to file two suits, supplied strong reason for a stay.). Simply put, Fairholmes
complaint in this court suggests much more than a mere whiff of tactical maneuvering, see
Pls. Resp. at 7 (citing Taylor v. Sturgell, 553 U.S. 880, 906 (2008)), strongly militating in favor
of a stay.
Moreover, regardless of whether Continental Westerns Iowa complaint is technically
precluded by the Perry Capital decision, our grounds for a stay with respect to the other
plaintiffs in this Court apply equally, as an equitable matter, to Continental Western. See
Underwood Livestock Inc. v. United States, 417 F. Appx 934, 938 (Fed. Cir. 2011), affg 79
Fed. Cl. 486 (2007) (a non-party can be estopped from relitigating an issue when the issue was
previously decided against its owner and predecessor-in-interest).
Fairholme also argues that the issues actually litigated in the D.D.C. Actions are not
identical to issues raised in our motion to dismiss. Pls. Resp. at 7-10. As we explained in our
moving brief, Judge Lamberth based his decision on several legal defenses each independently
dispositive that we raised in our motion to dismiss in this case. The district court held that
Fairholmes and other plaintiffs claims based upon the alleged loss of a liquidation preference
are not ripe because Fannie Mae and Freddie Mac are not in liquidation. Perry Capital, 2014
WL 4829559 at *15-17. Further, the district court held that plaintiffs failed to state a claim for
loss of a liquidation preference or future dividends because the Enterprises have not been
liquidated and plaintiffs have no right to dividends. Id. at *17-19 & n.24. Fairholmes complaint
in this Court alleges the very same loss of liquidation preference and dividends, and we have
raised the same defenses regarding ripeness.
Fairholme does not dispute that ripeness is an issue in both the district court and this
Court. Pls. Resp. at 8-9. Fairholme contends, however, that the ripeness analysis applied to a
breach of contract claim is not identical to the ripeness analysis applied to a takings claim. Pls.
Resp. at 8-9. Fairholme is wrong. In takings cases that do not involve an alleged taking of real
property, the Federal Circuit applies the same Article III case or controversy ripeness standard
that is applied to non-takings cases. See, e.g., Maritrans Inc. v. United States, 342 F.3d 1344,
1359-61 (Fed. Cir. 2003) (reversing lower courts holding that certain claims were not ripe
following two-part test for ripeness articulated in Abbott Laboratories v. Gardner, 387 U.S. 136
(1967)). Further, even if there were some special body of ripeness law applicable to all takings
claims, plaintiffs would not be excused from meeting a threshold showing of Article III ripeness
before addressing any takings-specific issues. See, e.g., Bayou Des Familles Dev. Corp. v.
United States, 130 F.3d 1034, 1037 (Fed. Cir. 1997) (In the federal courts, a dispute must have
reached the point at which it can be said that the constitutional requirement of a case or
controversy has been met.). This is particularly true when the takings claim is based on an
asserted taking of contract rights that form the basis for the contract claim in the other action.
Indeed, in concluding that the takings claims raised in the D.D.C. Actions are unripe, the district
court relied upon the very same Article III case or controversy analysis that it applied in
examining the ripeness of the breach of contract claims. Perry Capital, 2014 WL 4829559 at
*24.
10
Fairholme also admits that its complaint in this Court alleges a loss of dividend rights,
and that the district court held that it failed to state a claim with respect to such alleged losses.
Pls. Resp. at 9. Nonetheless, Fairholme contends that the ruling is not preclusive because it
alleges that the Net Worth sweep effected a taking of their stock in toto, transferring to Treasury
. . . all of their rights as shareholders. Id. That contention is plainly at odds with Fairholmes
complaint, in which Fairholme (1) affirmatively alleges a loss of contract-based dividend (and
liquidation preference) rights in its shares of the Enterprises, Compl. 76-80, and (2) expressly
acknowledges that it retains its shares and the right to freely trade the shares. Compl. 4
([P]ublic trading in Fannies and Freddies stock was permitted to, and did, continue.); id. at
43 (same). 4 Therefore, Fairholme has not alleged and there cannot possibly be an in toto
taking. The district court has already held that Fairholme does not possess the contractual
dividend right that it alleges was taken and that claims based upon a contractual right to a
liquidation preference are unripe. Perry Capital, 2014 WL 4829559 at *17-19. Consequently,
the Perry Capital decision disposes of Fairholmes takings claim in this Court.
Finally, Fairholme contends that the district courts ripeness holding is not essential for
purposes of issue preclusion because the court also held, in the alternative, that its claims are
barred because they are derivative. Pls. Resp. at 10-11 (citing Comair Rotron, Inc. v. Nippon
Densan Corp., 49 F.3d 1535, 1538 (Fed. Cir. 1995). This contention is meritless. The ripeness
holding is not any less essential by virtue of the district courts observation that even if the
4
In fact, as we have previously pointed out, the Fairholme plaintiffs have continued to
buy and sell shares in the Enterprises during this litigation. See U.S. Reply in Support of Mot.
for Prot. Order, June 17, 2014, ECF No. 60 at 9 n.4. For example, between September 30 and
October 23, 2013, the Fairholme plaintiffs acquired almost 40 million shares of common stock in
the Enterprises for about $1.50 per share. On March 11, 2014, after the stock price had risen
dramatically, plaintiffs sold over 12 million of these shares for just over $4.00 per share, earning
over $30 million. Id.
11
plaintiffs could claim damages as a result of a prospective contractual breach, such claims
would be barred under HERA as derivative. Perry Capital, 2014 WL 4829559 at *16 n.39.
Regardless, Fairholme has overstated Federal Circuit practice on this issue. The Federal Circuit
recognizes that, if an appellate court upholds one of two alternative bases for a ruling, that
alternative has preclusive effect. Masco Corp. v. United States, 303 F.3d 1316, 1329 (Fed. Cir.
2002). 5
Thus, Fairholme is incorrect. Even assuming that the district courts ripeness and
derivative claims are alternatives, a stay is warranted until the D.C. Circuit addresses the issues.
D.
Finally, Fairholme does not seriously dispute that the district courts ruling on the merits
of the takings claim advanced in the D.D.C. Actions may be viewed as persuasive authority in
this Court. Pls. Resp. at 11-12. Fairholme instead argues that the persuasive nature of the
ruling does not establish the pressing need required for an indefinite stay. Id. As
demonstrated above, however, the pressing need standard does not apply because the stay will
only last until disposition of the Perry Capital appeals. Fairholmes position undermines the
interest of judicial economy and should be rejected.
Ultimately, Fairholme cannot escape the reality that another Federal judge considered the
same takings claim that it brought in this Court and held, as a matter of law, that the shareholders
failed to state a compensable claim. Perry Capital, 2014 WL 4829559 at *20-24. In reaching
Indeed, the district courts ruling on the derivative nature of Fairholmes claims would
also have preclusive effect here. The Restatement (Second) of Judgments, section 27,
acknowledges that alternative holdings may have preclusive effect if both lead to the same result
in this case, dismissal for failure to state a claim. See Restatement (Second) of Judgments,
27, cmt. i, Illustration 16.
12
this holding, the court applied Federal Circuit precedent that is binding on this Court. Id. at *2123 (citing Golden Pac. Bancorp v. United States, 15 F.3d 1066 (Fed. Cir. 1994); Cal. Hous. Sec.,
Inc. v. United States, 959 F.2d 955 (Fed. Cir. 1992)). Further, Fairholme cannot dismiss the
persuasive value of the district courts reasoning on the merits of the takings claim simply
because the court identified a curable jurisdictional defect in the takings complaint. Id. at *20.
Because the district courts reasoning on the merits of the takings claim may be viewed as
persuasive authority in this Court, a stay pending appeal of the decision is warranted.
II.
consuming, costly discovery to continue pending the outcome of the Perry Capital appeals in the
D.C. Circuit. Pls. Resp. at 12-20. According to Fairholme, this is true because (1) discovery is
almost complete and (2) Fairholme may suffer additional costs if discovery resumes after the
stay.
Before addressing Fairholmes arguments, we note that Fairholme does not dispute an
important factor supporting a stay. We demonstrated in our moving brief the waste of judicial
time and resources inherent in duplicative litigation involving overlapping claims and issues.
Defs Mot. at 11-12. Here, Fairholme made the strategic decision to file parallel actions in
multiple Federal courts alleging identical facts and challenging the same action by FHFA and
Treasury. Thus, Fairholme chose to risk the possibility that a decision on the merits in one court
would likely have preclusive effect in other cases in which Fairholme and its subsidiaries were
plaintiffs. Fairholme may contest the preclusive effect of Judge Lamberths decision, but what
Fairholme cannot dispute is that both cases present identical allegations of Government
malfeasance and identical allegations of harm to Fannie Mae and Freddie Mac shareholders.
13
Perhaps realizing that its predicament is of its own making, Fairholme avoids the issue of
judicial efficiency in its response entirely. As we established in our prior brief, this factor
weighs in favor of staying proceedings pending the outcome of the appeals that will decide
issues that are undeniably intertwined with those in this case. Defs Mot. at 11-13.
A.
Fairholme first claims that the burden on the parties and Court of continuing discovery is
minimal because discovery is largely complete. Pls. Resp. at 13. This is untrue. As we stated
in our moving brief, document discovery is underway, plaintiffs have yet to begin depositions,
and the Court can expect significant motions practice. Although Fairholme on one hand attempts
to minimize the discovery that remains, it later provides the Court a sample of the complex
discovery disputes and contested motions practice that loom on the horizon.
Under the Courts most recent order, discovery is to conclude on March 27, 2015. Order,
ECF No. 92, Sept. 8, 2015. To be sure, the Government has completed a significant portion of
its document review and has made a number of document productions. We continue to comply
with the Courts order and we expect to produce a large number of additional documents, along
with a number of additional privilege logs identifying privileged documents.
Based upon representations of Fairholmes counsel, it is a certainty that Fairholme will
vigorously challenge our privilege designations and our confidentiality designations. We further
expect that Fairholme will notice depositions of many current and former employees of Treasury
and FHFA, as well as current and former employees of Fannie Mae, Freddie Mac, and other third
parties. A number of these persons will be high-ranking current and former Government
officials. Fairholme may also seek broad depositions under RCFC 30(b)(6). Fairholme does not
14
deny any of this, instead responding only that it has not yet decided who it will depose. Pls.
Resp. at 18.
Fairholme acknowledges that the Government has the right to resist deposition requests
to the extent they are inconsistent with the Court rules and the Courts orders permitting limited
discovery. This concession, however, only highlights that discovery in this case is certain to
engender further significant, time-consuming motions practice. 6
B.
Fairholme next contends that a limited stay of proceedings pending the resolution of the
appeals in the D.C. Circuit will prejudice Fairholme by causing alleged inefficiencies and
additional litigation expense. Pls. Resp. at 15. Fairholmes complaints of prejudice are
overblown.
Fairholme asserts that, if a stay is granted, members of its litigation team may depart the
firm or, assuming they remain, may need to refamiliarize themselves with the facts and issues
of the case. Id. These concerns are illegitimate on their face. Neither this Court nor the
Government is responsible for the decisions of Fairholme counsel to depart their firm.
In a footnote, Fairholme cites Beard v. United States, 101 Fed. Cl. 100, 104 (2011) to
assert that the costs of engaging in discovery cannot constitute irreparable injury. Pls. Resp. at
13 n.2. Beard is inapposite there, the Government sought a stay pending its own interlocutory
appeal. The four factor analysis for such a stay does not apply in this context. One of those four
factors in the analysis applicable in Beard is irreparable injury to the applicant for a stay; here,
the Government need not demonstrate irreparable injury for the Court to order a stay. Further, in
Beard, 101 Fed. Cl. at 104, the court found that [d]iscovery will be necessary in all events. In
this case, discovery efforts would be in vain if Fairholmes case is dismissed on preclusion
grounds. In any event, various courts have weighed the expense of discovery in examining
whether to exercise their discretionary power to stay proceedings. See, e.g., In re Ho Keung Tse,
552 F. App'x 979, 981 (Fed. Cir. 2014) (non-precedential) (it was plausible for the district court
to conclude that continuing the stay would reduce the potential risk for unnecessary costs and
inefficiencies during discovery.).
15
Moreover, it is not credible to suggest that any significant re-education of counsel will be
necessitated by a stay of the anticipated duration we seek. The Court can be confident that, if for
no other reason, Fairholme counsels participation in the D.C. Circuit appeals of the Perry
Capital decision and the Continental Western case in Iowa will allow these attorneys to maintain
their familiarity with this case. To the extent that Cooper & Kirk attorneys are reviewing
documents, these are ostensibly the same attorneys involved in litigating the appeals.
The Court should also consider that, although Fairholme refers to a team of persons
assembled for this case, only two persons (an attorney in Georgia and a local accountant) have
been granted access to protected materials under the Courts protective order. See Notices, Aug.
6, 2014, ECF Nos. 79, 80. Simply put, the stay we seek will not have any adverse effect on the
Fairholme team of attorneys and accountant.
Fairholme next asserts that a stay may cause prejudice because witnesses memories fade
with the passage of time. Pls. Resp. at 17-18. We agree that this is a concern in situations
(unlike here) where the proposed stay is anticipated to delay the case for a very long period of
time. However, Fairholmes non-specific concerns are insufficient to establish prejudice. See
Versata Software, Inc. v. Callidus Software, Inc., No. 2014-1468, 2014 WL 6480522 at *7 n.6
(Fed. Cir. Nov. 20, 2014) (noting that generic concerns of fading memories and stale evidence
are, without more, insufficient to establish undue prejudice from a stay of proceedings). The
Court should consider that the stay we seek is limited in duration, the events Fairholme
challenges in its complaint occurred relatively recently, in August 2012, and much of the factual
inquiry is likely to rely on documentary materials rather than witness memories. Fairholmes
citation (once again) to Cherokee Nation is of no help. Pls. Resp. at 18 (citing Cherokee Nation,
124 F.3d at 1418). The truly indefinite stay in Cherokee Nation had already lasted three years
16
and there was no end in sight. 124 F.3d at 1415-16, 1418. Here, in contrast, the Perry Capital
appeals have been filed and are awaiting a briefing schedule in the D.C. Circuit. Given the
limited duration of the stay we request and the recency of the Third Amendment, Fairholmes
concerns have little weight.
Fairholmes attempt to articulate some form of prejudice ultimately leads it in a
remarkable direction. Fairholme claims that a stay of discovery would be prejudicial because
there are gaps in document discovery that, according to Fairholme, remain to be filled. Pls.
Resp. at 15-17. Fairholme then describes, in nearly two pages of single-spaced text, documents
that it claims would assist its case on the merits. Id. at 16-17. 7
Missing from Fairholmes argument is a coherent connection between the yet-to-beproduced documents and any prejudice caused by a stay. Even assuming Fairholme is correct
that the Government has not produced certain documents, the Government would still be
required to produce the documents at the resumption of discovery following the stay because the
stay will not alter the discovery obligations. Therefore, Fairholmes wish list of documents
even assuming they exist does not give rise to any prejudice from a stay.
III.
In the Alternative, The Court Should Enter A Temporary Stay Pending A Decision
On The Preclusive Effect Of The District Courts Decision
Fairholme only briefly addresses our alternative request that the Court temporarily stay
proceedings to permit briefing and a decision on the preclusive effect of Judge Lamberths
opinion. Pls. Resp. at 20. In suggesting that the Court deny the request, however, Fairholme
seeks to apply a standard more stringent than that dictated by the law. Fairholme asserts, based
We note the obvious tension in Fairholmes position that discovery is largely complete
and that there are large gaps in discovery. In any event, Fairholme provides the Court an
indication of the discovery disputes to come should our request for a stay be denied.
17
on its cursory arguments against preclusion elsewhere in its response, that the Governments
motion is unlikely to succeed. Id. It appears Fairholme is again referencing the standard for
examining a stay pending interlocutory appeal of a trial court order, which lists first among four
factors whether the stay applicant has made a strong showing that [it] is likely to succeed on the
merits. Beard, 101 Fed. Cl. at 102 (citations omitted). No such standard is mandated when a
court contemplates a temporary stay of certain litigation activities (e.g., onerous discovery) to
allow the parties to brief a potentially dispositive issue such as issue preclusion or dismissal, that
normally would be considered prior to any discovery. Instead, [w]hen and how to stay
proceedings is within the sound discretion of the trial court. Cherokee Nation, 124 F.3d at
1416.
Fairholmes arguments regarding the likelihood of preclusion, however, do serve to
illustrate the need for, at a minimum, a stay pending full briefing and resolution of any preclusive
effect of the district court decision. Full briefing is required to permit the Court to resolve the
complex questions of issue preclusion in the concurrent, multi-party, multi-jurisdictional
litigation resulting from plaintiffs litigation strategy. The perfunctory treatment given to
preclusion issues in these filings, which are focused solely on the need for a stay, are insufficient
to present to the Court the full depth and breadth of the law in this area. Moreover, Fairholmes
concern about the length of any stay is even further allayed in the context of a temporary stay,
allowing the Court to give the potentially case-dispositive issues of preclusion measured
consideration. Therefore, if the Court decides not to stay proceedings until the D.C. Circuit
issues an opinion on Judge Lamberths decision, the Court should stay proceedings in this case at
least temporarily to permit full briefing and disposition of the preclusive effect of Judge
Lamberths decision and other purely legal issues raised by that decision.
18
CONCLUSION
For these reasons, and for the reasons stated in our moving brief, the Court should stay all
proceedings in this case pending disposition of the appeals from the district courts decision.
Should the Court conclude that a stay of proceedings pending a final decision by the D.C. Circuit
is not warranted at this time, the Court should stay discovery pending full briefing and
disposition on the issue of whether Fairholmes complaint in this Court is now precluded.
Respectfully submitted,
JOYCE R. BRANDA
Acting Assistant Attorney General
s/ Robert E. Kirschman, Jr.
ROBERT E. KIRSCHMAN, Jr.
Director
OF COUNSEL:
s/ Kenneth M. Dintzer
KENNETH M. DINTZER
Acting Deputy Director
PETER A. BIEGER
Assistant General Counsel
ELIZABETH M. HOSFORD
GREGG M. SCHWIND
Senior Trial Counsel
Commercial Litigation Branch
Civil Division
Department of Justice
P.O. Box 480
Ben Franklin Station
Washington, D.C. 20044
(202) 616-0385
(202) 307-0972 fax
kenneth.dintzer@usdoj.gov
19
EXHIBIT A
(/)
Operating Units
Our 52 operating units are positioned throughout the U.S. and strategically around the globe, which
allows us to develop the particular skills and expertise necessary to each market. Every W. R. Berkley
company has the ability to react as quickly and effectively as a small business, while offering the superior
stability, resources and financial strength of the W. R. Berkley Insurance Group.
Insurance Domestic
Acadia Insurance
Admiral Insurance
American Mining Insurance
Berkley Accident and Health
Berkley Asset Protection
Berkley Aviation
Berkley Custom Insurance
Berkley Design Professional
Berkley FinSecure
Berkley Life Sciences
Berkley Medical Excess
Berkley Mid-Atlantic Group
http://wrberkley.com/our-business/operating-units.aspx
11/25/2014
http://wrberkley.com/our-business/operating-units.aspx
11/25/2014
http://wrberkley.com/our-business/operating-units.aspx
11/25/2014
Our Mission
We set high standards for serving our customers and it shows.
Over 93% of our customers rate Continential Western Group
(CWG) as Superior for how timely their claim was handled and
95% of our customers who have had a claim would
recommend us to other businesses for their insurance needs.
As one of only 26 property-casualty insurers that have
maintained an A.M. Best Financial Strength Rating of A+
(Superior) or higher for at least 75 years, we consistently meet
the highest financial standards in our industry.
Company Description
Continental Western Group offers a broad array of commercial
products that meet the needs of businesses operating in both
the small towns and major metropolitan areas across the
Midwest. We have been a trusted partner since 1886.
We offer insurance solutions for all types and sizes of
businesses such as retail, light manufacturing, schools,
telecommunications, implement dealers, fine dining,
construction, wholesale distribution and many more.
In addition to our standard portfolio, CWG offers specialized
underwriting solutions for diversified agriculture, volunteer fire
departments, telecommunications, collector vehicles,
transportation, public entities and water districts.
The Continental Western Group companies are rated A+
(Superior) by A. M. Best.
Contact Information
For more information, please contact us at any of the office locations below.
Home Office
11201 Douglas Avenue
Des Moines, IA 50322
(515) 473-3480
Ami T. Hokomoto, CPCU
Vice President Sales,
Marketing and Distribution
OFFICERS
Michael G. Connor, CPCU
President
Barbara J. Updike
Assistant Vice President
Human Resources
John F. Thelen
Vice President
General Counsel & Secretary
C. Jeffrey West
Vice President
Information Services
EXHIBIT B
)
)
)
)
)
)
)
)
)
No. 13-465C
(Judge Sweeney)
Response:
Berkley Insurance Co., Acadia Insurance Co., Admiral Indemnity Co., Admiral Insurance
Co., Berkley Regional Insurance Co., Carolina Casualty Insurance Co., Continental Western
Insurance Co., Midwest Employers Casualty Insurance Co., Nautilus Insurance Co., and
Preferred Employers Insurance Co ("Berkley Plaintiffs") reassert their objections of April 21,
2014, and the response to this interrogatory is not a waiver of those objections. Except as
indicated below, the Berkley Plaintiffs purchased their shares through various brokers and do not
know the identities of the counter-parties from whom they acquired their shares. Additionally,
because the transactions listed below were conducted through various brokers, the Berkley
Plaintiffs could not identify an address or location for the listed transactions. The Berkley
Plaintiffs have provided only the information that could be obtained through a reasonable
investigation. Thus, they have not included the identity and actions of every person involved in the
listed transactions.
Acadia Insurance Co. Freddie Series S (fmccs)
Trade Date Activity
Quantity
Price
25,000.00
50.13
8/22/2007 Purchase
50.45
9/7/2007
Purchase 25,000.00
(25,000.00)
1.15
11/14/2008
Sale
(25,000.00)
1.15
11/14/2008
Sale
Admiral Insurance Co. Freddie Series S (fmccs)
Trade Date Activity Quantity
Price
51.65
10/2/2006 Purchase 50,000.00
52.10
1/10/2007 Purchase 25,000.00
52.75
5/21/2007 Purchase 40,000.00
40,000.00
50.13
8/22/2007 Purchase
(50,000.00)
1.15
11/14/2008
Sale
(25,000.00)
1.15
11/14/2008
Sale
(40,000.00)
1.15
11/14/2008
Sale
(40,000.00)
1.15
11/14/2008
Sale
1.20
12/22/2009 Purchase 225,000.00
(94,500.00)
5.12
5/31/2011
Sale
(130,500.00) 5.00
6/2/2011
Sale
Admiral Insurance Co. Fannie Series O (fnmfn)
Quantity
Price
Trade Date Activity
30,000.00
56.13
1/11/2005 Purchase
10,000.00
56.13
1/12/2005 Purchase
30,000.00
56.65
1/14/2005 Purchase
1/20/2005 Purchase 130,000.00 56.75
50,000.00
56.70
1/20/2005 Purchase
50,000.00
56.65
1/25/2005 Purchase
25,000.00
54.00
10/16/2006 Purchase
(10,000.00)
52.65
9/25/2007
Sale
(10,000.00) 52.65
9/25/2007
Sale
(20,000.00) 52.65
9/25/2007
Sale
(30,000.00) 52.65
9/25/2007
Sale
(30,000.00) 52.65
9/25/2007
Sale
2
10/3/2008
12/30/2008
1212212009
1212212009
12/22/2009
1212212009
5/26/2011
5/26/2011
Purchase
Purchase
Sale
Sale
Sale
Sale
Sale
Sale
50,000.00
20,000.00
(25,000.00)
(20,000.00)
(50,000.00)
(130,000.00)
(50,000.00)
(20,000.00)
3.40
0.80
1.20
1.20
1.20
1.20
4.75
4.75
S (fmcc s)
Price
50.00
52.10
50.60
50.60
50.30
1.15
1.15
1.15
1.15
1.15
1.20
5.00
1.20
1.20
1.20
8.34
These shares were acquired from Plaintiff Berkley Regional Insurance Co., which is owned by the W.R.
Berkley Corporation.
2
These shares were acquired from Plaintiff Carolina Casualty Insurance Co., which is owned by the W.R.
Berkley Corporation.
3
These shares were acquired from Plaintiff Nautilus Insurance Co., which is owned by the W.R. Berkley
Corporation.
4
These shares were sold to Plaintiff Continental Western Insurance Co., which is owned by the W.R.
Berkley Corporation.
. S en.es
B erkl ey Insurance c o.- F anme
Quantity
Trade Date Activitv
30,000.00
1111/2005
Purchase
50,000.00
Purchase
1/11/2005
30,000.00
1114/2005
Purchase
50,000.00
1/20/2005
Purchase
140,000.00
1/20/2005
Purchase
50,000.00
Purchase
1/25/2005
50,000.00
6/28/2006
Purchase
50,000.00
10116/2006 Purchase
125,000.00
10/28/2008 Purchase
600,000.00
11/14/2008 Purchase
750,000.00
12/22/2008 Purchase
40,000.00
12/30/2008 Purchase
(30,000.00)
12/22/2009
Sale
(50,000.00)
12/22/2009
Sale
(30,000.00)
Sale
12/22/2009
(50,000.00)
Sale
12/22/2009
(140,000.00)
12/22/2009
Sale
(50,000.00)
12/22/2009
Sale
(50,000.00)
12/22/2009
Sale
(50,000.00)
Sale
12/22/2009
(1,500.00)
Sale
5/23/2013
(123,500.00)
Sale
5/24/2013
(76,500.00)
5/24/2013
Sale
(100,000.00)
5/28/2013
Sale
(100,000.00)
61412013
Sale
5
(1,000.00)
711012013
Sale
25,000.00
10/22/2013
Purchase
13,500.00
1012312013
Purchase
500,000.00
10/24/2013
Purchase
1,000.00
11/5/2013
Purchase
100,000.00
11/7/2013
Purchase
6
1,043,000
111/2013
Purchase
7
125,538
111/2013
Purchase
255,000.00
2/21/2014
Purchase
0 (fnmfn)
Price
56.13
56.13
56.65
56.70
56.70
56.65
54.00
54.00
2.95
2.15
0.85
0.80
1.20
1.20
1.20
1.20
1.20
1.20
1.20
1.20
8.45
10.20
10.20
11.62
11.20
8.48
10.25
10.65
11.98
12.92
14.95
1.54
1.85
18.00
These shares were acquired from Plaintiff Berkley Regional Insurance Co.
I 2/21/2014
Purchase
275,000.00 I 18.10 I
These shares were sold to Plaintiff Berkley Insurance Co., which is owned by the W.R. Berkley
Corporation.
9
11114/2008
11114/2008
11/14/2008
12/22/2009
111/2013
Sale
(50,000.00)
Sale
(50,000.00)
Sale
(50,000.00)
Purchase 155,000.00
Sale 10
(155,000.00)
1.15
1.15
1.15
1.20
1.20
10
11
12
7/30/2007
11/14/2008
Purchase 25,000.00
(25,000.00)
Sale
50.60
1.15
0 (fnmfn)
Price
56.13
56.65
56.75
56.65
54.00
53.60
53.50
3.40
3.00
2.15
1.20
1.20
1.20
1.20
1.20
4.75
4.75
4.75
4.75
4.75
1.85
13
14
May 7, 2014
Respectfully submitted,
Of Counsel:
Vincent J. Colatriano
David H. Thompson
Peter A. Patterson
COOPER & KIRK, PLLC
1523 New Hampshire Avenue, N.W.
Washington, D.C. 20036
(202) 220-9600
(202) 220-9601 (fax)
VERIFICATION
I state under penalty of perjury that the information contained in the foregoing response
has been collected and the response prepared with the advice and assistance of counsel, and that,
subject to any inadvertent or undiscovered errors, and based on the records and information still
in existence and thus far discovered, the response is true and correct to the best of my
knowledge, recollections, and belief based upon the information known or made available to me.
gene G. Ballard,
Senior Vice President - CFO
W. R. Berkley Corporation
May 7, 2014