Pagliara v. Federal Home Loan Mortgage Corporation

Filing 29

MEMORANDUM OPINION RE: Deft's Motion to Stay. Signed by District Judge James C. Cacheris on 05/04/16. (pmil, )

IN THE UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF VIRGINIA
Alexandria Division
TIMOTHY J. PAGLIARA,
Plaintiff,
v.
FEDERAL HOME LOAN MORTGAGE
CORPORATION,
Defendant.

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M E M O R A N D U M

Case No. 1:16-cv-337 (JCC/JFA)

O P I N I O N

In this case, Plaintiff Timothy J. Pagliara seeks to
enforce his shareholder right to inspect and copy records of
Defendant Federal Home Loan Mortgage Corporation, pursuant to
the Virginia Stock Corporation Act, Va. Code Ann § 13.1-771.
(Compl. [Dkt. 1] ¶ 134(a).)

This matter is before the Court on

Defendant’s motion to stay, pending the Judicial Panel on
Multidistrict Litigation’s transfer decision.

[Dkt. 10.]

For

the following reasons, the Court will grant the stay.
The Federal Housing Finance Agency moves, in the
alternative, to be substituted as plaintiff.

[Dkt. 10.]

Because the Court will grant the motion to stay, it will deny
without prejudice the motion to substitute plaintiffs.

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I.

Background

Plaintiff Timothy J. Pagliara (“Pagliara”) is a junior
preferred stockholder of the Federal Home Loan Mortgage
Corporation, commonly known as “Freddie Mac.”
1] ¶¶ 3, 9.)

(Compl. [Dkt. 1-

Freddie Mac is a publicly traded corporation,

which has elected to follow Virginia’s corporate governance
practices and procedures.

(Compl. ¶¶ 25-30.)

Since September

2008, however, Freddie Mac has operated under the
conservatorship of the Federal Housing Finance Agency (“FHFA”),
appointed pursuant to the Housing and Economic Recovery Act of
2008 (“HERA”), 12 U.S.C. § 4501, et seq.

(Compl. ¶ 55.)

As

conservator, FHFA succeeds to many of the rights and powers of
Freddie Mac’s stockholders.

(Compl. ¶¶ 58-62 (quoting 12 U.S.C.

§ 4617(b)(2).)
Pagliara contends that he maintains his stockholder
right to inspect Freddie Mac’s corporate records.
34-36.)

(Compl. ¶¶ 3,

In January 2016, he filed a demand on Freddie Mac to

inspect records relating to the Senior Preferred Stock Purchase
Agreement (“Agreement”) between Freddie Mac and the United
States Department of the Treasury.

(Compl. ¶¶ 37-42.)

Specifically, Pagliara sought to investigate conduct by Freddie
Mac, its board of directors, FHFA, and Treasury regarding the
August 2012 “Third Amendment” to the Agreement.
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(Compl. ¶¶ 43,

122-125.)

The Third Amendment requires Freddie Mac to transfer

all of its positive net worth to Treasury after every quarter.
(Compl. ¶¶ 92-114.)

Fannie Mae—the Federal National Mortgage

Association—is subject to the same arrangement.

(Compl. ¶ 93.)

FHFA, acting as conservator of Freddie Mac, rejected
Pagliara’s inspection demand on January 28, 2016.
¶ 127.)

(Compl.

FHFA justified its denial by declaring that Pagliara

does not have a proper purpose to inspect because Freddie Mac’s
fiduciary duties flow directly to the conservator, rather than
to the stockholders.

(Compl. ¶¶ 120, 127.)

Pagliara then filed suit in Fairfax County Circuit
Court seeking an order to permit inspection of Freddie Mac’s
corporate records pursuant to Virginia Code § 13.1-773.1
¶¶ 129-134.)

(Compl.

On March 25, 2016, Freddie Mac removed the

complaint to this Court.

Four days later, Freddie Mac notified

the Court of a motion pending before the Judicial Panel on
Multidistrict Litigation (“Panel”) to transfer several lawsuits
relating to the Third Amendment to a multidistrict litigation

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This section of the Virginia Stock Corporation Act
states as follows: “If a corporation does not allow a
shareholder who complies with subsection A of § 13.1-771 to
inspect and copy any records required by that subsection to be
available for inspection, the circuit court in the city or
county where its registered office is located, may summarily
order inspection and copying of the records demanded at the
corporation’s expense upon application of the shareholder.” Va.
Code Ann. § 13.1-773(A).
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for consolidated pretrial proceedings.

FHFA notified the Panel

of Pagliara’s complaint and requested transfer to the pending
multidistrict litigation proceeding.

Accordingly, Freddie Mac

moved this Court to stay pending the Panel’s transfer decision.
In the alternative, FHFA seeks to be substituted as plaintiff in
this case.
Pagliara filed a substantively identical lawsuit in
Delaware seeking to inspect Fannie Mae’s records related to the
Third Amendment.

The United States District Court for the

District of Delaware stayed that case pending the Panel’s
transfer decision.

See Minute Order, Pagliara v. FNMA, No.

1:16-cv-0193 (D. Del. Apr. 4, 2016).
In addition to the Delaware action and this lawsuit,
there are five other cases pending in federal district courts
regarding the Third Amendment.

Each of those cases has been

stayed awaiting the Panel’s transfer decision.

See Order,

Saxton v. FHFA, No. 1:15-cv-0047 (N.D. Iowa Apr. 4, 2016), ECF
No. 79; Order, Jacobs v. FHFA, No. 1:15-cv-708 (D. Del. Mar. 30,
2016), ECF No. 44; Order, Edwards v. Deloitte & Touche, LLP, No.
1:16-cv-21221 (S.D. Fla. Apr. 13, 2016), ECF No. 12; Order,
Edwards v. PricewaterhouseCoopers, LLP, No. 1:16-cv-21224 (S.D.
Fla. Apr. 21, 2016); ECF No. 11; Minute Order, Robinson v. FHFA,
No. 7:15-cv-0109 (E.D. Ky. Apr. 21, 2016), ECF No. 45; Minute
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Order, Roberts v. FHFA, No. 1:16-cv-02107 (N.D. Ill. Apr. 8,
2016), ECF No. 34.
For the reasons described below, this Court will
similarly stay this case pending the Panel’s decision.
II.

Standard of Review

“A pending transfer motion before the MDL panel does
not deprive the district court in which the action is then
pending of jurisdiction over pretrial matters.”

Litchfield Co.,

LLC v. BP, P.L.C., No. 2:10-cv-1462, 2010 WL 2802498, at *1
(D.S.C. July 14, 2010); Judicial Panel on Multidistrict
Litigation, Rule 2.1(d), 28 U.S.C. foll. § 1407.

Nevertheless,

it is well established that this Court possesses the inherent
power to stay proceedings and to “promote economy of time and
effort for itself, for counsel and for litigants.”

Robinson v.

DePuy Ortho., Inc., No. 3:12-cv-0003, 2012 WL 831650, at *2
(W.D. Va. Mar. 6, 2012) (quoting Landis v. N. Am. Co., 299 U.S.
248, 254 (1936)).
“The decision of whether or not to stay a case pending
in district court lies within the sound discretion of the court
to control its docket, absent a statute removing that
discretion.”

Fisher v. United States, No. 3:13-mc-08, 2013 WL

6074076, at *4 (E.D. Va. Nov. 18, 2013) (quoting Linear Prods.
v. Marotech, Inc., 189 F. Supp. 2d. 461, 463 (W.D. Va. 2002)).
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“The party seeking a stay must justify it by clear and
convincing circumstances outweighing potential harm to the party
against whom it is operative.”

Williford v. Armstrong World

Indus., Inc., 715 F.2d 124, 127 (4th Cir. 1983).
In considering a motion to stay, a district court must
“weigh competing interests and maintain an even balance.”
Landis v. N. Am. Co., 299 U.S. 248, 254 (1936).

Specifically, a

district court should consider three factors: “(1) the interests
of judicial economy; (2) hardship and equity to the moving party
if the action is not stayed; (3) potential prejudice to the nonmoving party.”

Fisher, 2013 WL 6074076, at *4 (quoting Johnson

v. DePuy Ortho., No. 3:12-cv-2274, 2012 WL 4538642, at *2
(D.S.C. Oct. 1, 2012)).

Additionally, “[c]ourts frequently

grant stays in cases when an MDL decision is pending.”

Brandt

v. BP, P.L.C., No. 2:10-cv-1460, 2010 WL 2802495, at *2 (D.S.C.
July 14, 2010) (collecting cases); Virginia ex rel. Integra Rec
LLC v. Countrywide Sec. Corp., No. 3:14cv706, 2015 WL 222312, at
*3 (E.D. Va. Jan. 14, 2015) (collecting cases).
III.

Analysis

Freddie Mac supports its motion to stay with the
following arguments: (1) MDL resolution would prevent
duplicative pretrial proceedings regarding the discoverability
of Freddie Mac’s documents by shareholders; (2) denying the stay
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could cause conflicting judgments; and (3) this case was only
recently filed and is based on conduct that occurred in 2012,
meaning no prejudice would result from a stay.
Pagliara rebuts that a stay is not warranted for the
following reasons: (1) this case shares only legal questions,
not factual issues, with the other cases challenging the Third
Amendment; (2) there is little discovery required to determine
whether Pagliara can inspect corporate records; and (3) a stay
would unnecessarily delay a case that the Court could, and under
state law should, resolve expediently.
The Court finds that, based on a weighing of the three
relevant factors, a brief stay is warranted pending the Panel’s
transfer decision.
A.

Judicial Economy
It is well recognized that staying an action pending

an MDL Panel decision can serve the interests of judicial
economy by avoiding “the needless duplication of work and the
possibility of inconsistent rulings.”
at *2 (collecting cases).

Robinson, 2012 WL 831650,

That is true in this case because the

issue of whether Pagliara made his demand in good faith and for
a proper purpose remains subject to dispute and could overlap
with discovery issues involved in the six other cases
challenging the Third Amendment.

See Va. Code § 13.1-771(D)(1)7

(4).

But, reduced discovery weighs only slightly in favor of a

stay because of the limited nature of Pagliara’s lawsuit—a
corporate document inspection request.
The potential to prevent inconsistent rulings,
however, is a present concern.

Pretrial proceedings in an MDL

will certainly address the scope of discoverable material
related to the Third Amendment, the same documents Pagliara
seeks to investigate with this present action.

It would be

imprudent for this Court to make a ruling regarding Pagliara’s
right to inspect those records when a direct route to consistent
rulings on that issue is so near at hand.

Furthermore, denying

the stay would needlessly create the potential for inconsistent
rulings with the United States District Court for the District
of Delaware, which recently stayed Pagliara’s similar complaint
seeking documents from Fannie Mae.

Thus, this factor weighs in

favor of staying the case.
B.

Hardship to the Moving Party if the Action is Not
Stayed
Freddie Mac faces the potential hardship of

duplicative and inconsistent discovery obligations if the Court
denies this stay.

As described above, the inspection of

documents that Pagliara seeks and the sufficiently of his stated
purpose for inspection overlaps with the discovery issues that
are likely to develop in the six other pending cases related to
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the Third Amendment.

Thus, the risk of inefficient use of the

parties’ time and resources weighs in favor of granting the
stay.

See Hawley v. Johnson & Johnson, No. 3:11-cv-195, 2011 WL

7946243, at *1 (E.D. Va. Apr. 29, 2011) (“[A] temporary stay
would serve judicial economy, promote the efficient resolution
of this case, and avoid the possibility of conflicting judicial
determinations.”)
C.

Hardship to the Nonmoving Party if the Action is
Stayed
Any hardship to Pagliara in this case is

inconsequential.

According to Pagliara, the Panel will hear

FHFA’s motion to create an MDL on May 26, 2016, which is only
twenty-two days away.

(Pl.’s Mem. in Opp’n [Dkt. 21] at 13.)

If the Panel creates an MDL, it would hear the motion to
transfer this particular case on July 28, 2016.

(Id.)

That

delay is not inconsequential, but the likelihood of prejudice is
slight.

The Court received Pagliara’s complaint on March 25,

2016, and has not yet heard any motions to dismiss or entered a
discovery order, which minimizes the prejudice from a stay.

See

Am. Tech. Servs., Inc. v. Universal Travel Plan, Inc., No. 1:04cv-802 (JCC), 2005 WL 2218437, at *3 (E.D. Va. Aug. 8, 2005)
(“Because this case is still in the very early stages of
litigation, there is little prejudice to either side if the
Court stays the case . . . .”).

Furthermore, although corporate
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record demands should be resolved expediently, the subject of
Pagliara’s document request relates to conduct from 2012.

Thus,

the Court finds little prejudice would result from a delay of
between three weeks and a few months.
In summary, the Court finds clear and convincing
circumstances for staying this case pending a ruling by the
Judicial Panel on Multidistrict Litigation regarding
transferring this case to a multidistrict litigation.
IV.

Conclusion

For the foregoing reasons, the Court will grant
Defendant Federal Home Loan Mortgage Corporation’s motion to
stay.

[Dkt. 10.]

The Court will deny without prejudice, the

Federal Housing Finance Authority’s alternative motion to be
substituted as plaintiff.
An appropriate order will issue.

May 4, 2016
Alexandria, Virginia

/s/
James C. Cacheris
UNITED STATES DISTRICT COURT JUDGE

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