Case 1:05-cv-00620-RJL Document 7 Filed 04/15/2005 Page 1 of 11
UNITED STATES DISTRICT COURT DISTRICT OF COLUMBIA
SASSAN SHAHROKHINIA, 11678 Chippenham Way, San Diego, CA 92128, Individually and On Behalf of All Others Similarly Situated, CLASS ACTION COMPLAINT
Plaintiff, JURY TRIAL DEMANDED
vs. CIVIL ACTION NO.:1:05cv00620
FEDERAL NATIONAL MORTGAGE ASSOCIATION (Operating as "FANNIE MAE"), 3900 Wisconsin Avenue , NW Washington, DC BEFORE THE HONORABLE 20016, FRANKLIN RAINES , c/o Federal JUDGE RICHARD J. LEON National Mortgage Association , 3900 Wisconsin Avenue, NW Washington , DC 20016 , TIMOTHY HOWARD , c/o Federal National Mortgage Association , 3900 Wisconsin Avenue, NW Washington, DC 20016 , and LEANNE G. SPENCER, c/o Federal National Mortgage Association , 3900 Wisconsin Avenue, NW Washington , DC 20016,
Defendants.
APPLICATION FOR RELIEF FROM STIPULATED ORDER OF CONSOLIDATION '
I. OVERVIEW:
For the reasons set out below, Plaintiffs in the above-styled case respectfully assert that the Court should not consolidate this case with in re Fannie Mae Securities
Litigation, Consolidated Civil Action No. 1:04-cv-01639).
(Shareholders' Class Action).
Please be advised that the Plaintiff is concurrently filing an "Objection to the Stipulated Order of Consolidation" in In re Fannie Mae Securities Litigation (Consolidated Civil Action No. 1:04-cv- 01639). Case 1:05-cv-00620-RJL Document 7 Filed 04/15/2005 Page 2 of 11
The Shareholders' Class Action is brought on behalf of all those who purchased
Fannie Mae common stock.2 In contrast, this case (Option Traders' Class Action) is brought on behalf of a different class -- all those who purchased call options or sold put options on Fannie Mae common stock.3
Plaintiffs respectfully assert that consolidation of these cases is unwarranted based on, but not limited to the following reasons:
• Courts treat option traders and shareholders as different classes;
• Lead plaintiffs, and their counsel , in the Shareholders' Class Action, abandoned option traders when they defined their class;
• Option traders will suffer prejudice if the cases are consolidated;
• The Public Securities Litigation Reform Act (PSLRA) requires the Court to appoint lead counsel for the option traders; and
• Coordination , rather than consolidation , is a better way to avoid unnecessary costs and delay.
II. PROCEDURAL HISTORY:
In September 2004, Vincent Vinci filed the first of several class action lawsuits on behalf of purchasers of Fannie Mae securities.4 The plaintiffs in these actions stipulated to an order consolidating their cases (the Consolidation Order). The Consolidation
Order provides that:
The terms of this Order apply to any action hereinafter filed in this District or transferred to this Court that involve claims on behalf of the purchasers of Fannie Mae securities and that arise out of the same facts and assert the same or substantially similar claims as alleged in the [Shareholders' Class Action] ...5
2 See In re Fannie Mae Securities Litigation Complaint at ¶ 272.
3 See Shahrokhinia Complaint at ¶ 143.
4 See Vinci v. Federal National Mortgage Association, et al. (Civil Case No. 1:04-cv-01639) Complaint at ¶1.
5 See Consolidation Order at ¶ 4.
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In January 2005, the Court appointed the Ohio Public Employees Retirement
System and State Teachers Retirement System of Ohio (collectively referred to as Lead
Plaintiffs) as lead plaintiffs for the Shareholders' Class Action. Two months later, Lead
Plaintiffs filed a "Consolidated Class Action Complaint for Violations of Federal
Securities Laws" (Consolidated Complaint). Unlike the various underlying complaints, the Consolidated Complaint seeks relief solely for "a class comprised of all those who purchased Fannie Mae common stock (emphasis added).s6
Plaintiff Sassan Shahrokhinia did not purchase Fannie Mae common stock, he sold put options on Fannie Mae's common stock. As a result, he does not qualify as a class member of the class in the Consolidated Complaint. Because Lead Plaintiffs in the
Shareholders' Class Action have chosen to exclude option traders like him from the class, he has filed Option Traders' Class Action "on behalf of a class comprised of all those who purchased call options or sold put options on Fannie Mae common stock.,7
On April 7, Shahrokhinia received a copy of the Consolidated Order indicating his case was consolidated with the Shareholders' Class Action. Shahrokhinia has now timely filed this Application for Relief from Stipulated Order of Consolidation.
As further discussed below, we urge the Court to grant Shahrokhinia's
Application for Relief from Stipulated Order of Consolidation.
Ill. COURTS TREAT OPTION TRADERS AND COMMON SHAREHOLDERS AS DIFFERENT CLASSES:
Options traders do not stand in the same shoes as shareholders. While option traders and shareholders both have an interest in proving the same allegations against
6 See In re Fannie Mae Securities Litigation Consolidated Complaint at ¶ 272.
See Shahrokhinia Complaint at ¶ 143.
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defendants , they have different and competing interests in the outcome of the litigation.
Put bluntly, Fannie Mae shareholders and option traders are competing with each other for the highest possible recovery. Every penny option traders recover is one less penny available for shareholders.
Based on this inherent conflict of interest, a number of courts have treated option traders and shareholders as separate and distinct classes when both bring a securities- fraud class action against the same defendant.
For example, in in re Green Tree Financial Corp. Options Litigation,8 nearly 30 securities-fraud class actions were filed. "The cases were subsequently consolidated into two separate putative class actions, one consisting of purchasers of Green Tree stock ... (the 'stock' action ) and the other consisting of traders of options on Green
Tree stock ... (the `options action ) (emphasis added)."9
Similarly, in in re Arakis Energy Corp. Sec. Litig.10, stock purchasers sued Arakis and its officers and directors, accusing them of disseminating false information to artificially inflate the price of Arakis' stock. The court consolidated 22 individual actions and certified a class of individuals who purchased Arakis stock during the class period.
Three years later, several options traders sought to certify a new class based on the same claims. The court granted the request.
Like the courts in Green Tree and Arakis, this Court should treat Fannie Mae options traders as a separate class than those who purchased Fannie Mae common stock.
8 In re Green Tree Financial Corp. Options Litigation 2002 U.S. Dist. LEXIS 13986 (Minn. 2002).
9 Id. at p. 2. to In re Arakis Energy Corp. Sec. Litig. 1999 U.S. Dist. LEXIS 22246 (E.D. NY 1999).
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IV. OPTION TRADERS HAVE BEEN EXCLUDED BY SHAREHOLDERS CLASS ACTION:
Although none of the individual plaintiffs in the Shareholders' Class Action were options traders, all of their individual complaints were brought on behalf of the purchasers of Fannie Mae securities. Under the Securities and Exchange Act, the term
"securities" means both shareholders and options traders." Thus, options traders would arguably be included under an action brought under the Act. However, as the
Consolidated Complaint reflects, Lead Plaintiffs have abandoned option traders and have limited the class to common shareholders only.
The consequences of Lead Plaintiffs' exclusion of option traders from the
Consolidated Complaint's class definition are significant. It is not hard to picture a scenario down the road where Lead Plaintiffs or defendants argue options traders should not share in any recovery in the Shareholders' Class Action based on the fact that (1) they are not part of the defined class, and / or (2) the interests of some options traders are opposed to those of common shareholders.
Moreover, Lead Plaintiffs' exclusion of option traders prevents them from now including options traders in the Shareholders' Class Action. A party cannot seek to include a group in the class when it has previously taken an inconsistent position in the litigation with regard to the definition of the class.12 By not including option traders in the
Consolidated Complaint's definition of the class, Lead Plaintiffs cannot now say they should properly be included within the class.
Finally, Lead Plaintiffs' omission of option traders from the Shareholders' Class
Action cannot be excused as merely inartful pleading. An adequately defined class must
" 15 U.S.C. § 78c(a)(1) provides: "The term security means any ... put, call, straddle, option ..
12 See W. Alton Jones Foundation v. Chevron U.S.A., Inc. 97 F.3d 29 (2d Cir. 1996) (Defendants could not argue group was included in class settlement when they had previously argued group was not included in the class).
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delineate the class with a "fair degree of specificity or some precision.03 Here, Lead
Plaintiffs have clearly defined the class to exclude option traders, expressly describing the class as "those who purchased Fannie Mae common stock. 04
The Option Traders' Class Action should not be consolidated with the
Shareholders Class Action because options traders were intentionally abandoned from that class' definition.
V. OPTION HOLDERS WILL SUFFER PREJUDICE IF THE CASES ARE CONSOLIDATED
Rule 42 of the Federal Rules of Civil Procedure empowers a trial judge to consolidate actions for trial when there are common questions of law or fact to avoid unnecessary costs or delay. But considerations of convenience and economy must yield to a paramount concern for a fair and impartial trial.15 Consolidation is inappropriate when it will adversely affect the rights of the parties, including where "management of the consolidated case is vested in lead counsel, whose efforts are likely to focus on the interests of the majority, thereby depriving the minority of full discovery and preparation."'s
Here, we respectfully assert that Fannie Mae options traders will clearly suffer severe prejudice if their case is consolidated with the Shareholders' Class Action.
As mentioned above, Lead Plaintiffs expressly defined the class as "those who purchased Fannie Mae common stock,"" effectively abandoning Fannie Mae options
13 7 Newberg on Class Actions (4th Ed.) Shareholder & Derivative Suits, § 22:76, p. 333.
14 See Consolidated Complaint at ¶ 272.
15 Johnson v. Celotex Corp. 899 F.2d 1281, 1285 (2nd Cir. 1990).
16 8 Moore's Federal Practice (3d Ed. 2004) Consolidation: Separate Trials, § 42.10[6][a], p. 42- 21.
17 See Consolidated Complaint at ¶ 272.
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traders from coverage by the Consolidated Complaint. We believe that the reasons for this exclusion are quite simple: Lead Plaintiffs are large State pensions boards that purchased Fannie Mae stock and did not trade in Fannie Mae options. Lead Plaintiffs have no interest in including options traders in their class and even less interest in looking out for the best interests of options traders in this litigation. In fact, Lead
Plaintiffs have an incentive to direct this litigation such that option traders receive no recovery at all.
It would be patently unfair to options traders to consolidate these two cases.
VI. IN ORDER TO ENSURE THAT THE INTERESTS OF OPTION TRADERS ARE PROPERLY REPRESENTED, THE COURT SHOULD FOLLOW THE PSLRA S REQUIREMENTS AND APPOINT A LEAD PLAINTIFF FOR THE OPTION TRADERS CLASS.
As the record reflects, Shahrokhinia filed Option Traders' Class Action on March
24, 2005. As required by the Private Securities Litigation Reform Act 1995 (PSLRA), a press release, informing the business world of his lawsuit, was filed on the following day,
March 25, 2005. The press release further informed other option traders that they had until May 24, 2005 to move the Court to serve as lead plaintiffs for the class.
Although Shahrokhinia's attorney has received calls from several option traders, he is not aware of any other option traders who have filed a lawsuit or moved the Court to be appointed lead plaintiff. Accordingly, after May 24, 2005, Shahrokhinia will ask the
Court to determine that he is most "capable of adequately representing the interests of class members.s18
Unlike Lead Plaintiffs, Shahrokhinia will adequately represent the interests of
Fannie Mae option traders.
'$ 15 U.S.C. § 78u-4(B)(i).
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VII. RATHER THAN CONSOLIDATING THESE CASES, THE COURT SHOULD COORDINATE THEM FOR PRETRIAL LITIGATION PURPOSES
In order to avoid waste of time and money, confusion, and burden on the court, the Federal Manual for Complex Litigation suggests that district courts appoint liaison counsel to coordinate pretrial activities in complex cases involving multiple parties.19
Unlike consolidation, coordination achieves "efficiency and economy without jeopardizing fairness to the parties.s2°
As discussed above, consolidating the Option Traders' Class Action with the
Shareholders' Class Action will result in prejudice to Fannie Mae option traders. Based on the foregoing, Shahrokhinia respectfully urges that this Court should coordinate rather than consolidate these actions, and appoint a liaison counsel from each case to coordinate discovery, law and motion practice, settlement negotiations, and any other pretrial activities. Through the coordination, rather than consolidation of these actions, it our client's sincere belief that the goals of judicial economy will be served and the parties' conflicting interests will not be unduly prejudiced.
VIII. CONCLUSION
Fannie Mae options traders are not included in the Shareholders' Class Action's definition of the class. Nor should they be since they stand in different shoes than
Fannie Mae's shareholders and will suffer prejudice if they are included in the Class.
Thus, the Court should not consolidate this case with the Shareholders' Class Action; but instead coordinate the two actions for all pre-trial purposes.
19 Manual for Complex Litigation, Fourth (Federal Judicial Center 2004) Coordination in Multiparty Litigation - Lead/Liaison Counsel and Committees, § 10.22, p. 24.
20 Id. at 20.221, p. 25.
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Dated : April 15, 2005
LAW OFFICE OF FRANK J. JOHNSON
Frank J. Johnson (CA Bar # 174882) (Admitted Pro Hac Vice on April 12, 2005)
Brett M. Weaver (CA Bar # 204715) (Admitted Pro Hac Vice on April 12, 2005)
Law Office of Frank J. Johnson 402 W. Broadway, 27th Floor San Diego, CA 92101 Telephone: (619) 230-0063 Facsimile: (619) 230-1839
Local Counsel
MARTIN LILES, PLLC
By: Robert W. Liles (DC Bar # 473876) 1054 31st Street, N.W. Suite 415 Washington, DC 20007 Telephone: (202) 965-3060 Facsimile: (202) 965-3063 E-mail: [email protected]
Attorneys for Plaintiff
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CERTIFICATE OF SERVICE
I certify that on April 15, 2005, I electronically filed the foregoing with the Clerk of Court using the CM/ECF system, which will send notification of such filing to the following counsel of record in this matter who are registered on the CM/ECF. Service was accomplished on any of the following counsel not registered through the CM/ECF system via regular U.S. mail on the 15th day of April 2005.
John H. Beisner, Esq. Jeffrey W. Kilduff, Esq. Kimberly A. Newman, Esq. Michael J. Walsh, Jr., Esq. O'Melveny & Myers LLP 1625 Eye Street, N.W. Washington, DC 20006 -and- Seth Aronson O'Melveny & Myers LLP 400 South Hopr Street, 15th Floor Los Angeles, CA 90071-2899
Counsel for Defendant Fannie Mae
Kevin M . Downey, Esq. Joseph M . Terry, Esq. Williams & Connolly LLP 725 Twelfth Street, N.W. Washington , DC 20005-5091
Counsel for Defendant Franklin D. Raines
Steven M. Salky Erin Delinsky Zuckerman Spaeder LLP 1201 Connecticut Ave., N.W. 12th Floor Washington, DC 20036-2638
Counsel for Defendant J. Timothy Howard
David S. Krakoff, Esq. Mark W. Ryan, Esq. Mayer, Brown, Rowe & Maw LLP 1909 K Street, N.W. Washington, DC 20006-1101
Counsel for Defendant Leanne G. Spencer
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Local Counsel
MARTIN LILES, PLLC
ZA' U, V By: Robert W. Liles (DC Bar # 473876) 1054 31st Street, N.W. Suite 415 Washington, DC 20007 Telephone: (202) 965-3060 Facsimile: (202) 965-3063 E-mail: [email protected]
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UNITED STATES DISTRICT COURT DISTRICT OF COLUMBIA
SASSAN SHAHROKHINIA, 11678 Chippenham CLASS ACTION COMPLAINT Way, San Diego, CA 92128, Individually and On Behalf of All Others Similarly Situated, JURY TRIAL DEMANDED
Plaintiff, CIVIL ACTION NO.:1:05cv00620 vs.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (Operating as "FANNIE MAE"), 3900 Wisconsin Avenue , NW Washington, DC BEFORE THE HONORABLE 20016, FRANKLIN RAINES , c/o Federal JUDGE RICHARD J. LEON National Mortgage Association , 3900 Wisconsin Avenue, NW Washington , DC 20016 , TIMOTHY HOWARD, c/o Federal National Mortgage Association , 3900 Wisconsin Avenue, NW Washington, DC 20016, and LEANNE G. SPENCER, c/o Federal National Mortgage Association , 3900 Wisconsin Avenue, NW Washington, DC 20016,
Defendants.
ORDER
Upon application of plaintiff Sassan Shahrokhinia, and after good cause shown:
IT IS HEREBY ORDERED THAT
1. The above-styled case is hereby relieved from the Court's April 7, 2005 Order consolidating it with in re Fannie Mae Securities Litigation (Consolidated Civil Action No.
1:04-cv-01639).
2. Any action bought on behalf of those who traded in options on Fannie Mae common stock, involving substantially related questions of law and fact, hereafter filed in or transferred to this Court, shall be consolidated with this case and not with in re Fannie
Mae Securities Litigation.
3. All future pleadings involving Fannie Mae option traders shall be filed under Case
No. 1:05-cv-00620 and shall have the following caption: In re Fannie Mae Options Case 1:05-cv-00620-RJL Document 7-2 Filed 04/15/2005 Page 2 of 3
Traders Litigation, Consolidated Civil Action No. 1:05-cv-00620. The consolidation will be for all purposes through final judgment.
4. The Clerk of the Court shall maintain a Master Docket and case file under the
Caption "In re Fannie Mae Options Traders Litigation, Master Civil Action No. 1:05-cv-
00620." All orders pleadings, motions and other documents shall when filed and docketed in the master case file, be deemed filed and docketed in each constituent action to the extent applicable. When an order, pleading, motion or document is filed with a caption indicating that it is applicable to fewer than all of these consolidated actions, the Clerk shall file such pleadings in the Master File and note such filing in the
Master Docket and in the docket of each action referred.
5. The terms of this Order apply to any action hereafter filed in this District or transferred to this Court that involve claims on behalf of those who traded in options on
Fannie Mae common stock and that arise out of the same facts and assert the same or substantially similar claims as alleged in this case, under the following procedures:
a. When a case relating to the subject matter of this case is
hereafter filed in or transferred to this Court, the Clerk of the Court
shall:
i. Mail a copy of this Order to the attorney(s) for the
plaintiff(s) in the newly filed or transferred action and to the
attorneys for any new defendant(s) in the newly filed
transferred action; and
ii. Make an appropriate notation in the Master
Document.
b. This order will apply to each such case that arises out of or
is related to the same common nucleus of facts, subsequently
instituted in, removed to, or transferred to this Court unless a party
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objecting to the consolidation of such case or to any other
provision of this Order filed, within (10) days after the date upon
which a copy of this Order is mailed to counsel for such party, an
application for relief from this Order or any provision herein and
this Court deems it appropriate to grant such application.
c. The Court directs counsel to call to the attention of the
Clerk of This Court the filing or transfer of any case that might
properly be consolidated into this action.
7. The terms of this Order shall not have the effect of making any person, corporation or other party to any action in which he, she or it has not been named, served or added as such in accordance with the Federal Rules of Civil Procedure.
8. The Court shall appoint liaison counsel from this case and liaison counsel from in re Fannie Mae Securities Litigation to coordinate the pretrial activities between the two cases, including, but not limited to, discovery, law and motion practice, and settlement negotiations. Applications to be appointed liaison counsel are due by
, 2005.
10. The Clerk of The Court shall mail a copy of this Order to the attorney of record for
Lead Plaintiffs in in re Fannie Mae Securities Litigation.
Dated: , 2005 Judge Richard J. Leon United States District Court Judge
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