Kuriakose v. Federal Home Loan Mortgage Company et al, No. 1:2008cv07281 - Document 140 (S.D.N.Y. 2009)
Court Description: OPINION AND ORDER:#98316 For the reasons set forth herein, plaintiffs' motion to lift the PSLRA discovery stay is denied. Plaintiffs' motion to declare unenforceable the non participation clause in Freddie Mac Severance Agreements also is denied. (Signed by Judge John F. Keenan on 12/7/09) (dle) Modified on 12/8/2009 (eef).
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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ----------------------------------------X JINO KURIAKOSE, Individually and On : Behalf of All Others Similarly Situated, : Plaintiff, : -against: FEDERAL HOME LOAN MORTGAGE CO., RICHARD SYRON, PATRICIA L. COOK, and ANTHONY S. PISZEL, Opinion and Order 08-cv-7281 (JFK) : Defendants, : : : FEDERAL HOUSING FINANCE AGENCY, : Intervenor. ----------------------------------------X APPEARANCES: FOR LEAD PLAINTIFF CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND: Paul J. Geller, Esq. David J. George, Esq. Robert J. Robbins, Esq. James L. Davidson, Esq. COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP FOR DEFENDANT FEDERAL HOME LOAN MORTGAGE CO.: Kenneth I. Schacter, Esq. Jordan D. Hershman, Esq. Jason D. Frank, Esq. BINGHAM McCUTCHEN LLP FOR DEFENDANTS RICHARD ANTHONY S. PIZEL: SYRON, PATRICIA Russell L. Lippman, Esq. Randall W. Bodner, Esq. Christopher G. Green, Esq. L. COOK, and C. Thomas Brown, Esq. ROPES & GRAY LLP FOR INTERVENOR FEDERAL HOUSING FINANCE AGENCY Kent A. Yalowitz, Esq. Howard N. Cayne, Esq. David B. Bergman, Esq. ARNOLD & PORTER LLP JOHN F. KEENAN, United States District Judge: Lead Plaintiff Central States, Southeast and Southwest Areas Pension Fund brings two motions on behalf of a proposed class (collectively the Plaintiffs ) during the Private Securities Litigation Reform Act s ( PSLRA ) discovery stay in an apparent attempt to obtain additional evidence with which to oppose Federal anticipated partially produced motion lift by government Home Loan to the Freddie Mortgage dismiss. PSLRA Mac discovery in investigations. Co. s First, stay conjunction Plaintiffs ( Freddie Plaintiffs to obtain with also move to documents several move Mac ) to active declare unenforceable a contractual provision allegedly contained within many Freddie Mac severance agreements which Plaintiffs contend has prevented them from interviewing former employees of Freddie Mac. I. BACKGROUND Freddie Mac is the publicly-traded government-sponsored enterprise chartered by Congress in 1970 to provide stability in - 2 - the secondary market for residential mortgages, to increase the liquidity of distribution mortgage of investments, investment capital and to available improve for mortgage financing. See 12 U.S.C. § 1451 Note. Freddie Mac s common stock fell the residential The value of precipitously amidst the deterioration of the U.S. housing and sub-prime mortgage market. In September 2008, the Federal Housing Finance Agency ( FHFA ) placed the company into conservatorship due to its inadequate capital base from losses in mortgage holdings. This purchased action is brought Freddie Mac on equity behalf securities of all persons who between November 20, 2007, through and including September 7, 2008. The Amended Complaint in this action asserts that Freddie Mac and several of its directors and/or officers violated § 10(b) and § 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by allegedly misrepresenting to investors the soundness of the company s mortgage portfolio, its underwriting standards, and the sufficiency of its capital. (Am. Compl. ¶¶ 12, 14-15.) Freddie Mac also has been the subject of several government investigations regarding its role in the housing crisis. December 9, 2008, the House Committee on Oversight On and Government Reform (the House Committee ) held a hearing on The Role of Fannie Mae and Freddie Mac in the Financial Crisis. - 3 - According to Plaintiffs, the House Committee obtained nearly 400,000 documents from Fannie Mae and Freddie Mac in connection with this hearing. Freddie Mac s public disclosures also reveal that it is being investigated by the Securities and Exchange Commission (the SEC ) and the United States Attorney s Offices (the USAO ) for the Southern Eastern District of Virginia.1 District of New York and the To date, these entities have not filed actions against Freddie Mac. Pursuant to the PSLRA, discovery has been stayed in this matter during the pendency of a motion to dismiss. In an attempt to fill the void created by this stay provision, after filing the Complaint, Plaintiffs counsel has retained investigators to contact numerous former employees of Freddie Mac to solicit including the contends that declined to information facts underlying twenty-two speak relevant with the former to Plaintiffs alleged Freddie investigators Mac claims, fraud. Counsel employees because of a have non- participation clause contained in their severance agreements with Freddie Mac. According to Plaintiffs counsel, the clause states as follows: You acknowledge that in the absence of this agreement you have the right voluntarily to assist others in 1 At oral argument, the parties informed the Court that the USAO for the Southern District of New York is no longer involved in the investigation of Freddie Mac; the Eastern District of Virginia has taken the lead on behalf of the USAO. - 4 - bringing claims against the released parties. By signing below, you agree to waive this right. Therefore, except as otherwise provided in the agreement, you agree that you will not encourage, counsel, or assist any attorney, their clients, or any other person (including current or former Freddie Mac employees) in bringing or prosecuting any claim, charges, or complaints against the released parties, unless pursuant to a valid subpoena or court order to produce documents or testify, or unless you have been requested by an agency of the United States government or state or local government (collectively government agency ) to assist in a government agency investigation or proceeding. To the extent that you are requested by any government agency to participate or assist in a government agency investigation or proceeding, or to the extent that any law may prohibit you from waiving your right to bring or participate in the investigation of a claim, you nevertheless waive any right you otherwise might have to seek or accept any damages or release in any proceeding. Furthermore, to the extent that you file any claim against Freddie Mac or any claim is filed on your behalf against Freddie Mac, you agree not to seek or accept any damages or other relief as a result of such claims. (Pl. Non-Participation affidavits of Mem. investigators at 13.) with Plaintiffs whom the Freddie Mac employees declined to speak. the investigators employees noted (a) their state that severance submit twenty-two four former In their affidavits, each agreement of as the a twenty-two reason for declining an interview; and (b) set forth the specific topics on which they believe the former employees information. - 5 - may have pertinent II. THE INSTANT MOTIONS Plaintiffs move to partially lift the PSLRA discovery stay, seeking to obtain all documents produced to the House Committee, SEC, and USAO in the course of their investigations, including transcripts of any interviews conducted in connection with such routinely already investigations. modify have the PSLRA produced Plaintiffs discovery documents argue stay pursuant that courts when defendants to government investigations and doing so would not frustrate the purposes of the PSLRA. (Pl. PSLRA Mem. at 7-9, 16-19.) Plaintiffs further argue that they would incur undue prejudice absent a lifting of the PSLRA discovery stay since there is much uncertainty surrounding the future of Freddie Mac and currently they are the only major interested party in the criminal and civil proceedings . . . without access to the essential documents. (Pl. PSLRA Mem. at 11.) Plaintiffs also seek a court order declaring unenforceable the non-participation clause contained within many Freddie Mac severance agreements. Plaintiffs contend that the provision is contrary to public policy in that it prohibits employees from disclosing the illegal activities of their former employer which can be harmful to the public s ability to rein in improper behavior, and in some contexts ability of the United States to - 6 - police violations of its laws. Chambers v. Capital Cities/ABC, 159 F.R.D. 441, 444 (S.D.N.Y. 1995). A. Motion to Lift the PSLRA Discovery Stay The PSLRA provides that all discovery and other proceedings shall be stayed during the pendency of any motion to dismiss, unless the court finds upon the motion of any party that particularized discovery is necessary to preserve evidence or to prevent undue prejudice to that party. 15 U.S.C. § 78u4(b)(3)(B). Plaintiffs because the parties argue that documents i.e., the the already House Court have should been Committee, lift produced USAO, and the stay to third SEC. That consideration certainly bears on whether the document request is adequately particularized. Plaintiffs request only this finite, identifiable set of materials that Freddie Mac most likely could produce at relatively little expense because they already have been compiled, alone, however, reviewed, is and produced. insufficient to lift This the consideration discovery stay. Contrary to Plaintiffs assertion, courts do not routinely lift the PSLRA discovery stay when the requested documents have already been provided to government investigators. See, e.g., In re Refco, Inc., 05 Civ. 8626, 2006 WL 2337212, at *2 (S.D.N.Y. Aug. 8, 2006) ( As a generalized matter, the mere fact that documents have been provided to a third party does not entitle - 7 - plaintiffs to a modification of the stay to obtain those documents. ); In re Smith Barney Transfer Agent Litig., No. 05 Civ. 7583, (holding 2006 that WL it 1738078, is at *3 irrelevant (S.D.N.Y. whether June 26, requested 2006) material already had been produced to the government because the proper inquiry under the PSLRA is whether the plaintiff would be unduly prejudiced by the stay, not whether the defendant would be burdened by lifting the stay ); In re Vivendi Universal S.A. Sec. Litig., 381 F. Supp. 2d 129, 129 (S.D.N.Y. 2003) (denying motion to lift PSLRA stay where documents at issue were already produced Justice, by regulatory defendants Securities agencies to and in the United Exchange connection States Department Commission, and with civil and of other criminal investigations for misconduct by defendants ). It is clear from the face of the statute that the court also must find that lifting the discovery stay is necessary to preserve evidence or prevent undue prejudice.2 As this Court stated in Aspen Tech: Although courts have considered the goals of the PSLRA and the burden of production on defendants in determining whether to lift stays of discovery, the mere fact that the PSLRA s goals would not be frustrated by the lifting of the stay and the documents at issue already have been provided to the SEC and USAO is not sufficient to warrant lifting the stay. According to express statutory language, the 2 The evidence preservation exception was not been raised by Plaintiffs and is not applicable. - 8 - PSLRA s discovery stay may be lifted only if a court finds that doing so is necessary to preserve evidence or prevent undue prejudice. Counter to Plaintiffs contention, even where the goals of the PSLRA are not frustrated and a plaintiffs discovery request is limited to documents already produced to government regulators, courts have refused to lift the discovery stay if the narrow statutory exceptions of evidence preservation or undue prejudice have not been met. 380544 Canada, Inc. v. Aspen Tech., Inc., No. 07 Civ. 1204, 2007 WL 2049738, at *2 (S.D.N.Y. July 18, 2007) (citations omitted). The Second Circuit has not defined what constitutes undue prejudice in this context. This Court has defined undue prejudice for the purposes of the PSLRA discovery stay to mean improper or unfair treatment amounting to something less than irreparable harm. Id. at *1; see also In re Smith Barney, 2006 WL 1738078, at *2; Taft v. Ackermans, No. 02 Civ. 7951, 2005 WL 850916, at *4 (S.D.N.Y. Apr. 13, 2005). Plaintiffs rely on In re WorldCom, Inc. Sec. Litig., 234 F. Supp. 2d 301 (S.D.N.Y. 2002) and In re LaBranche Sec. Litig., 333 F. Supp. 2d 178 (S.D.N.Y. 2004) in support of their argument that leaving the discovery stay in place would result in undue prejudice. However, these cases are distinguishable from the instant action and do not compel Plaintiffs requested relief. In LaBranche, defendant agreed to pay more than $63.5 million to settle actions brought by the SEC and the New York Stock Exchange arising from the same unlawful schemes pleaded by the PSLRA plaintiffs. The court lifted the discovery stay, - 9 - finding that the PSLRA plaintiffs were the only interested party without access to the requested documents and they otherwise would be prejudiced decisions about by their their inability litigation to strategy make in informed this shifting landscape. 333 F. Supp. 2d at 183. rapidly The LaBranche court suggested that typically it would be premature to lift a discovery stay when plaintiffs assert that they are being prejudiced in light of an impending settlement, but in that action there had been an actual settlement in place. Id. In WorldCom, participate the with court the ordered insolvent the PSLRA defendant plaintiffs in to coordinated settlement discussions along with plaintiffs in a related ERISA litigation. The ERISA plaintiffs, unhampered by the requirements of the PSLRA, were in the process of obtaining discovery. moving The court found that because the proceedings were apace through the court-ordered settlement negotiations, without access to the documents available to the ERISA plaintiffs the PSLRA plaintiffs would have been severe[] disadvantage[] in the settlement discussions. at a 234 F. Supp. 2d at 305-06. The courts in WorldCom and LaBranche lifted the PSLRA discovery stay because of the undue prejudice arising from the unique circumstances in each case. Standing alone, however, the mere fact that the discovery stay will prevent Plaintiffs - 10 - from collecting negotiations or evidence plan to their constitute undue prejudice. *4. assist in litigation potential strategy settlement does not Aspen Tech, 2007 WL 2049738, at Similarly, the mere fact that government entities have been provided the discovery that Plaintiffs must wait to obtain does not rise to the level of undue prejudice. Aspen Tech, 2007 WL 2049738, at *4. The delay faced by Plaintiffs is inherent in every PSLRA-mandated discovery stay. Barney, 2006 WL 1738078, at *2. Id.; see also In re Smith As Judge Lynch explained in Refco: Whether PSLRA plaintiffs should be subjected to a discovery stay while other parties, who are bringing claims under other causes of action, are not subjected to a stay is a question for Congress, and one that Congress has answered. Under the PSLRA, discovery in this action has been stayed. That stay does not apply to government investigations, bankruptcy proceedings, internal investigations, or non-PSLRA actions. The discrepancy between PSLRA actions and other actions is not evidence of undue prejudice, but rather evidence of Congress s judgment that PSLRA actions should be treated differently than other actions. This Court may not second-guess that judgment. 2006 WL 2337212, at *2.3 3 In In re Bank of America Corporate Securities, Derivative, Employment Retirement Income Securities Act (ERISA) Litigation, No. 09 MDL 2058, slip op. at *5 (S.D.N.Y. Nov. 16, 2009), the Court lifted the PSLRA discovery stay in a consolidated action consisting of securities, derivative, and ERISA plaintiffs, to allow the PSLRA plaintiffs to obtain the same documents produced in government investigations that the derivative and ERISA plaintiffs were not statutorily restricted from obtaining. To the extent that In re Bank of America stands for the proposition that plaintiffs are unduly prejudiced by the mere fact that - 11 - Plaintiffs point to several events that purportedly evidence that Freddie Mac is a rapidly shifting landscape and allegedly hinder regarding their their ability litigation to make strategy: informed (1) Freddie decisions Mac is currently the subject of investigations by Congress, the SEC, and the USAO; (2) Freddie Mac is currently under conservatorship of the FHFA and has relied on several bailouts from the Treasury in order to maintain an adequate capital base; (3) there has been turnover within Freddie Mac management, including the resignation of CEO, David Moffet, after only six months on the job, and the death of acting CFO, David Kellerman. (Pl. PSLRA Mem. at 12-13, Reply at 3-5.) First, unlike LaBranche and Worldcom, Plaintiffs inability to access information produced by Freddie Mac in connection with ongoing investigations by the House Committee, USAO, and SEC does not result in undue prejudice. brief, there are no criminal or As noted in Defendant s civil governmental or administrative actions pending against any Defendant; there are no settlement discussions with anyone pending or planned; Freddie Mac is not in bankruptcy. (Def. PSLRA Opp n at 18.) It is be possible that at a future date the Plaintiffs could discovery is proceeding in other cases causing the PSLRA plaintiffs comparatively to be less able to make informed decisions regarding litigation strategy, I do not regard it as an accurate interpretation of the law in this circuit. - 12 - prejudiced by a disposition in a yet to be filed government action. However, [t]he mere possibility that Plaintiffs could be prejudiced if settlement talks ensue in the future . . . is not enough for the Court to find that Plaintiffs will suffer undue prejudice as a result of the discovery stay. Aspen, 2007 WL 2049738, at *3; see also In re Refco, 2006 WL 2337212, at *3 ( Mere speculation about highly contingent possibilities of future prejudice does not demonstrate that lifting the stay is necessary . . . to prevent undue prejudice that would otherwise result. ). Nor bailouts does and prejudice. the fact endured The that Freddie management court s use of Mac turnover the term accepted amount rapidly federal to undue shifting landscape in LaBranche was not in regard to the stability of senior management or the company s future business prospects, but was in reference to activity in related actions and its present effect on the Plaintiffs ability to recover. There may be doubts regarding Freddie Mac s ongoing viability, but the prospect of prejudice from the contingent risks to the defendant s long-term business viability is insufficient to lift the stay. Plaintiffs have failed to show that they will suffer any undue prejudice if the discovery stay remains in place, and therefore the motion is denied. - 13 - B. Motion to Declare Unenforceable the Non Participation Clause in Freddie Mac s Severance Agreements Plaintiffs claim that the non-participation clause at issue is contrary to public policy because it prevents former employees from voluntarily alleged fraud. disclosing facts relating to the Although the Court notes that similar clauses have been upheld, see, e.g., Cooper Tire & Rubber Co. v. Farese, 423 F.3d 446, 456-58 (5th Cir. 2005) (holding that a non- participation agreement was neither illegal nor unconscionable because it served a valid legal purpose and is common in situations where two parties terminate their employment relationship by contract ); Yockey v. Horn, 880 F.2d 945, 951 (7th Cir. 1989) (finding that the agreement is not obstructive because it does not preclude participation in litigation ), the Court first must determine whether Plaintiffs have standing to raise this challenge and whether the Court has jurisdiction to decide it. Freddie Mac argues that Plaintiffs lack standing to challenge these contracts, specifically arguing that Plaintiffs have failed to establish injury. The FHFA incorporates Freddie Mac s standing argument and also wrote separately to emphasize that the relief requested in Plaintiffs motion is prohibited by the Housing and Economic Recovery Act of 2008. - 14 - 1. Standing It is a fundamental tenet of American jurisprudence that federal courts have limited jurisdiction. Verlinden B.V. v. Cent. Bank of Nig., 647 F.2d 320, 321 (2d Cir. 1981), rev d on other grounds, Constitution 461 limits U.S. (1983). Article federal a 480 III court s jurisdiction of to the actual cases and controversies and the standing doctrine serves to identify those disputes which are appropriately resolved through the judicial process. Whitmore v. Arkansas, 495 U.S. 149, 15556 (1990). The party invoking federal jurisdiction bears the burden satisfying of irreducible three constitutional elements minimum of to establish standing. Defenders of Wildlife, 504 U.S. 555, 560 (1992). plaintiff must concrete and have suffered particularized an injury and in actual Lujan v. First, the fact or the which imminent, is not conjectural or hypothetical. Id.; see also Whitmore, 495 U.S. at 155. Second, there must be a causal connection between the injury and defendant s conduct. Lujan, 504 U.S. at 560 ( [T]he injury has to be fairly traceable to the challenged action of the defendant, and not the result of the independent action of some third modification party not omitted)). before Third, the it court. must be (citation likely that and a favorable decision by the court will redress the injury. Id. at 561. - 15 - Since standing is a constitutional doctrine and not merely a pleading requirement, each element must be supported in the same way as any other matter on which the plaintiff bears the Plaintiffs seek a court order declaring burden of proof. Id. void a specific agreements. provision within Freddie Mac s severance In seeking a final declaration from the Court, Plaintiffs cannot rely admissible evidence to on mere allegations; adequately support there must See standing. be New Creation Fellowship of Buffalo v. Town of Cheektowaga, 164 Fed. Appx. 5, judgment 6-7 (2d because Cir. 2005) plaintiff (granting failed to motion proffer for any summary admissible evidence to establish standing); cf. Lujan, 504 U.S. at 561 ( [A]t the final stage, [controverted] facts must be supported adequately by the evidence adduced at trial. ). Plaintiffs claim to have sustained injury from the Freddie Mac severance agreements in that the non-participation clause infringes on their right to investigate their conducting interviews with potential witnesses. claims by They point to several cases in which courts have found certain confidentiality agreements void on the basis of public policy. See, e.g., IBM v. Edelstein, 526 F.2d 37, 41 (2d Cir. 1975) (finding that the lower court exceeded its authority by barring witness interviews in the absence of opposing counsel because the restrictions on interviews not only impair the - 16 - constitutional right to effective assistance of counsel but are contrary to time-honored and decision-honored principles, namely, that counsel for all parties have a right to interview an adverse party s witnesses (the witness willing) in private ); Chambers, 159 F.R.D. at 444 ( Absent possible extraordinary circumstances not involved here, it is against public policy for parties to agree not to reveal, at least in deposition the limited interviews contexts concerning of depositions litigation or arising preunder federal law, facts relating to alleged or potential violations of such law. ); In re JDS Uniphase Corp. Sec. Litig., 238 F. Supp. 2d 1127, 1137 (N.D. Cal. 2002) ( To the extent that [the confidentiality] agreements preclude former employees from assisting in investigations of wrongdoing that have nothing to do with trade information, secrets they conflict or other with confidential public policy in business favor of allowing even current employees to assist in securities fraud investigations. ); In re Tyco Int l Ltd. Sec. Litig., No. 00 MD 1335, 2001 WL 34075721, at *3 (D.N.H. Jan. 30, 2001) (denying defendant s motion for a protective order to bar plaintiff s counsel from discovery interviewing stay because former employees [t]he right during to the PSLRA conduct such investigations is protected and is not impaired by the PSLRA ). Only shareholder two of the plaintiffs cases cited challenging - 17 - by Plaintiff severance involved agreements on behalf of the restrained former employees. See Chambers, 159 F.R.D. 441; In re JDS Uniphase Corp. Sec. Litig., 238 F. Supp. 2d 1127. all. The court in JDS Uniphase did not address standing at In Chambers, unlike the present matter, the contractual provision at issue precluded deposition testimony. the employees from providing The court concluded that plaintiffs had standing to challenge the contractual provision in the context of a discovery dispute. The court made clear that the agreements at issue are presented solely in the context of the extent to which such agreements may or may not be used in a manner precluding litigation. Discovery 159 discovery F.R.D. presently is at procedures 444. stayed This and is the in not this the relief federal case here. requested by Plaintiffs is not limited to the contract s effect on discovery in the instant matter. In fact, the agreement has no effect on formal discovery because it only precludes the former employees from voluntarily assisting Plaintiffs counsel absent a subpoena or court order. Plaintiffs may be correct that they have a right to speak with these former employees, and they may be correct that the contractual provision at issue is contrary to public policy. Former employees, however, are not obligated to assist counsel for Lead Plaintiff by voluntarily submitting to an interview with its investigators. There are endless reasons why a former - 18 - employee may decline an interview: the employee may have a sense of loyalty to a former employer; he may be hesitant to become entangled in a legal dispute; he may just not care. establish former standing, employees therefore, declined an plaintiffs interview must show because of that the To the non- participation clause, not for an independent reason. Lujan, 504 U.S. at 560. Plaintiffs submitted affidavits from the investigators who claim that the former employees declined to speak with them because of their severance agreement. employees hearsay indeed told statements matter asserted. are the not It may be that the former investigators admissible as for such, the but truth these of the There is not an affidavit before the Court from any former Freddie Mac employee providing that he would have assisted counsel but for his severance agreement, and therefore Plaintiffs alleged injury is based on nothing more than hearsay and speculation. Without a concrete and particularized injury, this Court is restrained from allowing Plaintiffs to step into the shoes of these former employees to challenge the validity of the contractual provision. Allen v. Wright, 468 U.S. 737, 756 (1984) ( Standing doctrine embraces several judicially self-imposed federal jurisdiction, such as limits the on general the exercise prohibition litigant s raising another person s legal rights . . . . ). - 19 - on of a The reaching Court the also merits risks of issuing this an motion. advisory opinion Plaintiffs provided a copy of any of the agreements at issue. by have not Plaintiffs cannot attest with certainty to the exact language of the clause at issue. Plaintiffs have not identified the individuals who have declined to submit to an interview, their job titles, or any other details regarding their roles at Freddie Mac or the circumstances and other find this contractual language void regardless of the circumstances. The details, Court of their Plaintiffs will not departures. essentially risk issuing ask an Without the these Court advisory to opinion on a hypothetical set of facts. See North Carolina v. Rice, 404 U.S. 244, 246 (1971) ( To be cognizable in a federal court, a suit must be definite and concrete, touching the legal relations of parties having adverse legal interests. . . . It must be a real and substantial controversy admitting of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts. ); In re Spectrum Brands, Inc. Sec. Litig., No. 05 Civ. 2494, (denying 2007 motion WL to 1483633, clarify at *4 the (N.D. scope Ga. May 18, 2007) of confidentiality agreements because without a copy of the agreement, it risked issu[ing] an impermissible advisory opinion ). - 20 - 2. In Housing and Economic Recovery Act of 2008 response to the subprime mortgage crisis, Congress enacted the Housing and Economic Recovery Act of 2008 ( HERA ), Pub L. No. 110-289, 122 Stat. 2654, codified at 12 U.S.C. § 4617. HERA created the FHFA, which succeeded the Office of Federal Housing Enterprise Oversight as the regulator of Fannie Mae and Freddie Mac. Pursuant to authority granted by Congress in HERA, FHFA Director James Lockhart appointed the FHFA as conservator of Freddie Mac on September 6, 2008. As conservator, the FHFA inherited all rights, titles, powers and privileges previously possessed by Freddie Mac, its stockholders, officers, and directors. 12 U.S.C. § 4617(b)(2); Sadowsky Testamentary Trust v. Syron, 639 F. Supp. 2d 347, 349 (S.D.N.Y. 2009). Accordingly, the FHFA is now, among other things, empowered to: ¢ take over the assets of and operate [Freddie Mac] with all the powers of the shareholders, the directors, and the officers of [Freddie Mac] and conduct all business of [Freddie Mac], 12 U.S.C. § 4617(b)(2)(B)(i); ¢ collect all obligations and money entity, id. § 4617(b)(2)(B)(ii); ¢ enforce any contract . . . entered into by [Freddie Mac], id. § 4617(d)(13)(A) (emphasis added); ¢ take any action authorized by this section, which the Agency determines is in the best interests of [Freddie Mac] or the Agency. Id. § 4617(b)(2)(J)(ii). due the regulated The court lacks jurisdiction to adjudicate matters which may restrict the FHFA s ability to exercise these powers. Id. - 21 - § 4617(f) ( [N]o court may take any action to restrain or affect the exercise of powers or functions of the Agency as a conservator or a receiver. ). The FHFA argues that the court lacks jurisdiction to declare the non-participation clause unenforceable because such a declaration conservator s will restrain powers to and enforce affect the Freddie exercise Mac of contracts. the In analyzing the limits of the Court s authority under § 4617(f), the Court may turn to precedent relating to the nearly identical anti-injunction statute under the Financial Institutions, Reform, Recovery, and Enforcement Act of 1989 ( FIRREA ).4 See Sadowsky, 639 F. Supp. 2d at 350-51; In re Fed. Nat l Ass n Sec., Derivative, & ERISA Litig., 629 F. Supp. 2d 1, 2 (D.D.C. 2009); In re Fed. Home Loan Mortgage Corp. Derivative Litig., 643 F. Supp. 2d 790, 795-96 (E.D. Va. 2009). It does not appear that a court in this Circuit has directly addressed whether the HERA or FIRREA anti-injunction provision restricts the court s jurisdiction to hear a contract dispute involving a company now in conservatorship. However, courts generally have interpreted the anti-injunction provision 4 FIRREA provided similar powers to conservators or receivers of savings and loan institutions. It provided in pertinent part that no court may take any action . . . to restrain or affect the exercise of powers or functions of the [FIDC or RTC] as a conservator or a receiver. 12 U.S.C. § 1821(j). - 22 - broadly, holding that FIRREA bars all equitable relief relating to the statutorily provided powers of the receiver. See, e.g., Freeman v. FDIC, 56 F.3d 1394, 1399 (D.C. Cir. 1995) ( Not only does [FIRREA] bar injunctive relief, but in the circumstances of the present case where appellants seek a declaratory judgment that would effectively restrain the FDIC from foreclosing on their property, [it] deprives the court of power to grant that remedy as well. ); St. George Maronite Catholic Church v. Green, No. SA-94-CA-334, 1994 WL 763743, at *6-7 (W.D. Tex. July 25, 1994) (holding that FIRREA bars any relief that would affect the contract between [the receiver] and [a third party], whether that relief is termed rescission, declaratory, or anything else ). By moving to declare unenforceable the non-participation clause in Freddie Mac severance agreements, in essence Plaintiffs are seeking an order which restrains the FHFA from enforcing this contractual provision in the future. The FHFA is well within its statutory authority to enforce the contracts of Freddie Mac and take any other action it determines to be in the best interest of Freddie Mac. HERA clearly provides that this Court does not have the jurisdiction to interfere with such authority. See Volges v. Resolution Trust Corp., 32 F.3d at 50, 52 (2d Cir. 1994) (holding that the FIRREA anti-injunction provision is a direct manifestation of Congress s intent to - 23 - prevent courts from interfering with the [conservator] in the exercise of its statutory powers"). The Court challenge agreements. the concludes provision that Plaintiffs within the lack Freddie standing Mac to severance Even if Plaintiffs were to have standing, the Court lacks jurisdiction to adjudicate this dispute pursuant to H E W . 111. CONCLUSION For the reasons stated above, Plaintiffs' motion to lift the PSLRA discovery stay is denied. Plaintiffs f motion to declare unenforceable the non-participation clause in Freddie Mac severance agreements also is denied. SO ORDERED. Dated: New York, New York December 2009 y, 1 JOHN F. KEENAN United States District Judge
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