United States District Court, E.D. Virginia, Alexandria Division
TIMOTHY J. PAGLIARA, Plaintiff,
FEDERAL HOME LOAN MORTGAGE CORPORATION, Defendant.
JAMES C. CACHERIS UNITED STATES DISTRICT COURT JUDGE
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] 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.
Plaintiff Timothy J. Pagliara (“Pagliara”) is a junior preferred stockholder of the Federal Home Loan Mortgage Corporation, commonly known as “Freddie Mac.” (Compl. [Dkt. 1-1] ¶¶ 3, 9.) 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. (Compl. ¶¶ 3, 34-36.) 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. (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. (Compl. ¶ 127.) 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. (Compl. ¶¶ 129-134.) 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 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. Pricewaterhouse Coopers, 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 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)). “The party seeking a stay must justify it by clear and convincing circumstances outweighing potential harm to ...