You are on page 1of 14

Case 1:05-cv-00620-RJL Document 7 Filed 04/15/2005 Page 1 of 11

UNITED STATES DISTRICT COURT
DISTRICT OF COLUMBIA

m
co
SASSAN SHAHROKHINIA, 11678 Chippenham
Way, San Diego, CA 92128, Individually and On
Behalf of All Others Similarly Situated, CLASS ACTION COMPLAINT

d.
Plaintiff, JURY TRIAL DEMANDED

au
vs. CIVIL ACTION NO.:1:05cv00620

FEDERAL NATIONAL MORTGAGE
ASSOCIATION (Operating as "FANNIE MAE"),

Fr
3900 Wisconsin Avenue , NW Washington, DC BEFORE THE HONORABLE
20016 , FRANKLIN RAINES , c/o Federal JUDGE RICHARD J. LEON
National Mortgage Association , 3900 Wisconsin

re
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
su
Association , 3900 Wisconsin Avenue, NW
Washington , DC 20016,
clo

Defendants.
re

APPLICATION FOR RELIEF
FROM STIPULATED ORDER OF CONSOLIDATION '
Fo

I. OVERVIEW:
op

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
St

Litigation , Consolidated Civil Action No. 1:04 -cv-01639).

(Shareholders' Class Action).
w.
ww

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

m
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

co
options on Fannie Mae common stock.3

d.
Plaintiffs respectfully assert that consolidation of these cases is unwarranted

based on, but not limited to the following reasons:

au
• Courts treat option traders and shareholders as different classes;

• Lead plaintiffs , and their counsel , in the Shareholders' Class

Fr
Action, abandoned option traders when they defined their class;

• Option traders will suffer prejudice if the cases are consolidated;

re
• The Public Securities Litigation Reform Act (PSLRA) requires the
Court to appoint lead counsel for the option traders; and
su
• Coordination , rather than consolidation , is a better way to avoid
unnecessary costs and delay.
clo
II. PROCEDURAL HISTORY:

In September 2004, Vincent Vinci filed the first of several class action lawsuits on
re

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
Fo

Order provides that:

The terms of this Order apply to any action hereinafter filed in this
op

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
St

2 See In re Fannie Mae Securities Litigation Complaint at ¶ 272.
w.

3 See Shahrokhinia Complaint at ¶ 143.

4 See Vinci v. Federal National Mortgage Association, et al. (Civil Case No. 1:04-cv-01639)
ww

Complaint at ¶1.

5 See Consolidation Order at ¶ 4.

2
Case 1:05-cv-00620-RJL Document 7 Filed 04/15/2005 Page 3 of 11

In January 2005, the Court appointed the Ohio Public Employees Retirement

m
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

co
Plaintiffs filed a "Consolidated Class Action Complaint for Violations of Federal

d.
Securities Laws" (Consolidated Complaint). Unlike the various underlying complaints,

the Consolidated Complaint seeks relief solely for "a class comprised of all those who

au
purchased Fannie Mae common stock (emphasis added).s6

Plaintiff Sassan Shahrokhinia did not purchase Fannie Mae common stock, he

Fr
sold put options on Fannie Mae's common stock. As a result, he does not qualify as a

re
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
su
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
clo

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
re

filed this Application for Relief from Stipulated Order of Consolidation.
Fo

As further discussed below, we urge the Court to grant Shahrokhinia's

Application for Relief from Stipulated Order of Consolidation.
op

Ill. COURTS TREAT OPTION TRADERS AND COMMON SHAREHOLDERS AS
DIFFERENT CLASSES:
St

Options traders do not stand in the same shoes as shareholders. While option
w.

traders and shareholders both have an interest in proving the same allegations against
ww

6 See In re Fannie Mae Securities Litigation Consolidated Complaint at ¶ 272.

See Shahrokhinia Complaint at ¶ 143.

3
Case 1:05-cv-00620-RJL Document 7 Filed 04/15/2005 Page 4 of 11

defendants , they have different and competing interests in the outcome of the litigation.

m
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

co
available for shareholders.

d.
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-

au
fraud class action against the same defendant.

For example, in in re Green Tree Financial Corp. Options Litigation,8 nearly 30

Fr
securities-fraud class actions were filed. "The cases were subsequently consolidated

re
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
su
Tree stock ... (the `options action ) (emphasis added)."9

Similarly, in in re Arakis Energy Corp. Sec. Litig.10, stock purchasers sued Arakis
clo

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
re

and certified a class of individuals who purchased Arakis stock during the class period.
Fo

Three years later, several options traders sought to certify a new class based on the

same claims. The court granted the request.
op

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
St

stock.
w.
ww

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).

4
Case 1:05-cv-00620-RJL Document 7 Filed 04/15/2005 Page 5 of 11

IV. OPTION TRADERS HAVE BEEN EXCLUDED BY SHAREHOLDERS CLASS
ACTION:

m
Although none of the individual plaintiffs in the Shareholders' Class Action were

co
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

d.
"securities" means both shareholders and options traders." Thus, options traders would

au
arguably be included under an action brought under the Act. However, as the

Consolidated Complaint reflects, Lead Plaintiffs have abandoned option traders and

Fr
have limited the class to common shareholders only.

The consequences of Lead Plaintiffs' exclusion of option traders from the

re
Consolidated Complaint's class definition are significant. It is not hard to picture a
su
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
clo
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.
re

Moreover, Lead Plaintiffs' exclusion of option traders prevents them from now

including options traders in the Shareholders' Class Action. A party cannot seek to
Fo

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
op

Consolidated Complaint's definition of the class, Lead Plaintiffs cannot now say they

should properly be included within the class.
St

Finally, Lead Plaintiffs' omission of option traders from the Shareholders' Class
w.

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 ..
ww

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).

5
Case 1:05-cv-00620-RJL Document 7 Filed 04/15/2005 Page 6 of 11

delineate the class with a "fair degree of specificity or some precision.03 Here, Lead

m
Plaintiffs have clearly defined the class to exclude option traders, expressly describing

the class as "those who purchased Fannie Mae common stock. 04

co
The Option Traders' Class Action should not be consolidated with the

d.
Shareholders Class Action because options traders were intentionally abandoned from

that class' definition.

au
V. OPTION HOLDERS WILL SUFFER PREJUDICE IF THE CASES ARE
CONSOLIDATED

Fr
Rule 42 of the Federal Rules of Civil Procedure empowers a trial judge to

re
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
su
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
clo

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
re

preparation."'s
Fo

Here, we respectfully assert that Fannie Mae options traders will clearly suffer

severe prejudice if their case is consolidated with the Shareholders' Class Action.
op

As mentioned above, Lead Plaintiffs expressly defined the class as "those who

purchased Fannie Mae common stock,"" effectively abandoning Fannie Mae options
St

13 7 Newberg on Class Actions (4th Ed.) Shareholder & Derivative Suits, § 22:76, p. 333.

14 See Consolidated Complaint at ¶ 272.
w.

15 Johnson v. Celotex Corp. 899 F.2d 1281, 1285 (2nd Cir. 1990).
ww

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.

6
Case 1:05-cv-00620-RJL Document 7 Filed 04/15/2005 Page 7 of 11

traders from coverage by the Consolidated Complaint. We believe that the reasons for

m
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

co
have no interest in including options traders in their class and even less interest in

d.
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

au
recovery at all.

It would be patently unfair to options traders to consolidate these two cases.

Fr
VI. IN ORDER TO ENSURE THAT THE INTERESTS OF OPTION TRADERS ARE

re
PROPERLY REPRESENTED, THE COURT SHOULD FOLLOW THE PSLRA S
REQUIREMENTS AND APPOINT A LEAD PLAINTIFF FOR THE OPTION
TRADERS CLASS. su
As the record reflects, Shahrokhinia filed Option Traders' Class Action on March
clo
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,
re

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.
Fo

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
op

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
St

class members.s18
w.

Unlike Lead Plaintiffs, Shahrokhinia will adequately represent the interests of

Fannie Mae option traders.
ww

'$ 15 U.S.C. § 78u -4(B)(i).

7
Case 1:05-cv-00620-RJL Document 7 Filed 04/15/2005 Page 8 of 11

VII. RATHER THAN CONSOLIDATING THESE CASES, THE COURT SHOULD
COORDINATE THEM FOR PRETRIAL LITIGATION PURPOSES

m
In order to avoid waste of time and money, confusion, and burden on the court,

co
the Federal Manual for Complex Litigation suggests that district courts appoint liaison

counsel to coordinate pretrial activities in complex cases involving multiple parties.19

d.
Unlike consolidation, coordination achieves "efficiency and economy without

au
jeopardizing fairness to the parties.s2°

As discussed above, consolidating the Option Traders' Class Action with the

Fr
Shareholders' Class Action will result in prejudice to Fannie Mae option traders. Based

on the foregoing, Shahrokhinia respectfully urges that this Court should coordinate

re
rather than consolidate these actions, and appoint a liaison counsel from each case to
su
coordinate discovery, law and motion practice, settlement negotiations, and any other

pretrial activities. Through the coordination, rather than consolidation of these actions, it
clo
our client's sincere belief that the goals of judicial economy will be served and the

parties' conflicting interests will not be unduly prejudiced.
re

VIII. CONCLUSION

Fannie Mae options traders are not included in the Shareholders' Class Action's
Fo

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.
op

Thus, the Court should not consolidate this case with the Shareholders' Class Action;

but instead coordinate the two actions for all pre-trial purposes.
St
w.
ww

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.

8
Case 1:05-cv-00620-RJL Document 7 Filed 04/15/2005 Page 9 of 11

Dated : April 15, 2005

m
LAW OFFICE OF FRANK J. JOHNSON

Frank J. Johnson (CA Bar # 174882)

co
(Admitted Pro Hac Vice on April 12, 2005)

Brett M. Weaver (CA Bar # 204715)

d.
(Admitted Pro Hac Vice on April 12, 2005)

Law Office of Frank J. Johnson

au
402 W. Broadway, 27th Floor
San Diego, CA 92101
Telephone: (619) 230-0063
Facsimile: (619) 230-1839

Fr
Local Counsel

re
MARTIN LILES, PLLC

su By:
Robert W. Liles (DC Bar # 473876)
1054 31st Street, N.W.
clo
Suite 415
Washington, DC 20007
Telephone: (202) 965-3060
Facsimile: (202) 965-3063
re

E-mail: rliles@martynliles.com

Attorneys for Plaintiff
Fo
op
St
w.
ww

9
Case 1:05-cv-00620-RJL Document 7 Filed 04/15/2005 Page 10 of 11

CERTIFICATE OF SERVICE

m
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

co
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.

d.
John H. Beisner, Esq.
Jeffrey W. Kilduff, Esq.
Kimberly A. Newman, Esq.

au
Michael J. Walsh, Jr., Esq.
O'Melveny & Myers LLP
1625 Eye Street, N.W.
Washington, DC 20006

Fr
-and-
Seth Aronson
O'Melveny & Myers LLP

re
400 South Hopr Street, 15th Floor
Los Angeles, CA 90071-2899

Counsel for Defendant Fannie Mae
su
Kevin M . Downey, Esq.
Joseph M . Terry, Esq.
clo
Williams & Connolly LLP
725 Twelfth Street, N.W.
Washington , DC 20005-5091
re

Counsel for Defendant Franklin D. Raines

Steven M. Salky
Fo

Erin Delinsky
Zuckerman Spaeder LLP
1201 Connecticut Ave., N.W.
12th Floor
op

Washington, DC 20036-2638

Counsel for Defendant J. Timothy Howard
St

David S. Krakoff, Esq.
Mark W. Ryan, Esq.
Mayer, Brown, Rowe & Maw LLP
w.

1909 K Street, N.W.
Washington, DC 20006-1101

Counsel for Defendant Leanne G. Spencer
ww

10
Case 1:05-cv-00620-RJL Document 7 Filed 04/15/2005 Page 11 of 11

Local Counsel

m
MARTIN LILES, PLLC

co
V
ZA' U,

d.
By:
Robert W. Liles (DC Bar # 473876)
1054 31st Street, N.W.

au
Suite 415
Washington, DC 20007
Telephone: (202) 965-3060
Facsimile: (202) 965-3063

Fr
E-mail: rliles@martynliles.com

re
su
clo
re
Fo
op
St
w.
ww

11
Case 1:05-cv-00620-RJL Document 7-2 Filed 04/15/2005 Page 1 of 3

UNITED STATES DISTRICT COURT
DISTRICT OF COLUMBIA

m
co
SASSAN SHAHROKHINIA, 11678 Chippenham CLASS ACTION COMPLAINT
Way, San Diego, CA 92128, Individually and On
Behalf of All Others Similarly Situated, JURY TRIAL DEMANDED

d.
Plaintiff,
CIVIL ACTION NO.:1:05cv00620

au
vs.

FEDERAL NATIONAL MORTGAGE
ASSOCIATION (Operating as "FANNIE MAE"),

Fr
3900 Wisconsin Avenue , NW Washington, DC BEFORE THE HONORABLE
20016 , FRANKLIN RAINES , c/o Federal JUDGE RICHARD J. LEON
National Mortgage Association , 3900 Wisconsin

re
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
su
Association , 3900 Wisconsin Avenue, NW
Washington, DC 20016,
clo

Defendants.

ORDER
re

Upon application of plaintiff Sassan Shahrokhinia, and after good cause shown:
Fo

IT IS HEREBY ORDERED THAT

1. The above-styled case is hereby relieved from the Court's April 7, 2005 Order
op

consolidating it with in re Fannie Mae Securities Litigation (Consolidated Civil Action No.

1:04-cv-01639).
St

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
w.

or transferred to this Court, shall be consolidated with this case and not with in re Fannie

Mae Securities Litigation.
ww

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

m
be for all purposes through final judgment.

4. The Clerk of the Court shall maintain a Master Docket and case file under the

co
Caption "In re Fannie Mae Options Traders Litigation, Master Civil Action No. 1:05-cv-

d.
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

au
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

Fr
actions, the Clerk shall file such pleadings in the Master File and note such filing in the

re
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
su
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
clo

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
re

hereafter filed in or transferred to this Court, the Clerk of the Court
Fo

shall:

i. Mail a copy of this Order to the attorney(s) for the
op

plaintiff(s) in the newly filed or transferred action and to the

attorneys for any new defendant(s) in the newly filed
St

transferred action; and

ii. Make an appropriate notation in the Master
w.

Document.

b. This order will apply to each such case that arises out of or
ww

is related to the same common nucleus of facts, subsequently

instituted in, removed to, or transferred to this Court unless a party

2
Case 1:05-cv-00620-RJL Document 7-2 Filed 04/15/2005 Page 3 of 3

objecting to the consolidation of such case or to any other

m
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

co
application for relief from this Order or any provision herein and

d.
this Court deems it appropriate to grant such application.

c. The Court directs counsel to call to the attention of the

au
Clerk of This Court the filing or transfer of any case that might

properly be consolidated into this action.

Fr
7. The terms of this Order shall not have the effect of making any person,

re
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.
su
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
clo

cases, including, but not limited to, discovery, law and motion practice, and settlement

negotiations. Applications to be appointed liaison counsel are due by
re

, 2005.
Fo

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.
op

Dated: , 2005
Judge Richard J. Leon
United States District Court Judge
St
w.
ww

3