Timothy Pagliara v. Federal National Mortgage Association
12105-VCMR
| Del. Ch. | May 31, 2017Background
- Timothy Pagliara, a preferred stockholder of Fannie Mae, served a Section 220 demand seeking books and records about the 2012 "Third Amendment" to the Treasury Preferred Stock Purchase Agreement that created a "net worth sweep."
- Fannie Mae was placed in conservatorship under the Federal Housing Finance Agency (FHFA) in 2008 pursuant to HERA; FHFA/Treasury obtained senior preferred stock and a common-stock warrant.
- Pagliara’s demand was rejected; he filed a Section 220 complaint in Delaware chancery court after a prior federal attempt and removal/remand procedural history.
- Fannie Mae moved to dismiss for lack of personal jurisdiction and for failure to state a claim, arguing issue preclusion based on an Eastern District of Virginia decision (Pagliara v. Freddie Mac) holding HERA § 4617(b)(2)(A)(i) transferred shareholders’ books-and-records rights to the FHFA.
- The Court found jurisdictional facts insufficiently contested to warrant discovery but declined to delay the case; it instead resolved the motion on issue-preclusion grounds under federal preclusion law because the federal question interpretation was dispositive.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Delaware court has personal jurisdiction over Fannie Mae | Pagliara alleges Fannie Mae incorporated and adopted bylaws tied to Delaware law, establishing prima facie jurisdiction | Fannie Mae contends naming discrepancies and a voided certificate negate Delaware jurisdiction | Court found plaintiff made a prima facie showing but declined jurisdictional discovery and proceeded to merits-stage preclusion analysis |
| Whether HERA § 4617(b)(2)(A)(i) divested shareholders of the right to inspect books and records | Pagliara: Section 4617 does not strip shareholders of a direct Section 220 right to inspect corporate records | Fannie Mae: Eastern District of Virginia held HERA transferred that right to FHFA; that ruling is preclusive here | Court held the Virginia judgment is preclusive on that issue and dismissed Pagliara’s Section 220 claim |
| Whether Perry Capital undermines the Virginia decision such that issue preclusion should not apply | Pagliara: D.C. Circuit’s Perry Capital altered legal context and showed shareholders retain some direct rights, so preclusion is improper | Fannie Mae: Perry Capital addressed derivative vs direct claims and did not overrule the Virginia court’s holding about books-and-records transfer | Court concluded Perry Capital did not materially change the legal context and preclusion still applies |
| Whether the Virginia court’s holding was essential or merely alternative | Pagliara: The books-and-records ruling was alternative; thus not essential for preclusion | Fannie Mae: That holding was the primary basis for dismissal and was essential | Court found the Virginia court’s interpretation was essential to its judgment and thus preclusive |
Key Cases Cited
- Genuine Parts Co. v. Cepec, 137 A.3d 123 (Del. 2016) (state of incorporation supports general jurisdiction)
- Semtek Int’l Inc. v. Lockheed Martin Corp., 531 U.S. 497 (2001) (federal law governs preclusion effect of federal judgments)
- B & B Hardware, Inc. v. Hargis Indus., Inc., 135 S. Ct. 1293 (2015) (Restatement consulted for issue preclusion elements)
- Pagliara v. Fed. Home Loan Mortg. Corp., 203 F. Supp. 3d 678 (E.D. Va. 2016) (held HERA § 4617(b)(2)(A)(i) divested shareholders of books-and-records rights)
- Perry Capital LLC v. Mnuchin, 848 F.3d 1072 (D.C. Cir. 2017) (addressed derivative vs direct claims under HERA but did not overturn Virginia books-and-records holding)
- In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162 (Del. 2006) (standards for pleading on Rule 12(b)(6))