New Jersey Carpenters Health Fund v. Novastar Mortgage, Inc. ( 2018 )

17-2859
New Jersey Carpenters Health Fund v. Novastar Mortgage, Inc., et al.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER
FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE
PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT
FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC
DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING TO A SUMMARY ORDER MUST
SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second
Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the
City of New York, on the 19th day of October, two thousand eighteen.
PRESENT:
ROBERT A. KATZMANN,
Chief Judge,
ROBERT D. SACK,
REENA RAGGI,
Circuit Judges.
NEW JERSEY CARPENTERS HEALTH FUND,
on behalf of itself and all others similarly situated,
Plaintiff-Appellee,
v. No. 17-2859
NOVASTAR MORTGAGE, INC.; NOVASTAR
MORTGAGE FUNDING CORPORATION;
SCOTT F. HARTMAN; GREGORY S. METZ;
W. LANCE ANDERSON; MARK HERPICH;
RBS SECURITIES INC. F/K/A GREENWICH
CAPITAL MARKETS, INC. D/B/A RBS
GREENWICH CAPITAL; DEUTSCHE BANK
SECURITIES INC.; AND WELLS FARGO
ADVISORS, LLC F/K/A WACHOVIA
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SECURITIES LLC,
Defendants-Appellees,
v.
FEDERAL HOME LOAN MORTGAGE
CORPORATION AND FEDERAL HOUSING
FINANCE AGENCY, in its capacity as
Conservator of the Federal Home Loan
Mortgage Corporation,
Objectors-Appellants.
For Plaintiff-Appellee: JOEL P. LAITMAN (Christopher Lometti,
Michael B. Eisenkraft, on the brief), Cohen
Milstein Sellers & Toll, PLLC, New York,
NY.
For Defendants-Appellees: ALAN C. TURNER, Simpson Thacher &
Bartlett LLP, New York, NY; William F.
Alderman, Orrick, Herrington & Sutcliffe
LLP, San Francisco, CA.
For Objectors-Appellants: CHRISTOPHER P. JOHNSON (Kyle Lonergan,
on the brief), McKool Smith, P.C., New
York, NY.
Appeal from an order of the United States District Court for the Southern District of New
York (Batts, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND
DECREED that the appeal is DISMISSED and the order of the district court is VACATED.
Objectors-appellants Federal Home Loan Mortgage Corporation and Federal Housing
Finance Agency, in its capacity as Conservator of the Federal Home Loan Mortgage Corporation
(collectively, “FHFA”), appeal from an order by the United States District Court for the Southern
District of New York (Batts, J.), dated September 14, 2017, denying its request for a 45-day stay
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pursuant to 12 U.S.C. § 4617(b)(10). We assume the parties’ familiarity with the underlying
facts, procedural history, and issues on appeal.
In July 2008, Congress enacted the Housing and Economic Recovery Act (“HERA”) to
address the ongoing subprime mortgage crisis. As part of this legislation, Congress created the
Federal Housing Finance Agency and authorized it to place into conservatorship two critical
government-sponsored enterprises—the Federal National Mortgage Association and the Federal
Home Loan Mortgage Corporation, commonly known as Fannie Mae and Freddie Mac. 12
U.S.C. § 4617(a). FHFA formally placed Freddie Mac into conservatorship in September 2008
and, among other things, immediately succeeded “all rights, titles, powers, and privileges” of
Freddie Mac and its stockholders, directors, and officers. Id. at §§ 4617(b)(2)(A)(i)-(ii).
On May 21, 2008, plaintiff-appellee New Jersey Carpenters Health Fund commenced a
securities class action in New York state court against the defendants-appellees. The defendants
removed the class action to federal district court on June 10, 2008. Approximately nine years
later, on or about March 8, 2017, the appellees entered a Stipulation and Agreement of
Settlement. The plaintiff-appellee then filed the Settlement Agreement with the federal district
court, together with an unopposed motion seeking approval of the parties’ proposed settlement.
On May 9, 2017, the district court issued an order preliminarily approving the settlement,
certifying the settlement class, approving notice to the class, and scheduling a final approval
hearing. The settlement class as drafted would encompass FHFA. However, the preliminary
order carved out from the class “those Persons that timely and validly request exclusion from the
class pursuant to and in accordance with the terms” of that order. App. 181. To be timely, any
“requests for exclusion from the Settlement Class must be submitted for receipt by the Claims
Administrator no later than twenty-eight (28) calendar days prior to the Final Approval Hearing.”
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Id. at 189. The court scheduled the Final Approval Hearing for September 13, 2017.
FHFA did not file a request for exclusion before the court-mandated deadline. It instead
filed an objection to the proposed settlement with the district court on August 30, 2017, and
argued that the court (1) lacked authority to approve the proposed settlement pursuant to HERA
§ 4617(f); and (2) should reject the settlement because FHFA did not receive sufficient notice of
its right to opt out. The next day, on August 31, 2017, FHFA sent an untimely request to the
Claims Administrator that it be excluded from the proposed settlement class. The Settling Parties
opposed both motions, which are not at issue in this interlocutory appeal.
Instead, this appeal concerns FHFA’s subsequent request for a statutory stay. On
September 12, 2017, FHFA sought a 45-day stay of the settlement proceedings pursuant to §
4617(b)(10) of HERA. The provision states in relevant part:
(10) Suspension of legal actions
(A) In general
After the appointment of a conservator … for a regulated entity, the conservator
… may, in any judicial action or proceeding to which such regulated entity is or
becomes a party, request a stay for a period not to exceed—
(i) 45 days, in the case of any conservator; …
(B) Grant of stay by all courts required
Upon receipt of a request by the conservator … under subparagraph (A) for a stay
of any judicial action or proceeding in any court with jurisdiction of such action
or proceeding, the court shall grant such stay as to all parties.
12 U.S.C. § 4617(b)(10). The district court held a hearing on the motion that day.
FHFA did not argue at the hearing that it was seeking a stay because it needed more time
to evaluate the proposed settlement agreement. Instead, it argued that granting a stay would make
its opt-out request timely. As FHFA argued, because the district court’s preliminary approval
order set the opt-out deadline at “twenty-eight (28) calendar days prior to the Final Approval
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Hearing,” App. 189, “[i]f the approval hearing is pushed out 45 days, then the notice of exclusion
that Freddie Mac served and filed on August 30 would be deemed timely,” SPA 35.
The district court denied FHFA’s request. The court reasoned that § 4617(b)(10) did not
apply to class action settlements because “the language read in whole, reading the statute as a
whole, seems to apply in very different circumstances, when the conservator is a party, when
they’re trying to preserve assets.” Id. at 49. The court further found, based on the concessions of
FHFA’s counsel, that FHFA “did get notice” of the proposed settlement agreement. Id. at 50.
The court accordingly denied the stay request, adjourned the Final Approval Hearing by a week,
id. at 51, and did not rule on FHFA’s objection to the settlement agreement, see id. at 52-53.
FHFA subsequently filed an interlocutory appeal challenging only the district court’s
denial of its motion for a 45-day stay under § 4617(b)(10). FHFA simultaneously moved this
Court for a stay of the district court’s settlement proceedings pending the resolution of that
interlocutory appeal. The Court referred that motion to a three-judge panel and granted an
interim stay of district court proceedings pending resolution of the motion. A three-judge panel
heard argument on October 17, 2017, and denied the motion and dissolved the stay on October
19, 2017. On November 21, 2017, the district court sua sponte stayed the Final Approval
Hearing pending resolution of the instant interlocutory appeal. The district court accordingly has
not approved or rejected the proposed settlement agreement.
The parties agree that the district court’s interpretation of § 4617(b)(10) is an issue of law
that we review de novo. See Shahriar v. Smith & Wollensky Rest. Grp., Inc., 659 F.3d 234, 251
(2d Cir. 2011). The district court’s interpretation of its preliminary approval order is reviewed for
an abuse of discretion. See Garcia v. Yonkers Sch. Dist., 561 F.3d 97, 103 (2d Cir. 2009).
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We agree with the defendants-appellees that we lack subject matter jurisdiction to resolve
the instant appeal. Under Article III of the Constitution, federal courts cannot adjudicate an issue
unless they are presented with an actual “case or controversy.” See U.S. Parole Comm’n v.
Geraghty, 445 U.S. 388, 395-96 (1980). “As long as the parties have a concrete interest, however
small, in the outcome of the litigation, the case is not moot.” Chafin v. Chafin, 568 U.S. 165, 172
(2013) (internal quotation marks omitted). A case therefore is “moot only when it is impossible
for a court to grant any effectual relief whatever to the prevailing party.” Id. (internal quotation
marks omitted).
FHFA acknowledges that this Court and the district court have stayed the settlement
proceedings for nearly a year. FHFA nonetheless argues that nothing prevents this Court from
directing the district court to issue a 45-day stay on remand. FHFA asserts that this will provide
it two types of relief. First, FHFA argues that it “has an enduring interest in HERA’s
interpretation” because such a stay would establish that HERA “necessarily . . . applies to class
actions and their settlements.” Appellant’s Reply Br. at 20-21 (internal quotation marks omitted).
Second, FHFA asserts that it would be entitled on remand “to have the District Court consider
whether a substantive HERA stay renders the Opt-Out Request timely.” Id. at 21.
FHFA’s arguments fail as both a legal and factual matter. First, FHFA’s “enduring
interest in HERA’s interpretation” is too abstract to permit the Court to grant “effectual relief.”
See Chafin, 568 U.S. at 172. Although the Supreme Court has never precisely defined this
phrase, the Court has made clear that “a dispute solely about the meaning of a law, abstracted
from any concrete actual or threatened harm, falls outside the scope of the constitutional words
‘Cases’ and ‘Controversies.’” Alvarez v. Smith, 558 U.S. 87, 93 (2009); see Church of
Scientology of California v. United States, 506 U.S. 9, 12 (1992) (“[A] federal court has no
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authority to give opinions upon . . . abstract propositions, or to declare principles or rules of law
which cannot affect the matter in issue in the case before it.” (internal quotation marks omitted)).
Second, FHFA is incorrect that an additional HERA stay could make its opt-out request
timely. The district court expressly rejected this argument during the stay hearing. See SPA 50
(“[T]he parties are seeking to use this injunction so that they can set back the clock, but that isn’t
how it works.”). As the district court reasoned, it has the right under the preliminary approval
order to adjourn the Final Approval Hearing at its discretion, and, exercising that right does not
reset any of the other court-mandated deadlines. See id. Accordingly, granting a 45-day HERA
stay would also not affect the deadline to opt out. See id. FHFA does not argue that the district
court abused its discretion in coming to this conclusion, and we find no fault in the district
court’s interpretation. See Garcia, 561 F.3d at 103.1
We further conclude that FHFA’s appeal does not fall within an exception to the
mootness doctrine for situations that are “capable of repetition, yet evading review.” See
Kingdomware Techs., Inc. v. United States, 136 S. Ct. 1969, 1976 (2016) (internal quotation
marks omitted). This doctrine applies in “exceptional” situations where: (1) “the challenged
action [is] in its duration too short to be fully litigated prior to cessation or expiration,” and (2)
“there [is] a reasonable expectation that the same complaining party [will] be subject to the same
action again.” Id. (internal quotation marks omitted).
1
Moreover, if FHFA’s interpretation of the preliminary approval order were correct—that a
change in the date of the Final Approval Hearing also changes the date of deadline to opt out—
then its request to the district court would be timely regardless of our ruling here. The district
court stayed the Final Approval Hearing pending the resolution of this appeal. When that hearing
is finally scheduled, FHFA’s opt-out request—filed August 30, 2017—will pre-date it by more
than 28-days. Our ruling thus would have no impact on whether FHFA’s opt-out request is
timely.
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The defendants-appellees argue, and we agree, that FHFA has not met the second prong
of this exception. This Circuit has made clear that to meet the second element of the “capable of
repetition, yet evading review” exception, the appellant must show that “these same parties are
reasonably likely to find themselves again in dispute over the issues raised in this appeal.” Video
Tutorial Servs., Inc. v. MCI Telecomms. Corp., 79 F.3d 3, 6 (2d Cir. 1996) (per curiam) (internal
quotation marks omitted) (emphasis in original). This holding reflects the principle that courts
have “no power to adjudicate a case that no longer presents an actual ongoing dispute between
the named parties.” Id. (internal quotation marks omitted) (emphasis added).2
Although FHFA argues that Video Tutorial Services was incorrectly decided, this
decision remains the law of this Circuit and we have no authority to overturn a prior panel
decision in another case. See United States v. Gupta, 747 F.3d 111, 140 (2d Cir. 2014). FHFA
does not argue that the parties here are reasonably likely to find themselves again in dispute over
the issues raised in this appeal, and we accordingly conclude that we lack subject matter
jurisdiction to resolve the instant proceeding.
2
This precedent is also consistent with that of our sister circuits. See Chirco v. Gateway Oaks,
L.L.C., 384 F.3d 307, 309 (6th Cir. 2004) (“When the suit involves two private parties, however,
the complaining party must show a reasonable expectation that he would again be subjected to
the same action by the same defendant”); Belitskus v. Pizzingrilli, 343 F.3d 632, 648 n.11 (3d
Cir. 2003) (requiring “a demonstrated probability that the same parties will again be involved in
the same dispute” (internal quotation marks omitted) (emphasis added)); Pharmachemie B.V. v.
Barr Labs., Inc., 276 F.3d 627, 633 (D.C. Cir. 2002) (second element “requires that the same
parties will engage in litigation over the same issues in the future”); Cruz v. Farquharson, 252
F.3d 530, 534 (1st Cir. 2001) (the “exception pertains only if there is some demonstrated
probability that the same controversy, involving the same parties, will reoccur”); Lee v. Schmidt–
Wenzel, 766 F.2d 1387, 1390 (9th Cir. 1985) (“In order to apply the ‘capable of repetition’
doctrine to private parties, there must be a reason to expect that there will be future litigation of
the same issue between a present complaining party and a present defending party.”); Cent. Soya
Co. v. Consol. Rail Corp., 614 F.2d 684, 689 (7th Cir. 1980) (“[T]here must be a reasonable
degree of likelihood that this issue will be the basis of a continuing controversy between these
two parties”).
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We further conclude that the equities support vacating the district court’s order. “When a
civil case becomes moot pending appellate adjudication, the established practice in the federal
system is to reverse or vacate the judgment below and remand with a direction to
dismiss.” Arizonans for Official English v. Arizona, 520 U.S. 43, 71–72 (1997). Whether to
vacate “depends on the equities of the case,” and “our primary concern is the fault of the parties
in causing the appeal to become moot.” Russman v. Bd. of Educ. of Enlarged City Sch. Dist. of
City of Watervliet, 260 F.3d 114, 121-22 (2d Cir. 2001). “For an appellant’s conduct to constitute
‘forfeiture’ of the benefit of vacatur . . . he must have intended that the appeal become moot,
either in the sense that mootness was his purpose or that he knew or should have known that his
conduct was substantially likely to moot the appeal.” Id. at 122. “Absent a showing that the
equities preponderate against vacatur, . . . we will vacate and remand.” Id. at 121.
The defendants-appellees seem to argue that the equities here do not favor vacatur
because FHFA forfeited its right to vacatur by securing a temporary stay from this Court pending
the resolution of its interlocutory appeal. However, we agree with FHFA that it did not seek this
stay with the purpose of mooting its appeal. Had FHFA not sought such an order, the class action
proceedings would have continued, and the district court might have approved the proposed
settlement agreement. Had that occurred, FHFA’s appeal would have become moot because
there would be nothing left to stay.
For the reasons stated herein, this appeal is DISMISSED as moot and the order of the
district court is VACATED.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk
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