Too many foreclosures = big losses at Fannie Mae.
On a day when Fannie Mae reported a $2.3 billion quarterly loss, the D.C. Circuit delivered some good news for mortgage lending behemoth’s directors. The court upheld dismissal of a derivative case against them on the ground that the complaint didn’t adequately allege "demand futility". Pirelli Armstrong Tire Corp. Retiree Medical Benefits Trust v. Raines, No. 07-7108 (Aug. 8, 2008) (applying Delaware law).
The plaintiffs alleged that insiders breached fiduciary duties to Fannie Mae by ignoring accounting irregularities and okaying a more than $31 million severance package for two top executives. The derivative complaint, which asserted claims on behalf of Fannie Mae itself, alleged that no majority group of the 13 directors had the "independence" from the wrongdoers necessary to authorize legal action against them in the company’s name. The court studied the complaint but found it didn’t rebut the strong presumption of independence.
