Fannie Mae 2004 Annual Report Download - page 60

the parties convened an evidentiary hearing before the arbitrator. The principal issue before the arbitrator was
whether we were permitted to waive a requirement contained in Mr. Raines’ employment agreement that he
provide six months notice prior to retiring. On April 24, 2006, the arbitrator issued a decision finding that we
could not unilaterally waive the notice period, and that the effective date of Mr. Raines’ retirement was
June 22, 2005, rather than December 21, 2004 (his final day of active employment). Under the arbitrator’s
decision, Mr. Raines’ election to receive an accelerated, lump-sum payment of a portion of his deferred
compensation must now be honored. Moreover, we must pay Mr. Raines any salary and other compensation to
which he would have been entitled had he remained employed through June 22, 2005, less any pension
benefits that Mr. Raines received during that period. On November 7, 2006, the parties entered into a consent
award, which partially resolved the issue of amounts due Mr. Raines. In accordance with the consent award,
we paid Mr. Raines $2.6 million on November 17, 2006. By agreement, final resolution of the unresolved
issues was deferred until after our accounting restatement results are announced. Each party has the right,
within sixty days of the announcement of our accounting restatement results, to notify the arbitrator whether it
believes that further proceedings are necessary.
Antitrust Lawsuits
In Re G-Fees Antitrust Litigation
Since January 18, 2005, we have been served with 11 proposed class action complaints filed by single-family
borrowers that allege that we and Freddie Mac violated the Clayton and Sherman Acts and state antitrust and
consumer protection statutes by agreeing to artificially fix, raise, maintain or stabilize the price of our and
Freddie Mac’s guaranty fees. Two of these cases were filed in state courts. The remaining cases were filed in
federal court. The two state court actions were voluntarily dismissed. The federal court actions were
consolidated in the U.S. District Court for the District of Columbia. Plaintiffs filed a consolidated amended
complaint on August 5, 2005. Plaintiffs in the consolidated action seek to represent a class of consumers
whose loans allegedly “contain a guarantee fee set by” us or Freddie Mac between January 1, 2001 and the
present. The consolidated amended complaint alleges violations of federal and state antitrust laws and state
consumer protection and other laws. Plaintiffs seek unspecified damages, treble damages, punitive damages,
and declaratory and injunctive relief, as well as attorneys’ fees and costs.
We and Freddie Mac filed a motion to dismiss on October 11, 2005. The motion to dismiss has been fully
briefed and remains pending.
We believe we have defenses to the claims in these lawsuits and intend to defend these lawsuits vigorously.
Escrow Litigation
Casa Orlando Apartments, Ltd., et al. v. Federal National Mortgage Association (formerly known as Medlock
Southwest Management Corp., et al. v. Federal National Mortgage Association)
We are the subject of a lawsuit in which plaintiffs purport to represent a class of multifamily borrowers whose
mortgages are insured under Sections 221(d)(3), 236 and other sections of the National Housing Act and are
held or serviced by us. The complaint identified as a class low- and moderate-income apartment building
developers who maintained uninvested escrow accounts with us or our servicer. Plaintiffs Casa Orlando
Apartments, Ltd., Jasper Housing Development Company and the Porkolab Family Trust No. 1 allege that we
violated fiduciary obligations that they contend we owe to borrowers with respect to certain escrow accounts
and that we were unjustly enriched. In particular, plaintiffs contend that, starting in 1969, we misused these
escrow funds and are therefore liable for any economic benefit we received from the use of these funds.
Plaintiffs seek a return of any profits, with accrued interest, earned by us related to the escrow accounts at
issue, as well as attorneys’ fees and costs.
The complaint was filed in the U.S. District Court for the Eastern District of Texas (Texarkana Division) on
June 2, 2004 and served on us on June 16, 2004. Our motion to dismiss and motion for summary judgment
were denied on March 10, 2005. We filed a partial motion for reconsideration of our motion for summary
judgment, which was denied on February 24, 2006.
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