Fannie Mae 2009 Annual Report Download - page 69

of space. We lease the land underlying the 4250 Connecticut Avenue building pursuant to a ground lease that
automatically renews on July 1, 2029 for an additional 49 years unless we elect to terminate the lease by
providing notice to the landlord of our decision to terminate at least one year prior to the automatic renewal
date. In addition, we lease approximately 429,000 square feet of office space, including a conference center, at
4000 Wisconsin Avenue, NW, which is adjacent to our principal office. The present lease term for the office
space at 4000 Wisconsin Avenue expires in April 2013 and we have one additional 5-year renewal option
remaining under the original lease. The lease term for the conference center at 4000 Wisconsin Avenue
expires in April 2018. We also lease an additional approximately 229,000 square feet of office space at two
locations in Washington, DC and Virginia. We maintain approximately 612,000 square feet of office space in
leased premises in Pasadena, California; Irvine, California; Atlanta, Georgia; Chicago, Illinois; Philadelphia,
Pennsylvania; and two facilities in Dallas, Texas.
Item 3. Legal Proceedings
This item describes our material legal proceedings. We describe additional material legal proceedings in
“Note 20, Commitments and Contingencies” in the section titled “Litigation and Regulatory Matters,” which is
incorporated herein by reference. In addition to the matters specifically described or incorporated by reference
in this item, we are involved in a number of legal and regulatory proceedings that arise in the ordinary course
of business that do not have a material impact on our business. Litigation claims and proceedings of all types
are subject to many factors that generally cannot be predicted accurately.
We record reserves for legal claims when losses associated with the claims become probable and the amounts
can reasonably be estimated. The actual costs of resolving legal claims may be substantially higher or lower
than the amounts reserved for those claims. For matters where the likelihood or extent of a loss is not
probable or cannot be reasonably estimated, we have not recognized in our consolidated financial statements
the potential liability that may result from these matters. We presently cannot determine the ultimate
resolution of the matters described or incorporated by reference below. We have recorded a reserve for legal
claims related to those matters for which we were able to determine a loss was both probable and reasonably
estimable. If certain of these matters are determined against us, it could have a material adverse effect on our
results of operations, liquidity and financial condition, including our net worth.
Shareholder Derivative Litigation
Four shareholder derivative cases, filed at various times between June 2007 and June 2008, naming certain of
our current and former directors and officers as defendants, and Fannie Mae as a nominal defendant, are
currently pending in the U.S. District Court for the District of Columbia: Kellmer v. Raines, et al. (filed
June 29, 2007); Middleton v. Raines, et al. (filed July 6, 2007); Arthur v. Mudd, et al. (filed November 26,
2007); and Agnes v. Raines, et al. (filed June 25, 2008). Three of the cases (Kellmer,Middleton, and Agnes)
rely on factual allegations that Fannie Mae’s accounting statements were inconsistent with the GAAP
requirements relating to hedge accounting and the amortization of premiums and discounts. Two of the cases
(Arthur and Agnes) rely on factual allegations that defendants wrongfully failed to disclose our exposure to the
subprime mortgage crisis and that the Board improperly authorized the company to buy back $100 million in
shares while the stock price was artificially inflated. Plaintiffs seek, on behalf of Fannie Mae, various forms of
monetary and non-monetary relief, including unspecified money damages (including restitution, legal fees and
expenses, disgorgement and punitive damages); corporate governance changes; an accounting; and attaching,
impounding or imposing a constructive trust on the individual defendants’ assets. Pursuant to a June 25, 2009
order, FHFA, as our conservator, substituted itself for shareholder plaintiffs in all of these actions. Plaintiffs
Kellmer and Agnes are in the process of appealing the substitution order. FHFA has moved for voluntary
dismissal without prejudice (or, alternatively, for a stay of proceedings) of all four derivative cases. Certain
former officer defendants have also moved to dismiss the Kellmer, Middleton, and Agnes actions.
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