DENVER – Lawyers for Wachovia Capital Markets, now a unit of Wells Fargo, called on the U.S. appeals court here Friday to dismiss a securities suit brought by NCUA in the failure of U.S. Central FCU and WesCorp FCU, claiming a lower court erred when it allowed the credit union regulator to extend the period allowed for filing the claims even though the mortgage-backed securities were sold to the two corporate giants as long as six years before NCUA filed suit.
The case before the U.S. Court of Appeals for the Tenth Circuit challenged a July 25 ruling by the U.S. District Court in Kansas saying the nominal three-year statute of limitations—known in legal jargon as the statute of repose—was extended under federal law which gives credit union and bank conservators additional time to file a claim once they have taken over a failed institution.
The case has enormous ramifications for NCUA and billions of dollars in claims it has filed in civil suits against a half dozen Wall Street banks and dozens of subprime lenders, but also for hundreds of securities suits filed by other regulators in response to the financial crisis of 2007-2009. In NCUA’s situation, suits against Wall Street giants JP Morgan Chase, Goldman Sachs & Co., Wells Fargo, RBS Securities and more recently UBS Securities and Barclay’s Capital, could all hinge on the appeals court’s ruling.
In all of the suits, NCUA claims the Wall Street banks negligently, sometimes fraudulently, sold faulty MBS to the corporates that went sour soon after their sale, prompting the collapse of the corporate giants. NCUA has also filed claims in the failure of three other corporates, Members United Corporate FCU, Southwest Corporate FCU and Constitution Corporate FCU.
The defendants in this case, Wachovia (Wells Fargo) RBS Securities and Nomura Home Equity Loan, claim that NCUA’s suit, filed in June 2011, are barred by the three-year statute of repose. A statute of repose is similar to a statute of limitations but the difference is that a statute of limitations is triggered by an injury, while a statute of repose is triggered by the completion of an act, like the sale of the MBS to U.S. Central and WesCorp.
NCUA, in its various suits, asserts that because it could not know of the quality of the MBS sold to the corporates until after it took U.S. Central and WesCorp under conservatorship in March 2009, the relevant statute of repose did not start running till then—and not when the MBS were sold.
In its July 25 order, denying the banks’ claims, the district court acknowledged that the extender statute questions are “very close.” The lower court also noted that the distinction was “ambiguous,” but nonetheless applied that statute to override the three-year statute of repose period. The district court explained that NCUA was entitled to have any ambiguity resolved in its favor because it was acting as a “government” entity.
According to the Wall Street banks, the legislative history makes it clear that Congress included statutes of repose because of fear that lingering liabilities would disrupt normal business and facilitate false claims. “It was understood that the three-year rule was to be absolute.”
In their appeal, the Wall Street banks assert that a ruling in their favor will serve the public good because it will settle a dispute that arises in all of the NCUA suits in dozens of other suits, and would expedite all of those cases because it could facilitate the dismissal of claims in many of the cases.
“The certified questions present novel and potentially dispositive questions that are likely to recur, particularly in other cases filed by NCUA – and litigated at the taxpayers’ expense,” said the appealing parties. Thus, an immediate appeal here potentially could have a substantial narrowing impact on additional existing and future proceedings and would best serve the interests of judicial economy.”
