WICHITA, Kan. Lawyers for NCUA told a federal appeals court here Friday the federal agency should be allowed to extend the time limits for when it filed billions of dollars in claims against Wall Street banks for the failure of the corporate credit unions because the 1989 S&L bailout law, known as FIRREA, allows the federal government extraordinary powers in its efforts to recover for the resolution of failed financial institutions.
The S&L bailout law, formally known as the Financial Institutions Reform, Recovery and Enforcement Act, specifically allows financial regulators such as the FDIC and NCUA to extend the nominal statute of limitations from as long as three years after the date the agency has taken a failed bank or credit union under conservatorship, the NCUA lawyers told the U.S. Court of Appeals for the Tenth Circuit.
The appellate court is reviewing whether the three-year statute of limitation on securities claims had expired when NCUA filed suit in June 2011 for $1.74 billion in faulty mortgage-backed securities sold by RBS to WesCorp FCU and U.S. Central FCU as many as five years after the sale of the MBS. NCUA, which is represented by Washington attorney David Frederick, said the clock did not start ticking on the three-year statute until NCUA took the failed corporates under conservatorship, which in the cases of WesCorp and U.S. Central was March 20, 2009.
The question is a critical one for both NCUA, which has filed civil claims of some $8 billion against RBS and all of the major Wall Street banks, and for Fannie Mae, Freddie Mac and thousands of investors, who all have targeted the Wall Street banks for claims tied to the mortgage bust.
The lower court ruled that the FIRREA provision was ambiguous and such ambiguity allowed him to favor the federal government, but he agreed to suspend the NCUA suit against RBS until the appeals court has decided the issue. A ruling for the Wall Street bank could erase billions of dollars of claims NCUA has pending against JP Morgan Chase, Goldman Sachs, Credit Suisse, UBS, Barclay’s and several other investment banks.
In his brief submitted to the court Friday, Frederick argued that Congress wanted federal agencies to have extended powers in liquidating failed banks and credit unions when it passed FIRREA to help repay taxpayer funds expended in the resolution of such failures. In the case of NCUA, credit unions are expected to pay as much as $20 billion to resolve the failures of WesCorp, U.S. Central and three other corporate failures, Members United Corporate FCU, Southwest Corporate FCU and Constitution Corporate FCU.
The NCUA argument, however, comes with a potential contradiction because just three weeks ago NCUA told Congress it was able to circumvent a government ban on hiring outside lawyers such as Frederick on a contingency basis because as conservator of the corporates it no longer was a “government agency” but representing a private entity.
Frederick is a partner in the Washington firm Kellogg, Huber, Hansen, Todd, Evans & Figel, and is a former clerk to U.S. Supreme Court Justice Byron White.
According to Frederick, FIRREA gives NCUA an additional three years after it conserves a credit union to file a civil suit. “The district court correctly held that NCUA’s claims were timely under that provision,” wrote the NCUA attorney in his brief.
Frederick asked the appeals court to schedule an oral argument in the case because its outcome will affect numerous other pending cases.
