By Scott Flaherty From The Litigation Daily

Big banks have failed to convince courts around the country that various government agencies waited too long to sue over Wall Street’s role in the 2008 financial crisis. This week, a judge finally adopted the banks’ reasoning in a case brought by the Federal Deposit Insurance Corporation.

U.S. District Judge Laura Swain in Manhattan ruled Tuesday that the FDIC missed its deadline to sue several banks that issued or underwrote residential mortgage-backed securities. The ruling dismisses claims that Credit Suisse Securities LLC, Deutschebank Securities Inc., RBS Securities Inc., HSBC Securities Inc. and other defendants contributed to the collapse of Citizens National Bank and Strategic Capital Bank.

Citizens and Strategic Capital had both put tens of millions of dollars into securities that, the FDIC alleged, turned out to be backed by low-quality home loans. After placing Citizens and Strategic Capital into receivership in 2009, the FDIC filed suit in May 2012, alleging violations of the Securities Act of 1933.

Defense lawyers at Simpson Thacher & Bartlett, Cravath, Swaine & Moore, Mayer Brown and other firms argued that the FDIC’s 2012 complaint came too late in light of the Securities Act’s three-year statute of repose. The FDIC, represented by Grais & Ellsworth, countered that a so-called extender provision in the Financial Institutions Reform Recovery and Enforcement Act preempted the statute of repose, making the agency’s lawsuit timely.

The interplay between extender provisions and statutes of repose has been hotly contested in government agency-led litigation tied to the financial crisis. And up until Tuesday, the courts have rejected the banks’ insistence that shorter time limits should apply.

In cases brought by the Federal Housing Finance Agency and the National Credit Union Administration, the U.S. Courts of Appeal for the Second and Tenth Circuits both concluded that extender statutes governing those agencies did, in fact, pre-empt the applicable statutes of repose. Those rulings kept the agencies’ cases alive, and the Second Circuit’s decision paved the way for settlements totaling close to $20 billion for the FHFA.

The U.S. Supreme Court offered the banks a glimmer of hope in its 2014 ruling in CTS v. Waldburger, which held that a federal environmental law’s extender provision didn’t pre-empt a statute of repose. But the Tenth Circuit recently considered the impact of Waldburger and found it didn’t render the NCUA’s case against Nomura Home Equity Loan Inc. untimely. The Second Circuit, meanwhile, sided with the FHFA on the statute of repose issue before Waldburger was issued, and hasn’t revisited the question since.

In Tuesday’s ruling, Swain explicitly disagreed with the Tenth Circuit’s reasoning in Nomura, and she also found that the Second Circuit’s decision in the FHFA litigation no longer holds in light of Waldburger.

“The analytical framework set out by the Supreme Court in Waldburger calls into question the Second Circuit’s analysis of the extender provision,” the judge wrote Tuesday.

Grais & Ellsworth’s David Grais leads the FDIC’s legal team. Grais on Wednesday referred us to the FDIC, and an agency spokeswoman declined to comment.

Deutschebank, RBS and UBS Securities LLC are represented by Simpson Thacher’s Andrew Frankel. Cravath’s Julie North represents Credit Suisse, and Mayer Brown’s Michael Ware represents HSBC. Ware declined to comment on Wednesday, and North and Frankel didn’t respond to requests for comment.

Photo: Matthew G. Bisanz via Wikimedia Commons

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