By Scott Flaherty, From The Litigation Daily
The U.S. Supreme Court on Monday dealt a major setback to lawyers for Nomura Holdings Inc., Royal Bank of Scotland Group plc and other financial institutions who argued that the National Credit Union Administration waited too long to sue over billions of dollars in allegedly shoddy mortgage-backed securities. But questions underlying the banks’ challenge still may not be fully resolved.
The high court denied a petition for certiorari lodged by a group of banks fighting the NCUA’s claims, which the agency brought in 2011 on behalf of federal credit unions that collapsed in the subprime crisis. The suit is one of several the NCUA, a government agency that supervises federally-chartered credit unions, has filed against banks that allegedly hid the risks of mortgage-backed securities.
The Supreme Court’s decision leaves in place an Aug. 19 ruling by the U.S. Court of Appeals for the Tenth Circuit, which held that the NCUA met the deadline for bringing its lawsuits. The crux of the appeal was a so-called extender provision in the Financial Institutions Reform, Recovery and Enforcement Act of 1989; the impact of the FIRREA extender and similar provisions in other statutes has been a hotly contested issue in various federal agencies’ mortgage-backed securities cases.
In the Nomura case, lawyers for the financial institutions, including Barbara Steiner at Jenner & Block, who served as counsel of record on the Supreme Court petition, maintained that the FIRREA extender applied only to the statute of limitations—which governs the time a plaintiff has to file suit after discovering alleged misconduct. According the banks, Congress never intended for the extender provision to apply to the statute of repose, which, in securities cases, normally sets a time limit of three years from the date of a security’s offering.
The Tenth Circuit in August agreed with the NCUA’s argument that FIRREA’s extender provision does apply to the statute of repose—a conclusion the circuit had already reached in September 2013. The banks had appealed the earlier decision to the Supreme Court, which in turn ordered the Tenth Circuit to reconsider the time-bar issue in light of the its June 9 ruling in CTS v. Waldburger, a case that raised similar questions in the context of environmental cleanup claims.
Beyond the NCUA’s litigation, the Tenth Circuit’s decision in August gave a leg up to the Federal Housing Finance Agency, the conservator for the government-backed mortgage giants Fannie Mae and Freddie Mac, which has also targeted banks in lawsuits over their sale of mortgage-backed securities.
The FHFA, which has already recovered more than $20 billion in its own cases, maintains that an extender provision in 2008’s Housing and Economic Recovery Act lengthened the statute of repose governing its suits. U.S. District Judge Denise Cote in Manhattan, who’s handing most of the FHFA cases, has consistently sided with the FHFA on the issue, and has refused to allow the banks to appeal. Her rulings have helped persuade nearly all the FHFA defendants to settle with the agency.
Still, the banks that have so far refused to settle mortgage-backed securities claims lodged by the NCUA, FHFA and the Federal Deposit Insurance Corporation may not have reached the end of the line.
At least three other appeals courts are currently weighing the application of extender provisions in pending government cases stemming from the mortgage meltdown. If one of those circuits sides with the banks’ position, it could create a split with the Tenth Circuit’s decision that might tempt Supreme Court in a future appeal.
The Ninth Circuit is considering an NCUA case against Goldman Sachs & Co. that also deals with the FIRREA’s extender provision, while cases in the Second Circuit and Fifth Circuits involve the FDIC and its extender provision. The banks in those cases all received favorable rulings at the district court level, something Nomura, RBS and the other financial institutions noted in their failed Supreme Court petition.
“Further percolation in the lower courts is neither necessary nor advisable,” the banks wrote in the high court petition, filed Oct. 2.
Jenner & Block’s Steiner declined to comment on Monday. She led Nomura’s efforts at the Supreme Court, while Munger Tolls & Olson represented Wachovia, Kirkland & Ellis represented RBS and Orrick Herrington & Sutcliffe represented NovaStar Mortgage Funding Corp.
Lawyers from Kellogg Huber Hansen Todd Evans & Figel and Korein Tillery represented the NCUA at the Tenth Circuit. The agency said in an emailed statement Monday that it was pleased the Supreme Court rejected the banks’ appeal.
IMAGE: The U.S. Supreme Court building Photo: Diego M. Radzinschi
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