DENVER – A federal appeals court agreed this morning to hear an appeal by RBS Securities and Wells Fargo’s Wachovia Capital Markets on whether NCUA filed suit against the Wall Street banks too late to satisfy the statute of limitations on securities claims for the failure of the five corporate credit unions.
The prospects of billions of dollars of claims by NCUA against seven Wall Street banks hinges on a ruling by the U.S. Court of Appeals for the Tenth Circuit because NCUA says the statute of limitations on claims regarding the sale of billions in mortgage-backed securities to the failed corporates dating back as far as 2005 did not start running until after took over U.S. Central FCU and WesCorp FCU in March 2009, and the other three corporate failures, Members United Corporate FCU, Southwest Corporate FCU and Constitution Corporate FCU, in September 2010.
NCUA claims that faulty MBS sold by RBS and Wachovia Capital, and by JP Morgan Chase, Goldman Sachs & Co., UBS Securities, Barclay’s Capital and Credit Suisse Securities in separate suits, went sour soon after they were sold to the corporates, causing the domino-like failure, first of U.S. Central, then the other four corporates.
The appeals court ruling would also affect billions of dollars in other suits brought by the Federal Home Loan Banks and the Federal Housing Finance Agency on behalf of Fannie Mae and Freddie Mace, which also claim the Wall Street banks sold them faulty MBS.
The case before the appeals court challenges 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. 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, the relevant statute of repose did not start running until then—and not when the MBS were sold.
In a July 25 order denying the banks’ claims, the district court acknowledged that the statute questions are “very close,” but also said the distinction was “ambiguous,” and nonetheless decided to ignore 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,” said the banks in their petition for appeal.
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