Tuesday, September 08, 2015

Fifth Circuit Begged the Question on FIRREA, SIFMA Argues

By John M. Jascob, J.D., LL.M.

SIFMA has asked the Fifth Circuit to reconsider its ruling that the extender provision of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) preempts the statute of repose in the Texas Securities Act. In supporting the defendants’ request for rehearing en banc, SIFMA’s amicus brief contends that the ruling “begs the question” of whether the “new” limitations period for FDIC actions under FIRREA preempts both state statutes of limitation and statutes of repose. In SIFMA’s view, the decision fails to follow the plain language of FIRREA and Supreme Court precedent while overlooking important principles of federalism (FDIC v. RBS Securities Inc., August 28, 2015).

FIRREA Extender Statute. Acting as the receiver for Guaranty Bank, the FDIC sued a group of underwriters in 2012, alleging that the defendants had violated the Texas Securities Act by making material misrepresentations in selling the bank certain residential mortgage-backed securities. The FDIC filed the action within three years of its appointment as receiver in 2009, and therefore within the three-year limitations period set forth in FIRREA. The district court dismissed the suit, however, because the FDIC’s suit was filed more than five years after the securities at issue were sold, contravening the five-year limitations period in the Texas Securities Act.

The district court reasoned that that FIRREA’s so-called FDIC Extender Statute preempts only state statutes of limitations, not state statutes of repose. In so holding, the district court relied heavily on the U.S. Supreme Court’s opinion in CTS Corp. v. Waldburger (2014), which concluded that the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) did not preempt a state statute of repose with respect to alleged environmental violations.

The Fifth Circuit reversed the district court’s ruling, however, concluding that the text, structure, and purpose of the FDIC Extender Statute all evince a Congressional intent to grant the FDIC a three-year grace period after its appointment as receiver to investigate potential claims. The underwriters then petitioned the Fifth Circuit for en banc review, arguing that the appellate panel improperly departed from the Supreme Court’s approach in CTS while relying on considerations that the high court expressly rejected.

Plain language and congressional purpose. SIFMA began by stating that the FDIC Extender Statute is unambiguous. SIFMA observed that the statute extends only the “statute of limitations” for state law claims brought by the FDIC as a conservator or receiver. Nothing in the Statute extends the statute of repose for any claim, as statutes of repose are not even mentioned.

Next, SIFMA reminded the panel that there is nothing novel about Congress overriding a state’s statute of limitations while continuing to give effect to its statute of repose. As explained by the Supreme Court in CTS, Congress did exactly that when it amended CERCLA to extend the “commencement date” of the statute of limitations for certain environmental actions under state law. In CTS, the high court concluded that CERCLA’s extender provision extends only the statute of limitations for state-law tort claims by persons exposed to toxic contaminants, and not statutes of repose.

According to SIFMA, the Fifth Circuit erred by substituting its own view of the purpose of the FIRREA Extender Statute for the language enacted by Congress. Rather than applying the plain language of the statute in accordance with the Supreme Court’s logic in CTS, the Fifth Circuit found that the statute’s purpose was to grant the FDIC a “new” and “mandatory” three-year period in which to bring claims. This imputed purpose, however, rests merely on the panel’s assumption that the statute’s reference to “the applicable statute of limitations” includes the applicable statute of repose. Similarly, the panel's statement that “the FDIC Extender Statute sets out a new federal rule that functions as the default” begs the question whether the new rule applies to statutes of repose, SIFMA contended.

Moreover, SIFMA argued, the Fifth Circuit’s ruling overlooks the nature of the legislative process. As the Supreme Court explained in CTS, “no legislation pursues its purposes at all costs,” and the high court has repeatedly reminded courts not to attempt to “improve” or “rewrite” statutes in order to carry out perceived legislative purposes. If statutes are interpreted based on the assumption that Congress does not understand or forgets critical distinctions between terms—such as the distinction between a statute of limitations and statutes of repose— and based on subjective judicial views of how best to accomplish perceived legislative purposes, there is no limit to the manner in which statutes may be misconstrued, SIFMA argued. Accordingly, SIFMA urged the court to grant the petition for rehearing, vacate the panel decision, and affirm the decision of the district court.

The case is No. 14-51055.

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