Tuesday, August 16, 2016

Time limit established for actions by NCUA as conservator or liquidating agent

By R. Jason Howard, J.D.

The Ninth Circuit has vacated and remanded a case in which the lower court narrowly construed the Extender Statute contained in the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) and determined that claims brought by the National Credit Union Administration Board (NCUA) were time-barred (National Credit Union Administration Board v. RBS Securities, Inc., August 15, 2016, Nelson, D.W.).

NCUA. The NCUA is an independent federal agency responsible for chartering and regulating federal credit unions, regulating federally insured state-chartered credit unions, and administering the Share Insurance Fund. When an insured credit union is in danger of failing, the NCUA has the authority to step in as a conservator to preserve the credit union’s assets and to protect the insurance fund.

Before its failure, Wescorp was the second largest corporate credit union in the United States and, like many financial institutions before the collapse of the housing market, Wescorp invested in RMBS, which are securities backed by thousands of individual residential mortgages. Wescorp failed after suffering heavy losses on its RMBS investments.

Pursuant to its statutory authority, the NCUA placed Wescorp into conservatorship, and later into liquidation. After assuming control of Wescorp, the NCUA determined that offering documents for RMBS issued by Wachovia Mortgage Loan Trust, LLC (Wachovia) and Nomura Home Equity Loan, Inc. (Nomura) and purchased by Wescorp in 2006 and 2007 contained certain statements and omissions that the NCUA believed materially misrepresented the quality of the residential loans underlying the RMBS.

Securities Act. Section 13 of the Securities Act states that a private investor pursuing a claim under Section 11 or Section 12(a)(2) ordinarily must bring suit: (1) within one year after discovering a violation; and (2) within three years after the security was offered or sold.

The Supreme Court has explained that the second requirement is a statute of repose and, unlike a statute of limitations, which begins to run when a claim accrues and may be subject to equitable tolling, “[a] statute of repose bars any suit that is brought after a specified time since the defended acted . . . , even if this period ends before the plaintiff has suffered a resulting injury,” making the statute of repose essentially a cutoff and an absolute bar on a defendant’s temporal liability.

FIRREA. In response to the savings and loan crisis, Congress enacted FIRREA, which contains special provisions concerning the failure of financial institutions, including the Extender Statute, which establishes “the applicable statute of limitations with regard to any action brought by [the NCUA] as conservator or liquidating agent.” It requires that tort claims be brought within the longer of: (1) the 3-year period beginning on the date the claim accrues; or (2) the period applicable under state law. Accordingly, a claim accrues the later of: (1) the date of appointment of the NCUA as conservator or liquidating agent; or (2) the date on which a cause of action accrues.

District court. In interpreting the Extender Statute, the district court found that it supplanted only the one-year “statute of limitations” and not the three-year “statute of repose” contained in Section 13 of the Securities Act. The NCUA placed Wescorp into conservatorship on March 20, 2009, and filed its original complaint less than three years later, on July 18, 2011. Because the NCUA did not file suit within three years after the securities at issue were offered or sold (as the statute of repose ordinarily requires), the district court dismissed the NCUA’s claims against Wachovia and Nomura as time-barred.

Ninth Circuit holding. The court explained that the Extender Statute establishes a universal time limit for all actions by the NCUA as conservator or liquidating agent and that the district court erred in holding that FIRREA’s Extender Statute does not displace the Securities Act’s statute of repose in actions by the NCUA as conservator or liquidating agent and said, “We hold that the Extender Statute replaces all preexisting time limitations—whether styled as a statute of limitations or a statute of repose—in any action by the NCUA as conservator or liquidating agent. We also hold that the Extender Statute’s scope—“any action brought by the [NCUA]”—includes actions such as this one, in which the NCUA asserts statutory claims rather than common law tort or contract claims. In sum, we conclude that the NCUA’s claims were timely filed.”

The case is No. 13-56620.

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