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From Securities Regulation Daily, August 20, 2014

FDIC's claims against defendants barred by Texas Security Act's statute of repose

By R. Jason Howard, J.D.

The United States District Court for the Western District of Texas has granted defendants Goldman, Sachs & Co.’s (Goldman) and Deutsche Bank Securities Inc.'s (DBS) motion for judgment on the pleadings, finding that the Texas Security Act's (TSA) five-year statute of repose bars all of the FDIC's claims as untimely against the defendants (FDIC v. Goldman, Sachs & Co. and Deutsche Bank Securities Inc., August 18, 2014, Sparks, S.).

Background. In 2004 and 2005, Guaranty Bank paid some $2.1 billion for twenty residential mortgage backed securities certificates, including four certificates from Goldman and DBS. Thereafter, Guarantee Bank failed and the FDIC was appointed as receiver in August 2009. On August 17, 2012, the FDIC filed suit alleging that Goldman, DSB, and others violated the Securities Act of 1933 and the Texas Securities Act by making material misstatements and omissions concerning the mortgages underlying the securities.

Procedurally, the suit was filed in Texas state court, removed to the Western District and later remanded to the Texas state court where, before the court could rule on a motion for summary judgment, the FDIC settled all of its 1933 claims. The case was removed back to the Western District to rule on the remaining TSA claims.

TSA claims. The defendants argued that the FDIC’s TSA claims were barred by the TSA’s five-year statute of repose and relied heavily on the United States Supreme Court's decision in CTS Corp. v. Waldburger, 134 5. Ct. 2175 (2014), which held state statutes of repose are not preempted by the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). The FDIC countered that the statute of repose was preempted by the FDIC Extender Statute, 12 U.S.C. § 1821(d)(14), a provision of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), which allows the FDIC up to three years from the date on which it is appointed receiver for a failed bank to bring claims on behalf of the bank.

Supreme Court authority. Central to the action was the Supreme Court ruling in Waldburger. There, the court was asked to interpret Sec. 9658 of CERCLA, which extends the discovery rule in toxic tort cases based on the latent nature of many chemical-induced injuries. The question was whether Sec. 9658 also preempts state statutes of repose. Several circuits were split on the answer and the Supreme Court granted cert. to address resolve the issue.

Statutes of limitations and repose. In order for the Supreme Court to answer the question it had to distinguish between statutes of limitations and statutes of repose. Here, the court said that a statute of limitation "create[s] a time limit for suing in a civil case, based on the date when the claim accrued," generally meaning the date "when the injury occurred or was discovered." In contrast, a statute of repose "put[s] an outer limit on the right to bring a civil action" based on "the date of the last culpable act or omission of the defendant" rather than the date of accrual.

With that framework in mind, the Supreme Court examined the statutory language, legislative intent, and the historical background that the CERCLA drafters may have understood when the statute was enacted as well as the purpose of CERCLA. In so doing, the Court noted that “[e]ven assuming § 9658 could be plausibly read to favor preemption of state statutes of repose, the presumption cautions in favor of "a narrow interpretation" given the States' traditional role in establishing tort law” and, therefore, “Sec. 9658 does not preempt state statutes of repose.”

FDIC extender statute. The FDIC argued that its claims were timely because the FDIC Extender Statute contained in FIRREA preempts the TSA's five-year statute of repose. The Court noted, however, that the text of the statute says otherwise and even went so far as to say that if it was the intent of congress to preempt state statutes of repose, “it certainly would have said so.” The Court explained that the failure of congress to do that is an important indication of its intent and that the Court is bound by the plain language absent congressional intent to the contrary.

The Western District, using the Waldburger authority, also noted that “[t]he history of the FDIC Extender Statute does not provide any evidence Congress meant anything other than what it said in the statute: state statutes of limitations (not repose) are preempted under the circumstances set forth in § 1821 (d)(14).”

The FDIC repeatedly attempted to distinguish the Extender Statute from Sec. 9658, even going so far as to suggest that the “clear statutory text should be massaged to mean something else in order to advance the generalized goal of the statute.” The reason being so that the FDIC would have adequate time to investigate and bring claims inherited from failed banks. That argument failed as the Court said that was the same basic goal-oriented reasoning rejected byWaldburger.

In a last gasp effort, the FDIC urged the court to look to several pre-Waldburger authorities in interpreting the FDIC Extender Statute but there the court simply noted that “none of the cited authorities conduct the same analysis as the Supreme Court did in Waldburger, and none requires this Court to hold in the FDIC's favor.”

The case is No. A-14-CA-129-SS.

Attorneys: Benjamin W. Thorn (Grais and Ellsworth LLP) and Ryan T. Shelton (Hohmann Taube & Summers LLP) for the FDIC. Abigail W. Williams (Simpson Thacher & Bartlett LLP) for Deutsche Bank Securities, Inc. Bruce Davidson Oakley (Hogan Lovells US LLP) for Goldman, Sachs & Co.

Companies: Deutsche Bank Securities, Inc.; Goldman, Sachs & Co.

MainStory: TopStory FraudManipulation TexasNews

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