Bankers Urge Top Court to Bury `Long Dead’ Securities Lawsuits

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By Chris Bruce

Several big banks want the U.S. Supreme Court to block securities lawsuits by federal financial regulators, saying those suits were long dead by the time they were filed ( Credit Suisse First Boston Mort. Sec. Corp. v. Fed. Dep. Ins. Corp. , U.S., 17-cv-00010, petition for certiorari 6/26/17 ).

Directly at stake in the petition by units of Credit Suisse, Deutsche Bank, Royal Bank of Scotland, UBS, and HSBC, is a suit by the Federal Deposit Insurance Corp. that says they misrepresented mortgages that backed $140 million in securities sold to two now-failed banks.

Those firms say Section 13 of the Securities Act of 1933 establishes a three-year deadline that dooms the FDIC’s claims. The U.S. Court of Appeals for the Second Circuit in February disagreed, saying an “extender” provision in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (Firrea) gave the FDIC extra time to file its suits and that the extender language overrides Section 13.

The FDIC’s suit, filed in 2012, seeks at least $66 million in damages, but bankers say the case has much wider implications with potentially “staggering” financial stakes. They’ve asked the justices to hear an appeal from the Second Circuit’s ruling, which they say will affect claims involving billions of dollars in securities—not to mention additional billions for claims on prejudgment interest.

Michael J. Dell, a partner with Kramer Levin Naftalis & Frankel in New York who prepared a friend of the court brief in support of the petition, told Bloomberg BNA that the case could affect other suits brought by the Federal Housing Finance Agency and the National Credit Union Administration.

“The FDIC, NCUA and FHFA have brought claims concerning hundreds of billions of dollars of securities based on this same argument that an extension of the statute of limitations also extends statutes of repose,” said Dell, whose brief was filed on behalf of the Securities Industry and Financial Markets Association (SIFMA).

Although those cases involve different statutes, those statutes include extender language similar to the language in this case.

`Staggering’ Financial Stakes

The banks’ petition says the Second Circuit and other federal appeals courts have misread Firrea and its extender terms while ignoring recent Supreme Court case law.

The Supreme Court should hear the case now rather than wait for a circuit split given its “outsized importance,” said a team of lawyers led by Thomas C. Rice, Andrew T. Frankel, Linton Mann III of Simpson Thacher & Bartlett in New York, who represent Deutsche Bank Securities Inc., RBS Securities Inc., and UBS Securities LLC.

Limitations v. Repose

At the core of the case is an important difference between two kinds of laws—statutes of limitation and statutes of repose. Statutes of limitations establish a deadline for filing claims, though that deadline may be modified or changed by agreement of the parties.

However, statutes of repose, while also setting a deadline for claims, can’t be changed or modified. They place a firm stopping-point beyond which claims can’t be asserted for any reason, and are designed to give potential defendants cast-in-stone confidence that they’re in the clear.

That’s where the Second Circuit’s ruling comes in. The court, citing a previous panel ruling, said so-called extender provisions in Firrea found at 12 U.S.C. § 1821(d)(14) stretched the limitations statute that governs the FDIC’s claims. Critically, the court said the extender statute also overrides the Section 13 statute of repose that otherwise would have been an impassible barrier to the FDIC’s lawsuit.

“If the Second Circuit’s ruling stands, long-dead Securities Act claims could be resurrected despite the contrary mandate of its statute of repose,” the SIFMA brief said.

According to Credit Suisse, Deutsche Bank Securities and the other firms, the case is all about whether courts must abide by clear congressional language. Although Firrea’s extender provision refers in the singular to the “statute of limitations” for FDIC claims, they said, it says nothing about the the statute of repose at Section 13 of the Securities Act.

In addition, they said, the Supreme Court’s 2014 ruling in CTS Corp. v. Waldburger (143 S.Ct. 2175), which centered on a federal environmental statute, says clearly worded extender statutes don’t displace statutes of repose. The Second Circuit, and other courts, should have heeded CTS, but didn’t, Credit Suisse said.

Meanwhile, a freshly inked decision in June, Cal. Pub. Emps.’ Ret. Sys. v. ANZ Sec., Inc. (137 S. Ct. 2042), underscores that the Securities Act’s statute of repose establishes a fixed bar against claims brought after three years, they said.

A Simple Case

It’s not complicated, the bank lawyers told the court. The FDIC waited four years to file its lawsuit, even though it only had three years to do so. Meanwhile, two recent Supreme Court rulings—the CTS case in 2014 and the recent Cal. Pub. Emps.’ Ret. Sys. decision—require courts to interpret the relevant extender provisions in a context that leaves intact the three-year statute of repose under the Securities Act.

That means the FDIC’s claims came too late, they said. “This case is really very simple,” the petition said. The SIFMA brief took things a step further, saying the extender law only applies to the FDIC’s state common law and tort claims. “For these reasons, the natural and logical reading of the text is it does not apply to federal claims,” the brief said.

Dell called the focus on statutory language important. “Congress could have applied the extender statute to statutes of repose but it didn’t,” Dell told Bloomberg BNA. “For the courts to step in and say, `we will assume that when Congress extended the statute of limitations it also intended to extend statutes of repose,’ is overriding Congress. That’s not how our system is supposed to work.”

Betting on Gorsuch?

He added that newly seated Justice Neil Gorsuch, whose approach to such matters has been called similar to that taken by now-deceased Justice Antonin Scalia, may be attentive to questions about whether courts are deciding cases where the statutory language seems clear.

The court hasn’t yet taken action on the petition, and isn’t likely to until early October at the soonest. The next scheduled move in the case comes Aug. 28, when the U.S. Solicitor General is expected to respond to the petition.

FDIC spokesperson Barbara Hagenbaugh declined to comment on the case.

Thomas C. Rice, Andrew T. Frankel, Linton Mann III of Simpson Thacher & Bartlett in New York represent Deutsche Bank Securities Inc., RBS Securities Inc., and UBS Securities LLC.

Richard W. Clary of Cravath, Swaine & Moore in New York represents Credit Suisse Securities (USA) LLC, Credit Suisse First Boston Mortgage Securities Corp., and Credit Suisse Management LLC.

Michael O. Ware and Scott A. Chesin of Mayer Brown in New York represent HSBC Securities (USA), Inc.

To contact the reporter on this story: Chris Bruce in Washington at

To contact the editor responsible for this story: Michael Ferullo at

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