WASHINGTON (6/17/14)--The Supreme Court yesterday instructed the U.S. Court of Appeals for the 10th Circuit to re-examine a ruling that allowed the National Credit Union Administration to sue several banks for alleged deceptive practices when selling mortgage-backed securities. This stems from a Supreme Court decision last week that defined in the environmental context the difference between statutes of limitation and statutes of repose, and whether various forms of "pausing" the period of time set forth by statute apply to statutes of repose.
The NCUA has brought suit against certain banks while serving as the liquidating agent of several failed corporate credit unions, alleging that deceptive information was used to form, market and sell the mortgage-backed securities.
Banks have claimed the NCUA missed the three-year window to file suit, a claim that was overturned by the Denver-based 10th Circuit Court of Appeals. The court cited a past provision that extends the deadline for a government regulatory agency to sue on behalf of a failed financial institution.
Now the 10th Circuit Court of Appeals must examine whether or not the recent Supreme Court decision warrants a change in its own ruling, specifically whether the Supreme Court's definition is enough to overturn the 10th Circuit's previous decision.
The directive from the Supreme Court to the 10th Circuit does not necessarily indicate a need for the 10th Circuit to change its opinion, but rather instructs the court to look at the decision in light of the new law established in the environmental case.
"Neither decision precludes the possibility of future settlements, nor would it signal anything about the way these cases are heard in the future," said Eric Richard, executive vice president and general counsel for the Credit Union National Association. "The worst case scenario is just that several of the NCUA's claims would be eliminated."
Regardless of what the 10th Circuit Court of Appeals decides, the losing party will have the opportunity to appeal to the Supreme Court, which can then decide whether or not to take the case.
"NCUA still has many other opportunities, both before the 10th Circuit and Supreme Court if necessary, to argue that these cases should proceed," Richard said. "Even if NCUA is ultimately unsuccessful on this issue, there are still other claims against these same defendants that should be unaffected. Those other claims would still offer the possibility of recovering money on behalf of credit unions."
The NCUA has settled similar suits with J.P. Morgan, Bank of America, Citigroup, Deutsche Bank Securities and HSBC, resulting in more than $1.75 billion in settlements lost by the corporate credit union investments. According to the NCUA, these recovered funds will be used to reduce the amount of future corporate stabilization assessments on credit unions.
"We continue to commend the NCUA for bringing these cases in its capacity as conservator of corporate credit unions," Richard said. "They have led the way for federal regulators in these matters, and its efforts have brought enormous dividends for credit unions."
A total of 13 cases from the NCUA are pending. One case is awaiting an appeal at the Ninth Circuit Court of Appeals on this same issue. Most of the others are in discovery.