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National Credit Union Administration Board v. Nomura Home Equity Loan, Inc.

United States Court of Appeals, Tenth Circuit

August 27, 2013

NATIONAL CREDIT UNION ADMINISTRATION BOARD, as liquidating agent of U.S. Central Federal Credit Union and of Western Corporate Federal Credit Union, Plaintiff - Appellee,


Barry Levenstam, Jenner & Block, Chicago, Illinois (Barbara S. Steiner, Matthew J. Thomas, and Casey T. Grabenstein, Jenner & Block, Chicago, Illinois; W. Perry Brandt, Bryan Cave LLP, Kansas City, Missouri; Arthur E. Palmer, Goodell, Stratton, Edmonds & Palmer, LLP, Topeka, Kansas; Jeffrey J. Kalinowski and Richard H. Kuhlman, Bryan Cave LLP, St. Louis, Missouri; William F. Alderman, Orrick, Herrington & Sutcliffe LLP, San Francisco, California; Timothy B. Mustaine, Foulston Siefkin LLP, Wichita, Kansas; Michael Thompson and Faiza Bergquist, Husch Blackwell LLP, Kansas City, Missouri; and R. Alexander Pilmer, David I. Horowitz, and Tammy A. Tsoumas, Kirkland & Ellis LLP, Los Angeles, California, with him on the briefs), appearing for Appellants.

David C. Frederick, Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Washington, D.C. (George Zelcs, Korein Tillery, Chicago, Illinois; Michael J. McKenna, General Counsel, and John K. Ianno, Associate General Counsel, National Credit Union Administration, Alexandria, Virginia; Wan J. Kim and Gregory G. Rapawy, Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., with him on the brief), appearing for Appellee.

Ira D. Hammerman and Kevin Carroll, Securities Industry and Financial Markets Association, Washington, D.C., and Michael J. Dell and Aaron M. Frankel, Kramer Levin Naftalis & Frankel LLP, New York, New York, filed an amicus brief for Securities Industry and Financial Markets Association.

Before KELLY, McKAY, and MATHESON, Circuit Judges.

MATHESON, Circuit Judge.

The National Credit Union Administration ("NCUA") placed two federally chartered corporate credit unions, U.S. Central Federal Credit Union ("U.S. Central") and Western Corporate Federal Credit Union ("WesCorp"), into conservatorship. As liquidating agent, NCUA sued 11 defendants on behalf of U.S. Central, alleging federal and state securities violations.[1] In a separate case, NCUA sued one defendant on behalf of U.S. Central and WesCorp, alleging similar federal and state securities violations.[2]The cases were consolidated in the United States District Court for the District of Kansas. We refer to all defendants in these actions collectively as "Defendants."

Defendants moved for dismissal, arguing that NCUA's claims were time-barred. The district court denied the motion, concluding that the so-called Extender Statute applied to NCUA's claims. See 12 U.S.C. § 1787(b)(14). Defendants successfully moved for an interlocutory appeal for this court to determine whether the Extender Statute applies to NCUA's claims.

Exercising jurisdiction under 28 U.S.C. § 1292(b), we affirm.


We begin by describing several statutes relevant to this litigation. We then summarize the factual and procedural history of the case before turning to a discussion of the issues.

A. Securities Laws and the Extender Statute

This case involves residential mortgage-backed securities ("RMBS"). RMBS are created through securitization by pooling residential mortgage loans and offering prospective investors the opportunity to invest in a particular loan pool through purchase of RMBS certificates granting ownership of a slice of the loan pool. Investors can buy, sell, or hold these RMBS certificates. When homebuyers pay back their loans, investors receive a positive return through payment of dividends and the increased value of the RMBS certificates. See In re Lehman Bros. Sec. & ERISA Litig., 800 F.Supp.2d 477, 479 (S.D.N.Y. 2011) (describing mortgage securitization process). Conversely, investors lose money when homebuyers fail to repay their mortgage loans.

Several steps occur before an RMBS certificate can be offered to an investor.

First, the mortgages are separated into "tranches, " or classes, based on the estimated risk of default.

Second, a ratings agency assigns a credit rating to each tranche before it is sold. This step signals to investors the risk associated with a given security. Broadly speaking, the ratings agency determines the credit risk of a loan pool based on information about each loan in a given tranche, each borrower's creditworthiness, and the proposed capital structure of the loans.

Third, RMBS sellers must file registration statements with the Securities and Exchange Commission ("SEC"), along with a prospectus and other offering documents, which include disclosures about the RMBS being offered. Federal and state securities laws require RMBS sellers to provide investors with truthful and accurate information about the risks involved. See In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347, 358 (2d Cir. 2010). Sellers are liable when offering documents include false and misleading statements.

After the foregoing steps, the RMBS are sold to investors in the form of certificates.

1. Federal securities laws

Sections 11 and 12(a)(2) of the Securities Act of 1933 impose liability on certain participants in a registered securities offering that involves material misstatements or omissions. Section 11 applies to registration statements, and Section 12(a)(2) applies to prospectus materials and oral communications.[3]

For private litigants bringing a claim under Sections 11 or 12(a)(2), two deadlines must be satisfied. Both appear in Section 13 of the Securities Act (codified as 15 U.S.C. § 77m), [4] under the heading "Limitation of actions." First, a claim must be brought within one year from the date the violation is discovered or should have been discovered through the exercise of reasonable diligence. Second, a claim is subject to a three-year limit, which provides that "[i]n no event" shall a claim under Section 11 be filed "more than three years after the security was bona fide offered to the public, " and no "more than three years after the sale" in the case of a Section 12(a)(2) claim. Id. at § 77m.

2. State securities laws

The Kansas Uniform Securities Act makes a securities seller liable to a purchaser if the seller sells a security "by means of an untrue statement of a material fact or an omission." K.S.A. § 17-12a509(b). Kansas also sets two deadlines on state securities claims: a two-year limitations period from the date the claim accrues and a five-year deadline from the date of the security's issuance or sale. Id. § 17-12a509(j).

The California Corporate Securities Law of 1968 similarly makes a securities seller "liable to the person who purchases a security, " Cal. Corp. Code § 25501, when the security has been sold or offered "by means of any written or oral communication which includes an untrue statement of a material fact" or is "misleading, " id. § 25401. California's deadlines for securities claims are similar to those in Kansas: two years from a plaintiff's discovery "of the facts constituting the violation, " or five years from "the act or transaction constituting the violation." Id. § 25506(b).

3. Time limits specific to NCUA: the Extender Statute

The Federal Credit Union Act ("FCUA"), enacted in 1934, governs the regulation of federally chartered credit unions. It established NCUA as an independent agency charged with regulating federally chartered credit unions and set the terms of federal insurance coverage for credit union accounts.

If NCUA finds that a credit union is insolvent, or in some circumstances if it is undercapitalized, FCUA directs NCUA to place the credit union in conservatorship or liquidation and appoint itself as conservator or liquidating agent. 12 U.S.C. §§ 1787(a)(1)(A), (a)(3)(A). As conservator or liquidating agent, the Board steps into the shoes of the credit union and succeeds to "all rights, titles, powers, and privileges of the credit union." Id. § 1787(b)(2)(A)(i).

In the wake of the savings and loan crisis of the 1980s, Congress passed the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"). FIRREA's purpose is to strengthen government regulation of federally chartered or insured financial organizations. See United States v. Winstar Corp., 518 U.S. 839, 844, 856 (1996).

FIRREA contains provisions often referred to as "extender statutes, " which extend the time period for a government regulator to bring "any action" on behalf of a failed financial organization. FIRREA has two such provisions with identical language. One applies to NCUA, 12 U.S.C. § 1787(b)(14), and the other to the Federal Deposit Insurance Corporation ("FDIC"), NCUA's counterpart that regulates banks, id. § 1821(d)(14). See O'Melveny & Myers v. FDIC, 512 U.S. 79, 86 (1994) (describing the FDIC extender statute).[5]

The NCUA Extender Statute is titled "Statute of limitations for actions brought by conservator or liquidating agent." 12 U.S.C. § 1787(b)(14). It reads:

(A)In general
Notwithstanding any provision of any contract, the applicable statute of limitations with regard to any action brought by the Board[6] as conservator or liquidating agent shall be— (i) in the case of any contract claim, the longer of—
(I)the 6-year period beginning on the date the claim accrues; or
(II)the period applicable under State law; and (ii) in the case of any tort claim, the longer of—
(I)the 3-year period beginning on the date the claim accrues; or
(II)the period applicable under State law.
(B)Determination of the date on which a claim accrues
For purposes of subparagraph (A), the date on which the statute of limitation begins to run on any claim described in such subparagraph shall be the later of—
(i) the date of the appointment of the Board as conservator or liquidating agent; or
(ii) the date on which the cause of action accrues.

Before FIRREA, Securities Act claims brought by the federal government were subject to the limitations provision of 28 U.S.C. § 2415 ("Section 2415"). See, e.g., FDIC v. Bachman, 894 F.2d 1233, 1237 (10th Cir. 1990). Section 2415 is the default federal statute of limitations for all actions brought by the federal government when no other statute of limitations applies. Id. It reads, in relevant part:

§ 2415. Time for commencing actions brought by the United States
(a) . . . [E]xcept as otherwise provided by Congress, every action for money damages brought by the United States or an officer or agency thereof which is founded upon any contract express or implied in law or fact, shall be barred unless the complaint is filed within six years after the right of action accrues . . . .
(b) . . . [E]xcept as otherwise provided by Congress, every action for money damages brought by the United States or an officer or agency thereof which is founded upon a tort shall be barred unless the complaint is filed within three years after the right of action first accrues . . . .

Congress modeled the two FIRREA extender statutes after Section 2415. Early drafts of FIRREA legislation expressly incorporated "the [limitations] period provided for in section[] 2415." S. 774, 101st Cong. § 212 (as passed by Senate, Apr. 19, 1989) (early version of 12 U.S.C. § 1821(d)(14)), available at 1989 WL 1178231, at *44. Later drafts of FIRREA featured separate limitations provisions, which were eventually enacted in their current form, and we refer to them as the extender statutes.

In the FIRREA extender statutes, Congress maintained the basic structure of Section 2415, with a three-year limitations period for tort claims and a six-year period for contract claims. But Congress omitted some portions of Section 2415 from the FIRREA extender statutes. In particular, the phrase "except as otherwise provided by Congress, " which appears in Section 2415, does not appear in the extender statutes. Compare 12 U.S.C. §§ 1787(b)(14), 1821(d)(14), with 28 U.S.C. § 2415(a)-(b); see also FDIC v. Thayer Ins. Agency, Inc., 780 F.Supp. 745, 748 (D. Kan. 1991) (recognizing the connection between Section 2415 and the FIRREA extender statutes and describing the latter as "an amended version of the limitations period found in 28 U.S.C. § 2415[].").

In addition to FIRREA's two extender statutes, several other extender statutes have been enacted. In 2008, Congress passed the Housing and Economic Recovery Act of 2008 ("HERA"), which contained an extender statute for any action brought by the Federal Housing Finance Administration ("FHFA") on behalf of a failed government-sponsored entity, such as Fannie Mae or Freddie Mac. See 12 U.S.C. § 4617(b)(12).

Another extender statute appears in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"). 42 U.S.C. § 9658. This limitations provision, often referred to as "CERCLA § 309, " establishes a federally mandated commencement date for state-law limitations periods on certain claims and provides a minimum time frame for plaintiffs to bring claims regardless of state law.

B. Factual History [7]

1. Case No. 12-3295: RMBS purchased by U.S. Central

The first of the two consolidated cases in this appeal involves 11 defendants, 29 RMBS certificates, and one of the two credit unions, U.S. Central. On behalf of U.S. Central Credit, NCUA alleged the defendants violated Sections 11 and 12(a)(2) of the Securities Act of 1933, 15 U.S.C. §§ 77k, 77l(a)(2). NCUA also alleged that one defendant violated the Kansas Uniform Securities Act, K.S.A. § 17-12a509.

U.S. Central was the largest federally chartered corporate credit union in the country before it failed. In 2006 and 2007, U.S. Central invested in RMBS. It purchased 29 RMBS certificates issued by 10 of the defendants and underwritten and sold by Defendant RBS Securities Inc. When U.S. Central made these purchases, nearly all certificates were assigned the highest possible investment rating, indicating they were low-risk investments. But over the next four years, most of the certificates performed so poorly that their credit ratings were "downgraded to well below investment grade." Appx. at 305. In other words, the certificates were reclassified to a credit rating commonly referred to as "junk" grade. See Cody v. SEC, 693 F.3d 251, 255 (1st Cir. 2012).

2. Case No. 12-3298: RMBS purchased by U.S. Central and WesCorp

The second of the two consolidated cases involves one defendant, five RMBS certificates, and two credit unions, U.S. Central and WesCorp. On behalf of the credit unions, NCUA alleged violations of Sections 11 and 12(a)(2) of the Securities Act of 1933, 15 U.S.C. §§ 77k, 77l(a)(2), the California Corporate Securities Law of 1968, Cal. Corp. Code §§ 25401, 25501, and the Kansas Uniform Securities Act, K.S.A. § 17-12a509.

The credit unions purchased these RMBS certificates in 2006. NCUA alleged that U.S. Central and WesCorp relied on misleading statements in the offering documents that the five RMBS certificates were "extremely safe." Aplee. Br. at 8. As with the first case, the RMBS were highly rated at the time of purchase but experienced a "surge in borrower delinquencies and defaults, " resulting in significant losses and a "collapse[]" of their credit ratings. Appx. at 375-76.

3. Both cases

According to NCUA, by "May 2011, nearly half (45.73%) of the mortgage collateral across all of the [RMBS] . . . was in delinquency, bankruptcy, foreclosure, or was . . . [owned by a bank or lending institution] after a failed sale at a foreclosure auction." Id. at 303. This resulted in staggering losses for the credit unions. Together, the credit unions paid $1.74 billion for the RMBS involved in both cases, and losses from these failed investments contributed to the demise of both organizations. NCUA placed both credit unions in conservatorship in March 2009, then in involuntary liquidation in October 2010.

After taking over the credit unions, NCUA began investigating these RMBS. It reviewed the offering documents, which had represented that "[t]he mortgage loans [had] been originated generally in accordance with" industry underwriting standards, Appx. at 307, and that the mortgages in the RMBS pool had "zero or near zero delinquencies and defaults, " id. at 302. NCUA concluded that at the time the RMBS certificates were sold, they were "significantly riskier than represented in the [o]ffering [d]ocuments" and that "a material percentage of the borrowers whose mortgages comprised the [RMBS] were ...

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