Texas District Court Rules on Damages Calculations in FDIC’s RMBS Suit Against Goldman Sachs and Deutsche Bank


On September 14, 2017, Judge Sam Sparks of the U.S. District Court for the Western District of Texas granted summary judgment in favor of defendants Goldman Sachs & Co. and Deutsche Bank Securities Inc. on certain aspects of the method and rate that will be used to calculate damages in an RMBS suit brought by the Federal Deposit Insurance Corporation. The FDIC alleges that the Defendants violated the Securities Act of 1933 and the Texas Securities Act (“TSA”) by making material misstatements and omissions concerning the mortgages underlying $2.1 billion worth of residential mortgage-back securities.

The Defendants had moved for summary judgment on the method and rate for calculating damages under the TSA’s Article 581-33(D)(3). First, they argued that damages should be calculated using the “declining principal balance method” to account for payments made on the outstanding balance in the interest calculation. The Court agreed, comparing the language of the TSA with that of the Securities Act of 1933, and holding that this method appropriately “compensate[s] a defrauded buyer based on out-of-pocket consideration at any given time,” which aligns with the TSA’s purpose to “return defrauded buyers to the status quo.”

Defendants also requested that the damages interest rate, which was described as the “legal rate” in the contractual provision, should be the “Coupon Rate” specified in the underlying security certificates. Judge Sparks rejected this argument because “legal rate” was not defined in the contract, and held instead that the interest rate should be six percent per year under general provisions of interest in Chapter 302 of the Texas Finance Code, based on how Texas statues and courts had interpreted “legal rate” in other contexts. Summary Judgment Order