NCUA

Banks Sue NCUA for Breach of 2013 MBS Settlement Agreement

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On February 11, Bank of America, Merrill Lynch, and Countrywide (together, “the Banks“) filed suit against the National Credit Union Administration Board (“NCUA“) in its capacity as liquidating agent or conservator to six credit unions who purchased MBS issued by the Plaintiffs. The suit arises from a 2013 settlement agreement between NCUA and the Banks after the six credit unions’ failure and subsequent liquidation or conservatorship. In the settlement agreement, NCUA agreed to use “good faith” and “best efforts” to obtain releases for the Banks in any actions that NCUA later pursued against third-parties involving the Banks’ MBS. Plaintiffs specifically allege that because NCUA failed to seek a release of the third-party entity’s indemnification claims against the Banks with respect to three settlements with two entities, the Banks were forced to pay to settle subsequent third-party indemnification demands. Plaintiffs also allege unjust enrichment, breach of the implied covenant of good faith and fair dealing, and violations of the Administrative Procedure Act., 5 U.S.C. §§ 702 and 706(2), due to the breaches.

RBS Settles RMBS Suit for $1.1 Billion

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On September 27, 2016, the Royal Bank of Scotland (“RBS”) announced a $1.1 billion settlement with the National Credit Union Administration (“NCUA”) in connection with two federal securities litigations concerning RBS’s underwriting and sale of RMBS. The NCUA, as liquidating agent for Western Corporate Federal Credit Union and U.S. Central Federal Credit Union, brought these actions against RBS and other defendants, claiming that the defendants had misled the credit unions about the risks of RMBS and made various misrepresentations in the offering documents.  Further details of the settlement are not publicly available.

Court Denies Summary Judgment on Issues of Timeliness in NCUA RMBS Suit

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On September 1, 2016, Judge John W. Lungstrum of the U.S. District of Kansas denied cross-motions for summary judgment on the issue of timeliness brought by RBS, Nomura and the NCUA in NCUA v. RBS Securities, et al. NCUA alleges in its 2011 complaint that it suffered losses of $800 million on 2006-2007 vintage RMBS certificates based on misstatements by the defendants. Defendants RBS and Nomura argued on summary judgment that NCUA’s claims must be dismissed because they were not brought within one year after discovering the allegedly untrue statement or omission, or after such discovery should have been reasonably made. NCUA argued in opposition that it did not have constructive notice of the facts underlying its claims by the relevant dates and that its claims were timely. The Court found that “a jury could reasonably find in favor” of either party as to what a “reasonably diligent investor would have known and done in 2007 and 2008 on the timeliness issue” and that as a result fact questions remained precluding summary judgment for either side. Memorandum and Court Order.

Ninth Circuit Revives RMBS Claims against Nomura

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On August 15, 2016, the Ninth Circuit Court of Appeals vacated the Central District of California’s order dismissing claims brought by the National Credit Union Administration Board (“NCUA”), as liquidating agent of Western Corporate Federal Credit Union (“Wescorp”), against Nomura Home Equity Loan, Inc. (“Nomura”) under the Securities Act of 1933.  In 2014, the district court granted Nomura’s motion to dismiss claims that it had made materially false and misleading statements in the offering documents in respect of certificates sold to Wescorp in 2006 and 2007, holding that the NCUA’s claims were barred by the statute of repose established in Section 13 of the 1933 Act, which runs three years after the securities were offered or sold.  The Ninth Circuit disagreed with the district court, concluding that both the text and the legislative purpose of the Extender Statute in the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”) indicate that Congress intended it to supplant the 1933 Act statute of repose and to further a policy of “protecting the government’s right to recovery.” Opinion at 13.  The Ninth Circuit further concluded that, although the text of the Extender Statute only mentions contract and tort claims, because its dictate is to cover “all actions” brought by the NCUA, it also applies to statutory claims, such as the 1933 Act claims at issue in this case.  Thus, the Ninth Circuit held that the NCUA’s claims against Nomura are not time-barred and remanded the case to the Central District for further proceedings. Summary.

 

The SEC is Seeking Comment on a Joint Agency Proposed Rule Relating to Incentive-based Compensation Arrangements

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On May 6, 2016, the Office of the Comptroller of the Currency, Treasury (OCC), the Board of Governors of the Federal Reserve System (Board), the Federal Deposit Insurance Corporation (FDIC), Federal Housing Finance Agency (FHFA), the National Credit Union Administration (NCUA), and the U.S. Securities and Exchange Commission (SEC) issued and sought comment on a joint proposed rule to implement section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) relating to the prohibition on and the disclosure of information of incentive-based compensation arrangements.  The deadline for comments is July 22, 2016.  Notice of Proposed Rulemaking and Request for Comment.

Morgan Stanley Settles RMBS Suits With NCUA

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On December 10, 2015, the National Credit Union Administration (“NCUA”) announced Morgan Stanley’s agreement to pay $225 million to settle litigation brought in New York and Kansas federal courts by NCUA as liquidating agent of U.S. Central Federal Credit Union, Western Corporate Federal Credit Union, Members United Corporate Federal Credit Union, and Southwest Corporate Federal Credit Union (the “Credit Unions”), all of which failed during the financial crisis.  In the settled claims – previously covered here and here – NCUA alleged that Morgan Stanley had materially misrepresented the collateral characteristics of RMBS it sold to the Credit Unions.  Morgan Stanley did not admit fault in the settlement. Press release.

US Bank and Bank of America Prevail on Motions to Dismiss

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On May 18, 2015, Judge Katherine Forrest of the United States District Court for the Southern District of New York dismissed claims in two suits brought by private investors and the National Credit Union Association, respectively, against U.S. Bank and Bank of America in their capacity as trustees for RMBS trusts.  The lawsuits asserted several causes of action arising out of the trustees’ alleged failure to fulfill their contractual, statutory, and fiduciary obligations to hundreds of RMBS trusts.

In the first case, brought by a number of institutional investors led by BlackRock, Judge Forrest dismissed claims brought under the federal Trust Indenture Act as to 810 of the 843 trusts at issue because they were governed by Pooling and Servicing Agreements (“PSAs”), rather than indentures, and the TIA does not apply to PSA trusts.  She declined to exercise supplemental jurisdiction over the state law claims asserted in connection with the 810 PSA Trusts, holding that allowing 33 indenture trusts to pull in another 810 would allow “a federal tail to wag a state dog.”  For the remaining 33 indenture trusts, Judge Forrest dismissed the claims because the plaintiffs failed to make a demand on the proper party (the “Owner Trustee”) or allege any that such demand would have been futile.  Judge Forrest granted plaintiffs leave to amend as to the indenture trusts.  Order.

In the second case, brought by NCUA, Judge Forrest dismissed claims as to 74 out of the 82 Trusts at issue on standing grounds.  Judge Forrest held that the Amended Complaint failed to demonstrate that NCUA retained any right to sue when it re-securitized its certificates in the 74 trusts as part of the NCUA Guaranteed Note Program.  She rejected NCUA’s statutory standing argument, holding that 12 U.S.C. § 1787 does not authorize NCUA to sue on behalf of separate statutory trusts created to re-securitize the CCUs’ assets.  Additionally, Judge Forrest held that the PSAs did not allow third party beneficiary status to extend beyond direct certificateholders, meaning that NCUA no longer had standing once it ceased being a certificateholder following the re-securitization.  Order.

NCUA Sues U.S. Bank and Bank of America for Allegedly Failing to Comply with RMBS Trustee Duties

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On December 16, National Credit Union Administration filed a lawsuit in the United States District Court for the Southern District of New York against U.S. Bank N.A. and Bank of America N.A., in their capacity as trustees for 99 RMBS trusts. NCUA filed the suit as liquidating agent for five failed credit unions collectively alleged to have purchased certificates in the trusts at issue. NCUA alleges that U.S. Bank and Bank of America breached their duties under the governing trust agreements by failing to properly review and monitor the loans backing the RMBS, failing to notify the investors of deficiencies in the loans, failing to take action to address those alleged deficiencies, and failing to require the repurchase of defective loans. The complaint asserts causes of action under the Trust Indenture Act and the Streit Act, a New York statute that governs administration of mortgage trusts, and seeks compensatory damages and unspecified equitable relief.  Complaint.

NCUA Sues Deutsche Bank National Trust Co. For Allegedly Failing to Comply With RMBS Trustee Duties

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The National Credit Union Administration, acting as liquidating agent for five failed credit unions, sued Deutsche Bank National Trust Company (DBNTC) for allegedly breaching its duties as trustee under the governing trust agreements for 121 RMBS trusts with a total original face value of approximately $140 billion. The complaint, filed November 10, in the U.S. District Court for the Southern District of New York, asserts causes of action under the Trust Indenture Act and a provision of the New York Real Property Law known as the Streit Act. The complaint alleges that DBNTC failed to properly review and monitor the loans underlying the RMBS, notify the investors of deficiencies in the loans, take action to address those alleged deficiencies, and enforce the repurchase of defective loans as provided for in the governing agreements. The complaint also alleges that DBNTC failed to exercise proper oversight over the loans’ servicers, including by failing to declare the servicers and master services in default under the agreements. NCUA seeks unspecified damages, equitable relief, pre- and post-judgment interest, and fees and costs.  Complaint.

NCUA Can Bring RMBS Claims Against Goldman Sachs in Federal Court

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On January 28, Judge Denise Cote of the U.S. District Court for the Southern District of New York denied Goldman Sachs’s motion to compel arbitration for RMBS claims brought by the National Credit Union Administration (NCUA). NCUA brought the claims as the liquidating agent of the Southwest Corporate Federal Credit Union. Goldman sought to compel arbitration under an agreement between Southwest and Goldman Sachs from 1992. The court held that NCUA has the power to repudiate contracts of a credit union in liquidation under the terms of its enabling legislation, and exercised that authority here. NCUA’s claims under Sections 11 and 12 of the Securities Act of 1933 and under the Texas Securities Act will proceed in federal district court. Order.