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National Credit Union Administration Board v. Goldman, Sachs & Co.

United States Court of Appeals, Second Circuit

December 23, 2014

NATIONAL CREDIT UNION ADMINISTRATION BOARD, as liquidating agent of Southwest Corporate Federal Credit Union, Plaintiff-Appellee,
v.
GOLDMAN, SACHS & CO. AND GSMORTGAGE SECURITIES CORP., Defendant-Appellants

Argued: June 20, 2014.

Goldman, Sachs & Co. and GS Mortgage Securities Corp. (collectively, " Goldman" ) appeal from the order of the United States District Court for the Southern District of New York (Cote, J.) denying Goldman's motion to compel arbitration of a suit brought against it by the National Credit Union Administration Board (" NCUA" ) acting as liquidating agent for a failed credit union. Goldman based its arbitration demand on an arbitration clause appearing in a Cash Account Agreement between Goldman and the failed credit union. NCUA opposed the motion to compel on the grounds that it had repudiated the agreement pursuant to its statutory authority. The Court of Appeals concludes that NCUA validly repudiated the arbitration agreement.

RICHARD H. KLAPPER (William B. Monahan, Peter A. Steciuk, Mark S. Geiger, on the brief), Sullivan & Cromwell LLP, New York, NY, for Defendant-Appellants.

DAVID C. FREDERICK (Wan J. Kim, Gregory G. Rapawy, Christopher B. Brown, on the brief), Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Washington, D.C., George A. Zelcs, Korein Tillery LLC, Chicago, IL, Michael J. McKenna, John K. Ianno, National Credit Union Administration, Alexandria, VA, for Plaintiff-Appellee.

Before: WINTER, LEVAL, and LYNCH, Circuit Judges.

OPINION

Page 146

Leval, Circuit Judge :

Goldman, Sachs & Co. and GS Mortgage Securities Corp. (collectively, " Goldman" ) appeal from an order of the United States District Court for the Southern District of New York (Cote, J.) denying Goldman's motion to compel arbitration of a suit brought against it by the National Credit Union Administration Board (" NCUA" ).[1] NCUA brought this action as liquidating agent for Southwest Corporate Federal Credit Union (" Southwest" ), a failed credit union. NCUA's complaint alleged that Goldman violated federal and state securities laws in its dealings with Southwest prior to Southwest's failure. Goldman sought arbitration of the claims, citing an arbitration clause included in a 1992 Cash Account Agreement (" CAA" ) between Goldman and Southwest. NCUA rejected Goldman's demand, asserting that, pursuant to its statutory powers as Southwest's liquidating agent under 12 U.S.C. § 1787(c), it was repudiating the agreement. The district court ruled that NCUA had validly repudiated its agreement to arbitrate, and denied Goldman's motion.

On appeal, Goldman argues that NCUA's repudiation power does not extend to arbitration clauses. In the alternative, Goldman argues that (1) the district court failed to appropriately scrutinize NCUA's determination that the contract was burdensome, and (2) the repudiation was invalid because it was not done within a reasonable period following NCUA's appointment as liquidating agent.

We conclude that NCUA successfully repudiated the Cash Account Agreement, including the arbitration provision. We therefore affirm the district court's order denying arbitration.

BACKGROUND

NCUA is a federal agency, which charters and regulates federal credit unions. Among other duties, the agency insures the deposits of account holders in all federal credit unions through the National Credit Union Share Insurance Fund (" Share Insurance Fund" ). The Share Insurance Fund is financed by deposits from all federally insured credit unions and " backed by the full faith and credit of the U.S. Government." Share Insurance Overview, National Credit Union Administration, http://www.ncua.gov/DataApps/Pages/SI-NCUA.aspx (last visited Dec. 18,

Page 147

2014); see 12 U.S.C. § 1782(c). If an insured credit union is in a precarious financial condition, NCUA has the power to place the credit union under conservatorship or into liquidation. 12 U.S.C. § § 1786(h), 1787.

Southwest was a " corporate credit union," a class of credit union that provides liquidity, investment and financial services to other, consumer-owned credit unions. Southwest served over 1,300 consumer-owned credit unions, which in turn provided services to approximately 33 million consumers. Between 2006 and 2007, Southwest purchased from Goldman three certificates for residential mortgage-backed securities (" RMBS" ) totaling $40 million. The RMBS were rated triple-A at the time they were issued. Within a few years, however, they were downgraded to below investment grade, resulting in substantial diminution in their market value.

On September 24, 2010, NCUA placed Southwest into conservatorship, and on October 31, 2010, into involuntary liquidation, with NCUA serving as liquidating agent. As liquidating agent, NCUA acquired all rights, titles, powers, and privileges of Southwest, including the right to bring litigation on its behalf.

PROCEDURE

On September 23, 2013, NCUA filed suit against Goldman in the Southern District of New York. The complaint alleged that Goldman violated federal and state securities laws by making untrue statements and omissions of material fact in the offering documents covering the sales of the RMBS. In response, Goldman sent a letter to NCUA dated October 8, 2013, requesting that NCUA submit the claims to arbitration. Goldman attached the CAA, which provided that it governed " individually and collectively all accounts which [Southwest] may maintain with [Goldman]" and that " [a]ny controversy between [Southwest and Goldman] arising out of or relating to this Agreement or the accounts established hereunder, shall be settled by arbitration . . . ." Joint App'x (" JA" ) at 174.

On October 17, 2013, NCUA refused Goldman's demand for arbitration. NCUA asserted that it was repudiating the CAA pursuant to its statutory authority under 12 U.S.C. § 1787(c). Section 1787(c) authorizes a liquidating agent for an insured credit union to " repudiate any contract" if the liquidating agent determines, in its discretion, that performance of the contract would be " burdensome" and repudiation of the contract would " promote the orderly administration of the credit union's affairs." 12 U.S.C. § 1787(c)(1). NCUA attached a letter of its agent Mike Barton stating his determination that " continuation of [the CAA] would be burdensome and would hinder the orderly administration of the affairs of Southwest." JA 178.

On November 13, 2013, Goldman moved in the district court to compel arbitration, citing the Federal Arbitration Act, 9 U.S.C. § 1, et seq.[2] NCUA opposed, arguing, inter alia, that it had repudiated the CAA, rendering the arbitration provision unenforceable. The district court agreed and denied Goldman's motion. Goldman brought this appeal.

DISCUSSION

I. NCUA's Power to Repudiate an Arbitration ...


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