United States District Court, S.D. New York
FEDERAL DEPOSIT INSURANCE CORP., as Receiver for CITIZENS NATIONAL BANK and Receiver for STRATEGIC CAPITAL BANK, Plaintiff,
BEAR STEARNS ASSET BACKED SECURITIES I LLC, et al., Defendants
For Plaintiff: Mark B. Holton, Esq., David J. Grais, Esq., Kathryn E. Matthews, Esq., GRAIS & ELLSWORTH LLP, New York, New York.
For Defendant: Andrew T. Frankel, Esq., Thomas C. Rice, Esq., Abigail W. Williams, Esq., SIMPSON THACHER & BARTLETT LLP, New York, New York.
For Defendant: Richard W. Clary, Esq., Julie A. North, Esq., Richard J. Stark, Esq., Michael T. Reynolds, Esq., Lauren A. Moskowitz, Esq., CRAVATH, SWAINE & MOORE LLP, New York, New York.
For Defendant: Michael O. Ware, Esq., S. Christopher Provenzano, Esq., MAYER BROWN LLP, New York, New York.
Opinion and Order
LAURA TAYLOR SWAIN, United States District Judge.
In this action Plaintiff, the Federal Deposit Insurance Corporation, as receiver for both Citizens National Bank (" CNB" ) and Strategic Capital Bank (" SCB," and together with CNB the " Banks" ), sues Bear Stearns Asset Backed Securities I LLC (" BSABS" ); the Bear Stearns Companies LLC; J.P. Morgan Securities LLC; Citicorp Mortgage Securities, Inc. (" CMSI" ); CitiMortgage, Inc. (" CitiMortgage" ); Citigroup Global Markets Inc. (" Citigroup" ); Credit Suisse First Boston Mortgage Securities Corp.; Credit Suisse Management LLC (" Credit Suisse Mgmt." ); Credit Suisse Securities (USA) LLC (" Credit Suisse Securities" ); Merrill Lynch Mortgage Investors, Inc. (" Merrill Lynch" ); Merrill Lynch Mortgage Capital Inc. (" MLMCI" ); Merrill Lynch, Pierce, Fenner & Smith Inc.; Ally Securities, LLC; Deutsche Bank Securities Inc. (" DBS" ); HSBC Securities (USA) Inc. (" HSBC" ); RBS Securities Inc. (" RBS" ); and UBS Securities LLC (" UBS" ) (collectively, " Defendants" ), alleging that Defendants violated the Securities Act of 1933 (the " 1933 Act" ) in connection with the issuance of certain certificates backed by collateral pools of residential mortgage loans. Plaintiff amended the complaint on October 12, 2012 (the " Amended Complaint" ).
Defendants later brought the instant motion to dismiss the Amended Complaint (the " Motion" ), arguing that the action is untimely and that the Amended Complaint fails to state a claim upon which relief can be granted. Among Defendants' arguments was the assertion that the FDIC's 1933 Act claims are barred by the statute of repose provision set forth in Section 13 of the 1933 Act, 15 U.S.C. § 77m. Plaintiff asserted that the statute of repose was preempted by an extension provision of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (" FIRREA" ), codified as 12 U.S.C. § 1821(d)(14) (the " FDIC Extender Provision" ). While the motion was pending, the Second Circuit held, in Federal Housing Finance Agency v UBS Americas, Inc., 712 F.3d 136 (2d Cir. 2013), that the Section 13 statute of repose was preempted by the extension provision of the Housing and Economic
Recovery Act of 2008 (" HERA" ), 12 U.S.C. § 4617(b)(12), which is substantially identical to the FDIC Extender Provision, and Defendants withdrew the Section 13 aspect of their motion. The Supreme Court thereafter held in CTS Corp. v. Waldberger, 134 S.Ct. 2175, 189 L.Ed.2d 62 (2014), that an extender provision of the Comprehensive Environmental Response, Compensation and Liability Act (" CERCLA" ) did not preempt statutes of repose, and remanded, in light of that decision, a Tenth Circuit decision that had held that statutes of repose were preempted by another statutory provision that is substantially identical to the FDIC Extender Provision. At the parties' suggestion, the Court ordered supplemental briefing of Defendants' reinstated statute of repose argument.
This Court has jurisdiction of this action pursuant to 28 U.S.C. § 1331, and has considered carefully the submissions of the parties. For the reasons stated below, Defendants' Motion is granted.
The following facts are taken from the Amended Complaint. Plaintiff's factual allegations are accepted as true for the purpose of resolving this Motion.
Defendants were involved in various aspects of the securitization of an issuance of residential mortgage backed securities (" RMBS" ). Between September 2007 and April 2008, CNB purchased ten RMBS certificates for approximately $67.5 million, and SCB purchased nine of the certificates for approximately $73 million (together, the " Securities" ). Each of the Securities was offered to the public in 2006 and 2007. (See Am. Compl., Schedules 1-3, 5, 7, 10-12 Items 38(a) & 38(b).)
BSABS, MLMI, and CMSI issued certain of the Securities. Certain of the Defendants -- Citigroup, Credit Suisse Securities, RBS, Bear Stearns, Merrill Lynch, DBS, UBS, and HSBC -- acted as underwriters for the Securities. These underwriters purchased certificates from the trust and sold them to various investors, including the Banks. CitiMortgage, MLMCI, and Credit Suisse Mgmt. are sued as control persons.
The Banks were closed by the FDIC on May 22, 2009, and were placed into receivership. The FDIC thereafter conducted an extensive investigation of the Securities, including a detailed analysis of a random sample of the loans underlying each of the twelve Securities at issue here. This investigation included use of an automated valuation model which was based on " objective criteria like the condition of the property and the actual sale prices of comparable properties in the same locale shortly before the specified date." (Amend. Compl. ¶ 50.) The FDIC alleges that this modeling revealed that loan-to-value ratios were misstated significantly in the offering documents for the Securities, and that " the number of properties on which the value was overstated exceeded by far the number on which the value was understated, and the aggregate amount overstated exceeded by far the aggregate amount understated." (Amend. Compl. ¶ 51.)
The FDIC, as receiver for the Banks, filed this lawsuit on May 18, 2012, well over three years after each of the Securities was offered to the public.
Claims brought under Section 11 of the 1933 Act are subject to the two-pronged
timing provision of Section 13 of that Act, which is codified as 15 U.S.C. § 77m. The first prong of Section 13 is a statute of limitations, which provides that Section 11 claims must be brought within one year of " the discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence." 15 U.S.C.S. § 77m (LexisNexis 2012). The statute of limitations may be tolled based on equitable considerations, but not beyond three years from the date of the relevant offering, at which point a plaintiff's claim is extinguished by Section 13's second prong -- a statute of repose -- which provides that " [i]n no event shall any such action be brought . . . more than three years after the security was bona fide offered to the public." Id.
The FDIC asserts that its claims are timely, notwithstanding the three-year Section 13 statute of repose, because the statute of repose is preempted by the FDIC Extender ...