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From the Western District of Texas, a place where Banks usually prevail, came a crushing blow to their hopes of evading responsibilities for securities fraud and fraudulent practices involved in the sale of mortgage backed securities. Essentially, the banks were arguing that the true facts that they had withheld or lied about could be covered up until the statute of limitations ran out. The trial court agreed. The circuit court disagreed.
Significant quotes —
The FDIC filed two separate suits against the Appellees and other financial institutions on August 17, 2012.2 The FDIC’s lawsuit alleged claims under the Securities Act of 1933 and the Texas Securities Act.3 The FDIC alleged that, in underwriting and selling the residential mortgage backed securities to Guaranty, the Appellees “made numerous statements of material fact about the [securities] and, in particular, about the credit quality of the mortgage loans that backed them” that “were untrue.” The FDIC also alleged that the Appellees “omitted to state many material facts that were necessary in order to make their statements not misleading.” [Editor’s Note: For example that the money from the investor never went where it was intended — to a REMIC Trust]
Senator Riegle, one of FIRREA’s sponsors, stated:
Although these provisions have attracted little attention from the media, they are of the utmost importance. Extending these limitations periods will significantly increase the amount of money that can be recovered by the Federal Government through litigation, and help ensure the accountability of the persons responsible for the massive losses the Government has suffered through the failures of insured institutions. The provisions should be construed to maximize potential recoveries by the Federal Government by preserving to the greatest extent permissible by law claims that would otherwise have been lost due to the expiration of hitherto applicable limitations periods. See Electrical Workers v. Robbins & Myers, Inc., 429 U.S. 229, 243 (1976); Chase Securities Corp. v. Donaldson, 325 U.S. 304, 311–16 (1946).
Explaining the policies underlying the two types of statutes, the Court stated that “[s]tatutes of limitations require plaintiffs to pursue ‘diligent prosecution of known claims,’” id. at 2183 (quoting Black’s Law Dictionary 1546 (9th ed. 2009)), and “promote justice by preventing surprises through [plaintiffs’] revival of claims that have been allowed to slumber until evidence has been lost, memories have faded, and witnesses have disappeared,” id. (alteration in original) (quoting R.R. Telegraphers v. Ry. Express Agency, Inc., 321 U.S. 342, 348–49 (1944)).
That Study Group Report was commissioned after Congress passed CERCLA, and Congress directed the study group to “determine ‘the adequacy of existing common law and statutory remedies in providing legal redress for harm to man and the environment caused by the release of hazardous substances into the environment,’ including ‘barriers to recovery posed by existing statutes of limitations.’” Id. at 2180 (quoting 42 U.S.C. § 9651(e)(1), (3)(F)). The resulting report recommended, inter alia, that “all states that have not already done so, clearly adopt” the discovery rule for accrual of causes of action due to the “long latency periods in harm caused by toxic substances.” Id. at 2180–81. “The Report further stated: ‘The Recommendation is intended also to cover the repeal of the statutes of repose which, in a number of states[,] have the same effect as some statutes of limitation in barring [a] plaintiff’s claim before he knows that he has one.’” Id. at 2181 (alterations in original). [Editor’s Note: The court is using precedent on release of physically toxic substances to decide a case based upon financially toxic instruments]
But this is not the usual case. The FDIC Extender Statute did not create a new statute of limitations merely for the ordinary reasons, but also “to give the [FDIC] three years from the date upon which it is appointed receiver to . . . . investigate and determine what causes of action it should bring on behalf of a failed institution.”
“The purpose of FIRREA’s preemption of state statutes of limitations is to give the [FDIC] three years from the date upon which it is appointed receiver to . . . . investigate and determine what causes of action it should bring on behalf of a failed institution.” Barton, 96 F.3d at 133; UBS, 712 F.3d at 142 (“Congress obviously realized that it would take time for this new agency to mobilize and to consider whether it wished to bring any claims and, if so, where and how to do so. Congress enacted [the FHFA Extender Statute] to give FHFA the time to investigate and develop potential claims on behalf of [Fannie Mae & Freddie Mac]—and thus it provided for a period of at least three years from the commencement of a conservatorship to bring suit.”).
Filed under: foreclosure