U.S. District Court Judge Denise Cote (Rick Kopstein)
We’ve lost count of how many times the banks sued by the Federal Housing Finance Agency for selling shoddy mortgage-backed securities have had their defenses slapped down by U.S. District Judge Denise Cote. But even as more and more settlements piled up this summer, the remaining defendants seized on an obscure U.S. Supreme Court decision to revive their long-standing, twice-defeated argument that the FHFA’s multibillion-dollar claims are time-barred.
The argument didn’t fare any better this time around.
In a 19-page opinion issued on Thursday, Cote reiterated her position that the Housing and Economic Recovery Act of 2008 lengthened the statute of repose that governs the FHFA’s claims, and that the agency therefore didn’t wait too long to sue big banks for allegedly duping Fannie Mae and Freddie Mac into buying mountains of toxic securities. Cote concluded that the Supreme Court’s June 9 decision in CTS v. Waldburger, which involved a statute of repose governing environmental cleanup claims, did nothing to change her stance.
Cote also denied a request that she certify her decision for immediate appeal to the U.S. Court of Appeals for the Second Circuit. That may be the bigger disappointment for the banks remaining in the litigation—HSBC Holding North America Inc., Nomura Holding Inc. and Royal Bank of Scotland Group plc. It’s hard to imagine that Cote—after three years of litigation and billions of dollars in settlements—would have ruled that she erred in letting the FHFA litigation go forward. But the Second Circuit, which affirmed Cote’s previous decision, might have been a bit more receptive to the idea that CTS is a game-changer.
Cote’s ruling didn’t come as much of a surprise, and not just because she has often sided with FHFA’s lawyers at Quinn Emanuel Urquhart & Sullivan and Kasowitz Benson Torres & Friedman. As we’ve reported, the banks also argued that CTS doomed similar cases brought by the National Credit Union Administration. The U.S. Court of Appeals for the Tenth Circuit strongly rejected that notion earlier this month, writing that “CTS does not alter our original conclusion that NCUA’s federal claims were timely.” Cote went out of her way to praise the Tenth Circuit’s decision in her ruling on Thursday.
The Housing and Economic Recovery Act of 2008 includes a so-called extender provision that explicitly lengthened the statute of limitations for FHFA, Fannie and Freddie’s conservator, to bring lawsuits alleging that banks lied about the securities they were hawking to the government-sponsored mortgage giants. HERA didn’t explicitly state that it also extended the stricter statute of repose that governs securities claims.
Cote ruled in 2012 that Congress clearly intended HERA to extend the statute of repose, denying the banks’ any chance of an easy escape from the litigation. Cote allowed for an interlocutory appeal to the Second Circuit, which affirmed her decision. The Supreme Court denied cert in 2013, and the FHFA has gone on to secure huge settlements with most of its targets.
The defense lawyers on the losing end of Thursday’s ruling include Michael Ware of Mayer Brown and David Boies of Boies, Schiller & Flexner (for HSBC); Amanda Davidoff and Bruce Clark of Sullivan & Cromwell (for Nomura); and Thomas Rice and David Woll of Simpson Thacher & Bartlett (for RBS). Philippe Selendy of Quinn Emanuel and Marc Kasowitz of Kasowitz Benson represent the FHFA.