A federal judge agreed yesterday to halt pending litigation in an effort to resolve whether the statute of limitations can be extended to allow for a government conservator’s claims.
The ongoing suits involve the failure of U.S. Central Federal Credit Union and WesCorp Federal Credit Union to allow two Wall Street banks to appeal Judge Richard Rogers' July ruling preserving MBS suits by National Credit Union Administration (NCUA). Rogers is from the U.S. District Court for the District of Kansas.
In granting the rare interlocutory appeal, the judge said Royal Bank of Scotland and Wachovia Capital Markets, now a unit Wells Fargo, can challenge NCUA’s assertion that the statute of limitations only began to run after NCUA took the two corporate giants over in March 2009. The Wall Street banks claim the statute of limitations began to run much earlier when they sold the MBS to U.S. Central and WesCorp, some of it as early as 2005 and 2006.
An interlocutory appeal is a legal request for an appeals court to review an aspect of a pending case before the trial has concluded.
The case is important not only to NCUA, which is suing five Wall Street banks over the failure of five corporates, but also to numerous Wall Street banks who are also being sued by other federal regulators, banks and private investors over the implosion of MBS they bought before the meltdown of the mortgage markets. NCUA has similar suits pending against JPMorgan Chase, Goldman Sachs and UBS Securities.
At issue is whether the relevant state or federal statutes of limitations had expired for MBS the Wall Street banks sold to the corporates as early as 2005 and 2006 by the time NCUA filed suit in 2011.
The U.S. District Court for the District of Kansas rejected motions for dismissal by RBS and Wells Fargo in July when it ruled that NCUA’s June 2011 filing was not too late under relevant statutes of limitations, even though it was brought six years after the securities were sold to U.S. Central.
The Court ruled that NCUA, as conservator of the one-time $52 billion corporate credit union, could not have known at the time that there were potential misstatements of facts in the offering documents. The federal court said, among other things, that government agencies, like NCUA and the FDIC, must be granted additional leeway in bringing such claims because the regulators could not have known the details of the offerings until after taking an entity under conservatorship.
In agreeing to allow the appeal to go forward Rogers said he finds “that an appeal of the issues pressed by defendants may materially advance the ultimate termination of what appears to be expensive and complex litigation.”