Tag Archives: Tenth Circuit

Reiss on FIRREA Storm

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Law360 quoted me in Bold 10th Circ. Opinion Muddies FIRREA Challenges. The article opens,

The Tenth Circuit last week gave a strong argument as to why a recent U.S. Supreme Court decision has no bearing on one federal agency’s ability to sue over soured mortgage-backed securities, but that won’t stop big banks from trying to convince different courts otherwise, legal experts say.

The appeals court’s opinion said a June high court ruling did not alter its original ruling that the National Credit Union Administration Board’s suit against Nomura Home Equity Loan Inc. and a number of other MBS originators was not time-barred.

The Supreme Court had found that a lawsuit by North Carolina residents under the federal Comprehensive Environmental Response, Compensation and Liability Act was time-barred by the state’s statute of repose

But the regulator of federally chartered credit unions is bringing its claim under the Financial Institutions Reform, Recovery and Enforcement Act, and the appeals court said that law’s so-called extender statute was not subject to the same limitations the Supreme Court had found in the Superfund pollution cleanup law at the heart of CTS Corp. v. Waldburger.

Rather, the language of FIRREA and its legislative history made it clear Congress had intended the law to have its own statute of limitations and not be bound by other statutes of repose, the appeals panel wrote, responding to a Supreme Court order that it take a second look at its earlier decision.

Before the Tenth Circuit issued its decision, defense attorneys had looked to the Supreme Court’s remand as a chance to give banks some relief from the lingering hangover of government lawsuits, many of which have ended with banks coughing up hundreds of millions, if not billions, of dollars in damages.

And it’s clear banks will still fight for that relief. In a motion for summary judgment Friday, attorneys for RBS told a Connecticut district court judge he should toss an FHFA suit brought under the extender statute of the Housing and Economic Recovery Act, in light of the time bar established by the Supreme Court in Waldburger.

In doing so, the attorneys also urged the judge to disregard the Tenth Circuit’s opinion, arguing it was flawed.

“Nomura, of course, is not controlling in this circuit, and the opinion on remand fails to faithfully apply the analytical framework established in Waldburger, instead sidestepping Waldburger by focusing on superficial distinctions between the CERCLA and NCUA extender statutes,” the attorneys wrote.

Experts say such disputes will continue on.

“The debate is not over by any stretch of the imagination,” David Reiss, a professor at Brooklyn Law School, said. “There’s enough at stake for powerful and well-financed institutions that this will be played out to the fullest.”

While legal experts say they can’t predict how other jurisdictions will move on similar questions about timeliness under FIRREA, they say the Tenth Circuit approached the task of reaffirming its earlier opinion in a way that appeared designed to withstand high court scrutiny.

“It is a thorough opinion. I think that other courts will take this opinion very seriously,” Reiss said.

Offering Opinions About MBS Exposure

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The Tenth Circuit issued an opinion in MHC Mutual Conversion Fund, L.P. v. Sandler O’Neill & Partners, L.P. et al. (No. 13-1016 Aug. 1, 2014). The case concerns a 2009 stock offering by Bancorp. Bancorp was significantly exposed to mortgage-backed securities (MBS) and said as much in its securities filings. It also predicted that the market for MBS would rebound soon.

The highly readable opinion asks,

When does section 11 of the Securities Act of 1933 impose liability on issuers who offer opinions about future events? The statute prohibits companies from making statements that are false or misleading. Establishing that an opinion about the future failed to pan out in the end may go some way to meeting that standard but it doesn’t go all the way. After all, few of us would label a deeply studied, carefully expressed, and earnestly held opinion about the future as false or misleading at the time it’s made simply because later events proved it wrong. To establish liability for an opinion about the future more is required. But what? Answering that question is the challenge posed by this case.

The opinion provides a clear overview of what differentiates opinion from fact in securities offering statements. The Court does this by carefully walking through three theories of opinion liability under section 11:

  1. “no one should depend on the puffery of salesmen . . . especially when the salesman’s offering a guess about the future” (5-6)
  2. “an opinion can qualify as a factual claim by the speaker regarding his current state of mind.” (7)
  3. “some subset of opinions about future events contain within them an implicit factual warranty that they rest on an objectively reasonable basis” (13)

In this case, the Court found that the plaintiffs could not establish liability under any theory.

The opinion provides a nice, clean framework for understanding section 11 liability claims.  This framework should apply to offering statements for MBS that set forth opinions about future events as well as those for any other type of security that does the same.