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National Credit Union Administration Board v. Credit Suisse Securities (Usa) LLC; Credit Suisse First Boston Mortgage Securities Corp.; and Indymac Mbs

April 8, 2012


The opinion of the court was delivered by: John W. Lungstrum United States District Judge


This matter is presently before the Court on the motion to dismiss by defendants Credit Suisse Securities (USA) LLC and Credit Suisse First Boston Mortgage Securities Corp. (collectively "Credit Suisse") (Doc. # 23). For the reasons set forth below, the motion is granted in part and denied in part. The motion is granted with respect to all of plaintiff's state-law claims, as well as plaintiff's federal claims based on 12 particular certificates, as set forth herein, which are time-barred. The motion is denied with respect to plaintiff's federal claims based on the other eight certificates.

I. Background

Plaintiff National Credit Union Administration Board brings this suit as conservator and liquidating agent of three credit unions: U.S. Central Federal Credit Union ("U.S. Central"), Western Corporate Federal Credit Union ("WesCorp"), and Southwest Corporate Federal Credit Union ("Southwest"). The suit relates to 20 different residential mortgage-backed securities ("RMBS" or "certificates"), each purchased by one of the credit unions. Plaintiff brings claims under the federal Securities Act of 1933 and California and Kansas statutes, based on alleged untrue statements or omissions of material facts relating to each RMBS. Defendant Credit Suisse Securities (USA) LLC was the underwriter or seller for various certificates, while the other two defendants issued the certificates.

II. Venue

Credit Suisse seeks dismissal of plaintiff's claims brought on behalf of WesCorp or Southwest for lack of venue. Plaintiff's sole allegation relating to venue reads as follows:

Venue is proper in this District under Section 22 of the Securities Act, 15 U.S.C. § 77v(a), because many of the transactions at issue occurred in Lenexa, Kansas, the headquarters of U.S. Central.

Credit Suisse's sole argument in the brief supporting its motion is that because this allegation says nothing about the other two credit unions, it cannot support venue for the claims brought on behalf of WesCorp and Southwest, which should therefore be dismissed. The Court rejects this argument.

The relevant statute allows for venue in any district "wherein the defendant is found or is an inhabitant or transacts business." See 15 U.S.C. § 77v(a). The statute does not require that the business transacted by the defendant have been related to the particular claims in order to support venue. See id.; Adair v. Hunt Int'l Resources Corp., 526 F. Supp. 736, 740 (N.D. Ill. 1981) (liberal special venue provisions, including Section 77v(a), "do not require that the activities used to establish venue be 'related' or 'connected' to the transaction attacked in the complaint"). Credit Suisse has not argued that any such nexus is required. Thus, the same business activity by Credit Suisse in Kansas supporting venue with respect to claims on behalf of U.S. Central (venue for which Credit Suisse seemingly concedes is proper) would also support venue under this statute for claims against Credit Suisse generally, brought on behalf of any credit union. Accordingly, plaintiff's claims on behalf of the other two credit unions are not subject to dismissal on this basis.

In its reply brief, Credit Suisse argues for the first time that its alleged activities in Kansas are not sufficient to meet the standard that it "transacts business" in Kansas. The Supreme Court, in interpreting a similar venue statute from the Clayton Act, has found the "transacting business" requirement to be broader than being "found" or "doing business" in the district. See United States v. Scophony Corp. of Am., 333 U.S. 795, 807 (1948) (citing Eastman Kodak Co. of N.Y. v. Southern Photo Materials Co., 273 U.S. 359, 373 (1927)). Courts have thus noted that this standard requires less business activity than that required under a "doing business" or "minimum contacts" standard, as "it is intended to have a more flexible and broader meaning than the jurisdictional predicates." See Zorn v. Anderson, 263 F. Supp. 745, 747 (S.D.N.Y. 1966); see also Uccellini v. Jones, 182 F. Supp. 375, 376 (D.D.C. 1960) (cited in Zorn).

Credit Suisse asks the Court to apply the standard articulated by one court as follows:

Despite the comparatively latitudinous interpretation which has been given to "transacts business" under [§ 77v(a)] of the Securities Act of 1933, the courts have insisted that the activities constitute a substantial part of a defendant's ordinary business, that they be continuous, and at least of some duration.

See United Indus. Corp. v. Nuclear Corp. of Am., 237 F. Supp. 971, 978 (D. Del. 1964). The Court concludes that this standard is satisfied here. Credit Suisse did not merely have de minimis or random or fortuitous contacts with this district; rather, plaintiff alleges that Credit Suisse and U.S. Central conducted numerous transactions, over several months, involving hundreds of millions of dollars. Accordingly, Credit Suisse is alleged to have engaged in activity that would constitute the transaction of business in this district for purposes of the applicable venue statute. See, e.g., Birdman v. Electro-Catheter Corp., 352 F. Supp. 1271, 1273 (E.D. Pa. 1973) (venue proper under United Industries standard where defendant had two percent of its sales in the district); cf. Hodgdon v. Needham-Skyles Oil Co., 556 F. Supp. 75, 78 (D.D.C. 1982) (mere recording of a deed, which was not part of the defendants' ordinary business and was not continuous, did not constitute transaction of business under similar standard).*fn1

Accordingly, the Court denies Credit Suisse's motion to dismiss certain claims for lack of venue.

III. Timeliness of Claims

A. Introduction

Credit Suisse argues that plaintiff's federal and state claims are time-barred. Section 13 of the Securities Act, 15 U.S.C. § 77m, provides the initial limitations periods for plaintiff's federal claims. That statute provides:

No action shall be maintained . . . unless brought within one year after the discovery of the untrue statement or omission . . . . In no event shall any such action be brought more than three years after [the relevant sale or public offering of the security].

Id. Plaintiff's claim under Kansas law is governed by the following statute of limitations:

A person may not obtain relief . . . unless the action is instituted within the earlier of two years after discovery of the facts constituting the violation or five years after the violation.

K.S.A. § 17-12a509(j)(2). The timeliness of plaintiff's claim under California law is governed by the following provision:

[N]o action shall be maintained . . . unless brought before the expiration of five years after the act or transaction constituting the violation or the expiration of two years after the discovery by the plaintiff of the facts constituting the violation, whichever shall first expire.

Cal. Corp. Code § 25506. Thus, these statutes require that these federal and state claim have been filed within one or two years of their discovery and within three or five years of the sale or violation, respectively.

The dates of the sales alleged in the complaint-the dates on which the limitations periods would begin to run absent the discovery rule-range as follows: for claims on behalf of WesCorp (12 certificates), from October 27, 2005, to June 4, 2007; for claims on behalf of U.S. Central (7 certificates), from September 22, 2006, to March 8, 2007; and for Southwest (1 certificate), on June 14, 2006. For the four WesCorp certificates sold before April 2006, only California state law claims are alleged. Plaintiff filed this suit on October 4, 2012. Thus, even assuming compliance with the one- and two-year discovery limitations periods, plaintiff's claims would still be untimely under the three-and five-year limitations periods for every certificate.

Plaintiff asserts various means of avoiding the statutory time bars (other than by arguing timeliness under the discovery rule). First, plaintiff would apply the so-called Extender Statute, 12 U.S.C. § 1787(b)(14), which applies to actions brought by this plaintiff (a governmental entity) as a conservator or liquidating agent. The Extender Statute provides as follows:

(A) In general

Notwithstanding any provision of any contract, the applicable statute of limitations with regard to any action brought by the Board as conservator or liquidating agent shall be---

(i) in the case of any contract claim, the longer of---(I) the 6-year period beginning on the date the claim accrues; or

(II) the period applicable under State law; and

(ii) in the case of any tort claim, the longer of-

(I) the 3-year period beginning on the date the ...

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