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National Credit Union Administration Board v. Morgan Stanley & Co., Inc.

United States District Court, Tenth Circuit

December 27, 2013

NATIONAL CREDIT UNION ADMINISTRATION BOARD, Plaintiff,
v.
MORGAN STANLEY & CO., INCORPORATED; MORGAN STANLEY ABS CAPITAL I INC.; MORGAN STANLEY CAPITAL I INC.; and SAXON ASSET SECURITIES COMPANY, Defendants.

MEMORANDUM AND ORDER

John W. Lungstrum United States District Judge

This matter is presently before the Court on defendants’ motion to dismiss (Doc. # 19). The Court concludes that certain of plaintiff’s claims are time-barred. Accordingly, the motion is granted in part and denied in part, as set forth more specifically herein.

I. Background

Plaintiff National Credit Union Administration Board brings this suit as conservator and liquidating agent of U.S. Central Federal Credit Union (“U.S. Central”) and Western Corporate Federal Credit Union (“WesCorp”). The suit relates to 21 different residential mortgage-backed securities (“RMBS” or “certificates”), each purchased by one of the credit unions between December 2004 and June 2007. By the present suit, filed on August 16, 2013, plaintiff brings claims under the federal Securities Act of 1933 and under California and Kansas statutes, based on alleged untrue statements or omissions of material facts relating to each RMBS. Defendant Morgan Stanley & Co., Incorporated was the underwriter or seller for the certificates, while the other three defendants issued the certificates. Defendants have moved to dismiss all claims.

Plaintiff brought eight other similar suits, involving different certificates, in this district, which cases were re-assigned to the undersigned judge. In one of those actions, Case No. 12-2648, by Memorandum and Order dated April 8, 2013, the Court granted in part and denied in part the motion to dismiss filed by the Credit Suisse defendants (“Credit Suisse”). See National Credit Union Admin. Bd. v. Credit Suisse Sec. (USA) LLC, 939 F.Supp.2d 1113 (D. Kan. 2013) (“Credit Suisse”). In that opinion, the Court held as follows: (1) Credit Suisse did not show that the Court lacked venue over plaintiff’s claims asserted on behalf of certain credit unions; (2) plaintiff’s claims were not untimely as a matter of law with respect to the applicable one- and two-year discovery limitations periods; (3) the so-called Extender Statute, 12 U.S.C. § 1787(b)(14), which provides the limitations period for claims brought by plaintiff as conservator or liquidator, applies to federal and statutory claims; (4) the Extender Statute displaces both limitations periods in the otherwise-applicable federal (Section 13, 15 U.S.C. § 77m) and state statutes; (5) plaintiff’s three-year limitations period under the Extender Statute was triggered by plaintiff’s appointment as conservator for a credit union, not by its later appointment as liquidator; (6) the Extender Statute’s three-year limitations period may not be extended by a tolling agreement; (7) plaintiff’s assertion of American Pipe tolling with respect to its federal claims based on some certificates did not fail as a matter of law at this stage; and (8) plaintiff’s substantive allegations were sufficient to state plausible and cognizable claims against Credit Suisse.

In some of its rulings in Credit Suisse, the Court followed the reasoning of Judge Rogers in ruling on a motion to dismiss in another of these nine similar cases (before the case was reassigned). See Id . (citing National Credit Union Admin. Bd. v. RBS Sec., Inc., 900 F.Supp.2d 1222 (D. Kan. 2012) (“RBS”)). On August 27, 2013, in an interlocutory appeal in RBS, the Tenth Circuit affirmed Judge Rogers with respect to two of the issues listed above, holding that the Extender Statute does apply to federal and statutory claims and does displace Section 13’s three-year limitations period. See National Credit Union Admin. Bd. v. Nomura Home Equity Loan, Inc., 727 F.3d 1246 (10th Cir. 2013), petition for cert. filed, 82 U.S.L.W. 3307 (U.S. Nov. 8, 2013).

After issuing its opinion in Credit Suisse, the Court invited the parties in the other seven similar cases (this case had not yet been filed) to submit briefs addressing (a) the application of the Court’s rulings in Credit Suisse to the motions to dismiss filed by the defendants in those cases and (b) the specific issue of the enforceability of plaintiff’s tolling agreements. The Court subsequently reaffirmed its ruling in Credit Suisse that the tolling agreements are not enforceable, and it ruled on motions to dismiss filed in each of those seven cases. The Court dismissed one of those actions in its entirety, see Memorandum and Order of July 10, 2013, National Credit Union Admin. Bd. v. Barclays Capital Inc., Case No. 12-2631, and that case is presently on appeal to the Tenth Circuit.

II. Timeliness of Claims

A. Initial Application of Credit Suisse and Nomura

Defendants argue that plaintiffs’ claims are untimely. Like their counterparts in the similar cases, defendants argue that the Extender Statute does not displace the otherwise-applicable federal and state limitations period and that the Extender Statute does not apply to federal and statutory claims. As noted above, however, those arguments have been rejected by this Court (in RBS and Credit Suisse) and by the Tenth Circuit (in Nomura, on interlocutory appeal in RBS).

Defendants also argue that plaintiff’s claims were already time-barred, pursuant to the one-year federal and two-year state discovery limitations periods, at the time that plaintiff was appointed conservator and the Extender Statute was triggered. The Court also rejected that argument in RBS and Credit Suisse. Defendants argue that the Court has not yet considered that argument in the specific context of these certificates. Nevertheless, for the same reasons stated in the other similar cases, the Court cannot conclude at this stage as a matter of law that plaintiff’s claims became time-barred under the discovery rule.

In the alternative, defendants seek dismissal of plaintiff’s claims as time-barred pursuant to the three-year limitations period imposed by the Extender Statute. Absent some form of tolling, plaintiff was required to file those claims by March 20, 2012, three years after its appointment as conservator for those credit unions, but plaintiff did not initiate this action until August 16, 2013. Nor may plaintiff rely on the Extender Statute’s alternative reference to the applicable state-law limitations periods, as this case was filed more than five years (the applicable repose period for both states) after the purchases of these certificates.

Plaintiff notes that it entered into a tolling agreement with these defendants, but the Court, in Credit Suisse, reaffirmed its ruling that plaintiff may not rely on such an agreement to avoid application of the Extender Statute’s limitations period, and that ruling will also be applied in the present case. Thus, with respect to certificates for which plaintiff has not asserted some other form of tolling, plaintiff’s federal and state claims on behalf of U.S. Central and WesCorp would be time-barred and subject to dismissal. Based on plaintiff’s complaint and the parties’ briefs, such claims include those based on the following certificates:

CUSIP

Purchaser

Issuing Entity

45071KCP7

WesCorp

Ixis Real Estate Capital Trust 2005-HE4

61750MAF2

U.S. Central

Morgan Stanley ABS Capital I Inc. Trust 2006-HE7

61750SAF9

U.S. Central

Morgan Stanley ABS Capital I Inc. Trust 2006-HE8

61749BAE3

U.S. Central

Morgan Stanley ABS Capital I Inc. Trust 2006-NC5

61748HGT2

WesCorp

Morgan Stanley Mortgage Loan Trust 2004-11AR

80556AAD9

U.S. Central

Saxon Asset Securities Trust 2006-3

026935AD8

WesCorp

American Home Mortgage Assets Trust 2007-3

669884AD0

U.S. Central

NovaStar Mortgage Funding Trust, Series 2006-1

669884AE8

U.S. Central

NovaStar Mortgage Funding Trust, Series 2006-1

749228AM4

U.S. Central

RALI Series 2006-QS4 Trust (8/10/06)

749228AM4

U.S. Central

RALI Series 2006-QS4 Trust (9/15/06)

81744HAD5

U.S. Central

Sequoia Mortgage Trust 2007-1

81744HAE3

U.S. Central

Sequoia Mortgage Trust 2007-1


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