Fed. Hous. Fin. Agency v. UBS Americas, Inc.

858 F.Supp.2d 306

FEDERAL HOUSING FINANCE AGENCY, etc., Plaintiff,

v.UBS AMERICAS, INC., et al., Defendants.

No. 11 Civ. 5201 (DLC).

United States District Court, S.D. New York.

May 4, 2012.

Order Granting Motion to Certify Appeal June 19, 2012.

Philippe Z. Selendy, Kathleen M. Sullivan, Adam M. Abensohn, Manisha M. Sheth, Jordan A. Goldstein, Quinn Emanuel Urquhart & Sullivan, LLP, New York, NY, for the plaintiff.

Jay B. Kasner, Scott D. Musoff, Robert A. Fumerton, Skadden, Arps, Slate, Meagher & Flom LLP, New York, NY, for defendants.

OPINION & ORDER

DENISE COTE, District Judge:

This is one of seventeen actions brought by the Federal Housing Finance Agency (“FHFA” or “the Agency”), as conservator of the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (collectively, the “Government Sponsored Enterprises” or “GSEs”), against various financial institutions involved in the packaging, marketing and sale of residential mortgage-backed securities that the GSEs purchased in the period from 2005 to 2007. Fifteen of the actions filed in New York courts—both state and federal—are currently concentrated before this Court for coordinated pretrial proceedings.¹

FHFA brought this case against USB Americas, Inc. (“UBS Americas”) and various affiliated entities and individuals ² on July 27, 2011. The Agency's Second Amended Complaint (“SAC”), filed on December 21, 2011, asserts claims under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, 15 U.S.C. §§ 77k, l (a)(2), o; the Virginia Securities Act, VA Code Ann. § 13.1–522(A)(ii), (C); the District of Columbia Securities Act, D.C.Code § 31–5606.05(a)(1)(B), (c); and the common law tort of negligent misrepresentation. On January 20, 2012, defendants filed a motion to dismiss the SAC. The motion was fully submitted on February 24. For the reasons that follow, the motion is granted in part.

BACKGROUND

On July 30, 2008, in the midst of a housing crisis, Congress passed the Housing and Economic Recovery Act of 2008 (“HERA”). SeePub.L. No. 110–289, 122 Stat. 2654 (2008). As part of the Act, Congress established FHFA as the regulator of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. See id. § 1101. HERA included a provision authorizing the Director of FHFA to place the GSEs into conservatorship under the Agency's authority “for the purpose of reorganizing, rehabilitating, or winding up [their] affairs.” Id. § 1367(a)(3). On September 6, 2008, FHFA Director James B. Lockhart III invoked this authority and appointed the Agency as conservator of both GSEs, giving FHFA the right to assert legal claims on their behalf.

The SAC can be briefly summarized. Plaintiff contends that Fannie Mae and Freddie Mac purchased over $6.4 billion in residential mortgage-backed securities (“RMBS”) sponsored or underwritten by UBS entities during the period between September 2005 and August 2007. RMBS are securities entitling the holder to income payments from pools of residential mortgage loans that are held by a trust. For each of the securities at issue here, the offering process began with a “sponsor,” which acquired or originated the mortgage loans that were to be included in the offering.³ The sponsor transferred a portfolio of loans to a trust that was created specifically for that securitization; this task was accomplished through the involvement of an intermediary known as a “depositor.” ⁴ The trust then issued Certificates to an underwriter, in this case UBS Securities, which in turn, sold them to the GSEs. The Certificates were backed by the underlying mortgages. Thus, their value depended on the ability of mortgagors to repay the loan principal and interest and the adequacy of the collateral in the event of default.

Each of the Certificates implicated in this case was issued pursuant to one of seven Shelf Registration Statements filed with the Securities and Exchange Commission (“SEC”). Each individual defendant signed one or more of the two Shelf Registration Statements that pertained to the securitizations for which MASTR acted as depositor. The Registration Statement, together with the relevant prospectus and prospectus supplement constitute the “offering documents” for each security.

Generally, FHFA asserts that the offering documents for the twenty-two securitizations identified in the complaint “contained materially false statements and omissions.” ⁵ More particularly, the SAC alleges that “[d]efendants falsely represented that the underlying mortgage loans complied with certain underwriting guidelines and standards, including representations that significantly overstated the borrowers' capacity to repay their mortgage loans.” The offering documents are also alleged to have contained representations regarding “the percentage of loans secured by owner-occupied properties and the percentage of the loan group's aggregate principal balance with loan-to-value ratios within specified ranges” that were both false and materially incomplete. Plaintiff asserts that “the false statements of material facts and omissions of material facts in the Registration Statements, including the Prospectuses and Prospectus Supplements, directly caused Fannie Mae and Freddie Mac to suffer billions of dollars in damages,” because “[t]he mortgage loans underlying the GSE Certificates experienced defaults and delinquencies at a much higher rate than they would have had the loan originators adhered to the underwriting guidelines set forth in the Registration Statement.”

DISCUSSION

I. FHFA's Claims are Not Barred by the Securities Act's Statute of Repose.

Defendants' chief argument in favor of dismissal is that this action is untimely because “all of Plaintiff's claims were extinguished no later than August 30, 2010—nearly one full year before the original complaint was filed on July 27, 2011.” Defendants argue that this action is governed by Section 13 of the Securities Act, which sets forth the time limitations that generally apply to claims under Section 11 or Section 12(a)(2). Titled “Limitation of Actions,” Section 13 provides:

No action shall be maintained to enforce any liability created under section 77k [Section 11] or 77 l (a)(2) [Section 12(a)(2)] of this title unless brought within one year after the discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence .... In no event shall any such action be brought to enforce a liability created under section 77k or 77 l (a)(2) of this title more than three years after the security was bona fide offered to the public, or under section 77 l (a)(2) of this title more than three years after the sale.

15 U.S.C. § 77m (emphasis added). Thus, under Section 13, a suit alleging that a defendant violated either Section 11 or Section 12(a)(2) must be filed (a) within one year of the date that the plaintiff discovered the violation, or (b) within three years of the date that the security was offered to the public, whichever is earlier. Courts sometimes refer to the former period as a “statute of limitations” and the latter period as a “statute of repose.” See P. Stolz Family Partnership L.P. v. Daum, 355 F.3d 92, 102 (2d Cir.2004).

As noted above, FHFA's claims pertain to securities offerings that occurred between September 2005 and August 2007. Because these offerings occurred more than three years before July 27, 2011, when this suit was filed, under normal circumstances Section 13 would bar FHFA's Securities Act claims, irrespective of when the Agency “discovered” the violations that it alleges. FHFA does not dispute that this is so. It argues, however, that the timeliness of its claims is governed not by Section 13 but rather by HERA, which the Agency argues establishes superseding rules governing the timeliness of any action in which FHFA is a plaintiff.

In particular, FHFA relies on HERA § 1367(b)(12), which provides:

(A) In general—Notwithstanding any provision of any contract, the applicable statute of limitations with regard to any action brought by the Agency as conservator or receiver shall be—

(i) in the case of any contract claim, the longer of—

(I) the 6–year period beginning on the date on which 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 on which the claim accrues; or

(II) the period applicable under State law.

(B) Determination of the date on which a claim accrues—For purposes of subparagraph (A), the date on which the statute of limitations begins to run on any claim described in such subparagraph shall be the later of—

(i) the date of the appointment of the Agency as conservator or receiver; or

(ii) the date on which the cause of action accrues.

12 U.S.C. § 4617(b)(12) (emphasis added). In the Agency's view, HERA governs the timeliness of its Securities Act claims, to the exclusion of Section 13 entirely. For the claims at issue in this case, which accrued prior to the conservatorship and sound in tort, the Agency maintains that the only relevant timeliness concern is the three-year statute of limitations dictated by HERA. Thus, because FHFA was appointed conservator of the GSEs on September 6, 2008, it had until September 6, 2011 to bring this case, making it timely when filed on July 27, 2011.

Defendants dispute this reading of HERA. They argue that, to the extent it applies to federal claims at all, the statute's only effect with regard to the Securities Act was to relieve FHFA of the requirement that it file suit within one year of discovering the misrepresentations for which it seeks to recover; the three-year post-offering deadline remains in place. But this argument cannot be squared with HERA's text or purpose.

A. “Statutes of Limitations” and “Statutes of Repose”

Because the parties' disagreement turns on the meaning of HERA, a federal statute, we ...