LOS ANGELES (9/10/12)--A federal judge in Los Angeles has ruled that the National Credit Union Administration's (NCUA) lawsuit against Goldman Sachs & Co. can proceed, saying NCUA had met the requirements on an extended "tolling" statute of limitations agreement before its filed its suit over residential mortgage backed securities (RMBS) sold to the former Western Corporate FCU and U.S. Central FCU.
In an in-chambers proceeding on Tuesday, U.S. District Judge George H. Wu of the U.S. District Court for the Central District of California confirmed his tentative ruling issued March 15 as the court's final ruling on motions made by Goldman to dismiss the case, according to minutes of the proceeding.
NCUA has said that losses from the RMBS sales to the now-shuttered corporates total $15 billion to $20 billion (News Now
August 10, 2011). As the liquidating agency for the corporates, NCUA alleges in the suit that Goldman Sachs' securities sellers and underwriters made several material misrepresentations in the RMBS offering documents, leading the corporates to believe the risks associated with their investments were minimal although the risks actually were substantial.
A key issue in the case was whether NCUA had missed the statute of limitations or the statute of repose for filing the case. It had entered into a "tolling" agreement with Goldman Sachs on Aug. 31, 2011, to extend the time allowed for filing the lawsuit. NCUA filed its lawsuit on Aug. 9, 2011. Despite the agreement, Goldman had maintained the filing deadlines had passed and sought dismissal.
In a tentative ruling in March, Wu had indicated that American Pipe Construction Co. v. Utah
applied to the statute of limitations and statute of repose. Under that case, NCUA would have met the statute of repose extender requirement.
In the minutes of Tuesday's proceedings, Wu made four observations contributing to the ruling:
- The court could not rule on co-defendant Residential Accredit Loans Inc.'s motion to dismiss the case because Residential had filed for a Chapter 11 bankruptcy, which creates "an automatic stay of this litigation, at least insofar as it relates to Residential."
American Pipe tolling applies to the case where a class representative purports to sue in connection with a particular security, at least until a court determines that plaintiff does not actually have standing. "It does not apply, however, if that class representative never purports to sue in connection with that particular security."
- The court would require NCUA, in amending its complaint, to plead American Pipe tolling in conformity with the requirements set forth in Stichting Pensioenfonds ABP v. Countrywide Financial Corp.
- The Aug. 31, 2011, tolling agreement between NCUA and Goldman would allow NCUA to proceed with its Kansas state claim.
Kansas law provides a statute of limitations of two years and a statute of repose of five years. NCUA entered into the tolling agreement before the statute of repose expired. Kansas law could apply because U.S. Central was domiciled in Kansas.
NCUA has filed other suits against Wall Street banks over RMBS losses at the corporates. They include suits against USB Securities, which was filed Thursday; RBS Securities; JP Morgan Chase; and Wells Fargo (over actions by its Wachovia Securities unit). NCUA's suits against Citigroup and Deutsche Bank Securities were settled for a combined $165.5 million, with neither bank admitting any fault (News Now
Nov. 15, Feb. 6, and Feb. 14).