Case: FDIC v. RBS Securities Inc.
Issue: Whether the Federal Deposit Insurance Corp.’s Extender Statute preempts the Texas Securities Act’s five-year statute of repose.
Case Summary: The Fifth Circuit revived the Federal Deposit Insurance Corp. as Receiver’s (FDIC-R) securities fraud suit against Goldman Sachs & Co., RBS Securities Inc., and Deutsche Bank Securities, Inc. (companies) alleging that they misrepresented $2.1 billion in residential mortgage-backed securities (RMBS). The Fifth Circuit ruled that the FDIC’s Extender Statute preempts all states’ statutes of repose as well as statutes of limitations.
In the wake of the 2008 financial crisis, the Office of Thrift Supervision (OTS) closed Austin, Texas-based Guaranty Bank. The FDIC-R brought the suit on behalf of Guaranty Bank alleging that the companies violated federal and state securities laws by making false and misleading statements in connection with selling and underwriting $2.1 billion in RMBS. The parties disputed whether the FDIC’s Extender Statute preempts the Texas Securities Act’s five-year statute of repose.
In relying on the U.S. Supreme Court’s decision in CTS Corp. v. Waldburger, which held that North Carolina’s statute of repose was not preempted by the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), the Texas district court ruled that the FDIC-R’s securities claims were time barred by Texas five-year statute of repose.
On appeal, the Fifth Circuit reversed, holding that the FDIC’s Extender Statute preempts all states’ statutes of repose as well as statutes of limitations. In reaching its decision, the Court determined that the underlying congressional intent of the FDIC’s Extender Statute was to grant the FDIC a three-year grace period after being appointed as receiver to investigate claims and “pull all state limitations periods into the statute’s ambit, regardless of whether they are characterized as statute of limitations or statutes of repose.”
Bottom Line: The Fifth Circuit’s decision on the FDIC’s Extender Statute aligns with prior rulings issued by the First, Second and Tenth Circuits.