Federal Housing Finance Agency as Conservator for the Federal National Mortgage Association et al v. UBS Americas Inc. et al

Filing 109

OPINION AND ORDER re: 83 MOTION for Certificate of Appealability filed by Peter Slagowitz, David Martin, UBS Securities, LLC, Mortgage Asset Securitization Transactions, Inc., Hugh Corcoran, UBS Real Estate Securities Inc., Per Dyrvik, UBS Americas Inc. Defendants' May 23 motion for certification of an interlocutory appeal of the May 4 Opinion is granted. (Signed by Judge Denise L. Cote on 6/19/2012) (jar)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
--------------------------------------- X
:
FEDERAL HOUSING FINANCE AGENCY, etc., :
:
Plaintiff,
:
-v:
:
UBS AMERICAS, INC., et al.,
:
Defendants.
:
:
--------------------------------------- X

11 Civ. 5201 (DLC)
OPINION & ORDER

APPEARANCES:
For the plaintiff:
Philippe Z. Selendy
Kathleen M. Sullivan
Adam M. Abensohn
Manisha M. Sheth
Jordan A. Goldstein
Quinn Emanuel Urquhart & Sullivan, LLP
51 Madison Avenue, 22nd Floor
New York, New York 10010-1601
For defendants:
Jay B. Kasner
Scott D. Musoff
Robert A. Fumerton
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
DENISE COTE, District Judge:
This is one of sixteen actions pending before this Court
that have been 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 2007.1

An Opinion and Order

of May 4 granted in part defendants’ January 20 motion to
dismiss the Second Amended Complaint.

See Federal Housing

Finance Agency v. UBS Americas, Inc., ___ F. Supp. 2d ___, No.
11 Civ. 5201 (DLC), 2012 WL 1570856 (S.D.N.Y. May 4, 2012) (the
“May 4 Opinion”).
This Opinion addresses the UBS defendants’ May 23 motion to
certify an interlocutory appeal from that portion of the May 4
Opinion that denied their motion to dismiss as untimely FHFA’s
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 Court ordered that

the motion be briefed on an expedited schedule, and it became
fully submitted on June 8, 2012.
In the interim, document discovery has begun in all sixteen
cases.

Pursuant to an Order of June 14, fact and expert

discovery in this case must be complete no later than June 14,
2013.

Any summary judgment motion must be fully submitted by

August 30, 2013.

Trial is scheduled to begin at 9:30 a.m. on

1

The FHFA has also brought two similar actions, which are
pending in federal courts in California and Connecticut. See
FHFA v. Countrywide Financial Corp., et al., No. 12 Civ. 1059
(MRP) (C.D. Cal.); FHFA v. Royal Bank of Scotland, No. 11 Civ.
1383 (AWT) (D. Conn).
2

January 13, 2014.

At a scheduling conference on June 13, 2012,

the defendants agreed that, if this Court granted their motion
for certification, they would seek expedited review in the Court
of Appeals.
Defendants seek interlocutory review of two specific
conclusions in the Court’s May 4 Opinion: (1) that the Housing
and Economic Recovery Act of 2008 (“HERA”) prescribes
comprehensive time limitations for any claim the FHFA may bring
as conservator for the GSEs, including a claim to which a
statute of repose generally attaches; and (2) that HERA’s
timeliness provision applies equally to federal and state causes
of action.

For the purposes of certification, these conclusions

are closely intertwined.

If interlocutory review is granted,

the Court of Appeals will address the specific question of
whether the May 4 Opinion correctly analyzed HERA’s impact on
plaintiff’s Securities Act claims.

HERA’s applicability to

federal claims will necessarily be entailed in that analysis.
Thus, while defendants’ motion for certification raises two
distinct legal issues, they reduce to a single question for
appeal: whether the May 4 Opinion erred in concluding that HERA
displaces the statute of repose that generally governs claims
under the Securities Act.

The Court therefore addresses its

analysis of the Section 1292(b) factors to that single question,

3

recognizing that “it is the order that is appealable, and not
the controlling question identified by the district court” or
the parties.

California Public Employees' Retirement System v.

Worldcom, Inc., 368 F.3d 86, 95 (2d Cir. 2004) (citation
omitted).
Having considered those factors, the Court concludes, for
the reasons that follow, that defendants have carried their
burden of demonstrating that an interlocutory appeal should be
certified.

The motion is therefore granted on the condition

that defendants seek expedited review in the Court of Appeals.
DISCUSSION
The standard for certification is well established.
Section 1292(b) provides, in relevant part, that
[w]hen a district judge, in making in a civil action
an order not otherwise appealable under this section,
shall be of the opinion that such order involves a
controlling question of law as to which there is
substantial ground for difference of opinion and that
an immediate appeal from the order may materially
advance the ultimate termination of the litigation, he
shall so state in writing in such order. The Court of
Appeals which would have jurisdiction of an appeal of
such action may thereupon, in its discretion, permit
an appeal to be taken from such order, if application
is made to it within ten days after the entry of the
order.
28 U.S.C. § 1292(b) (emphasis supplied); see Casey v. Long
Island R. Co., 406 F.3d 142, 146 (2d Cir. 2005) (noting that

4

Section 1292(b) “imposes both procedural and substantive
requirements on a would-be appellant”).
The Court of Appeals has emphasized that Section 1292(b)
certification should be "strictly limited because only
exceptional circumstances will justify a departure from the
basic policy of postponing appellate review until after the
entry of a final judgment."

Flor v. BOT Fin. Corp., 79 F.3d

281, 284 (2d Cir. 1996) (citation omitted).

Certification is

thus appropriate only in the narrow class of cases in which "an
intermediate appeal may avoid protracted litigation."

Koehler

v. Bank of Bermuda Ltd., 101 F.3d 863, 866 (2d Cir. 1996).

In

considering whether to enact Section 1292(b), the House
Committee on the Judiciary specifically identified as falling
into that category cases such as this one, in which “a long
trial is envisioned to determine liability over a defense
disputing the right to maintain the action.”
1.

Id.

Controlling Question of Law
The Second Circuit has recognized that “resolution of an

issue need not necessarily terminate an action in order to be
‘controlling,’” for the purposes of Section 1292(b).
Klinghoffer v. S.N.C. Achille Lauro, et al., 921 F.2d 21, 24 (2d
Cir. 1990).

Rather, it is enough to satisfy the statute’s first

prong that the issue is one “that may importantly affect the

5

conduct of [the] action.”

In re The Duplan Corp., 591 F.2d 139,

148 n.11 (2d Cir. 1978); accord In re Worldcom, Inc. Sec.
Litig., No. 02 Civ. 3288 (DLC), 2003 WL 22953644, at *4
(S.D.N.Y. Dec. 16, 2003).

Moreover, timeliness determinations,

which go directly to the plaintiff’s ability to maintain some or
all of its claims, are precisely the type of legal issue that
Congress intended to be addressed through the Section 1292(b)
procedure.
In resisting certification, plaintiff insists that, even if
the Court of Appeals were to conclude that HERA does not
abrogate the statute of repose generally applicable to claims
under the Securities Act, some portion of its claims would be
preserved by contractual tolling agreements with various
defendants or the class-action tolling doctrine enunciated in
American Pipe & Construction v. Utah, 414 U.S. 538 (1974).
Plaintiff also suggests that its state-law Blue Sky claims would
be unaffected by an interlocutory ruling, because, under the
doctrine articulated in United States v. Summerlin, “the United
States is not bound by state statutes of limitations.”
414, 416 (1940).

310 U.S.

these contentions.

Needless to say, defendants take issue with
The May 4 Opinion did not address them in

light of the Court’s conclusion that plaintiff’s claims were
timely under HERA.

6

Whether or not plaintiff is correct that an interlocutory
ruling on the issues raised by the defendants could not
terminate the litigation, there can be no question that such a
ruling would “importantly affect the conduct of [the] action.”
In re The Duplan Corp., 591 F.2d at 148 n.11.

As defendants

note, plaintiff’s tolling arguments do not apply to 14 of the 22
Certificates at issue here.

Thus, even if those arguments have

merit, an appellate ruling that HERA’s timeliness provision does
not abrogate statutes of repose would significantly narrow the
scope of discovery in this case and the proof that the parties
would be able to present at trial, saving the parties and the
public time and money.

And given that defendants challenge the

plaintiff’s Summerlin argument in part on the ground that the
Supreme Court’s holding does not apply to state statutes of
repose (as distinct from statutes of limitations), an appellate
decision addressed to the relationship between those two
concepts would bear significantly on the Court’s decision as to
whether to allow the Blue Sky claims to go forward in the event
the federal claims were dismissed.

The issues upon which the

defendants seek interlocutory review thus constitute
“controlling questions of law” within the meaning of the
statute.

7

2.

Material Advancement
For many of the same reasons, appellate resolution of the

issues identified by the defendants would “materially advance
the ultimate termination of the litigation.”

As discussed, a

conclusion by the Court of Appeals that this Court erred in its
May 4 ruling has the potential to end or at a minimum
significantly restrict the scope of this litigation.

But the

efficiencies to be gained by interlocutory review are not lost
if the Court of Appeals ultimately affirms this Court’s May 4
ruling.

An appellate ruling that FHFA’s claims are in fact

timely is likely to significantly affect the parties’ bargaining
positions and may hasten the termination of this litigation
through settlement.
Appellate resolution of the timeliness of plaintiff’s
Securities Act claims will also remove a cloud of legal
uncertainty that hangs over the other 17 actions in this suite
of cases.

This, in turn, will facilitate and streamline motion

practice in those other cases and may affect the parties’
strategic decision-making going forward.

Courts may properly

consider such “system-wide costs and benefits” in determining
whether to permit interlocutory review.
at 24.

Klinghoffer, 921 F.2d

Indeed, several district courts, including this one,

have opined that certification may be particularly appropriate

8

in complex litigation involving multiple coordinated actions.
In such cases, interlocutory review may be the best way to
“materially advance the ultimate termination of the litigation
by avoiding ‘protracted litigation and multiple appeals’” of the
same or similar issues.

In re Worldcom, Inc. Sec. Litig., 2003

WL 22953644, at *8 (quoting In re Air Crash Off Long Island, New
York on July 17, 1996, 27 F.Supp.2d 431, 434 (S.D.N.Y. 1998)).
3.

Substantial Grounds for a Difference of Opinion
The remaining prong of Section 1292(b), which requires a

finding that the issue to be certified is one about which there
are “substantial grounds for a difference of opinion,” poses the
greatest challenge for the defendants.

It is well established

that an issue of “first impression, standing alone, is
insufficient to demonstrate a substantial ground for difference
of opinion.”
1996).

Flor v. BOT Fin. Corp., 79 F.3d 281, 284 (2d Cir.

And, for reasons explained at length in the May 4

Opinion, the Court has little doubt that its interpretation of
HERA is the one that best comports with the “everyday” meaning
of the statutory text and “the objectives of the statute
overall,” 2012 WL 1570856, at *5.
In urging certification, defendants suggest that the
Opinion’s reference to the “semantic distinction between
‘statutes of limitations’ and ‘statutes of repose,’” 2012 WL

9

1570856, at *4, is inconsistent with Second Circuit precedent
emphasizing that the two concepts are substantively distinct.
That argument is disingenuous.

The Court’s use of the term

“semantic” was plainly intended in the literal sense, to refer
to a distinction “relating to meaning in language.”

See

Merriam-Webster's Collegiate Dictionary 1129 (2003).
point was it suggested that the terms are synonymous.

At no
To the

contrary, the Court was careful to observe the conceptual
distinctions between them in arriving at its conclusion that
HERA’s reference to “statutes of limitations” embraces both the
narrow sense of that term intended by the defendants as well as
what defendants refer to as “statutes of repose.”

See 2012 WL

1570856, at *5.
Nor does the fact that, twenty years ago, Congress passed a
single statue tolling “any . . . period of limitation or
repose,” see Pub. L. No. 102-339, § 3(b), 106 Stat. 869 (Aug.
11, 1992), and has since considered (without enacting) bills
that use the term “statute of repose,” suggest substantial
grounds for a difference of opinion with respect to the meaning
of this statute.

As discussed in the May 4 Opinion, Congress,

the courts and learned commentators regularly use the term
“limitations” to encompass both “statutes of limitations,” in
the sense intended by the defendants, and “statutes of repose.”

10

2012 WL 1570856, at *4.

Indeed, in 2002 Congress modified the

repose period applicable to claims under the Securities Exchange
Act of 1934 in a provision entitled “Statute of limitations for
securities fraud.”

See Sarbanes–Oxley Act, Pub. L. No. 107–204,

§ 804, 116 Stat. 745, 801 (2002) (codified at 28 U.S.C.
§ 1658(b)) (emphasis added).
As the Supreme Court again reminded us only recently, when
confronted with a textual ambiguity of this kind, the task of
the Court is to give the statutory terms their ordinary meaning
unless the context clearly suggests that an atypical usage is
intended.

Taniguchi v. Kan Pacific Saipan, Ltd., 132 S. Ct.

1997, 2002, 2004 (2012).

In ordinary usage, the term “statute

of limitations” refers generally to “a statute assigning a
certain time after which rights cannot be enforced by legal
action or offenses cannot be punished.”
Collegiate Dictionary 1220 (2003).

Merriam-Webster's

Nothing in HERA suggests

that, in prescribing “the applicable statute of limitations with
regard to any action brought by the [FHFA],” 12 U.S.C.
§ 4617(b)(12), Congress sought to depart from this ordinary
meaning in favor of the more technical definition proffered by
the defendants.

To the contrary, the statutory context

indicates powerfully that the opposite is true.

As emphasized

in the May 4 Opinion, “[r]eading HERA's reference to ‘statute of

11

limitations’ in the narrow fashion that defendants propose would
undermine the congressional purpose of a statute whose
overriding objective was to maximize the ability of FHFA to ‘put
the [GSEs] in a sound and solvent condition.’”

2012 WL 1570856,

at *5 (quoting 12 U.S.C. § 4617(b)(2)(D)).
In seeking certification, defendants do not challenge this
characterization of HERA’s purpose.

Rather, to establish that

there is a substantial ground for difference of opinion as to
HERA’s meaning, they rely on two brief district court decisions
interpreting entirely different statues, albeit statutes whose
text is nearly identical to that of HERA’s extender provision.
See Nat’l Credit Union Admin. Board v. RBS Secs., Inc., No. CV
11-5887-GW (C.D. Cal. Jan 30, 2012); Resolution Trust Corp. v.
Olson, 768 F. Supp. 283 (D. Ariz. 1991).

It goes without saying

that these decisions, which concern the Federal Credit Union
Act, 12 U.S.C. § 1787(b)(14)(B)(i), and the Financial
Institutions Reform, Recovery, and Enforcement Act (FIRREA), 12
U.S.C. § 1821(d)(14), do not bear directly on the issue before
the Court: the proper interpretation that is to be given to
HERA, a different statute, enacted under different
circumstances, and addressed to a different class of problems.
While the Credit Union Act and FIRREA, like HERA, indicate a
Congressional intent to “preserve and conserve” the assets of

12

insolvent financial institutions, there are reasons to think
that Congress was willing to go further to ensure the solvency
of the two GSEs than to ensure the survival of any one of the
thousands of banks and credit unions around the country.

See

May 4 Opinion, 2012 WL 1570856, at *5 n.8 (noting that “HERA
creates an exception” to the Securities Act’s typical time
limitations for “a single, privileged plaintiff -- FHFA”).
Indeed, given that in 2008 the GSEs financed about 40% of all
American mortgages and owed debt in excess of $5.3 trillion,
their failure would have been catastrophic for the American
economy in a way that, with few exceptions, the failure of a
single bank or credit union would not be.

See Carol D. Leonnig,

How HUD Mortgage Policy Fed the Crisis, Washington Post, June
10, 2008, at A01.
Yet the two decisions cited by the defendants do not reach
these issues of statutory purpose.

Rather, with little

explanation, they conclude that the terms “statute of
limitations” and “statute of repose” are mutually exclusive, and
unambiguously so.

For reasons that have been outlined at length

here and in the May 4 Opinion, the Court finds this position
untenable in light of the commonly understood meaning of
“statute of limitations” and the frequent practice by Congress,
federal courts and commentators of using the term to encompass

13

all forms of time limitation.

Nonetheless, it must be

acknowledged that the existence of these two decisions suggests
that there may be grounds, however weak, for a difference of
opinion on this question.
In light of the compelling arguments for certification on
the other two prongs of the Section 1292(b) analysis, the
tension between the May 4 Opinion and the two decisions cited by
the defendants is sufficient to justify certification.

But

because the Court's decision to certify is driven primarily by
the prospect that an immediate appeal may expedite the
conclusion of this litigation -- whether through judicial
resolution or settlement

- the certification is contingent on

the defendants' seeking expedited review in the Court of
Appeals, a condition to which they agreed at the June 13
conference.
CONCLUSION
Defendants' May 23 motion for certification of an
interlocutory appeal of the May 4 Opinion is granted.

SO ORDERED:
Dated:

New York, New York
June 19, 2012

United
14

District Judge