National Credit Union Administration Board v. Goldman, Sachs & Co. et al

Filing 45

OPINION & ORDER denying 33 Motion to Compel Arbitration. (Signed by Judge Denise L. Cote on 1/28/2014) (gr)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------------------X
:
NATIONAL CREDIT UNION ADMINISTRATION
:
BOARD, as Liquidating Agent of
:
Southwest Corporate Federal Credit
:
Union and Members United Corporate
:
Federal Credit Union,
:
:
Plaintiff,
:
-v:
:
GOLDMAN, SACHS & CO., GS MORTGAGE
:
SECURITIES CORP.,
:
:
:
Defendants.
:
------------------------------------------X

13 Civ. 6721 (DLC)
OPINION & ORDER

APPEARANCES:
For the Plaintiff:
David Fredrick, Wan J. Kim, Gregory G. Rapawy, and Andrew C.
Shen
Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C.
Sumner Square, 1615 M Street, N.W., Suite 400
Washington, DC 20036
David H. Wollmuth, Fredrick R. Kessler, Steven S. Fitzgerald,
and Ryan A. Kane
Wollmuth Maher & Deutsch LLP
500 Fifth Avenue, 12th Floor
New York, NY 10010
George A. Zelcs
Korein Tillery LLC
205 North Michigan Avenue, Suite 1950
Chicago, IL 60601
Stephen M. Tillery, Greg G. Gutzler, Peter H. Rachman, and
Robert L. King
Korein Tillery LLC
505 North Seventh Street, Suite 3600
St. Louis, MO 63101

For the Defendants:
Richard H. Klapper, William B. Monahan, Peter A. Steciuk, and
Sara Hausner-Levine
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10024

DENISE COTE, District Judge:
This is one of nine actions brought by the National Credit
Union Administration Board (“NCUA” or “the Board”), as
liquidating agent of Southwest Corporate Federal Credit Union
(“Southwest”) and Members United Corporate Federal Credit Union
(“Members United”) (collectively, the “Credit Unions”), against
various financial institutions involved in the packaging,
marketing, and sale of residential mortgage-backed securities
(“RMBS”) that the Credit Unions purchased in the period from
2005 to 2007. 1

NCUA brought this case against Goldman Sachs &

Co. and GS Mortgage Securities Corp. (collectively “Goldman
Sachs”) on September 23, 2013.

The complaint asserts claims

1

Nat’l Credit Union Admin. Bd. (“NCUA”) v. Morgan Stanley & Co.,
Inc., et al., 13 Civ. 6705 (DLC); NCUA v. Bear Stearns & Co., et
al., 13 Civ. 6707 (DLC); NCUA v. Wachovia Capital Markets, LLC
n/k/a Wells Fargo Secs., LLC, 13 Civ. 6719 (DLC); NCUA v.
Goldman Sachs & Co., et al., 13 Civ. 6721 (DLC); NCUA v. RBS
Secs., Inc., et al., 13 Civ. 6726 (DLC); NCUA v. Barclays
Capital, Inc., 13 Civ. 6727 (DLC); NCUA v. Residential Funding
Secs., LLC n/k/a Ally Secs., LLC, 13 Civ. 6730 (DLC); NCUA v.
UBS Secs., LLC, 13 Civ. 6731 (DLC); and NCUA v. Credit Suisse
Secs. (USA) LLC, et al., 13 Civ. 6736 (DLC).
2

under Sections 11 and 12(a)(2) of the Securities Act of 1933, 15
U.S.C. §§ 77k, l(a)(2) (2012); and the Texas Securities Act,
Tex. Rev. Civ. Stat. Ann. art. 581, § 33 (2013) (“Texas Blue Sky
Law”).
On November 13, Goldman Sachs filed a motion to compel
arbitration.

For the reasons that follow, the motion is denied.

BACKGROUND
Although NCUA’s case against Goldman Sachs concerns three
securities purchased in 2006 and 2007, the present motion
relates to a contract signed almost fifteen years earlier.

In

March 1992, Southwest 2 signed a one-page, dual-column contract
with Goldman Sachs, titled “Cash Account Agreement.”

The

contract does not set forth the exact nature of the relationship
between the parties, but it appears –– given the nature of the
contract terms included –– to be a broker-dealer relationship
between Southwest and Goldman Sachs.

For example, Southwest

promised that, if it directed Goldman Sachs to purchase
securities on its behalf, it would pay for such securities,
would pay interest for any late payments, and could be subject
to a lien if it failed to pay in certain circumstances.
2

Southwest was a federally chartered corporate credit union with
its offices and principal place of business in Plano, Texas.
3

Additionally, Southwest promised that, if it directed Goldman
Sachs to sell securities that it owned, it would provide such
securities before the settlement date.
This contract also included a mandatory arbitration clause.
The relevant sections of the contract are as follows:
9.

This agreement and its enforcement shall be
governed by the laws of the State of New York and
its provisions shall cover individually and
collectively all accounts which Customer may
maintain with you. . . .

10.

(a) Arbitration is final and binding on the
parties.
(b) The parties are waiving their right to seek
remedies in court, including the right to a jury
trial.
(c) Pre-arbitration discovery is generally more
limited than and different from court
proceedings.
(d) The arbitrator’s award is not required to
include factual findings or legal reasoning and
any party’s right to appeal or to seek
modification of rulings by the arbitrators is
strictly limited.
(e) The panel of arbitrators will typically
include a minority of arbitrators who were or are
affiliated with the securities industry.

Any controversy between you or any of your
affiliates or any of your or their partners, officers,
directors or employees on the one hand, and Customer
on the other hand, arising out of or relating to this
Agreement or the accounts established hereunder, shall
be settled by arbitration . . . .
(emphasis added).

The contract bears the signature of Emily
4

Hollis, who lists her title as Vice President of Funds
Management of Southwest Corporate Federal Credit Union.

The

signature is dated March 11, 1992.
In 2006 and 2007, Southwest purchased from Goldman Sachs
three Certificates for $40 million in RMBS that bore the highest
rating from the major ratings agencies. 3

Beginning in April

2008, these securities were downgraded due to significant
defaults in the loans that served as collateral to the
securities.

By 2010, the securities’ credit ratings had been

downgraded to either the lowest or second lowest level.
On September 24, 2010, the NCUA, an independent executive
agency that oversees and regulates corporate credit unions,
placed Southwest into conservatorship, pursuant to the Federal
Credit Union Act, 12 U.S.C. § 1751.

On October 31, it placed

Southwest into involuntary liquidation.

As conservator and

liquidator of Southwest, NCUA assumed all rights and privileges
of Southwest, including the ability to bring suit for pending
claims.
On September 23, 2013, NCUA filed the present suit against
Goldman Sachs.

Its central allegation is that the offering

3

These Certificates are GSAA Home Equity Trust 2007-3, GSAA Home
Equity Trust 2007-5, and Long Beach Mortgage Loan Trust 2006-7.
Details of the RMBS market are not relevant to the present
motion and are therefore not discussed in this Opinion.
5

documents Goldman Sachs provided relating to the three
securities contained material misstatements or omissions.

In a

letter of October 8, Goldman Sachs requested that NCUA submit
its claims to arbitration, citing the 1992 Cash Account
Agreement contract.

In a letter of October 17, NCUA rejected

this request, contending that it was not bound to arbitrate for
reasons that will be discussed in detail below.
On November 13, Goldman Sachs filed a motion to compel
arbitration, citing the 1992 Cash Account Agreement contract. 4
The motion was fully submitted as of December 16.

DISCUSSION
The Federal Arbitration Act (“FAA”) provides that an
arbitration clause in a contract “shall be valid, irrevocable,
and enforceable, save upon such grounds as exist at law or in
equity for the revocation of any contract.”

9 U.S.C. § 2.

The

FAA was enacted to counteract “widespread judicial hostility to
arbitration agreements” and reflects “a liberal federal policy
favoring arbitration.”

AT&T Mobility LLC v. Concepcion, 131 S.

Ct. 1740, 1745 (2011) (citation omitted).

Consistent with this

policy, “[a] party to an arbitration agreement seeking to avoid
4

Goldman Sachs has reserved its right to file a motion to
dismiss should the Court reject its instant motion.
6

arbitration generally bears the burden of showing the agreement
to be inapplicable or invalid.”

Harrington v. Atlantic Sounding

Co., Inc., 602 F.3d 113, 124 (2d Cir. 2010); see also Green Tree
Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 91–92 (2000).

Under §

4 of the FAA, “a party to an arbitration agreement may petition
a United States district court for an order directing that
‘arbitration proceed in the manner provided for in such
agreement.’”

Stolt–Nielsen S.A.v. AnimalFeeds Int’l Corp., 130

S. Ct. 1758, 1773 (2010) (quoting 9 U.S.C. § 4).
Notwithstanding the liberal policy favoring arbitration, it
is a “fundamental principle that arbitration is a matter of
contract.”

Rent–A–Center, West, Inc. v. Jackson, 130 S. Ct.

2772, 2776 (2010); see Applied Energetics Inc. v. NewOak Capital
Mkts., LLC, 645 F.3d 522, 526 (2d Cir. 2011) (“[T]he presumption
[in favor of arbitrability] does not apply to disputes
concerning whether an agreement to arbitrate has been made.”).
Accordingly, “a party cannot be required to submit to
arbitration any dispute which he has not agreed so to submit.”
AT&T Techs., Inc. v. Comm. Workers of Am., 475 U.S. 643, 648
(1986) (citation omitted).

“[W]hether parties have agreed to

submit a particular dispute to arbitration is typically an issue
for judicial determination.”

Granite Rock Co. v. Int’l B’hood

of Teamsters, 130 S. Ct. 2847, 2855 (2010) (citation omitted).
7

By attaching the Cash Account Agreement contract to its
motion to compel arbitration, Goldman Sachs has submitted
evidence of a facially valid contract between Southwest and
Goldman Sachs.

NCUA’s primary argument in opposing the motion

is that this contract, even if valid, is unenforceable.

To

support its argument of unenforceability, NCUA cites three
separate statutory provisions of its enabling act.

I. Section 1787(c) Repudiation Authority
NCUA invokes its repudiation power under 12 U.S.C. §
1787(c)(1).

That section reads in pertinent part:

(c) Provisions relating to contracts entered into
before appointment of conservator or liquidating agent
(1) Authority to repudiate contracts
In addition to any other rights a conservator or
liquidating agent may have, the conservator or
liquidating agent for any insured credit union
may disaffirm or repudiate any contract or lease
-(A) to which such credit union is a party;
(B) the performance of which the conservator
or liquidating agent, in the conservator’s
or liquidating agent’s discretion,
determines to be burdensome; and
(C) the disaffirmance or repudiation of
which the conservator or liquidating agent
determines, in the conservator’s or
liquidating agent’s discretion, will promote
the orderly administration of the credit
union’s affairs.
8

(2) Timing of repudiation
The conservator or liquidating agent appointed
for any insured credit union shall determine
whether or not to exercise the rights of
repudiation under this subsection within a
reasonable period following such appointment.
12 U.S.C. § 1787(c) (emphasis added).
In a letter dated October 17, 2013, an official
representative of the NCUA advised Goldman Sachs, in response to
its October 8 request to arbitrate the dispute, that NCUA was
repudiating the contract:
After consideration of these circumstances [the
liquidation of Southwest] as well as the terms and
conditions of this contract, I have determined that
continuation of such a contract would be burdensome
and would hinder the orderly administration of the
affairs of “Southwest.” Accordingly, this letter
serves as notice that the “Cash Amount Agreement,” and
any amendments thereto, to the extent it is determined
to be valid and in effect, is hereby repudiated,
effective October 31, 2010.
The remainder of the letter states that, while § 1787(c) permits
parties whose contracts have been repudiated to seek actual
direct compensatory damages, NCUA does not believe Goldman Sachs
has suffered any such damages.

Should Goldman Sachs feel

otherwise, it could notify NCUA accordingly.
The repudiation authority language in 12 U.S.C. § 1787(c)
is materially identical to the language in 12 U.S.C. § 1821(e),
which provides repudiation authority for the Federal Deposit
9

Insurance Corporation (“FDIC”) and the Resolution Trust
Corporation (“RTC”).

Section 1821(e) reads as follows:

(e) Provisions relating to contracts entered into
before appointment of conservator or receiver
(1) Authority to repudiate contracts
In addition to any other rights a conservator or
receiver may have, the conservator or receiver
for any insured depository institution may
disaffirm or repudiate any contract or lease—
(A) to which such institution is a party;
(B) the performance of which the conservator
or receiver, in the conservator’s or
receiver’s discretion, determines to be
burdensome; and
(C) the disaffirmance or repudiation of
which the conservator or receiver
determines, in the conservator’s or
receiver’s discretion, will promote the
orderly administration of the institution's
affairs.
(2) Timing of repudiation
The conservator or receiver appointed for any
insured depository institution in accordance with
subsection (c) of this section shall determine
whether or not to exercise the rights of
repudiation under this subsection within a
reasonable period following such appointment.
12 U.S.C. § 1821(e).
The Second Circuit has previously analyzed the repudiation
authority of the FDIC and RTC under 12 U.S.C. § 1821(e), and its
decisions are dispositive of the present motion.

It has

concluded that § 1821(e) “expressly grants the [agency] the
10

power to abrogate valid contracts and leases where the agency
has determined that they are burdensome.”

Resolution Trust

Corp. (“RTC”) v. Diamond, 45 F.3d 665, 670 (2d Cir. 1995)
(“Diamond II”).

The Court of Appeals has also observed that the

provision is broadly worded, applying to “‘any contract or
lease.’”

Westport Bank & Trust Co. v. Geraghty, 90 F.3d 661,

668 (2d Cir. 1996) (quoting 12 U.S.C. § 1821(e) and holding that
the provision applied to employment contracts).
Summarizing the legislative history of the provision, the
Second Circuit stated that “the entire purpose underlying [the
agency’s] repudiation power is the maximization of return on
assets.”

Diamond II, 45 F.3d at 675; see also RTC v. Diamond,

18 F.3d 111, 113 (2d Cir. 1994) (“Diamond I”), granted, vacated,
and remanded by Solomon v. Resolution Trust Corp., 513 U.S. 801
(1994), for reconsideration in light of O’Melveny & Myers v.
FDIC, 512 U.S. 79 (1994), reinstated in relevant part by Diamond
II, 45 F.3d at 668.

Thus, Congress “conferred on” the agency

the “power to repudiate leases it deems burdensome.”

Diamond

II, 45 F.3d at 675; see also Diamond I, 18 F.3d at 124.
Moreover, “whether the [contract or] lease is burdensome is to
be decided at the discretion of the conservator or receiver.”
1185 Ave. of Americas Associates v. RTC, 22 F.3d 494, 498 (2d
Cir. 1994) (citing 12 U.S.C. § 1821(e)).
11

“[T]here is no

requirement that the conservator or receiver make a formal
finding that a lease or contract is burdensome.”

Id.

With regard to the timing of repudiation, “[t]he amount of
time that is reasonable must be determined according to the
circumstances of each case.”

RTC v. CedarMinn Bldg. Ltd.

P’ship, 956 F.2d 1446, 1455 (8th Cir. 1992), cited with approval
in Diamond I, 18 F.3d at 117-18.

“Congress specifically

intended to give [the agency] flexibility in determining what
constitutes a reasonable period for repudiation.”

CedarMinn

Bldg. Ltd. P’ship, 956 F.2d at 1455; see also id. at n.13
(noting that a strict 90-day repudiation period in earlier
drafts of the relevant legislation had been eliminated).
Given the materially identical language in 12 U.S.C. §
1821(e) and 12 U.S.C. § 1787(c), the same reading of § 1821(e)
applies to § 1787(c).

See United States v. Robinson, 702 F.3d

22, 33-34 (2d Cir. 2012) (stating that where Congress has used
materially identical language, it “obviously” intended the same
purpose).

Thus, under 12 U.S.C. § 1787(c), NCUA is empowered to

repudiate “any contract or lease,” so long as four conditions
are met: (1) the credit union was a party to the contract; (2)
NCUA determines, in its discretion, that the contract is
burdensome; (3) NCUA determines, in its discretion, that
repudiation would promote the orderly administration of the
12

credit union’s affairs; and (4) NCUA repudiates within a
“reasonable period” from when it was appointed conservator or
liquidator, as determined by the circumstances of the case.
All four conditions are met here, permitting NCUA to
repudiate the Cash Account Agreement that Southwest entered into
with Goldman Sachs in 1992.

It is undisputed that Southwest was

a party to the Cash Account Agreement.

The October 17, 2013

letter establishes that NCUA has determined, in its discretion,
that the Cash Account Agreement is burdensome and that its
repudiation would promote the orderly administration of
Southwest’s affairs.
The fourth condition merits slightly more discussion.

The

repudiation did not occur until October 17, 2013, almost three
years after NCUA’s appointment as conservator on September 24,
2010.

NCUA asserts, however, that it was unaware of the

existence of the Cash Account Agreement contract -- despite
having conducted a diligent search for such contracts -- until
October 8, 2013, which is when Goldman informed NCUA of the
existence of the contract by seeking to enforce the mandatory
arbitration clause.
In a declaration accompanying its opposition, NCUA
describes its efforts to locate Southwest’s third-party
contracts when it became conservator and then liquidating agent
13

for Southwest.

In or about October 2010, Southwest’s legal

counsel provided the division within NCUA that is responsible
for managing and preserving records of a seized credit union
with a 1,900 entry spreadsheet purportedly listing all of
Southwest’s contracts with third parties.

Nine entries

pertained to Goldman Sachs, which consisted of five contracts.
The 1992 Cash Account Agreement contract was not listed on the
spreadsheet.

The declarant states that, to the best of her

knowledge, NCUA was unaware of the contract until Goldman Sachs
produced it during this litigation.
NCUA repudiated the contract within nine days of when it
became aware of the contract.

In such circumstances, NCUA’s

repudiation occurred within a “reasonable period” from when it
was appointed conservator.

Accordingly, having met all four

conditions for repudiation of a contract under 12 U.S.C. §
1787(c), NCUA is not bound by the 1992 Cash Account Agreement
and the mandatory arbitration clause contained therein, on which
Goldman Sachs relies in seeking to compel arbitration.
Goldman Sachs makes essentially four arguments in response,
none of which is persuasive.

First, Goldman Sachs objects that

NCUA’s assertions in October 17, 2013 letter are conclusory,
formulaic, and lacking because NCUA does not explain how or why
the contract is burdensome.

Goldman Sachs’s objection, however,
14

is foreclosed by 1185 Ave. of Americas Assocs., 22 F.3d at 498,
which held that no such scrutiny is demanded of the FDIC’s or
RTC’s determination that a contract is burdensome under 12
U.S.C. § 1821(e).

That holding applies equally to the NCUA’s

determination that this contract is burdensome under 12 U.S.C. §
1787(c).
Goldman Sachs attempts to distinguish 1185 Ave. of Americas
Assocs. on the grounds that the burden was obvious in that case
and that the case did not involve a purely procedural provision.
This is an overly narrow reading of 1185 Ave. of Americas
Assocs.

The Second Circuit gave three reasons for reaching its

holding, only the second of which was based on the burden in
that case.

The remaining two reasons –– which were variations

of the observation that the statutory text evinced Congress’s
intent to vest the decision whether such contracts are
burdensome with the agency, not the courts –– apply equally when
a contract is deemed burdensome due to the existence of an
arbitration clause.
at 498.

See 1185 Ave. of Americas Assocs., 22 F.3d

Thus, as NCUA has exercised its statutory discretion to

deem the contract between Southwest and Goldman Sachs
burdensome, this Court will not second-guess that determination.
Second, Goldman Sachs objects that NCUA did not repudiate
the contract “within a reasonable period” following its
15

appointment.

Goldman Sachs contends that determining the

“reasonable period” from the time when NCUA became aware of the
contract contradicts the plain terms of the statute, which
states that the “reasonable period” is determined from the date
of the conservator’s appointment.
It is the “period” of time, however, that is triggered by
the date of the appointment.
circumstances.
1455.

What is “reasonable” turns on the

See CedarMinn Bldg. Ltd. P’ship, 956 F.2d at

Of course, NCUA cannot be expected to repudiate a

contract of which it was unaware.

Accordingly, under these

circumstances, the repudiation occurred within a “reasonable
period.”
Third, Goldman Sachs disputes the diligence of NCUA’s
search, calling it a “patently inadequate” review.

This

characterization is not sufficient to prevent NCUA from relying
on § 1787(c).

When NCUA became the liquidating agent for

Southwest, it requested information on Southwest’s third-party
contracts.

It received and reviewed a 1,900 entry spreadsheet

provided by Southwest, which did not contain the one-page, 18year old Cash Account Agreement contract.

While Goldman Sachs

points to certain discrepancies that could have led NCUA to
continue searching for other third-party contracts, NCUA was
justified in stopping its search.
16

Based on these facts, NCUA’s

review was reasonable and adequate.
Fourth, Goldman Sachs argues that NCUA’s repudiation power
does not extend to purely procedural provisions such as
agreements to arbitrate.

Goldman Sachs makes no attempt to

support this argument by the plain text of the statute, which is
broad and applies to “any contract.”
668.

See Geraghty, 90 F.3d at

Rather, Goldman Sachs insists that this principle is

supported by a footnote from a 1976 decision that addressed the
authority of the bankruptcy court to disavow an agreement to
arbitrate.

Truck Drivers Local Union No. 807 v. Bohack Corp.,

541 F.2d 312, 319 (2d Cir. 1976).

The Court of Appeals observed

in that decision that the debtor “may not abrogate a contractual
obligation save by statutory or judicial permission.”
(emphasis supplied).

Id.

In Truck Drivers, the court held that the

party seeking to arbitrate was required to receive “judicial”
authorization from the bankruptcy court, which had the power to
reject the duty to arbitrate contained in a collective
bargaining agreement.

Id. at 320.

Here, of course, there is

“statutory” authority to support the repudiation by the NCUA.
Goldman Sachs emphasizes language in a footnote of the
decision, which reads: “[L]ike any other unilateral breach of
contract, [rejection of a contract by a bankruptcy court] does
not destroy the contract so as to absolve the parties
17

(particularly the breaching party) from a contractual duty to
arbitrate their disputes.”

Id. at 321 n.15.

So, Goldman Sachs

argues, NCUA’s repudiation does not absolve its obligation to
arbitrate.

Read in context, however, this footnote does not

alter the thrust of the decision, which recognizes that a court
or a party, when authorized by a statute, may reject a
contractual duty to arbitrate.

Moreover, in making its

observation in the footnote, Truck Drivers relied on Drake
Bakeries, Inc. v. Local 50, Am. Bakery & Confectionery Workers
Int’l, AFL-CIO, 370 U.S. 254 (1962).

In Drake Bakeries, the

Supreme Court stated that “[a]rbitration provisions, which
themselves have not been repudiated, are meant to survive
breaches of contract, in many contexts, even total breach.”
at 262 (emphasis added).

Id.

The Supreme Court added, “in

determining whether one party has so repudiated his promise to
arbitrate that the other party is excused the circumstances of
the claimed repudiation are critically important.”
63.

Id. at 262-

In this case, the October 17, 2013 letter of repudiation

extends to the arbitration provision in the contract.

In sum,

NCUA has carried its burden to show that it properly repudiated
the arbitration clause in the 1992 Cash Account Agreement
pursuant to 12 U.S.C. § 1787(c).

18

II. Remaining Arguments Supporting Unenforceability
NCUA also invokes sub-sections 1787(b)(9) and 1788(a)(3) to
prevent Goldman Sachs from enforcing the contract against it. 5
These sections require, inter alia, that the contract be “an
official record” of the credit union to be “valid” against the
Board.

As a non-statutory basis for the same argument, NCUA

invokes the common law doctrine of D’Oench, Duhme & Co. v. FDIC,
315 U.S. 447 (1942).

NCUA asserts that, because it did not find

the contract between Southwest and Goldman Sachs when it
5

Subsection 1787(b)(9), as relevant here states that “any
agreement which does not meet the requirements set forth in
section 1788(a)(3) of this title shall not form the basis of, or
substantially comprise, a claim against the liquidating agent or
the Board.” Subsection 1788(a)(3), in turn, reads:
(3) No agreement which tends to diminish or defeat the
right, title, or interest of the Board, in any asset
acquired by it under this subsection, either as
security for a loan or by purchase, shall be valid
against the Board unless such agreement-(A) shall be in writing;
(B) shall have been executed by the credit union
and the person or persons claiming an adverse
interest thereunder, including the obligor,
contemporaneously with the acquisition of the
asset by the credit union;
(C) shall have been approved by the board of
directors of the credit union, which approval
shall be reflected in the minutes of such board;
and
(D) shall have been continuously, from the time
of its execution, an official record of the
credit union.
12 U.S.C. § 1788(a)(3) (emphasis added).
19

conducted a reasonable review of the credit union’s books and
records, the contract is not an “official record” and thus
invalid against it.
NCUA also invokes 12 U.S.C. § 1787(g).

The subsection,

titled “Limitation on court action,” provides that “no court may
take any action, except at the request of the Board of Directors
by regulation or order, to restrain or affect the exercise of
powers or functions of the Board as a conservator or a
liquidating agent.”

12 U.S.C. § 1787(g) (emphasis added).

NCUA

asserts that compelling arbitration would “restrain or affect”
its function as liquidating agent and therefore the contract is
not enforceable under § 1787(g).
Finally, NCUA contends that there are genuine issues of
factual dispute as to the validity, enforceability, and
applicability of the contract.

NCUA contends that, because

discovery is necessary to resolve these disputes, the motion to
compel arbitration must be denied at this pre-discovery stage.
The Court need not address these alternative arguments
because NCUA prevails on its first argument.

NCUA has properly

repudiated, under 12 U.S.C. § 1787(c), the 1992 Cash Account
Agreement between Southwest and Goldman Sachs.

Because that

contract includes the arbitration provision on which Goldman
Sachs relies in moving to compel arbitration, the motion to
20

compel arbitration is denied.

CONCLUSION
The defendants’ November 13, 2013 motion to compel
arbitration is denied.

SO ORDERED:
Dated:

New York, New York
January 28, 2014
____________________________
DENISE COTE
United States District Judge

21