Federal Deposit Insurance Corporation v. Deutsche Bank Securities Inc.

Filing 245

ORDER GRANTING 227 Defendant's Motion for Reconsideration. Signed by Judge Xavier Rodriguez. (lt)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION
FEDERAL DEPOSIT INSURANCE
CORPORATION, as receiver for
GUARANTY BANK,
Plaintiff,
v.
DEUTSCHE BANK SECURITIES, INC.,
Defendant.

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CIVIL NO. 1-14-CV-129-XR

ORDER
On this day came on to be considered Defendant’s motion for reconsideration
(Docket No. 227).
Background
Plaintiff alleges that Defendant Deutsche Bank Securities, Inc. (and others) sold
securities, known as “certificates,” which were backed by collateral pools of residential
mortgage loans. In 2004 and 2005, Guaranty Bank paid some $2.1 billion for twenty
residential mortgage backed securities certificates, including at least four certificates from
various Defendants in this case. Guaranty Bank subsequently failed, and the FDIC was
appointed as receiver on August 21, 2009. The FDIC filed this lawsuit in a Texas state court
on August 17, 2012, alleging the Defendant and several others violated the Securities Act of
1933 and the Texas Securities Act (TSA) by making material misstatements and omissions
concerning the mortgages underlying the securities.
Since that time the only remaining defendant in this case is Deutsche Bank Securities
Inc. The only remaining claim is an alleged violation of the Texas Securities Act, Tex. Rev.

Civ. Stat. Ann. Art. 581-33(D)(3). On February 7, 2014, Deutsche Bank removed the case
to this Court pursuant to 12 U.S.C. § 1819, and the case was assigned to the Honorable Sam
Sparks.
On September 14, 2017, Judge Sparks entered an order in this case deciding the
applicable interest rate for calculating damages under the TSA. See Docket No. 127.
Deutsche Bank now moves for reconsideration of that order, arguing that Judge Sparks erred
in reaching his decision. See Docket No. 227. Defendant argues the appropriate interest
rate is the Coupon Rate specified in the certificates at issue in this case. The “legal rate” for
prejudgment interest, Defendant asserts, is the same as the post-judgment interest rate set in
Chapter 304 of the Texas Finance Code: the lesser of “(1) the rate specified in the contract
... or (2) 18 percent a year.” TEX. FIN. CODE ANN. § 304.002. Because the certificates in this
case are “contracts that provide[ ] for interest,” Defendants contend the prejudgment interest
is the Coupon Rate the parties contractually agreed to. The FDIC counters the “legal rate,”
is six percent per year as set forth in Chapter 302 of the Texas Finance Code.
Analysis
Tex. Rev. Civ. Stat. Ann. art. 581-33(D) states in relevant part:
(3) In damages, a buyer shall recover (a) the
consideration the buyer paid for the security plus interest
thereon at the legal rate from the date of payment by the buyer,
less (b) the greater of:
(i) the value of the security at the time the buyer
disposed of it plus the amount of any income the buyer
received on the security; or
(ii) the actual consideration received for the security at
the time the buyer disposed of it plus the amount of any
income the buyer received on the security.
The statute does not further define how interest at the “legal rate” is calculated.

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Deutsche Bank argues that in the absence of a definition in article 581-33, the Court
should apply Tex. Finance Code section 304.002 and the coupon rates stated in the
certificates should govern the calculation of “prejudgment interest.” Tex. Finance Code
section 304.002 states, in relevant part, as follows:
A money judgment of a court of this state on a contract
that provides for interest or time price differential earns
postjudgment interest at a rate equal to the lesser of:
(1) the rate specified in the contract, which may be a
variable rate….
FDIC counters there is no contract here between Guaranty Bank and Deutsche Bank
– only written prospectuses were delivered to Guaranty Bank. Further, FDIC argues that no
rates were specified in any contract. The coupon rate was a guarantee made by the Trust,
not Deutsche Bank. Deutsche Bank never signed an agreement to pay any principal or
interest rate. None of the above facts are disputed by Deutsche Bank. The Court agrees with
the FDIC that Tex. Finance Code 304.002 is not applicable as there was no contract between
Guaranty Bank and Deutsche Bank.1
Accordingly, the Court considers the question, if Section 304.002 does not set the
applicable rate, what statute does? FDIC claims Section 302.002 applies as the “legal” rate
under the TSA. See Docket No. 236. Deutsche Bank responds that Section 302.002 is limited
to the creditor-debtor context and that Texas courts have consistently held that the provision
applies only to creditors and obligors. See Docket No. 227.

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But see Nat'l Credit Union Admin. Bd. v. UBS Sec. LLC, No. 13CV6731 (DLC), 2016 WL 1179203, at *7
(S.D.N.Y. Mar. 24, 2016)(“NCUA’s claim for rescissory damages under the TSA relate to a contract. NCUA’s
TSA claims seek damages equivalent to unwinding the purchase of the Certificates, which were governed by
the terms of the Offering Documents, including the Prospectus Supplements, which contain a coupon interest
rate. NCUA’s claims would not exist but for the existence of a contractual relationship between the Credit
Unions and the defendants.”). This Court concludes that this case only involves allegations of fraudulent
misrepresentations or omissions, and accordingly the phrase “on the contract” may not be so stretched as
Defendant argues. The Court in NCUA v. UBS did not address (nor was the issue raised) that no contract
existed between the parties.
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The Court agrees with Deutsche Bank that Section 302.002 is inapplicable. First, as
Deutsche Bank notes, that Section is inapplicable on its face because it applies only to
creditors. See, e.g. Clayton v. Asset Plus Cos., LP, No. 4:13-CV-2862, 2014 WL 6388430,
at *3 (S.D. Tex. Nov. 14, 2014) (citing Bufkin v. Bufkin, 259 S.W.3d 343, 357 (Tex. App.–
Dallas 2008, pet. denied) (“[W]e believe the provision does not apply to contracts where
there is no extension of credit.”)). Second, even if Section 302.002 were to apply outside the
context of the debtor-creditor relationship, as FDIC argues in its Sur-Reply, Docket No. 243,
the fact that the Texas Legislature has compelled application of Section 302.002 in other
contexts2, reveals that the Legislature has chosen not to do so in the context of the rate of
prejudgment interest in a civil action. See Osterberg v. Peca, 12 S.W.3d 31, 38 (Tex. 2000)
(declining to add a knowledge requirement into a statute because the legislature did include
a knowledge requirement in other provisions).
With neither Section 304.002 nor 302.002 applicable, the Court finds that Section
304.003 supplies the appropriate interest rate. Section 304.003 applies to a “money judgment
… to which Section 304.002 does not apply, including court costs awarded in the judgment
and prejudgment interest….” See TEX. FIN. CODE. § 304.003. When there is no relevant
contract specifying an interest rate, prejudgment interest is calculated according to the
statutory rate supplied by Section 304.003. See, e.g. Meridien Hotels, Inc. v. LHO Fin. P’ship
I, L.P., 255 S.W.3d 807, 813 (Tex. App.—Dallas 2008, no pet.); see also Tenn. Gas Pipeline
Co. v. Technip USA Corp., No. 01-06-00535-CV, 2008 WL 3876141, at *4 (Tex. App.—
Houston [1st Dist.] Aug. 21, 2008, pet. denied).
Section 304.003 sets the postjudgment interest rate as:

See, e.g. Tex. Rev. Civ. Stat. Ann. art. 581-35-1(A); 581-35-1(B); 581-35-2 (“…plus interest on that
amount computed at the rate provided by Section 302.002…”) (emphasis added).
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(1) the prime rate as published by the Board of Governors of the Federal Reserve
System on the date of computation;
(2) five percent a year if the prime rate as published by the Board of Governors of
the Federal Reserve System…is less than five percent; or
(3) 15 percent a year if the prime rate as published by the Board of Governors of the
Federal Reserve System…is more than 15%.
TEX. FIN. CODE. § 304.003(c)(1)-(3); Arete Partners, L.P. v. Gunnerman, 643 F.3d
410, 415 (5th Cir. 2011) (noting that pre- and postjudgment interest rates are calculated the
same under Section 304.003). Pursuant to Section 304.003, the Court will compute the
applicable prejudgment interest rate at the prime rate as set by the Federal Reserve on the
day of computation.

Conclusion
Defendant’s motion for reconsideration (Docket no. 227) is GRANTED.

It is so ORDERED.
SIGNED this 19th day of September, 2019.

XAVIER RODRIGUEZ
UNITED STATES DISTRICT JUDGE

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