Recent case of interest regarding ability to dismiss Residential Mortgage-Backed Securities Litigation.
A recent United States District Court opinion has increased the degree of difficulty for a financial institution that has entered into a Purchase and Assumption Agreement with the FDIC to dismiss claims pursuant to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”). See, National Credit Union Admin. Bd. v. JPMorgan Chase, N.A., –F.Supp.2d–, 2013 WL4736374 (D. Kan. Sept. 3, 2013).
In this case, National Credit Union Administration Board as Plaintiff brought this suit as conservator and liquidating agent of certain credit unions. The claims were brought under the Federal Securities Act of 1933 and under certain state laws, including Texas, alleging untrue statements or omissions of material facts relating to some forty-nine different residential mortgage-backed securities (“Certificates”) purchased by one or more of the credit unions. WaMu Capital Corp. was the underwriter or seller for the Certificates. Recall that back in 2008, the United States Office of Thrift Supervision closed WaMu and named the FDIC as receiver. Subsequently, the FDICS entered into a Purchase and Assumption Agreement with JPMorgan Chase Bank, N.A., (“JPMC”) under which JPMC agreed to purchase substantially all of WaMu’s assets and to assume substantially all of its liabilities. Therefore, JPMC is the successor-in-interest of WaMu and was the primary Defendant in this case.
FIRREA establishes administrative procedure for brining claims against institutions for which the FDIC is acting as receiver. If the FDIC disallows a claim, the claimant may pursue an administrative appeal or commence a lawsuit; if the claimant does neither, “such disallowance shall be final, and the claimant shall have no further rights or remedies with respect to such claim.” JPMC argued that because Plaintiff asserted claims based on acts and omissions of WaMu for which the FDIC was appointed receiver, and Plaintiff failed to present those claims to the FDIC, pursuant to FIRREA, the Court has no jurisdiction over the claims and the suit should be dismissed. This has been a successful strategy of JPMC in the past in dealing with such claims, because FIRREA has been interpreted to be somewhat all encompassing with regard to such suits. However, this particular Court disagreed and has set a more narrow precedent for such strategies in the future. Specifically, the Court stated that Plaintiff did not allege any specific wrongdoing by the FDIC as receiver, and the Plaintiff has alleged that JPMC assumed these liabilities from the FDIC. Therefore, there was no basis to argue that Plaintiff’s claims could be pursued within the administrative process. In other words, because Plaintiff’s claims against JPMC are not susceptible to resolution, pursuant to the FIRREA claims process, Plaintiff was not required to exhaust any administrative remedies before bringing these claims against JPMC and the jurisdictional bar that JPMC asserted did not apply.
In summary, this decision further narrows the use of FIRREA as a means to dismiss such litigation and removes one more proverbial quiver from successor-in-interest’s quiver of defense. While such arguments may still be presented, this decision will be used as another means to overcome a dismissal.
No information in this article is intended to constitute legal advice. For specific legal advice, please contact an attorney.