Nat'l Credit Union Admin. Bd., Corporate Fed. Credit Union v. Goldman, Sachs & Co.

Decision Date23 December 2014
Docket NumberDocket No. 14–312–cv.
Citation775 F.3d 145
PartiesNATIONAL CREDIT UNION ADMINISTRATION BOARD, as liquidating agent of Southwest Corporate Federal Credit Union, Plaintiff–Appellee, v. GOLDMAN, SACHS & CO. and GS Mortgage Securities Corp., Defendant–Appellants.
CourtU.S. Court of Appeals — Second Circuit

OPINION TEXT STARTS HERE

Richard H. Klapper (William B. Monahan, Peter A. Steciuk, Mark S. Geiger, on the brief), Sullivan & Cromwell LLP, New York, NY, for DefendantAppellants.

David C. Frederick (Wan J. Kim, Gregory G. Rapawy, Christopher B. Brown, on the brief), Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Washington, D.C., George A. Zelcs, Korein Tillery LLC, Chicago, IL, Michael J. McKenna, John K. Ianno, National Credit Union Administration, Alexandria, VA, for PlaintiffAppellee.

Before: WINTER, LEVAL, and LYNCH, Circuit Judges.

LEVAL, Circuit Judge:

Goldman, Sachs & Co. and GS Mortgage Securities Corp. (collectively, Goldman) appeal from an order of the United States District Court for the Southern District of New York (Cote, J.) denying Goldman's motion to compel arbitration of a suit brought against it by the National Credit Union Administration Board (NCUA).1 NCUA brought this action as liquidating agent for Southwest Corporate Federal Credit Union (“Southwest”), a failed credit union. NCUA's complaint alleged that Goldman violated federal and state securities laws in its dealings with Southwest prior to Southwest's failure. Goldman sought arbitration of the claims, citing an arbitration clause included in a 1992 Cash Account Agreement (“CAA”) between Goldman and Southwest. NCUA rejected Goldman's demand, asserting that, pursuant to its statutory powers as Southwest's liquidating agent under 12 U.S.C. § 1787(c), it was repudiating the agreement. The district court ruled that NCUA had validly repudiated its agreement to arbitrate, and denied Goldman's motion.

On appeal, Goldman argues that NCUA's repudiation power does not extend to arbitration clauses. In the alternative, Goldman argues that (1) the district court failed to appropriately scrutinize NCUA's determination that the contract was burdensome, and (2) the repudiation was invalid because it was not done within a reasonable period following NCUA's appointment as liquidating agent.

We conclude that NCUA successfully repudiated the Cash Account Agreement, including the arbitration provision. We therefore affirm the district court's order denying arbitration.

BACKGROUND

NCUA is a federal agency, which charters and regulates federal credit unions. Among other duties, the agency insures the deposits of account holders in all federal credit unions through the National Credit Union Share Insurance Fund (“Share Insurance Fund”). The Share Insurance Fund is financed by deposits from all federally insured credit unions and “backed by the full faith and credit of the U.S. Government.” Share Insurance Overview, National Credit Union Administration, http:// www. ncua. gov/ Data Apps/ Pages/ SI- NCUA. aspx (last visited Dec. 18, 2014); see12 U.S.C. § 1782(c). If an insured credit union is in a precarious financial condition, NCUA has the power to place the credit union under conservatorship or into liquidation. 12 U.S.C. §§ 1786(h), 1787.

Southwest was a “corporate credit union,” a class of credit union that provides liquidity, investment and financial services to other, consumer-owned credit unions. Southwest served over 1,300 consumer-owned credit unions, which in turn provided services to approximately 33 million consumers. Between 2006 and 2007, Southwest purchased from Goldman three certificates for residential mortgage-backed securities (“RMBS”) totaling $40 million. The RMBS were rated triple-A at the time they were issued. Within a few years, however, they were downgraded to below investment grade, resulting in substantial diminution in their market value.

On September 24, 2010, NCUA placed Southwest into conservatorship, and on October 31, 2010, into involuntary liquidation, with NCUA serving as liquidating agent. As liquidating agent, NCUA acquired all rights, titles, powers, and privileges of Southwest, including the right to bring litigation on its behalf.

PROCEDURE

On September 23, 2013, NCUA filed suit against Goldman in the Southern District of New York. The complaint alleged that Goldman violated federal and state securities laws by making untrue statements and omissions of material fact in the offering documents covering the sales of the RMBS. In response, Goldman sent a letter to NCUA dated October 8, 2013, requesting that NCUA submit the claims to arbitration. Goldman attached the CAA, which provided that it governed “individually and collectively all accounts which [Southwest] may maintain with [Goldman] and that [a]ny controversy between [Southwest and Goldman] arising out of or relating to this Agreement or the accounts established hereunder, shall be settled by arbitration....” Joint App'x (“JA”) at 174.

On October 17, 2013, NCUA refused Goldman's demand for arbitration. NCUA asserted that it was repudiating the CAA pursuant to its statutory authority under 12 U.S.C. § 1787(c). Section 1787(c) authorizes a liquidating agent for an insured credit union to “repudiate any contract” if the liquidating agent determines, in its discretion, that performance of the contract would be “burdensome” and repudiation of the contract would “promote the orderly administration of the credit union's affairs.” 12 U.S.C. § 1787(c)(1). NCUA attached a letter of its agent Mike Barton stating his determination that “continuation of [the CAA] would be burdensome and would hinder the orderly administration of the affairs of Southwest.” JA 178.

On November 13, 2013, Goldman moved in the district court to compel arbitration, citing the Federal Arbitration Act, 9 U.S.C. § 1, et seq.2 NCUA opposed, arguing, inter alia, that it had repudiated the CAA, rendering the arbitration provision unenforceable. The district court agreed and denied Goldman's motion. Goldman brought this appeal.

DISCUSSION
I. NCUA's Power to Repudiate an Arbitration Agreement

Goldman argues that NCUA's repudiation power does not extend to arbitrationprovisions within a repudiated contract. We disagree and conclude that NCUA was empowered by statute to repudiate the agreement to arbitrate contained in the CAA.

Section 1787(c) was enacted as part of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”), Pub.L. No. 101–73, 103 Stat. 183 (1989). Congress passed FIRREA in the wake of the savings and loan crisis, with the purpose of “stem[ming] the financial hemorrhaging resulting from the large number of failures in the thrift industry.” Resolution Trust Corp. v. Diamond, 45 F.3d 665, 674 (2d Cir.1995) (internal quotation marks omitted). FIRREA sought to “put the Federal deposit insurance funds on a sound financial footing,” “provide funds ... to deal expeditiously with failed depository institutions,” and “strengthen the enforcement powers of Federal regulators of depository institutions.” FIRREA § 101, 103 Stat. at 187.

FIRREA addressed NCUA's powers and responsibilities as conservator or liquidating agent for a failed credit union. FIRREA § 1217, 103 Stat. at 530. Among these, FIRREA granted NCUA the power to repudiate contracts of the failed credit union. FIRREA § 1217(c), 103 Stat. at 537 (codified as amended at 12 U.S.C. § 1787(c)). Section 1787(c) provides:

(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.

(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.

Id. § 1787(c)(1)-(2) (emphasis added).

Under these provisions, NCUA, as liquidating agent, is empowered to repudiate “any” contract of the failed entity upon NCUA's determination, in its discretion, that the contract is burdensome or that repudiation will promote the orderly administration of the credit union's affairs. In interpreting 12 U.S.C. § 1821(e),3 a provision materially identical to § 1787(c), this court has interpreted the term “contract” to mean “a promissory agreement between two or more persons that creates, modifies, or destroys a legal relation.” Diamond, 45 F.3d at 672 (alterations omitted). Arbitration agreements are considered contracts. See Rent–A–Center, West, Inc. v. Jackson, 561 U.S. 63, 67, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010) (“The FAA reflects the fundamental principle that arbitration is a matter of contract.”). Thus, on its face, § 1787(c) appears to authorize NCUA to repudiate an arbitration agreement.

Goldman opposes this plain reading by three related arguments. First, Goldman draws an analogy to bankruptcy law, relying on its interpretation of a precedential bankruptcy opinion. Goldman notes that the repudiation power codified in FIRREA was modeled in part on the Bankruptcy Code's authorization to a trustee in bankruptcy to reject executory contracts of the debtor. See11 U.S.C. § 365(a) (authorizing a bankruptcy trustee, “subject to the court's approval,” to “assume or reject any executory contract or unexpired lease of the debtor”); S.Rep. No. 101–19...

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