Fed. Deposit Ins. Corp. v. Countrywide Sec. Corp. (In re Countrywide Fin. Corp.)

• Decision Date: 26 August 2013
• Docket Number: Case Nos. 2:11–ML–02265–MRP, 2:12–CV–08558–MRP.
• Citation: 966 F.Supp.2d 1018
• Parties: In re COUNTRYWIDE FINANCIAL CORPORATION MORTGAGE–BACKED SECURITIES LITIGATION. Federal Deposit Insurance Corporation as Receiver for Guaranty Bank, Plaintiff, v. Countrywide Securities Corporation, et al., Defendants.
• Court: U.S. District Court — Central District of California

966 F.Supp.2d 1018

In re COUNTRYWIDE FINANCIAL CORPORATION MORTGAGE–BACKED SECURITIES LITIGATION.Federal Deposit Insurance Corporation as Receiver for Guaranty Bank, Plaintiff,

v.Countrywide Securities Corporation, et al., Defendants.

Case Nos. 2:11–ML–02265–MRP, 2:12–CV–08558–MRP.

United States District Court, C.D. California.

Aug. 26, 2013.

Brian Charles Devine, Brian E. Pastuszenski, Inez H. Friedman–Boyce, Goodwin Procter LLP, Boston, MA, David Martin Halbreich, Reed Smith LLP, Los Angeles, CA, David M. Wilk, Larson King LLP, St. Paul, MN, for Countrywide Financial Corporation Mortgage–Backed Securities Litigation.

Order Re Motion to Dismiss the First Amended Complaint

MARIANA R. PFAELZER, District Judge.

I. Introduction

Guaranty Bank was a federally insured depository institution that failed after the 2007 and 2008 financial crisis. The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”), codified in Title 12 of the United States Code, authorizes the Federal Deposit Insurance Corporation (“FDIC”) to act as receiver for failed depository institutions. As a result of the financial crisis, the FDIC was appointed as receiver to various failed banks across the country, including Guaranty Bank. In its capacity as receiver, the FDIC succeeds to all of the legal rights of the failed institution, including the right to sue on claims previously held by the failed institution. 12 U.S.C. § 1821(d)(2)(A). The FDIC raises claims that center on alleged misrepresentations by various financial institutions involved in the packaging, marketing, and sale of residential mortgage-backed securities (“RMBS”) purchased by Guaranty Bank. The RMBS at issue were created through a process known as “securitization.” Securitization involves the creation of pools of residential mortgage loans, each of which is designed to produce cash flows from payment on the loans. The loans were pooled and sold to trusts, which backed certificates issued by those trusts. The certificates entitled the holder to a portion of the cash flow from the pool of underlying mortgages. The certificates were sold to underwriters, who sold them to various banks, including Guaranty Bank.

I. Background

Between July 2005 and April 2006, Guaranty Bank purchased eight RMBS certificates ¹ for approximately $1.5 billion. CWALT Inc. issued and Countrywide Home Loans originated or acquired all eight of the certificates. On August 21, 2009, Guaranty Bank failed and the FDIC was appointed as receiver. On August 17, 2012, the FDIC sued Countrywide Securities Corporation, CWALT, Inc. (“CWALT”), Countrywide Financial Corporation (“CFC”), Bank of America Corporation (“BAC”), Deutsche Bank Securities, Inc. (“Deutsche Bank”), and Goldman, Sachs & Co. (“Goldman Sachs”) in Texas state court for alleged violations of federal and state securities laws. The complaint alleges that the offering documents which created and marketed the eight RMBS certificates purchased by Guaranty Bank contained material misstatements, in violation of Sections 11 and 12(a)(2) of the Securities Act of 1933 and Article 581–33 of the Texas Securities Act. This case was removed to the United States District Court for the Western District of Texas on September 20, 2012 and was transferred to this Court by the Judicial Panel on Multidistrict Litigation on October 5, 2012. After the Court denied the FDIC's motion to remand, the FDIC filed an amended complaint on March 18, 2013. Countrywide Securities, Deutsche Bank, and Goldman Sacs are sued as underwriters for the certificates.² The FDIC sues CFC under Section 15 of the 1933 Act for its alleged control over the misrepresentations, and BAC as successor-in-interest to the other alleged violators. Defendants seek dismissal of all the state and federal claims in the FDIC's amended complaint.

III. Legal Standard

A Rule 12(b)(6) motion to dismiss should be granted when, assuming the truth of the plaintiffs' allegations, the complaint fails to state a claim for which relief can be granted. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). The Court must assume the truth of the plaintiffs' allegations and draw all reasonable inferences in the plaintiffs' favor. Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir.1987). The Court is not required, however, to accept as true “allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir.2008). A court reads the complaint as a whole, together with matters appropriate for judicial notice, rather than isolating allegations and taking them out of context. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007).

IV. Discussion

A. All of Guaranty Bank's Federal Securities Claims are Time–Barred

Causes of Action B, C, and D in the FDIC's First Amended Complaint assert violations of the Securities Act of 1933. Section 13 of the Securities Act provides a three-year statute of repose for all claims brought under Sections 11 and 12(a)(2). 15 U.S.C. § 77m. The statute of repose for a Section 11 claim commences on the date that the security was “bona fide offered to the public,” while the repose period for a Section 12(a)(2) claim begins to run on the date “of the sale” to plaintiffs. Id. All eight of the certificates at issue were offered to the public and purchased by Guaranty Bank by April 28, 2006— i.e., more than three years before the FDIC was appointed as receiver for Guaranty Bank. The FDIC's federal securities claims are therefore time-barred. Tolling is not available for the reasons set forth in Federal Deposit Insurance Corp. as Receiver for Security Savings Bank v. Banc of America Sec. LLC, 934 F.Supp.2d 1219, 1228–35 (C.D.Cal.2013) (hereinafter “Security Savings Bank ”), and Federal Deposit Insurance Corp. as Receiver for Strategic Capital Bank v. Countrywide Financial Corp., No. 2:12–CV–4354, 2012 WL 5900973, at *8–14 (C.D.Cal. Nov. 21, 2012). Causes of Action B, C, and D in the First Amended Complaint are time-barred and are thus DISMISSED WITH PREJUDICE.

B. The Statute of Limitations Under The Texas Securities Act Had Not Expired By August 21, 2009

The FDIC alleges that the Offering Documents for the eight certificates purchased by Guaranty Bank contain material misrepresentations, in violation of Article 581–33 of the Texas Securities Act (“TSA”). Under the TSA, a plaintiff must bring suit within “three years after discovery of the untruth or omission, or after discovery should have been made by the exercise of reasonable diligence.” Tex.Rev.Civ. Stat. Ann. art. 581–33(H)(2)(a). The TSA's three-year statute of limitations had not expired by the date of receivership because a diligent investor could not have discovered the alleged misstatements in the Offering Documents by August 21, 2006, three years before the FDIC was appointed as receiver for Guaranty Bank. See, e.g., Fed. Deposit Ins. Corp. as receiver for United W. Bank v. Countrywide Fin. Corp., 2:11–CV–10400, 2013 WL 49727, at *1 (C.D.Cal. Jan. 3, 2013) (“[R]easonable investors cannot, as a matter of law, be held to have discovered misstatements until after August 31, 2007.”). The TSA claims were live on August 21, 2009, so the FDIC had at least three years to bring the claims by way of FIRREA's extender provision. 12 U.S.C. § 1821(d)(14). Because the complaint was filed on August 17, 2012, Count A is not time-barred on statute of limitations grounds.

C. The Texas Securities Act's Statute of Repose

In addition to the three-year statute of limitations, the TSA provides that “[n]o person may sue ... more than five years after the sale” of the security in question. Tex.Rev.Civ. Stat. Ann. art. 581–33(H)(2)(b). The FDIC contends that Article 581–33(H)(2)(b) is a statute of repose that is extended under Section 1821(d)(14) by at least three years after the date of receivership. Because Guaranty Bank purchased all eight of the certificates at issue after August 21, 2004—five years before Guaranty Bank entered into receivership—the FDIC contends that under FIRREA's extender provision it “had at least three more years to file these claims, which it did on August 17, 2012.” Br. in Opp. at 11. FIRREA's extender provision provides in relevant part:

(14) Statute of limitations for actions brought by conservator or receiver

(A) In general. Notwithstanding any provision of any contract, the applicable statute of limitations with regard to any action brought by the Corporation as conservator or receiver shall be—

(i) in the case of any contract claim, the longer of—

(I) the 6–year period beginning on the date the claim accrues; or

(II) the period applicable under State law; and

(ii) in the case of any tort claim (other than a claim which is subject to section 1441a(b)(14) of this title), the longer of—

(I) the 3–year period beginning on the date the claim accrues; or

(II) the period applicable under State law.

12 U.S.C. § 1821(d)(14). The FDIC contends that the term “statute of limitations” contained in Section 1821(d)(14) also refers to statutes of repose. However, an important distinction exists between the terms “statute of limitations” and “statute of repose.” The former “requires a lawsuit to be filed within a specific period of time after a legal right has been violated.” McDonald v. Sun Oil Co., 548 F.3d 774, 779 (9th Cir.2008) (quotation omitted). Among other things, statutes of limitations are designed to “relieve courts of the burden of adjudicating stale claims when a plaintiff has slept on his rights.” Albillo–De Leon v. Gonzales, 410 F.3d 1090, 1095 (9th Cir.2005) (citation omitted). Statutes of repose, on the other hand, stand as a “fixed, statutory cutoff date, usually independent of any variable, such as claimant's awareness of a violation.” Munoz v. Ashcroft, 339 F.3d 950, 957 (9th Cir.2003). Statutes of repose are concerned with...