National Credit Union Administration Board v. Barclays Capital, Inc.: Court Permits Tolling Under Extender Statute
In National Credit Union Administration Board v. Barclays Capital Inc., No. 13-3183, 2015 WL 876526 (10th Cir. Mar. 3, 2015), the United States Court of Appeals for the Tenth Circuit held the claims brought by the National Credit Union Administration Board (“Plaintiff”) were barred by the statute of limitations. The court further held, however, the statute of limitations defense was unavailable to Barclays Capital, Inc., BCAP LLC, and Securitized Asset Backed Receivables LLC (together, the “Defendants”) as a result of their express promise not to assert it.
As an independent federal agency, Plaintiff regulates federally insured credit unions. Plaintiff may serve as conservator and liquidating agent when a credit union under conservatorship fails. While serving as conservator for U.S. Central Federal Credit Union and Western Corporate Federal Credit Union, Plaintiff alleged that the credit unions failed because they invested certain residential mortgage-backed securities (“RMBS”) based upon misleading “offering documents that misrepresented the quality of their underlying mortgage loans.” The RMBS were eventually downgraded to “junk status.”
Plaintiff sought to recover from the issuers of the RMBS securities on behalf of the credit unions. Plaintiff and Defendants entered into a series of tolling agreements that would exclude time spent in settlement negotiations from any calculation of the statute of limitations. The Defendants also agreed not to “argue or assert” a statute of limitations defense in any future litigation.
After the negotiations failed, Plaintiff filed claims against the Defendants asserting violations of Sections 11 and 12(a)(2) of the Securities Act of 1933. Plaintiff alleged the securities’ offerings contained material misrepresentations about the quality of the underlying mortgage loans. The Defendants moved to dismiss the complaint for failure to state a claim, arguing Plaintiff’s federal claims were untimely under the Securities Act’s three-year statute of repose.
Plaintiff argued that the three-year period began on the date of the commencement of the conservatorship under the Federal Credit Union Act’s “Extender Statute.” Although filing suit more than three years after becoming the conservator, Plaintiff asserted that the time excluded by the tolling agreements made the filing timely and within the three-year period.
The lower court rejected the Defendants’ argument that Plaintiff’s claims were time-barred and dismissed Plaintiff’s suit under the three-year limitations period of the Extender Statute. The court held the Extender Statute’s three-year limitations period could not be extended by a tolling agreement, and the Defendants’ promise not to assert a tolled limitations defense did not bar application of the unmodified limitation period in the Extender Statute.
On appeal, the court agreed that the limitations period in the Extender Statute could not be lengthened by a tolling agreement. Nonetheless, the court held that the Extender Statute was a statute of limitations, not a statute of repose. A statute of repose ended a cause of action, while a statute of limitations created an affirmative defense. A statute of limitations, unlike a statute of repose, could be waived.
Whether a time period was a statute of limitation or period of repose depended upon a multifactor test. With respect to the Extender Statute, the provision (1) referred to itself as a “statute of limitations” and never used the term “repose”; (2) referred to the date a claim accrued, implicating a limitations-like analysis; (3) tied the limitations period to a variable dependent on an individual claimant’s cause of action; and (4) used phraseology indicating Congress’s intent to create a statute of limitations. In addition, the purpose and legislative history of the Extender Statute implied that it was “amenable to tolling, waiver, and estoppel agreements.”
Although a limitations period could be tolled by agreement, the court found that this was not permitted under the language of the statute. The statute did not, however, preclude application of the promise made by Defendants not to assert a statute of limitations defense. The court found that the promise estopped the Defendants from raising the defense.
- It is often the case that an affirmative defense is meritorious and would be successful if raised, but the defense is nevertheless unavailable to the party seeking to assert it, either because that party neglected to raise it in the timely fashion or because that party is estopped from asserting it. This is true even for many constitutional rights. So it is unremarkable that a party can be estopped from asserting a statute of limitations defense, particularly when its promise not to do so is limited in scope, between two parties of equal bargaining strength, and facilitates a strong public policy of encouraging settlements. Such is the case here. Thus, while it is true that the NCUA's claims are outside the statutory period and therefore untimely, that argument is unavailable to Barclays because the NCUA reasonably relied on Barclays's express promise not to assert that defense. (citation omitted).
In sum, the United States Court of Appeals for the Tenth Circuit found the Defendants’ argument that Plaintiff’s claims were outside the statutory period was unavailable due to the Defendants’ express promise not to assert that defense. Accordingly, the court reversed and remanded for further proceedings.
The primary materials for this post can be found on the DU Corporate Governance website.