Press Release September 16, 2013

Goodwin Procter Securities Litigators Win Dismissal of Suit Involving $1.5 Billion in Mortgage-Backed Securities Purchases

Goodwin securities litigators recently obtained the dismissal with prejudice of all claims in a suit brought by the FDIC as receiver for failed Guaranty Bank, which had purchased approximately $1.5 billion in mortgage-backed securities (“MBS”) issued by subsidiaries of Countrywide Financial Corporation. Countrywide was acquired in 2008 by Bank of America Corporation and formerly was one of the largest mortgage lenders in the country.

In the Guaranty Bank case, the FDIC challenged the accuracy of the statements contained in Countrywide’s MBS offering documents regarding the credit risk associated with the loans backing the MBS, among other allegations. The FDIC asserted claims under both the federal Securities Act of 1933 (“1933 Act”) and the Texas Securities Act. The FDIC argued that its claims were timely under a federal statute of limitations “extender statute” enacted as part of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 that gives the FDIC the benefit of the longer of the limitations period provided for under “applicable state law” or the period provided by the extender statute.

On August 27, the Court issued an opinion granting the motion to dismiss the case Goodwin had filed, ruling that the one-year statute of limitations applicable to the 1933 Act claims had expired before the FDIC was appointed receiver for the failed bank and the extender statute was triggered, dismissing those claims with prejudice as untimely. The Court also agreed with Goodwin’s argument that neither the text of the FDIC extender statute nor the legislative history reflected the requisite “clear and manifest” intent by Congress to preempt state law statutes of repose.

Unlike statutes of limitations, statutes of repose are considered by courts to be substantive, terminating the right to sue itself as opposed to simply determining when a plaintiff must file its claim. Here, the Texas legislature had enacted a five-year statute of repose that terminated the right to sue under the Texas securities statute five years after purchase of the securities. Because the statute of repose applicable to the Texas state law securities claims had expired before the FDIC sued, the Court found those claims to be untimely as well, dismissing them with prejudice.

The Goodwin team representing Countrywide in the FDIC case was led by partner Brian Pastuszenski, co-chair of the firm’s Securities Litigation & SEC Enforcement Practice, and included partners Inez Friedman-Boyce, Brian Devine and Dan Roeser, and associates Adam Slutsky, Nancy Dinsmore and Kelly Vaughan.