NEW YORK–NCUA has lost a case in which it was attempting to seek damages related to toxic mortgage-backed securities bought by credit unions a decade ago.
The U.S. Court of Appeals for the Second Circuit upheld an earlier decision by a district judge’s decision that found NCUA could not bring legacy breach of fiduciary duty claims $6.8 billion in mortgage-backed securities that were initially sold by U.S. Bank and Bank of America and eventually came to be owned by NCUA as the result of a corporate conservatorship stemming from the financial crisis.
The Southern District of New York affirmed an earlier order by Southern District Judge Katherine Forrest dismissing NCUA’s suit for lack of standing. The appeals court further affirmed Forrest’s decision to deny the agency a chance to rework its second amended complaint.
The court found that as liquidation agent of the RMBS trusts NCUA can’t sue the issuers of the original securities, with the judges stating that through its multi-step transfer of the RMBS to the re-issuance of the securitized mortgages as NCUA Guaranteed Notes, NCUA ultimately surrendered its claims over the trust certificates.
Initially, NCUA sought to have Bank of New York Mellon take action against the trustees of the original RMBS securities, but the bank declined. The appeals court said that the agreement between BNYM and NCUA is “unambiguous” and that the relevant NCUA parties do not have the power to bring suit on their own.
“NCUA … decided to use its final amendment to double down on its already‐dismissed theory of standing,” the panel stated in its ruling “It must now live with the consequences of that decision.”
NCUA was represented by Kellogg, Hansen, Todd, Figel & Frederick in the appeal.