There are probably fewer than 100 lawyers in America who argue regularly before the U.S. Supreme Court and the highest state courts of appeal. And of those, a scant handful argue against corporate interests. That is particularly true when banks are involved: Lawyers who practice at big firms that regularly represent (or hope to represent) financial institutions avoid cases that endanger those relationships, even when one bank is suing another. But the renowned former U.S. Solicitor General Paul Clement left behind those concerns in 2011 when he left King & Spalding and joined Bancroft, a tiny appellate startup. Last year, Clement took up the Supreme Court case of small merchants suing American Express for antitrust violations. (He lost.) Now he’s turned up to oppose banks in one of the biggest-dollar appeals in the courts. On Tuesday, as first reported by the New York Commercial Litigation Insider, Clement appeared as counsel of record in HSBC’s motion, as a mortgage-backed securities trustee, for the New York Appellate Division, First Department to reconsider its Dec. 19 ruling on the timeliness of MBS breach-of-contract claims or else let the case proceed to the state’s highest court.
The appellate opinion in Ace Securities v. DB Structured Products, as you probably recall, shut the door on N.Y. state-court mortgage-repurchase suits filed more than six years after the MBS sponsor closed on its agreement to acquire the underlying loans for securitization. That ruling, as Clement and HSBC co-counsel Kasowitz Benson Torres & Friedman explained in the reconsideration brief filed Tuesday, has the potential to wipe out hundreds of cases already brought by MBS trustees and certificate holders, implicating “hundreds of billions of dollars in losses,” according to the brief. Clement and Kasowitz argue that the Appellate Division’s skimpy three-page opinion on the timeliness of put-back suits “fails to grapple with…conflicting precedents in a meaningful way,” so HSBC should either have a chance to reargue before the intermediate appeals court or to take its case to New York’s Court of Appeals. (Quinn Emanuel Urquhart & Sullivan‘s name isn’t on the new filing, but I’ve been told the firm is involved in the appeal on behalf of the certificate holder that originally directed HSBC to sue over supposedly deficient underlying loans in the Deutsche Bank MBS offering.)
The brief also points out that courts around the country have reached conflicting conclusions about when, under New York law, the six-year statute of limitations begins to run on MBS mortgage repurchase claims. Even federal judges in Manhattan, ruling in the wake of the Appellate Division’s opinion last month, have split on the question (as I’ve reported). That muddle must be resolved, according to the new brief. “Analogous lawsuits ostensibly governed by the same New York laws now will be permitted to proceed in some courts but not others,” it says. “What is more, DB and other RMBS sponsors will be able to evade all liability for their actions under this court’s decision, even though other RMBS investors have already collected massive settlements in cases that include failure-to-repurchase claims nearly identical to those raised here. That untenable situation readily warrants the reconsideration of this court or, in the alternative, the immediate attention of the Court of Appeals.”