Remember UBS’s attempt to play what it considered a get-out-of-jail-free card in the megabillions litigation over mortgage-backed securities UBS and more than a dozen other banks sold to Fannie Mae and Freddie Mac? UBS’s lawyers at Skadden, Arps, Slate, Meagher & Flom came up with an argument that could have decimated claims against all of the banks: When Congress passed the Housing and Economic Recovery Act of 2008 and established the Federal Housing Finance Agency as a conservator for Fannie Mae and Freddie Mac, UBS said, lawmakers explicitly extended the one-year statute of limitations on federal securities claims – but neglected to extend, or even mention, the three-year statute of repose. UBS argued that FHFA’s suits, which in the aggregate asserted claims on more than $300 billion in MBS, were untimely because they were filed after the statute of repose expired.
The judge overseeing almost all of the FHFA MBS suits, U.S. District Judge Denise Cote, denied UBS’s motion to dismiss in 2012. The bank, she said, was splitting hairs: Congress clearly intended to give FHFA a chance to evaluate its potential causes of action and believed it was doing so when it extended the statute of limitations. The judge subsequently applied the same reasoning to other banks’ motions to dismiss FHFA suits on timeliness grounds, but she also granted UBS permission to take the issue to the 2nd Circuit Court of Appeals. Cote said that whichever way the appeals court ruled, its decision would help resolve the FHFA litigation. If she were reversed, FHFA’s claims would be drastically narrowed; if she were upheld, the banks would be more inclined to settle.
In April, as you probably recall, a three-judge 2nd Circuit panel affirmed Judge Cote. In the appeal, UBS stood alone among the FHFA bank defendants as a party, though the other banks filed an amicus brief endorsing UBS’s position that Congress failed to extend the statute of repose. Since the 2nd Circuit’s ruling, UBS and FHFA have been engaged in whirlwind discovery, which is scheduled to close in September. Judge Cote has set an inviolable January trial date for FHFA’s case against UBS.
That looming trial date has cause the other FHFA bank defendants to worry that UBS will settle with the conservator before the statute of repose issue hits the U.S. Supreme Court’s docket. In an emergency petition filed Monday at the 2nd Circuit (and first spotted by my Reuters colleague Karen Freifeld), the other banks with cases before Judge Cote asked the appeals court to permit them to intervene in the UBS case for the purposes of submitting a certiorari petition to the Supreme Court. The deadline for that petition is Sept. 3, the banks wrote. They want to intervene “to ensure that even if – as is likely – the UBS action is resolved before a petition is filed or before consideration of that case by the Supreme Court, (they) can still seek timely review.”
I thought it was rather bold of UBS’s fellow defendants to predict its imminent FHFA settlement, so I emailed UBS lawyers at Skadden for a reaction. Through a firm representative, they declined to comment. I also reached out to FHFA counsel at Quinn Emanuel Urquhart & Sullivan and to Barclays’ counsel at Sullivan & Cromwell, who took the lead on the other banks’ emergency petition at the 2nd Circuit. They didn’t get back to me.