NEW YORK—Goldman Sachs & Co. can't force the National Credit Union Administration to arbitrate a dispute over a sale of mortgage-backed securities, despite the existence of a mandatory arbitration clause, according to a report in Law Litigation Daily.
The U.S. Court of Appeals for the Second Circuit held that the NCUA's unusual power to repudiate burdensome contracts extends to arbitration agreements, Law Litigation Daily reported. The ruling upholds a decision by U.S. District Judge Denise Cote in Manhattan.
The suit stems from the activities of Southwest Corporate Federal Credit Union, Dallas, which NCUA placed into conservatorship in 2010. Three years after taking over management of Southwest Corporate, now known as Catalyst Corporate, the agency sued Goldman Sachs arguing the company had misrepresented the quality of $40 million worth of residential mortgage-backed securities that Southwest bought from 2006 to 2007. The securities were rated triple-A when they were issued but were later downgraded to below investment grade.
Goldman tried to force this dispute into arbitration, citing a previous agreement, but the agency countered that the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) gives it the power to repudiate any contract of a failed thrift that's burdensome, Law Litigation Daily reported. In August, the Tenth Circuit U.S. Court of Appeals rejected the defense’s argument that the NCUA's claims were time barred under the statute of repose, which the appeals court upheld.
Related
NCUA Sues Trustees Of Mortgage-Backed Securities