Case 1:13-cv DLC Document 34 Filed 11/13/13 Page 1 of 20 : : MEMORANDUM IN SUPPORT OF DEFENDANTS MOTION TO COMPEL ARBITRATION

Transcription

1 Case 1:13-cv DLC Document 34 Filed 11/13/13 Page 1 of 20 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK x NATIONAL CREDIT UNION : ADMINISTRATION BOARD, as : Liquidating Agent of Southwest Corporate : Federal Credit Union, : : Plaintiff, : : v. : GOLDMAN, SACHS & CO. and GS : MORTGAGE SECURITIES CORP., : : Defendants. : x Case No. 13-cv-6721 (DLC) MEMORANDUM IN SUPPORT OF DEFENDANTS MOTION TO COMPEL ARBITRATION November 13, 2013 Richard H. Klapper William B. Monahan Peter A. Steciuk Sara Hausner-Levine SULLIVAN & CROMWELL LLP 125 Broad Street New York, New York Telephone: (212) Facsimile: (212) Attorneys for Defendants Goldman, Sachs & Co. and GS Mortgage Securities Corp.

2 Case 1:13-cv DLC Document 34 Filed 11/13/13 Page 2 of 20 TABLE OF CONTENTS Page PRELIMINARY STATEMENT... 1 FACTUAL BACKGROUND... 3 A. Southwest and Its Agreement to Arbitrate... 3 B. Filing of This Action on Behalf of Southwest... 4 ARGUMENT... 5 I. NCUA STANDS IN SOUTHWEST S SHOES IN THIS ACTION AND IS BOUND BY SOUTHWEST S AGREEMENT TO ARBITRATE... 5 II. NCUA S VARIOUS ARGUMENTS TO AVOID THE ARBITRATION AGREEMENT FAIL... 8 A. NCUA's Argument That the Arbitration Agreement Does Not Apply to Statutory Claims Ignores the Plain Language of the CAA... 8 B. The Various Statutory Provisions NCUA Cites Do Not Excuse Its Non- Compliance with Its Arbitration Agreement Under the FAA... 9 CONCLUSION... 14

3 Case 1:13-cv DLC Document 34 Filed 11/13/13 Page 3 of 20 TABLE OF AUTHORITIES CASES Page(s) Acciard v. Whitney, 2011 WL (M.D. Fla. Sept. 30, 2011) Agri Export Co-op. v. Universal Sav. Ass n, 767 F. Supp. 824 (S.D. Tex. 1991) Allegheny Int l, Inc. v. Allegheny Ludlum Steel Corp., 920 F.2d 1127 (3d Cir. 1990) Alliance Bernstein Inv. Research & Mgmt., Inc. v. Schaffran, 445 F.3d 121 (2d Cir. 2006)... 5 Bennett v. Liberty Nat l Fire Ins. Co., 968 F.2d 969 (9th Cir. 1992)... 8 Bumpus v. NCUA, 1992 WL (D. Mass. Apr. 29, 1992) Cent. Buffalo Project Corp. v. FDIC, 29 F. Supp. 2d 164 (W.D.N.Y. 1998) Clarendon Nat l Ins. v. Lan, 152 F. Supp. 2d 506 (S.D.N.Y. 2001)... 6 Collins & Aikman Prods. Co. v. Bldg. Sys., Inc., 58 F.3d 16 (2d Cir. 1995)... 6 Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985) FDIC v. Ernst & Young, 374 F.3d 579 (7th Cir. 2004) FINRA v. Fiero, 882 N.E.2d 879 (N.Y. 2008)... 4 First Options of Chi., Inc. v. Kaplan, 514 U.S. 938 (1995)... 6 Goldstein v. Visconti, 2001 WL (S.D.N.Y. May 30, 2001)... 5 Hartford Accident & Indem. Co. v. Swiss Reinsurance Am. Corp., 246 F.3d 219 (2d Cir. 2001) ii-

4 Case 1:13-cv DLC Document 34 Filed 11/13/13 Page 4 of 20 In re Fleming Cos., 2007 WL (D. Del. Mar. 16, 2007) In re Hagerstown Fiber Ltd. P ship, 277 B.R. 181 (S.D.N.Y. 2002)... 7 In re IndyMac Bancorp, Inc., 2012 WL (Bankr. C.D. Cal. Mar. 29, 2012) Int l Union, United Auto., Aerospace & Agric. Implement Workers of Am., Local 737 v. Auto Glass Employees Fed. Credit Union, 72 F.3d 1243 (6th Cir. 1996)... 3 John v. Resolution Trust Corp., 39 F.3d 773 (7th Cir. 1994) Kuchinsky v. Curry, 2009 WL (S.D.N.Y. May 28, 2009)... 5, 6 Kuehn v. Citibank, N.A., 2012 WL (S.D.N.Y. Dec. 6, 2012)... 7 McCowan v. Sears, Roebuck & Co., 908 F.2d 1099 (2d Cir. 1990)... 9 Mina v. Foot Locker, Inc., 2009 WL (S.D.N.Y. Sept. 30, 2009)... 6 Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985)... 5 Moses H. Cone Mem l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983)... 5 Murphy v. FDIC, 61 F.3d 34 (D.C. Cir. 1995) Nationwide Gen. Ins. Co. v. Investors Ins. Co. of Am., 332 N.E.2d 333 (N.Y. 1975)... 6, 7 Nat l Union Fire Ins. Co. v. City Savings, F.S.B., 28 F.3d 376 (3d Cir. 1994) NCUA v. Moody, 2012 WL (D. Nev. Dec. 6, 2012) NCUA v. Regine, 749 F. Supp. 401 (D.R.I. 1990) iii-

5 Case 1:13-cv DLC Document 34 Filed 11/13/13 Page 5 of 20 Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477 (1989)... 8 Rent-a-Center, West, Inc. v. Jackson, 130 S. Ct (2010)... 7 Savoy v. White, 788 F. Supp. 69 (D. Mass. 1992) Scher v. Bear Stearns & Co., 723 F. Supp. 211 (S.D.N.Y. 1989)... 9 Sher v. Goldman, Sachs & Co., 2012 WL (D. Md. Apr. 19, 2012)... 7 Smith Barney Shearson Inc. v. Sacharow, 689 N.E.2d 884 (N.Y. 1997)... 7 Truck Drivers Local Union No. 807 v. Bohack Corp., 541 F.2d 312 (2d Cir. 1976)... 2, 11 Vill. Park Office I, LLC v. FDIC, 2012 WL (M.D. Ga. Apr. 24, 2012) Wight v. BankAmerica Corp., 219 F.3d 79 (2d Cir. 2000) STATUTES AND REGULATION 9 U.S.C , 6, U.S.C. 1787(b)(9)... 2, 9, U.S.C. 1787(c)... 2, 11, U.S.C. 1787(g) U.S.C. 1788(a)(3)... 2, 9, U.S.C. 1789(a)(2) U.S.C , C.F.R (a) iv-

6 Case 1:13-cv DLC Document 34 Filed 11/13/13 Page 6 of 20 OTHER AUTHORITIES FINRA Uniform Forms Guide, September 2013 Edition... 4 NCUA Interpretive Ruling & Policy Statement No. 03-3, 68 Fed. Reg , 11 NCUA Office of Inspector General, Rep. No. OIG-11-10, Material Loss Review of Southwest Corporate Federal Credit Union (Sept. 22, 2011)... 3 Statement of Policy Regarding Treatment of Security Interests After Appointment of the FDIC as Conservator or Receiver, 58 Fed. Reg v-

7 Case 1:13-cv DLC Document 34 Filed 11/13/13 Page 7 of 20 Defendants Goldman, Sachs & Co. and GS Mortgage Securities Corp. (together, Goldman Sachs ) respectfully submit this memorandum in support of their motion to compel arbitration pursuant to the Federal Arbitration Act ( FAA ), 9 U.S.C. 3. PRELIMINARY STATEMENT As part of its overall investment in billions of dollars of RMBS certificates at the height of the housing bubble, Southwest Corporate Federal Credit Union ( Southwest ) purchased $40 million in three RMBS securitizations through its brokerage account at Goldman Sachs. In this action, the National Credit Union Administration Board ( NCUA ), standing in the shoes of Southwest as its liquidating agent, seeks to recover alleged losses from those investments. The Court has no occasion to reach the merits of this action, however, because NCUA is bound by Southwest s agreement to arbitrate all of its claims against Goldman Sachs. Southwest s umbrella account agreement with Goldman Sachs (a Cash Account Agreement, dated March 11, 1992 (the CAA ), annexed as Ex. A to the Declaration of Peter A. Steciuk ( Steciuk Decl. )), by its terms cover[s] individually and collectively all accounts that Southwest maintained with Goldman Sachs, including any of [Southwest s] accounts... for the purchase and sale of securities, and commits Southwest (and its successor, NCUA) to arbitrate [a]ny controversy between Goldman Sachs and Southwest arising out of or relating to [the CAA] or the accounts established hereunder. This paradigmatically broad arbitration provision binds NCUA and covers precisely the types of securities claims asserted in this action on behalf of Southwest. In an attempt to avoid its clear obligation to arbitrate, NCUA has taken the position that certain provisions of its enabling act entitle it to vitiate this arbitration obligation. NCUA contends, for example, that after a reasonable search it cannot locate a copy of the CAA in Southwest s files, and then points to statutory provisions requiring contracts that form

8 Case 1:13-cv DLC Document 34 Filed 11/13/13 Page 8 of 20 the basis of, or substantially comprise, a claim against [NCUA] (12 U.S.C. 1787(b)(9)(A)) or that tend[] to diminish or defeat the right, title, or interest of [NCUA], in any asset acquired by [NCUA] (12 U.S.C. 1788(a)(3)) to have been continuously, from the time of its execution, an official record of the credit union (12 U.S.C. 1788(a)(3)(D)). These statutory provisions do not apply here because Southwest s agreement to arbitrate simply provides the forum for adjudication of the parties disputes and neither forms the basis of a claim against [NCUA] nor diminishes any asset acquired by [NCUA]. Even if these provisions applied, Goldman Sachs has tendered to NCUA both a copy of the CAA signed by Southwest and evidence of the signatory s authority, and NCUA s own interpretive ruling issued in 2003 states that the counterparty may, by appropriate evidence (including the production of copies maintained by the counterparty) establish the existence of the writing and the evidence of authority. (NCUA Interpretive Ruling & Policy Statement No. 03-3, 68 Fed. Reg (Steciuk Decl. Ex. B).) NCUA also has purported to repudiate the CAA s arbitration agreement as a burdensome contract under 12 U.S.C. 1787(c)(1). Even if NCUA could show that arbitration is more burdensome than litigation, repudiation powers are inapplicable to purely procedural provisions such as agreements to arbitrate. See Truck Drivers Local Union No. 807 v. Bohack Corp., 541 F.2d 312, 321 n.15 (2d Cir. 1976) ( [L]ike any other unilateral breach of contract, [rejection of a contract] does not destroy the contract so as to absolve the parties... from a contractual duty to arbitrate their disputes. ). NCUA also could not exercise any purported repudiation powers in October 2013, almost three years after its appointment as Southwest s liquidating agent, because NCUA is only authorized to repudiate contracts within a reasonable period following [NCUA s] appointment as liquidating agent. 12 U.S.C. 1787(c)(2). The statutory reasonable period requirement was designed to enable NCUA to handle cris[e]s, -2-

9 Case 1:13-cv DLC Document 34 Filed 11/13/13 Page 9 of 20 not to void contracts as a litigation tactic years after the fact. Int l Union, United Auto., Aerospace & Agric. Implement Workers of Am., Local 737 v. Auto Glass Employees Fed. Credit Union, 72 F.3d 1243, 1249 (6th Cir. 1996) ( The crisis environment in which the repudiation authority was granted is demonstrated by the... provisions... directing [NCUA] as conservator to make a decision concerning repudiation within a reasonable period following its appointment.... ). The CAA clearly requires that Goldman Sachs and NCUA, as Southwest s successor, arbitrate the claims that NCUA has brought in this action. None of the bases NCUA has cited to avoid its arbitration obligation is well taken. The Court should dismiss this action and order NCUA to submit its claims to arbitration. FACTUAL BACKGROUND A. Southwest and Its Agreement to Arbitrate Southwest was one of the largest credit unions in the United States, providing financial services to 1,393 member credit unions that in turn provided services to approximately 33 million consumers. (NCUA Office of Inspector General, Rep. No. OIG-11-10, Material Loss Review of Southwest Corporate Federal Credit Union (Sept. 22, 2011), at 4 (Steciuk Decl. Ex. C).) By July 2007, Southwest owned more than $5 billion of RMBS, approximately 68% of which were backed by Alt-A, Alt-B or subprime mortgages. (Id. at 16, 22.) Southwest opened an account with Goldman Sachs in As a condition to opening accounts and engaging in financial transactions with Goldman Sachs, Southwest entered into a standard cash account agreement the CAA on March 11, The CAA is an umbrella agreement that covers all of Southwest s activities with Goldman Sachs, including the transactions that are the subject of NCUA s Complaint. The CAA specifies that its provisions shall cover individually and collectively all accounts which Customer [Southwest] may maintain -3-

10 Case 1:13-cv DLC Document 34 Filed 11/13/13 Page 10 of 20 with you [Goldman, Sachs & Co.] and expressly applies to any of Customer s accounts with you for the purchase and sale of securities. (CAA 9 & preamble.) The CAA s comprehensive arbitration provision applies to [a]ny controversy between you [Goldman, Sachs & Co.] or any of your affiliates... on the one hand, and Customer [Southwest] on the other hand, arising out of or relating to this Agreement or the accounts established hereunder. (Id. 10.) The CAA also applies expressly to any disputes between Goldman Sachs and Southwest s legal representatives, successors and assigns. (Id. 9.) 1 B. Filing of This Action on Behalf of Southwest After the housing bubble burst and Southwest s investment strategy did not pay off, NCUA placed Southwest into conservatorship on September 24, 2010 and into liquidation on October 31, 2010, with NCUA as liquidating agent. (Compl. 12.) NCUA filed its Complaint in this action on September 23, 2013, asserting claims against Goldman Sachs under Sections 11 and 12(a)(2) of the Securities Act of 1933 and the blue sky law of Texas, seeking unspecified damages and rescission. By letter to NCUA s counsel dated October 8, 2013, Goldman Sachs requested that NCUA withdraw its claims and submit them to arbitration, as mandated by the terms of the CAA. (Steciuk Decl. Ex. E.) By letter to Goldman Sachs s counsel dated October 17, 2013 (the 1 Pursuant to the CAA, arbitration shall be conducted in accordance with the rules then obtaining of any one of the American Arbitration Association [( AAA )] or The New York Stock Exchange, Inc., or any other exchange of which [Goldman, Sachs & Co. is] a member, or the National Association of Securities Dealers, Inc. [( NASD )] or The Municipal Securities Rulemaking Board [( MSRB )]. (CAA 10.) In July 2007, the SEC approved the consolidation of NASD and the member regulatory services of the New York Stock Exchange; NASD then changed its name to the Financial Industry Regulatory Authority ( FINRA ). FINRA v. Fiero, 882 N.E.2d 879, 880 n.* (N.Y. 2008). The MSRB has adopted FINRA s rules and subjects the firms registered with the MSRB to FINRA s rules and procedures. (FINRA Uniform Forms Guide, September 2013 Edition, at 2 n.1 (Steciuk Decl. Ex. D).) -4-

11 Case 1:13-cv DLC Document 34 Filed 11/13/13 Page 11 of 20 NCUA Letter ), NCUA refused, contending that certain statutory provisions allow it to avoid or repudiate the arbitration obligation and attaching a separate October 17, 2013 letter from NCUA to Goldman Sachs purporting to effect a repudiation. (Steciuk Decl. Ex. F.) 2 ARGUMENT I. NCUA STANDS IN SOUTHWEST S SHOES IN THIS ACTION AND IS BOUND BY SOUTHWEST S AGREEMENT TO ARBITRATE. The FAA establishes a strong federal policy favoring arbitration. Moses H. Cone Mem l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983); see also Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985) (under the FAA, arbitration agreements must be generously construed in favor of arbitrability). 3 In construing an arbitration agreement, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration. Kuchinsky v. Curry, 2009 WL , at *2 (S.D.N.Y. May 28, 2009) (Cote, J.) (quoting Moses H. Cone Mem l Hosp., 460 U.S. at 24-25). The FAA requires a court to grant a motion to compel arbitration when: (1) a valid agreement to arbitrate exists; and 2 Goldman Sachs submits this arbitration motion in accordance with the Court s October 23, 2013 Order, which postponed submission of motions to dismiss in all of the actions brought by NCUA in this Court except the action designated as the lead case for briefing motions to dismiss NCUA v. Morgan Stanley & Co., No. 13-cv-6705 and directed Goldman Sachs to file its motion to compel arbitration on November 13, If the Court determines not to dismiss this action in favor of arbitration, Goldman Sachs reserves the right to move to dismiss the Complaint pursuant to Rule 12(b)(6), Fed. R. Civ. P., or to challenge whether this Court is the appropriate venue for this action given NCUA s many other similar actions in other courts. 3 The FAA governs arbitration agreements that, as here, affect[] interstate commerce. Alliance Bernstein Inv. Research & Mgmt., Inc. v. Schaffran, 445 F.3d 121, 125 (2d Cir. 2006); see also Goldstein v. Visconti, 2001 WL , at *3 (S.D.N.Y. May 30, 2001) (securities transaction between New York broker and out-of-state entity affects interstate commerce under the FAA). -5-

12 Case 1:13-cv DLC Document 34 Filed 11/13/13 Page 12 of 20 (2) that agreement encompasses the dispute at issue. See 9 U.S.C. 3; Hartford Accident & Indem. Co. v. Swiss Reinsurance Am. Corp., 246 F.3d 219, 226 (2d Cir. 2001). 4 There is a presumption of arbitrability where, as here, the arbitration clause broadly covers [a]ny controversy... arising out of or relating to the agreement. Collins & Aikman Prods. Co. v. Bldg. Sys., Inc., 58 F.3d 16, 20 (2d Cir. 1995) ( The clause in this case, submitting to arbitration [a]ny claim or controversy arising out of or relating to th[e] agreement, is the paradigm of a broad clause and thus there is a presumption that the claims are arbitrable. ); Kuchinsky, 2009 WL , at *2-3 (provision requiring arbitration of [a]ny controversy or claim arising out of or relating to an agreement is a classically broad arbitration clause ); Mina v. Foot Locker, Inc., 2009 WL , at *2 (S.D.N.Y. Sept. 30, 2009) ( [F]ederal policy and New York law strongly favor arbitration agreements, broadly interpreting the clauses that authorize arbitration.... The presumption in favor of arbitration is even stronger where the arbitration clause itself is a broad clause that refers to arbitration of all disputes arising out of an agreement. (quoting Clarendon Nat l Ins. v. Lan, 152 F. Supp. 2d 506, 514 (S.D.N.Y. 2001))). Plainly, Southwest s claims are subject to arbitration under the CAA because there is a reasonable relationship between the subject matter of the dispute and the general subject matter of the underlying contract. Nationwide Gen. Ins. Co. v. Investors Ins. Co. of Am., 332 N.E.2d 333, 335 (N.Y. 1975). The relationship between those claims and the subject matter of the CAA is more than merely reasonable it is direct and necessary. The CAA is an 4 To determine the scope and effect of an arbitration agreement, courts apply ordinary state-law principles that govern the formation of contracts. First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995). The CAA provides that [t]his agreement and its enforcement shall be governed by the laws of the State of New York. (CAA 9.) -6-

13 Case 1:13-cv DLC Document 34 Filed 11/13/13 Page 13 of 20 umbrella agreement between Southwest and Goldman Sachs, and its provisions shall cover individually and collectively all accounts which [Southwest] may maintain with [Goldman, Sachs & Co.]. (CAA 9 (emphasis added).) The CAA s arbitration clause expressly subjects to arbitration [a]ny controversy... arising out of or relating to this Agreement or the accounts established hereunder. (Id. 10.) NCUA s claims all aris[e] from Southwest s umbrella Agreement (the CAA) covering all of Southwest s securities transactions with Goldman Sachs, which were effected through Southwest s accounts at Goldman Sachs. (See also id. at preamble (agreement applies to any of [Southwest s] accounts with [Goldman, Sachs & Co.] for the purchase and sale of securities ).) Once it appears that there is... a reasonable relationship between the subject matter of the dispute and the general subject matter of the underlying contract, the court s inquiry is ended. Nationwide, 332 N.E.2d at NCUA, which stands in Southwest s shoes in this action, is bound by Southwest s agreement to arbitrate. See In re Hagerstown Fiber Ltd. P ship, 277 B.R. 181, (S.D.N.Y. 2002) ( Where the trustee sues as successor to the debtor, he is bound by an arbitration clause in the debtor s pre-petition contract. ); Wight v. BankAmerica Corp., 219 F.3d 5 When the parties contract evinces a clear and unmistakable agreement to have the arbitrators decide whether claims are arbitrable, a court must compel arbitration and leave it to the arbitrators to resolve that issue. See Rent-a-Center, West, Inc. v. Jackson, 130 S. Ct. 2772, 2777 (2010) ( [P]arties can agree to arbitrate gateway questions of arbitrability. ); Kuehn v. Citibank, N.A., 2012 WL , at *3 (S.D.N.Y. Dec. 6, 2012) (Cote, J.) (same). Under New York law, an arbitration agreement that, as here, refers any controversy to arbitration (CAA 10) satisfies that standard. See, e.g., Smith Barney Shearson Inc. v. Sacharow, 689 N.E.2d 884, (N.Y. 1997); Sher v. Goldman, Sachs & Co., 2012 WL , at *4-5 (D. Md. Apr. 19, 2012) (applying New York law and holding that provision in Goldman Sachs account agreement providing that any controversy will be settled by arbitration constitutes clear and unmistakable evidence that [the parties] intended to submit the question of arbitrability to the arbitrator ). This conclusion is buttressed where the arbitration agreement, as here, selects arbitration rules that permit the arbitrators to decide arbitrability, such as the rules of FINRA and the AAA. See id. -7-

14 Case 1:13-cv DLC Document 34 Filed 11/13/13 Page 14 of 20 79, 86 (2d Cir. 2000) ( [L]ike the trustees of a bankruptcy estate,... [liquidators] stand in the shoes of the defunct corporation.... ); see also Bennett v. Liberty Nat l Fire Ins. Co., 968 F.2d 969, 972 (9th Cir. 1992) ( [B]ecause the liquidator, who stands in the shoes of the insolvent insurer, is attempting to enforce [the insurer s] contractual rights, she is bound by [the insurer s] pre-insolvency [arbitration] agreements. ). The CAA expressly provides that it is binding upon... [Goldman, Sachs & Co.], [Southwest], and [their] respective... successors and assigns (CAA 9), and NCUA, as liquidating agent, is Southwest s legal successor. See 12 C.F.R (a) (NCUA, as liquidating agent, by operation of law and without any conveyance or other instrument, act or deed, shall succeed to all the rights, titles, powers, and privileges of the credit union ). II. NCUA S VARIOUS ARGUMENTS TO AVOID THE ARBITRATION AGREEMENT FAIL. In support of its challenge to arbitration, NCUA argues that (1) the arbitration agreement does not apply to NCUA s statutory claims, and (2) certain provisions in NCUA s enabling act allow it to avoid or vitiate its obligation to arbitrate. For the reasons discussed below, each of NCUA s arguments fails. A. NCUA s Argument That the Arbitration Agreement Does Not Apply to Statutory Claims Ignores the Plain Language of the CAA. Although NCUA has argued that the arbitration agreement does not apply to the statutory securities claims it asserts in this action (NCUA Letter at 1 (Steciuk Decl. Ex. F)), the plain language of the CAA requires arbitration of [a]ny controversy... arising out of or relating to the CAA or any of [Southwest s] accounts with [Goldman, Sachs & Co.] for the purchase and sale of securities. (CAA 10 & preamble.) See Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477, 478 (1989) ( standard customer agreement with the broker, which included a clause stating that the parties agreed to settle any controversies relating to [the] -8-

15 Case 1:13-cv DLC Document 34 Filed 11/13/13 Page 15 of 20 accounts through binding arbitration, applied to claims under the Securities Act of 1933); McCowan v. Sears, Roebuck & Co., 908 F.2d 1099, 1106 (2d Cir. 1990) (state blue sky law fraud claim against brokerage firm arbitrable under provision in account agreement submitting to arbitration [a]ny controversy... arising out of or relating to this contract or the breach thereof ); Scher v. Bear Stearns & Co., 723 F. Supp. 211, 213, 216 (S.D.N.Y. 1989) (federal securities fraud claims against broker arbitrable under provision in account agreement submitting to arbitration [a]ny controversy arising out of or relating to your account ). 6 B. The Various Statutory Provisions NCUA Cites Do Not Excuse Its Non- Compliance with Its Arbitration Agreement Under the FAA. NCUA argues in the alternative that certain provisions in its enabling act allow it to avoid or vitiate its obligation to arbitrate. Each of its arguments fails. First, NCUA argues that, under 12 U.S.C. 1787(b)(9) and 1788(a)(3), the CAA cannot be enforced against it because it supposedly cannot find Southwest s own copy of the CAA. (See NCUA Letter at 1 (NCUA [has] confirmed after a reasonable search that there is no record of the [CAA] in Southwest s files. ) (Steciuk Decl. Ex. F).) Putting aside for the moment how hard NCUA has looked, this argument relies on statutory provisions that do not apply here. Section 1787(b)(9) (which incorporates Section 1788(a)(3) by reference) provides that a contract must have been continuously, from the time of its execution, an official record of the credit union only when that contract form[s] the basis of, or substantially comprise[s], a claim against [NCUA]. 12 U.S.C. 1787(b)(9)(A) (emphasis added). Goldman Sachs has not 6 NCUA s argument is particularly ironic in light of its position in concurrent litigation with Goldman Sachs that statutory securities claims have long been viewed as sounding in tort and thus should not be treated differently from common law fraud claims for purposes of the federal extender statute. See, e.g., NCUA v. Goldman, Sachs & Co. et al., No. 11-cv-6521 (C.D. Cal.), Dkt. No

16 Case 1:13-cv DLC Document 34 Filed 11/13/13 Page 16 of 20 asserted any claim against [NCUA]. See Acciard v. Whitney, 2011 WL , at *3-4 (M.D. Fla. Sept. 30, 2011) (where party did not seek to collect money from NCUA, it was not asserting a claim under Section 1787(b)(9)); Nat l Union Fire Ins. Co. v. City Savings, F.S.B., 28 F.3d 376, 387 (3d Cir. 1994) ( claim [as used in 12 U.S.C. 1821] means... right to payment ). 7 Section 1788(a)(3) standing alone, as opposed to by incorporation through Section 1787(b)(9), applies only to agreement[s] which tend[] to diminish or defeat the right, title, or interest of [NCUA], in any asset acquired by it. 12 U.S.C. 1788(a)(3). The CAA does not diminish or defeat NCUA s interest in any asset, but simply provides the forum for adjudicating disputes between the parties. See, e.g., Murphy v. FDIC, 61 F.3d 34, (D.C. Cir. 1995) (enforcement of agreement not barred where FDIC failed to demonstrate that its interest in any specific asset... would be diminished ); John v. Resolution Trust Corp., 39 F.3d 773, 776 (7th Cir. 1994) ( Section 1823(e) requires an identifiable asset which is acquired by the bank and then transferred to the regulatory agency, and to which the unenforceable agreements must relate. ); Agri Export Co-op. v. Universal Sav. Ass n, 767 F. Supp. 824, 833 (S.D. Tex. 1991) (to be unenforceable, agreement must pertain to a particular, identifiable asset ); Allegheny Int l, Inc. v. Allegheny Ludlum Steel Corp., 920 F.2d 1127, 1133 (3d Cir. 1990) (issue of forum selection will not affect the assets of [litigant s] estate ). NCUA s arguments would fail even if Sections 1787(b)(9) and 1788(a)(3) applied. NCUA s own interpretive ruling concerning these statutory provisions states that a 7 Case law interpreting provisions governing the FDIC (12 U.S.C et seq.) also is applicable to identical provisions governing NCUA (12 U.S.C et seq.). See, e.g., Savoy v. White, 788 F. Supp. 69, 72 (D. Mass. 1992) ( Case law interpreting the identical provision governing the FDIC is applicable to provisions governing NCUA because all of the agencies which regulate financial institutions are in the similar special position of safeguarding the interests of the depositors at large. ). -10-

17 Case 1:13-cv DLC Document 34 Filed 11/13/13 Page 17 of 20 contract counterparty may, by appropriate evidence (including the production of copies maintained by the counterparty) establish the existence of the writing and the evidence of authority. (NCUA Interpretive Ruling & Policy Statement No. 03-3, 68 Fed. Reg (Steciuk Decl. Ex. B).) Not only did Southwest acknowledge[] receipt of a copy of th[e] Cash Account Agreement when it signed the CAA (CAA 13), but Goldman Sachs also has tendered to NCUA a copy of the CAA signed by Southwest and evidence of the signatory s authority on behalf of Southwest. (Corporate Resolution of Southwest Corporate Federal Credit Union Authorizing Securities Transactions, dated February 14, 1991 (Steciuk Decl. Ex. G).) Second, almost three years after its appointment as liquidating agent, NCUA has purported to repudiate the CAA pursuant to 12 U.S.C. 1787(c)(1), which permits NCUA to repudiate a contract that it determines to be burdensome if repudiation will promote the orderly administration of the credit union s affairs. (NCUA Letter at 2 (Steciuk Decl. Ex. F).) NCUA asserts conclusorily and formulaically that continuation of [the CAA] would be burdensome and would allegedly hinder the orderly administration of the affairs of Southwest (id. at 3), but NCUA does not explain how or why that is the case certainly the FAA and innumerable court decisions strongly support the view that arbitration is less burdensome than litigation. And even were NCUA right that an arbitration clause is somehow burdensome, courts have held that repudiation powers like those NCUA purports to exercise here do not apply to purely procedural provisions such as agreements to arbitrate. See Truck Drivers Local Union No. 807, 541 F.2d at 321 n.15 ( [L]ike any other unilateral breach of contract, [rejection of a contract under the Bankruptcy Code] does not destroy the contract so as to absolve the parties... from a contractual duty to arbitrate their disputes. ); In re Fleming Cos., 2007 WL , at *4 (D. Del. Mar. 16, 2007) ( [A]rbitration clause not only survives rejection, but -11-

18 Case 1:13-cv DLC Document 34 Filed 11/13/13 Page 18 of 20 should be enforced... consistent with the strong policy favoring arbitration. ); FDIC v. Ernst & Young, 374 F.3d 579, 584 (7th Cir. 2004) (FDIC, as receiver for bank, could not bring fraud action against auditing firm but repudiate associated arbitration provision). 8 Even if NCUA could otherwise selectively repudiate the procedural arbitration clause, it cannot do so at this late stage because its supposed repudiation did not occur within a reasonable period following [NCUA s] appointment as liquidating agent of Southwest, as required by 12 U.S.C. 1787(c)(2). NCUA notified Goldman Sachs of its purported repudiation of the CAA on October 17, 2013, almost three years after it was appointed liquidating agent of Southwest on October 31, Three years far exceeds the bounds of a reasonable period under the statute. See Cent. Buffalo Project Corp. v. FDIC, 29 F. Supp. 2d 164, (W.D.N.Y. 1998) (100 days not a reasonable period under identical provision, 12 U.S.C. 1821(e), governing predecessor of FDIC); Statement of Policy Regarding Treatment of Security Interests After Appointment of the FDIC as Conservator or Receiver, 58 Fed. Reg (FDIC policy statement that reasonable period of time for repudiation of a contract is less than 180 days). Courts have considered whether delays of up to six months are reasonable ; we are aware of no instance where a court has considered whether a delay of even one year (no less three years) exceeds the bounds of the statutory requirement. See Vill. Park Office I, LLC v. FDIC, 2012 WL , at *3-4 (M.D. Ga. Apr. 24, 2012) ( The courts have typically declined to find that a delay of six months is reasonable as a matter of law under 12 U.S.C. 1821(e)(2). (emphasis in original)). 8 Cases interpreting arbitration provisions in bankruptcy are instructive. See In re IndyMac Bancorp, Inc., 2012 WL , at *35 n.23 (Bankr. C.D. Cal. Mar. 29, 2012) ( The FDIC s power to repudiate contracts was modeled after and intended to operate like a trustee s power to reject executory contracts under the Bankruptcy Code. ); see also supra note 7 (cases interpreting provisions governing FDIC are applicable to identical provisions governing NCUA). -12-

19 Case 1:13-cv DLC Document 34 Filed 11/13/13 Page 19 of 20 Third, NCUA claims to be able to trump its contractual arbitration commitment under 12 U.S.C. 1789(a)(2), which provides that NCUA may sue and be sued, complain and defend, in any court of law or equity, State or Federal. (NCUA Letter at 2 (Steciuk Decl. Ex. F).) Section 1789 merely provides a basis for a federal court to exercise subject-matter jurisdiction for claims brought by NCUA; it does not alter application of the FAA or a contractual arbitration agreement. See, e.g., NCUA v. Moody, 2012 WL , at *2 (D. Nev. Dec. 6, 2012) ( This Court has subject matter jurisdiction pursuant to 12 U.S.C ); NCUA v. Regine, 749 F. Supp. 401, 410 (D.R.I. 1990) (Section 1789(a)(2) provide[s] an adequate basis for federal jurisdiction in this case. ). The FAA mandates that federal courts refer to arbitration actions covered by a valid arbitration agreement, even if the federal court would otherwise have subject-matter jurisdiction. See 9 U.S.C. 3 (mandating arbitration of any suit or proceeding... in any of the courts of the United States (emphasis added)); Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985) (FAA leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed (emphasis in original)). NCUA does not cite any case and Goldman Sachs is aware of none holding that Section 1789(a)(2) repeals the FAA as to NCUA. Finally, NCUA cites 12 U.S.C. 1787(g), which prohibits courts from restrain[ing] or affect[ing] the exercise of powers or functions of the Board as a conservator or a liquidating agent. (NCUA Letter at 2 (Steciuk Decl. Ex. F).) That section places no limitation on a court s ability to comply with its mandate under the FAA to enforce valid arbitration agreements, but rather prevents courts from enjoining agency action while it exercises its statutory authority. Bumpus v. NCUA, 1992 WL 97984, at *4 (D. Mass. Apr. 29, 1992). An -13-

20 Case 1:13-cv DLC Document 34 Filed 11/13/13 Page 20 of 20 order compelling NCUA to arbitrate rather than litigate its claims leaves NCUA entirely free to exercise its statutory authority and merely specifies the forum where it must do so. That is no more of a restraint than constitutional principles of due process, which limit the forums that may exercise jurisdiction over defendants. CONCLUSION For the foregoing reasons, Goldman Sachs respectfully requests that the Court dismiss this action and order NCUA to submit its claims to arbitration in accordance with the FAA and the clear terms of the CAA. Dated: November 13, 2013 Respectfully submitted, /s/ Richard H. Klapper Richard H. Klapper (klapperr@sullcrom.com) William B. Monahan (monahanw@sullcrom.com) Peter A. Steciuk (steciukp@sullcrom.com) Sara Hausner-Levine (hausnerlevs@sullcrom.com) SULLIVAN & CROMWELL LLP 125 Broad Street New York, New York Telephone: (212) Facsimile: (212) Attorneys for Defendants Goldman, Sachs & Co. and GS Mortgage Securities Corp. -14-