DENVER (CN) - It is not too late for Barclays Capital to face claims over its allegedly bogus valuations of investment mortgages, the 10th Circuit ruled Tuesday.
The underlying lawsuit stems from the National Credit Union Administration's appointment as conservator for two ailing credit unions - the U.S. Central Federal Credit Union and Western Corporate Federal Credit union - in 2009.
After an investigation revealed that the credit unions failed largely because they had purchased mortgage interests that were worth much less than represented, the NCUA pursued the underwriters of the mortgages, including Barclays Capital, to recover the credit unions' losses.
To encourage negotiations, Barclays promised it would exclude all the time spent in those efforts from a statute of limitations defense if the issue went to court.
But when those negotiations broke down and the NCUA sued in September 2012, Barclays claimed the lawsuit was barred under the Securities Act's three-year statute of repose, which cannot be waived.
Barclay pointed to the suit's filing more than five years after the mortgages in question were sold, and more than three years after the NCUA became conservator for the distressed credit unions.
NCUA countered that the statute of repose had been displaced by the Federal Credit Union Act's "Extender Statute," which was a statute of limitations and thus subject to waiver.
In reaching its decision Tuesday, the 10th Circuit had to parse the difference between a statute of repose and a statute of limitations, and determine which of the two applied to the case.
While a statute of repose establishes an outer time limit on how long a defendant can be held liable for an action, a statute of limitations provides an affirmative defense to that action.
"Several features of the Extender Statute's text make clear the Extender Statute is a statute of limitations creating an affirmative defense, rather than a statute of repose extinguishing the cause of action," Judge David Ebel wrote for a three-judge panel.
This means that the statute is "amenable to tolling, waiver, and estoppel arguments," Ebel concluded.
While acknowledging that the NCUA's claims fell outside the prescribed time periods governing litigation at both the federal and state levels, the 10th Circuit shot down Barclays' use of this defense.
"The NCUA relied upon the tolling promises by Barclays in continuing settlement negotiations rather than breaking off negotiations and suing within the limitations period," wrote Ebel, "and it is appropriate to hold Barclays to its promise."
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