| ALBANY, N.Y.
ALBANY, N.Y. HSBC Bank asked New
York's top state court on Thursday to revive a lawsuit against a
Deutsche Bank unit over the sale of mortgage-backed
securities, in a case that could impact billions of dollars of
claims stemming from the financial crisis.
HSBC's attorney Paul Clement told the Court of Appeals in
White Plains that New York's six-year statute of limitations on
these types of lawsuits should begin to run when issuers of
securities refuse to buy back or replace shoddy mortgages and
not when investors first purchase them.
Clement said that would allow investors to recoup losses
that resulted from pervasive mortgage fraud in the years leading
up to the crisis.
"This contract extends for 30 years ... and it would be very
odd for investors to leave themselves unprotected for the last
24," he said.
HSBC is the trustee of $500 million in securities backed by
residential mortgages that were sold to investors in 2006 by
Deutsche Bank Structured Products Inc. Two investors sued in
2012 and were later replaced by HSBC, claiming Deutsche Bank
misrepresented the quality of the mortgages.
A state judge rejected Deutsche Bank's claim that the
statute of limitations had expired, but a Manhattan appeals
court in 2013 reversed and dismissed the suit.
David Woll, who represents the Deutsche Bank unit, said on
Thursday that reviving HSBC's claims would create uncertainty
and instability in financial markets, since issuers of
securities could be sued for decades after closing a deal.
"If you adopt (HSBC's) theory ... our grandchildren could be
here in 2042," Woll told the court.
However the Court of Appeals rules, it will likely have a
decisive impact on similar cases collectively worth billions of
dollars, according to the dozen friend-of-the-court briefs filed
by various industry groups.
A decision in Deutsche Bank's favor, according to a brief
from the Association of Mortgage Investors, would foreclose many
multimillion-dollar claims by investors who purchased securities
backed by faulty loans and did not file suit within six years.
The six-judge panel on Thursday expressed concerns about
both arguments. Judge Eugene Pigott told Woll that issuers
"would be less inclined to put bad loans in these (securities)
if 15 years down the road it had be to cured or repurchased."
Woll countered that six years is enough time for issuers and
investors to determine the quality of mortgages.
The case is ACE Securities Corp v. DB Structured Products
Inc, New York State Court of Appeals No. 85.