July 22, 2018

Colorado Court of Appeals: Statute of Repose Acts as Absolute Bar to Bringing Suit After its Expiration

The Colorado Court of Appeals issued its opinion in Sierra Pacific Industries, Inc. v. Bradbury on Thursday, September 8, 2016.

Construction Defect Action Reform Act—Summary Judgment—Statute of Repose.

Sierra Pacific Industries, Inc. hired Bradbury to install windows and doors on a condominium construction project. Bradbury began and completed this work in 2002.Sierra Pacific attended to leaks and water damage between 2004 and 2011, including two substantial retrofit repairs in 2005 and 2011. Bradbury did some repair work in 2004. Construction defect litigation resulted over the cost of the repairs.

In 2014 Sierra Pacific filed this indemnification action against Bradbury to recover losses incurred in the settlement of the defective construction case and damages for related contractual breaches. Bradbury filed for summary judgment under C.R.C.P. 56(b), asserting that the claims, brought nearly 10 years after Bradbury ceased repair efforts, were time barred by the six-year statute of limitation in Colorado’s Construction Defect Action Reform Act. The trial court granted Bradbury’s motion for summary judgment.

On appeal, Sierra Pacific argued it was error to find that its claims were barred by the six-year statute of repose because under C.R.S. § 13-80-104(1)(b), it was allowed to file claims against Bradbury within 90 days of settling the underlying case in 2014, notwithstanding the statute of repose. This exact argument was previously rejected by a division of the court of appeals and the court here rejected it for the same reasons. The court concluded that the settlement in the underlying case did not impact the application of the statue of repose.

Sierra Pacific also contended that summary judgment was inappropriate because there remains a dispute of material fact as to when the statute of repose expired. Sierra Pacific argued that even if the statute of repose was not tolled by the settlement, the period of repose did not commence until the improvements to the property were completed in 2011. C.R.S. §§ 13-80-104(1)(a) and (2) provide a statute of repose that expires six years after substantial completion of improvements to real property, unless it is extended two years because the underlying cause of action arose during the fifth or sixth year after such substantial completion. Sierra Pacific argued that “substantial completion” did not occur until the repairs were finished in 2011. The court reasoned that a subcontractor has substantially completed its role in the improvement at issue when it finishes working on the improvement, and the statute of repose commences upon substantial completion. Here, the project was substantially completed in 2002, or in no event later than 2004, when the last repairs by Bradbury were completed. Moreover, there is no tolling of the statute of repose based on another’s efforts to repair work.

Under the applicable statute of repose, Sierra Pacific’s claims against Bradbury were time barred, and the district court properly granted Bradbury’s motion for summary judgment. The judgment was affirmed.

Summary provided courtesy of The Colorado Lawyer.

Colorado Supreme Court: CUFTA Limitations Period May Be Tolled by Express Agreement

The Colorado Supreme Court issued its opinion in Lewis v. Taylor on Monday, June 20, 2016.

Uniform Fraudulent Transfer Act—Limitation of Actions—Agreements Tolling Limitation.

Under the Colorado Uniform Fraudulent Transfer Act (CUFTA), CRS §§ 38-8-101 to -112, any action to avoid an intentionally fraudulent transfer is extinguished if not brought within four years after the transfer was made or, if later, within one year after the transfer was or could reasonably have been discovered. Here, the Supreme Court held that these time limitations may be tolled by express agreement. Because the parties to this case signed a tolling agreement, and petitioner’s CUFTA claims were properly brought within the tolling period, the Court concluded that his claims were timely filed and were not barred by CUFTA’s limitations period. Therefore, the Court reversed the judgment of the Court of Appeals.

Summary provided courtesy of The Colorado Lawyer.

Tenth Circuit: Extender Statute Cannot be Tolled by Agreement of the Parties

The Tenth Circuit Court of Appeals issued its opinion in National Credit Union Administration Board v. Barclays Capital, Inc. on Tuesday, March 3, 2015.

The National Credit Union Administration Board (NCUA), acting in its role as conservator for failing credit unions, investigated the failure of two major credit unions and found they had failed because they had relied upon misrepresentations in offering documents about residential mortgage-backed securities (RMBS) that were essentially junk loans. The NCUA began pursuing remedies against the issuers and underwriters of the RMBS and began settlement negotiations with Barclays and other defendants (collectively, Barclays). During the pendency of the settlement negotiations, the NCUA entered into contracts with Barclays that averred the statute of limitations would be tolled during the settlement negotiations and also that Barclays would not assert untimeliness as a defense in any ensuing litigation.

When the settlement negotiations failed, the NCUA initiated these actions, asserting violations of Sections 11 and 12(a)(2) of the Securities Act, as well as state securities claims under the blue sky laws of Kansas and California. Barclays moved to dismiss for failure to state a claim on several grounds, including untimeliness. Barclays initially honored the tolling agreement but argued the claims were time-barred by the Securities Act’s three-year statute of repose. The NCUA responded that the statute of repose was inapplicable to these cases and instead the Federal Credit Union Act’s “Extender Statute” applied, providing a three-year statute of limitations.

While the actions were pending, the district court issued an opinion in a different case, ruling that contractual tolling was not authorized under the extender statute. Barclays then amended its motion to dismiss based on the different ruling. The district court granted the motion to dismiss, holding the claims were covered by the Extender Statute and not the statute of repose, and that tolling could not be contractually waived. The NCUA appealed.

The Tenth Circuit first determined that the district court correctly applied the Extender Statute and not the statute of repose. The Tenth Circuit recently ruled that the Extender Statute supplants all other time limits. Explaining the difference between statutes of limitations and repose, the Tenth Circuit noted that statutes of repose cannot be equitably tolled and act as an absolute time-bar, whereas statutes of limitations are frequently tolled and are affirmative defenses rather than absolute bars. After analyzing the specific language of the Extender Statute, however, the Tenth Circuit found it explicitly and unambiguously stated it could not be tolled by contract. Nevertheless, the Tenth Circuit reversed the district court’s dismissal, finding that Barclays promised not to assert the affirmative defense of the statute of limitations and it should be held to its promise.

The Tenth Circuit reversed and remanded for further proceedings consistent with its opinion.

Tenth Circuit: FIRREA’s Extender Statute Applies to Allow NCUA’s Cases on Behalf of Failed Credit Unions to Go Forward

The Tenth Circuit Court of Appeals published its opinion in National Credit Union Administration Board v. Nomura Home Equity Loan on Tuesday, August 27, 2013.

U.S. Central Federal Credit Union (“U.S. Central”) was the largest federally chartered credit union in the country before it failed in 2009. In 2006 and 2007, U.S. Central invested in RMBS. RMBS are created through securitization by pooling residential mortgage loans and offering prospective investors the opportunity to invest in a loan pool through purchase of RMBS certificates granting ownership of a slice of the loan pool. Investors can buy, sell, or hold RMBS certificates. When homebuyers pay back their loans, investors receive a positive return through payment of dividends and the increased value of the certificates.

U.S. Central purchased 29 RMBS certificates. When U.S. Central made these purchases, nearly all certificates were assigned the highest possible investment rating, indicating they were low-risk investments. But over the next four years, most of the certificates performed so poorly that their credit ratings were downgraded to well below investment grade. In other words, the certificates were reclassified to a credit rating commonly referred to as “junk” grade.

The RMBS of Corporate Federal Credit Union (“WesCorp”) were also highly rated at the time of purchase, but experienced a surge in borrower delinquencies and defaults, resulting in significant losses and a collapse of their credit ratings. This resulted in staggering losses for both credit unions, and losses from these failed investments contributed to the demise of both organizations.

After taking over the credit unions, The National Credit Union Administration (“NCUA”) investigated the RMBS. NCUA concluded that the offering documents contained materially false and misleading statements about the credit worthiness of the mortgage borrowers and the underwriting practices used by originators of the mortgages. NCUA claimed these materially false and misleading statements concealed underwriters’ shoddy practices and systematic disregard of the guidelines and industry standards.

NCUA placed the two credit unions into conservatorship and sued 11 defendants on behalf of U.S. Central, alleging federal and state securities violations. In a separate case, NCUA sued one defendant on behalf of U.S. Central and WesCorp, alleging similar violations.

The cases were consolidated in the United States District Court for the District of Kansas. Defendants moved for dismissal, arguing that NCUA’s claims were time-barred. The district court denied the motion, concluding that the so-called Extender Statute applied to NCUA’s claims. See 12 U.S.C. § 1787(b)(14). Defendants moved for an interlocutory appeal for the Tenth Circuit to determine whether the Extender Statute applied to NCUA’s claims.

In the wake of the savings and loan crisis of the 1980s, Congress passed the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”). FIRREA’s purpose is to strengthen government regulation of federally chartered or insured financial organizations. FIRREA contains provisions often referred to as “extender statutes,” which extend the time period for a government regulator to bring “any action” on behalf of a failed financial organization. One applies to NCUA, 12 U.S.C. § 1787(b)(14). It reads in part:

(A)     In general
Notwithstanding any provision of any contract, the applicable statute of limitations with regard to any action brought by the Board as conservator or liquidating agent shall be—
(i) in the case of any contract claim, the longer of—
(I) the 6-year period beginning on the date the claim accrues; or
(II) the period applicable under State law; and
(ii) in the case of any tort claim, the longer of—
(I) the 3-year period beginning on the date the claim accrues; or
(II) the period applicable under State law.

Further, Sections 11 and 12(a)(2) of the Securities Act of 1933 impose liability on certain participants in a registered securities offering that involves material misstatements or omissions. Section 11 applies to registration statements, and Section 12(a)(2) applies to prospectus materials and oral communications. For private litigants bringing a claim under Sections 11 or 12(a)(2), two deadlines must be satisfied. Both appear in Section 13 of the Securities Act. First, a claim must be brought within one year from the date the violation is discovered or should have been discovered through the exercise of reasonable diligence. Second, a claim is subject to a three-year limit, which provides that “[i]n no event” shall a claim under Section 11 be filed “more than three years after the security was bona fide offered to the public,” and no “more than three years after the sale” in the case of a Section 12(a)(2) claim.

Defendants made two arguments that NCUA’s claims were untimely. First, they argued that the Extender Statute did not apply to repose periods and that Section 13’s three-year period was a repose period. A statute of repose is a fixed, statutory cutoff date, usually independent of any variable, such as claimant’s awareness of a violation. In a statute of repose, the bar is tied to an independent event.

The court applied a plain meaning analysis. The Tenth Circuit concluded that the Extender Statute time periods’ application to “any action” indicated that the Statute supplanted any other time periods that otherwise would apply to NCUA claims. The court held that the Extender Statute applied to Section 13’s three-year repose period and affirmed the district court’s conclusion on this issue.

Second, Defendants argued that the Extender Statute covered only state common law claims. Under this theory, the Extender Statute would not apply to any of NCUA’s claims—all of which were statutory. The court held that applying the Extender Statute to statutory claims served the statute’s purpose by providing NCUA sufficient time to investigate and file all potential claims once it assumes control of a failed credit union. For the same reasons, statutory purpose supported the Extender Statute’s application to federal actions. FIRREA’s stated purpose includes facilitating recoveries by NCUA on behalf of failed credit unions.

AFFIRMED.