The Federal Housing Finance Agency (FHFA) announced on Wednesday that it has reached a settlement on behalf of Freddie Mac and Fannie Mae with the Royal Bank of Scotland for the amount of $5.5 billion.
The case, FHFA v. The Royal Bank of Scotland Group plc et al., Case No. 3:11-cv-1383, alleges that, amongst other things, the Royal Bank of Scotland was in violation of federal and state security laws that deal with private-label residential mortgage-backed securities. The securities in question were purchased by Freddie Mac and Fannie Mae from 2005 to 2007. Within the terms of the settlement, the Royal Bank of Scotland will pay $4.53 billion and $975 million to Freddie Mac and Fannie Mae, respectively. The lawsuit was filed back in 2011.
During the suit, the Royal Bank of Scotland motioned for a stay of discovery, contending that, because the FHFA was bringing private causes of action under federal securities laws, along with the fact that the FHFA was acting as conservator to Freddie Mac and Fannie Mae, the suit fell under the Private Securities Litigation Reform Act and was subject to an automatic stay while a motion to dismiss was being considered. The Royal Bank of Scotland also argued that, even if their motion for a stay of discover was not covered under the Private Securities Litigation Reform Act, it still would fall under the Federal Rule of Civil Procedure 26, which states:
“the party seeking a protective order has the burden of showing that good cause exists for issuance of that order,” Gambale v. Deutsche Bank AG, 377 F.3d 133, 142 (2d Cir. 2004) a burden that requires “a strong showing.” Moss v. Hollis, CIV. No. B-90- 177 (PCD), 1990 WL 138531, at “The pendency of a dispositive motion is not, in itself, an automatic ground for a stay.”
The court ultimately found that the Royal Bank of Scotland did not meet its burden of proof.
The suit against the Royal Bank of Scotland is one of 18 lawsuits filed by the FHFA as conservator for Fannie Mae and Freddie Mac, and represents the 17th suit that has been settled.