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Federal Deposit Insurance Corp. v. Deutsche Bank Securities, Inc.

United States District Court, W.D. Texas, Austin Division

September 19, 2019

FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver for GUARANTY BANK, Plaintiff,
v.
DEUTSCHE BANK SECURITIES, INC., Defendant.

          ORDER

          XAVIER RODRIGUEZ UNITED STATES DISTRICT JUDGE

         On this day came on to be considered Defendant's motion for reconsideration (Docket No. 227).

         Background

         Plaintiff alleges that Defendant Deutsche Bank Securities, Inc. (and others) sold securities, known as “certificates, ” which were backed by collateral pools of residential mortgage loans. In 2004 and 2005, Guaranty Bank paid some $2.1 billion for twenty residential mortgage backed securities certificates, including at least four certificates from various Defendants in this case. Guaranty Bank subsequently failed, and the FDIC was appointed as receiver on August 21, 2009. The FDIC filed this lawsuit in a Texas state court on August 17, 2012, alleging the Defendant and several others violated the Securities Act of 1933 and the Texas Securities Act (TSA) by making material misstatements and omissions concerning the mortgages underlying the securities.

         Since that time the only remaining defendant in this case is Deutsche Bank Securities Inc. The only remaining claim is an alleged violation of the Texas Securities Act, Tex. Rev. Civ. Stat. Ann. Art. 581-33(D)(3). On February 7, 2014, Deutsche Bank removed the case to this Court pursuant to 12 U.S.C. § 1819, and the case was assigned to the Honorable Sam Sparks.

         On September 14, 2017, Judge Sparks entered an order in this case deciding the applicable interest rate for calculating damages under the TSA. See Docket No. 127. Deutsche Bank now moves for reconsideration of that order, arguing that Judge Sparks erred in reaching his decision. See Docket No. 227. Defendant argues the appropriate interest rate is the Coupon Rate specified in the certificates at issue in this case. The “legal rate” for prejudgment interest, Defendant asserts, is the same as the post-judgment interest rate set in Chapter 304 of the Texas Finance Code: the lesser of “(1) the rate specified in the contract ... or (2) 18 percent a year.” Tex. Fin. Code Ann. § 304.002. Because the certificates in this case are “contracts that provide[ ] for interest, ” Defendants contend the prejudgment interest is the Coupon Rate the parties contractually agreed to. The FDIC counters the “legal rate, ” is six percent per year as set forth in Chapter 302 of the Texas Finance Code.

         Analysis

         Tex. Rev. Civ. Stat. Ann. art. 581-33(D) states in relevant part:

(3) In damages, a buyer shall recover (a) the consideration the buyer paid for the security plus interest thereon at the legal rate from the date of payment by the buyer, less (b) the greater of:
(i) the value of the security at the time the buyer disposed of it plus the amount of any income the buyer received on the security; or
(ii) the actual consideration received for the security at the time the buyer disposed of it plus the amount of any income the buyer received on the security.

         The statute does not further define how interest at the “legal rate” is calculated.

         Deutsche Bank argues that in the absence of a definition in article 581-33, the Court should apply Tex. Finance Code section 304.002 and the coupon rates stated in the certificates should govern the calculation of “prejudgment interest.” Tex. Finance Code section 304.002 states, in relevant part, as follows:

A money judgment of a court of this state on a contract that provides for interest or time price differential earns postjudgment ...

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