Federal Home Loan Bank Of Seattle, App. v. Barclays Capital, Inc., Res.
75913-2
| Wash. Ct. App. | Dec 11, 2017Background
- FHLB of Seattle (FHLBS) purchased two IndyMac‑originated RMBS pools (IND1 and IND2) in 2008 and sued Barclays (securitizer/seller) under the Washington State Securities Act (WSSA), RCW 21.20.010(2), claiming prospectus supplements contained material misstatements/omissions about underwriting and appraisal (LTV) practices.
- The trial court granted Barclays summary judgment, concluding FHLBS failed to raise a genuine issue of material fact on reasonable reliance; FHLBS appealed.
- The contested prospectus language stated loans were originated "according to IndyMac’s underwriting guidelines" (subject to exceptions) and that appraisals were performed under USPAP; supplements also included qualifications noting exceptions and valuation variability.
- FHLBS is a sophisticated institutional RMBS investor; internal minutes and memos show FHLBS personnel were warned about IndyMac, Alt‑A markets, and market turmoil and participated in due diligence and loan selection communications with IndyMac.
- The court applied Washington precedent and federal Rule 10b‑5 jurisprudence to determine whether reasonable reliance is an element of WSSA claims and whether factual disputes existed on that element.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether reasonable reliance is an element of a WSSA claim under RCW 21.20.010(2) | FHLBS: statute does not require proof of reasonable reliance; WSSA should protect investors without reliance element | Barclays: WSSA patterned on Rule 10b‑5; federal and state precedent require reliance | Held: Reasonable reliance is an essential element of RCW 21.20.010(2) and must be proved |
| Whether the statute is strict liability because WSSA borrows remedy language from 1933 Act Section 12(2) | FHLBS: borrowing suggests strict liability; reliance unnecessary | Barclays: liability provisions mirror Rule 10b‑5, not Section 12(2); legislature intended Rule 10b‑5 interpretation including reliance | Held: Legislature borrowed remedy language only; WSSA liability follows Rule 10b‑5 (reliance required) |
| Whether, under the facts, FHLBS raised a genuine issue of material fact on reasonable reliance | FHLBS: relied on prospectus supplements; lacked access to loan files and could not detect misstatements | Barclays: FHLBS was sophisticated, had warnings and access to information, and could have investigated further | Held: No genuine issue; reasonable minds could only conclude FHLBS did not reasonably rely |
| Whether the particular statements (underwriting adherence and USPAP appraisals) were specific enough to support reliance | FHLBS: statements referred to the specific pooled loans and thus supported reliance | Barclays: statements were general and qualified (exceptions, valuation variability), not specific assurances | Held: Statements were general/qualified; did not create material fact dispute on reasonable reliance |
Key Cases Cited
- Hines v. Data Line Sys., Inc., 114 Wn.2d 127 (1990) (WSSA plaintiffs must show reliance on misrepresentations in connection with a securities sale)
- Stewart v. Estate of Steiner, 122 Wn. App. 258 (2004) (adopts multifactored test for reasonableness of reliance and holds reliance is essential)
- Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135 (2011) (federal Rule 10b‑5 reliance jurisprudence informing state interpretation)
- Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976) (discusses scienter requirement in federal securities law)
- Kittilson v. Ford, 93 Wn.2d 223 (1980) (Washington Supreme Court on elements derived from federal law)
- Gustafson v. Alloyd Co., Inc., 513 U.S. 561 (1995) (distinguishing liabilities and remedies under federal securities statutes)