Extraordinary filing shows banks are on the ropes in FHFA cases
There’s a cloud of desperation over most petitions for a writ of mandamus. These are, by definition, extraordinary filings, asserting that trial judges have committed such egregious abuses of discretion that their appellate overseers must immediately step in and undo the damage. Mandamus petitions are a last resort. They present the downside risk of inciting a trial judge who’s already ill disposed toward you and compromising your credibility at the appeals court. The upside, meanwhile, is remote. Appeals courts grant mandamus very, very rarely.
You can be sure that all of these considerations were taken into account by the 15 banks that filed a stunning joint mandamus petition late Tuesday night, asking the 2nd Circuit Court of Appeals to reverse “gravely prejudicial” pretrial discovery rulings by U.S. District Judge Denise Cote in the Federal Housing Finance Agency’s mortgage-backed securities litigation. It’s my understanding that the banks and their lawyers have been debating the pros and cons of a mandamus petition for months and have been honing the language of the filing for weeks. (Can you imagine the billable hours expended on the conference calls for this joint filing?) Certainly, the banks knew that the odds of succeeding with their petition only got longer in January, when the 2nd Circuit denied mandamus to Arab Bank, reiterating the appeals court’s “expressed reluctance to issue writs of mandamus to overturn discovery rulings” – which is exactly what the banks are asking the court to do in the FHFA cases.
It’s very hard, in other words, to read the banks’ mandamus petition as anything but a signal of deep fear about their exposure to claims involving more than $200 billion in mortgage-backed securities, in cases that they themselves describe as “perhaps the largest collection of securities litigation ever filed in the United States.” The banks and their counsel, the elite of the securities defense bar, obviously believe that the slim chance of relief from the 2nd Circuit outweighs the risk of the filing. If they win mandamus, that will have been brilliant strategy (and I’ll eat my words). In the far more likely scenario, though, they’ll lose on mandamus and face trial dates beginning in January 2014, when Cote is scheduled to hear FHFA’s claims against UBS.