On December 23, 2014, in Nat'l Credit Union Admin. Bd. v. Goldman, Sachs & Co., the US Court of Appeals for the Second Circuit held that the National Credit Union Administration Board (NCUA) properly repudiated an agreement to arbitrate under 12 U.S.C. § 1787(c) (No. 14-312-cv, (2d Cir. Dec. 23, 2014).

NCUA commenced this action against Goldman as the liquidating agent for a failed credit union. NCUA alleged that Goldman violated federal and state securities laws in its dealings with the failed credit union. Goldman requested that NCUA submit the claims to arbitration based on an arbitration clause included in a 1992 Cash Account Agreement between Goldman and the failed credit union. After Goldman moved to compel arbitration, NCUA stated that it was repudiating the contract using its statutory powers as a liquidating agent under 12 U.S.C. § 1787(c). The district court ruled that NCUA validly repudiated its agreement to arbitrate and denied Goldman's motion to compel arbitration.

Goldman appealed, arguing that:

The Second Circuit rejected Goldman's challenges. Section 1787(c) was enacted as part of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), which aimed to put federal deposit insurance funds on sound financial footing and strengthen the enforcement powers of federal regulators. The language of the statute allows the liquidating agent to "disaffirm or repudiate any contract or lease." Goldman analogized the liquidating agent's powers under FIRREA to a bankruptcy trustee's power under the Bankruptcy Code and argued that because an arbitration clause survives a bankruptcy trustee's rejection of the overall contract, an arbitration clause should survive the liquidating agent's repudiation of a contract. The court explained that there are significant differences between the roles of a trustee in bankruptcy and a liquidating agent, including that NCUA is a federal agency, which has insured the credit union's accounts and sustains losses when a credit union fails. In light of the goals and broad wording of FIRREA, the Second Circuit held that there was no reason to conclude that the repudiation of arbitration agreements should be treated differently from the repudiation of other contracts under the statute.

The court also denied Goldman's argument that repudiation of a contract constitutes a breach and that, under common law principles, a party breaching a contract generally remains bound by the contract's terms. The Second Circuit held that Section 1787(c) explicitly established NCUA's right to repudiate the contract in order to avoid performing the failed institution's burdensome contractual obligations. The court further rejected the argument that repudiation of a contract does not extend to "purely procedural provisions" of the agreement, like arbitration clauses, finding that Goldman failed to provide any authority for why such agreements should be excluded from NCUA's statutory authority.

The court also rejected Goldman's argument that the determination that arbitration would be burdensome should be subject to review by the district court. The Second Circuit found that the language of Section 1787(c) was ambiguous as to whether the liquidating agent's determination of burden was subject to judicial review. However, the court also found that Goldman advanced no reason why the NCUA's decision to repudiate the agreement was an abuse of discretion. There were several reasons why arbitration might pose a burden to NCUA, including that NCUA was involved in litigating multiple actions, which it might want to coordinate in some way.

Finally, the Second Circuit held that repudiation was accomplished within a "reasonable period." Although NCUA did not repudiate the contract until Goldman moved to compel arbitration, nearly three years after NCUA was appointed as liquidating agent, NCUA was not previously aware of the contract's existence. NCUA's lack of knowledge was not due to bad faith since NCUA reviewed a spreadsheet containing over 1,900 contracts entered by the failed credit union, as well as copies of contracts maintained by the failed credit union. The court affirmed the district court's order denying Goldman's motion to compel arbitration.

Counsel representing clients that wish to arbitrate claims brought by NCUA as a liquidating agent should be aware that courts are likely to be deferential to the NCUA's decision as liquidating agent to terminate the applicable contract, including any arbitration provision.