(Adds details from decision, comments, case citation, byline)
By Jonathan Stempel
NEW YORK, May 19 (Reuters) - The U.S. government on Thursdaywon a victory in its effort to hold big banks liable for sellingolder toxic debt as a divided federal appeals court in New Yorkrevived a Federal Deposit Insurance Corp lawsuit over the 2009collapse of Alabama's Colonial BancGroup Inc.
In a 2-1 decision on Thursday, the 2nd U.S. Circuit Court ofAppeals said the FDIC did not wait too long to sue Credit SuisseGroup AG, First Horizon National Corp, RoyalBank of Scotland Group Plc, Wells Fargo & Co andseven other banks for selling or underwriting toxic mortgagesecurities that Colonial bought.
The 2-1 decision on Thursday confirmed the authority offederal agencies to pursue older claims, often predating thefinancial crisis, concerning the sale of shoddy debt to banks,finance companies and credit unions they oversee as receivers orconservators.
Banks have agreed to pay tens of billions of dollars tosettle litigation by the agencies, which include the FDIC; theFederal Housing Finance Agency, the conservator for Fannie Mae and Freddie Mac ; and the National CreditUnion Administration.
Colonial, based in Montgomery, Alabama, went into FDICreceivership in August 2009 after struggling from losses tied tomortgage securities and an aggressive foray into Florida.
Three years later, the FDIC sued the 11 banks, claiming theyviolated federal securities law by selling $388 million in toxicdebt to Colonial in 2007. It said the lawsuit was timely becauseit had three years from the start of the receivership to sue.
A lower court judge threw out the case, accepting the banks'argument that the clock ran out in 2010, three years afterColonial bought its securities.
But in the reversal, Circuit Judge Gerard Lynch saidCongress intended that an "extender statute" giving the FDICmore time to pursue some legal claims covered the Colonial case.
Circuit Judge Barrington Parker dissented. He said Congressdid not design the statute to bring "dead claims back to life,"and that the three-year clock provides certainty as to whencompanies can stop worrying about being sued.
"Few compromises in the securities law are as integral tothe operation of the nation's capital markets as thiscompromise," he wrote.
Robert Giuffra of Sullivan & Cromwell who represents thebanks in the FDIC appeal, said: "Judge Parker's dissent ispowerful, and we are considering our options for furtherreview."
The FDIC declined to comment.
The case is FDIC v First Horizon Asset Securities Inc et al,2nd U.S. Circuit Court of Appeals, No. 14-3648. (Reporting by Jonathan Stempel in New York; Editing by ChizuNomiyama, Bernard Orr)