CMFG Life Insurance Company v. RBS Securities, Incorporated
799 F.3d 729
7th Cir.2015Background
- CUNA Mutual (three affiliated insurers) bought fifteen residential mortgage-backed securities from RBS between 2004–2007; the securities later declined sharply in value after the housing crash.
- Forensic review found ~40.8% of underlying loans materially defective (violating underwriting guidelines without sufficient compensating factors).
- CUNA alleges RBS induced purchases by (1) written prospectus representations that loans complied with underwriting guidelines and (2) oral representations that RBS performed due diligence (re-underwriting, sampling) on every deal.
- RBS moved for summary judgment; the district court granted it on most rescission claims, held nine certificates time‑barred under Wis. Stat. § 893.43, and denied CUNA leave to amend; CUNA appealed.
- The Seventh Circuit reviewed statute‑of‑limitations and summary judgment de novo and reversal/affirmance of the district court in part: it held rescission claims were not time‑barred as a matter of Wisconsin law and found triable issues of fact on written prospectus reliance and oral due‑diligence representations; it affirmed denial of leave to amend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether rescission claims are governed by Wis. Stat. § 893.43 ("action upon a contract") | Rescission disaffirms the contract and is not an "action upon" a contract; so § 893.43 does not apply; alternatively, fraud statute § 893.93(1)(b) with discovery rule would apply | § 893.43 governs and bars older claims | Court predicts Wisconsin Supreme Court would hold rescission is not an "action upon a contract;" rescission claims not time‑barred (laches remains available) |
| Whether plaintiff actually and justifiably relied on written prospectus representations when buyer did not recall reading them | Reliance may be established by course of dealing and market custom: investor reasonably expected prospectuses to contain guidelines‑compliance reps and acted on that expectation | No actual reliance because buyer did not read the prospectuses; reliance on assumptions insufficient | Triable fact exists: course of dealing and market norms permit reasonable factfinder to find actual and material reliance on the written representations |
| Whether oral statements that RBS performed due diligence/support reunderwriting are actionable (not mere puffery) and were relied upon | Oral statements were concrete (re‑underwriting, sampling), corroborated by RBS materials and presentations, and material to investment decisions | Statements were vague, unspecific, and therefore nonactionable puffery; insufficiently tied to the deals | Triable fact exists: testimony plus corroborating RBS documents create genuine disputes on materiality, specificity, and reliance; not puffery as a matter of law |
| Whether district court abused discretion denying leave to amend to add mistake and intentional‑misrepresentation claims | Delay understandable; fairness concerns; but amendments offered late | Delay was undue and prejudicial; lack of diligence; would unfairly alter litigation | Denial of leave to amend affirmed (district court did not abuse discretion) |
Key Cases Cited
- Ripberger v. Corizon, 773 F.3d 871 (7th Cir. 2014) (standard for reviewing summary judgment and construing facts in favor of nonmoving party)
- Bernstein v. Bankert, 733 F.3d 190 (7th Cir. 2013) (review of statute‑of‑limitations questions de novo)
- Saunders v. DEC Int’l, Inc., 270 N.W.2d 176 (Wis. 1978) (interpret statutes of limitations narrowly to avoid barring claims unless clearly mandated)
- Beers v. Atlas Assurance Co., 285 N.W. 794 (Wis. 1939) (distinguishing actions to affirm a contract and actions to rescind it)
- Harley‑Davidson Motor Co. v. PowerSports, Inc., 319 F.3d 973 (7th Cir. 2003) (rescission arises from contract law but is tied to a duty not to fraudulently induce a bargain)
- First Nat’l Bank & Trust Co. of Racine v. Notte, 293 N.W.2d 530 (Wis. 1980) (treating rescission within contract law framework)
- United Concrete & Const., Inc. v. Red‑D‑Mix Concrete, Inc., 836 N.W.2d 807 (Wis. 2013) (distinguishing verifiable technical statements from nonactionable puffery)