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Cmfg Life Insurance Company v. Credit Suisse Securities (USA) LLC

United States District Court, W.D. Wisconsin

October 12, 2017




         Having lost millions of dollars in transactions related to residential mortgage backed securities (“RMBS”), the plaintiffs here seek to rescind purchases of twelve separate RMBS certificates from defendant Credit Suisse Securities (USA) LLC (“Credit Suisse”).[1] Before the court is defendant's motion for partial summary judgment, seeking judgment in its favor as to: (1) an RMBS certificate that Credit Suisse sold to plaintiffs but did not issue or underwrite; (2) any rescission claim based on statements that aggregated loan data is “actually false”; and (3) the appropriate method for calculating prejudgment interest. For the reasons explained below, the court will grant in part and deny in part the motion.[2]


         Plaintiffs CMFG Life Insurance Company, CUMIS Insurance Society and MEMBERS Life Insurance Company (collectively, “CUNA Mutual”), are all insurance companies organized under Iowa law. Each maintain their headquarters in Madison, Wisconsin. Defendant Credit Suisse is an SEC-registered broker-dealer. Defendant and its sole member, Credit Suisse (USA) Inc., are Delaware companies with their principal place of business in New York.[4]

         CUNA Mutual purchased all twelve RMBS certificates at issue in this lawsuit from Credit Suisse. Generally speaking, each consisted of securitized residential mortgage loans packaged into certificates that investors can purchase.[5]

         CUNA Mutual purchased the twelve RMBS certificates from Credit Suisse in seven separate RMBS offerings.[6] Only one of these certificates, BSMF 2006-SL1, was not issued or underwritten by Credit Suisse.[7] All of the certificates that CUNA Mutual purchased from Credit Suisse were from mezzanine or other subordinated tranches, which were essentially stratified classes of RMBS certificates that are differentiated by priority of principal and interest payments from the underlying loan pools. Importantly, subordinated tranches absorbed losses from defaulting loans before more senior tranches.

         The offering documents for the RMBS certificates at issue included prospectuses, term sheets, free writing prospectuses, preliminary prospectus supplements and final prospectus supplements. Again generally speaking, prospectus supplements described the characteristics of the tranches in the securitization, including the designated payments to be distributed from the trust or issuing entity that owns the pool of mortgages. Still, the parties agree for purposes of summary judgment that prospective investors in RMBS certificates like CUNA Mutual were generally unable to perform their own due diligence with respect to the quality of the securitized loans, unlike the issuers and underwriters.

         Having said that, the prospectus supplements did include aggregated loan data presented in “collateral stratification tables, ” which classified loans in particular statistical ranges or by characteristics. This aggregated data was derived from “loan tapes, ” also referred to as “Mortgage Loan Schedules” (“MLSs”), that contained detailed loan-level data for those loans securitized into the RMBS. Among characteristics generally used to evaluate credit risk of the collateral loans described in MLSs were FICO score, loan-to-value (“LTV”) and combined loan-to-value (“CLTV”) ratio, debt-to-income (“DTI”) ratio, owner-occupancy status and loan documentation type. The prospectus supplements also disclosed “Pooling and Servicing Agreements” (“PSAs”). In the PSAs, the sponsors of a securitization made representations and warranties regarding the loans underlying that securitization. The PSAs supporting each of the twelve RMBS certificates at issue in this case included the specific representation and warranty that the information in the accompanying MLS was “complete, true and correct in all material respects” or was “true and correct in all material respects.” Other than for the BSMF 2006-SL1 certificate that Credit Suisse sold but did not issue or underwrite, these representations and warranties were made by “a Credit Suisse affiliate” as to each certificate at issue.[8]


         Federal Rule of Civil Procedure 56(c) directs that the court grant summary judgment “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” In ruling on a motion for summary judgment, the court views all facts and draws all inferences in the light most favorable to the non-moving party. Anderson v. Liberty Lobby, 477 U.S. 242, 255 (1986). Summary judgment is appropriate only “[w]here the record taken as a whole could not lead a rational trier of fact to find for the non-moving party[.]” Sarver v. Experian Info. Sols., 390 F.3d 969, 970 (7th Cir. 2004) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986)). Applying this standard, the court addresses each of the three separate grounds defendant advances for entry of partial summary judgment below.

         I. The BSMF 2006-SL1 Certificate

         With respect to BSMF 2006-SL1 certificate issued and underwritten by Bear Stearns, rather than Credit Suisse, plaintiffs assert a claim for rescission based on mutual mistake. At least for summary judgment purposes, the parties focus on a single element on which plaintiffs must prevail to rescind this transaction: could a rational trier of fact find that it would be more equitable to allocate CUNA Mutual's losses as to BSMF 2006-SL1 to Credit Suisse? (Def.'s Opening Br. (dkt. #95) at 1; Pls.' Resp. Br. (dkt. #133) at 1.)

         Defendant Credit Suisse argues that it cannot be found culpable for these losses because it only acted as a “market maker” for that certificate, purchasing it on the secondary market on April 24, 2007, before selling it to plaintiffs that same day “in exchange for a small spread between the buy and sell prices as its payment for providing that service.” (Def.'s Opening Br. (dkt. #95) at 3.) In this role, defendant contends, it had no responsibility with respect to acquiring any of the underlying loans, securitizing them or making any representations in the offering documents. Defendant further contends that plaintiffs were aware that it had no other involvement in the Bear Stearns certificate. In particular, defendant points to deposition testimony from Mark Prusha, the sole individual responsible for CUNA Mutual's RMBS purchases during the time period relevant to this lawsuit. As to BSMF 2006-SL1, Prusha admitted having no “expectation . . . that Credit Suisse was performing any due diligence on that certificate given that it neither issued nor underwrote that deal.” (Dep. of Mark Prusha (dkt. #102) at 112:11-16.) Prusha also testified at his deposition that he “understood that Credit Suisse was not making any representation one way or the other about the nature or the quality of the collateral underlying” the certificate, at least not as it would have in the capacity as an “original underwriter or co-manager.” (Id. at 123:18-124:2.)

         Even more to the point for purpose of defendant's pending motion, Prusha acknowledged that his “assumption would be that [Credit Suisse] would have the same information that [he] would have” with respect to the Bear Stearns certificate, although plaintiffs would emphasize that Prusha went on to acknowledge this assumption was based only on his “speculation.” (Id. at 129:12-22.) As for the information available to Prusha at the time of purchase, he had analyzed BSMF 2006-SL1 on the same morning he purchased it from Credit Suisse, and plaintiffs do not dispute that because Bear Stearns was one of the banks with which Prusha did the most business, he was especially familiar with their due diligence practices. Finally, defendant emphasizes plaintiffs' concession in response to an interrogatory that “[b]ecause Credit Suisse did not originate the underlying loans or sponsor, issue, or underwrite the BSMF ...

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