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CMFG Life Insurance Co. v. Credit Suisse Securities (USA) LLC

United States District Court, W.D. Wisconsin

October 23, 2017



          WILLIAM M. CONLEY District Judge

         This case is set for a bench trial commencing, October 30, 2017, on plaintiffs CMFG Life Insurance Company, CUMIS Insurance Society and MEMBERS Life Insurance Company's (collectively “CUNA Mutual”) claim to rescind purchases of twelve separate RMBS certificates from defendant Credit Suisse Securities (USA) LLC (“Credit Suisse”) based on alleged misrepresentations in the offering documents. In advance of the final pretrial conference scheduled for October 24, the court issues the following opinion and order on the parties' motions in limine.


         I. Plaintiffs' Motions in Limine

         A. MIL No. 1: Admit Credit Suisse's RMBS Settlement Agreement with the Department of Justice (dkt. #173)

         In this motion in limine, plaintiffs seek an order admitting a January 2017 settlement agreement between Credit Suisse and the Department of Justice, including a 19-page statement of facts, which plaintiffs represent includes an acknowledgement on the part of Credit Suisse of “broad misconduct in its creation and sale of [RMBS], including the RMBS that it sold to CUNA Mutual.” (Pls. Br. (dkt. #174) 5.) Plaintiffs contend this acknowledgement is admissible as a statement by a party opponent pursuant to Federal Rule of Evidence 801(d)(2)(A). Unsurprisingly, defendant also filed its own motion in limine to exclude the acknowledgement. (Dkt. #186.)

         By way of background, on January 18, 2017, Credit Suisse agreed to pay $5.28 billion in exchange for the release of the DOJ's civil claims relating to Credit Suisse's RMBS activities. (Strikis Decl., Ex. 1 (dkt. #175-1).) While the settlement concerned several of the same RMBS certificates that CUNA Mutual purchased from Credit Suisse (see id., Ex. 2 (dkt. #175-2) (Annex 3 listing RMBS certificates subject to settlement)), it did not settle individual claims like that asserted by CUNA Mutual here (see id., Ex. 1 (dkt. #175-1) ¶ 6.b)).

         As part of the settlement agreement, Credit Suisse “acknowledge[d]” the Statement of Facts. (Id., Ex. 1 (dkt. #175-1) p.2 (citing Ex. 3 (dkt. #175-3) (Annex 1, Statement of Facts))).) In this way, Credit Suisse neither expressly “admit[ted]” liability nor the truth of the statements of facts, nor did it expressly dispute liability or the statement of facts. Still, the statement contains several purported “facts, ” including that: (1) the offering documents were false; (2) Credit Suisse's due diligence was inadequate; and (3) Credit Suisse knew of misrepresentations in the offering documents, but failed to report that to investors or rating agencies. (See Pls.' Br (dkt. #174) 6-7 (describing key factual statements); Strikis Decl., Ex. 3 (dkt. #175-3)).)

         Defendant argues that the Settlement and the Statement of Facts should be excluded under Federal Rule of Evidence 408, which provides in pertinent part:

Evidence of the following is not admissible--on behalf of any party--either to prove or disprove the validity or amount of a disputed claim or to impeach by a prior inconsistent statement or a contradiction:
(1) furnishing, promising, or offering--or accepting, promising to accept, or offering to accept--a valuable consideration in compromising or attempting to compromise the claim; and
(2) conduct or a statement made during compromise negotiations about the claim--except when offered in a criminal case and when the negotiations related to a claim by a public office in the exercise of its regulatory, investigative, or enforcement authority.

Fed. R. Evid. 408 (emphasis added).

         Contrary to defendant's argument, however, the Seventh Circuit has interpreted “the claim” language narrowly in applying Rule 408. In particular, the court explained in Zurich American Insurance Co. v. Watts Industries, Inc., 417 F.3d 682 (7th Cir. 2005), that the balance between the “need for the settlement evidence” and the “potentially chilling effect on future settlement negotiations” is “especially likely to tip in favor of admitting evidence when the settlement communications at issue arise out of a dispute distinct from the one for which the evidence is being offered.” Id. at 689. More recently, the Seventh Circuit reiterated that holding after analyzing the text of Rule 408, concluding that “[t]he Rules' use of the singular term ‘claim' suggests that settlements discussions concerning a specific claim are excluded from evidence to prove liability on that claim, not on others.” Wine & Canvas Dev., LLC v. Muylie, 868 F.3d 534, 541 (7th Cir. 2017).

         While plaintiffs' claim here certainly is similar to the claims underlying the Credit Suisse-DOJ settlement, this alone does not satisfy the narrow construction of Rule 408. Zurich Am. Ins., 417 F.3d at 689-90 (“Of course, the two actions are not totally unrelated. Zurich did, after all, raise the deductible agreements as a defense to its duty to defend Watts in Armenia and Rothschild. Still, the California action--based on the primary liability insurance policies--is distinct from the Illinois petition to compel arbitration under the deductible agreements.”). In contrast, defendant directs the court to a District of Massachusetts opinion excluding as evidence the very same settlement agreement as that at issue here under Rule 408. See Mass. Mut. Life Ins. Co. v. DLJ Mortg. Cap., Nos. 11-30047-MGM, 11-30048-MGM, 2017 WL 1709594, at *1-2 (D. Mass. May 2, 2017). In excluding the agreement, the Massachusetts court, however, followed First Circuit precedent as it is required to do. Under its own precedent, that court found the Rule 408 prohibition “applies equally to settlement agreements between a defendant and third party and between a plaintiff and a third party.” Id. at *1 (quoting Portugues-Santana v. Rekomdiv Int'l, 657 F.3d 56, 63 (1st Cir. 2011)). Because the Seventh Circuit adopted a narrow interpretation of Rule 407, however, the Mass Mutual Life Insurance decision holds no weight.[1]

         From this, the court concludes that Rule 408 does not outright bar consideration of the Settlement Agreement, including the Statement of Facts, but this does not end the inquiry. Rather, the question remains on what basis would the court admit this document? Plaintiffs contend that the Settlement Agreement and Statement of Facts are admissible generally as the statement of a party opponent under Federal Rule of Evidence 801(d)(2), which provides in pertinent part:

(2) An Opposing Party's Statement. The statement is offered against an opposing party and:
(A) was made by the party in an individual or representative capacity; [or]
(B) is one the party manifested that it adopted or believed to be true;
. . .

Fed. R. Evid. 801(d)(2). Relying on dictionary definitions of the word “acknowledge, ” or other cases interpreting that word in other contexts, plaintiffs argue that by acknowledging the Statement of Facts, defendant “admit[ed] or recognize[d] those facts as true.” (Pls.' Br. (dkt. #174) 8.)

         As defendant points out in its response brief, however, the cases cited by plaintiff in support of this definition of “acknowledge” involve settlement agreements in which the party opponent expressly admitted liability. (See Def.'s Opp'n (dkt. #227) 15-16.) Here, Credit Suisse's acknowledgement of the Statement of Facts stops short of an admission -- as mentioned above, the Settlement Agreement is silent as to whether Credit Suisse admitted liability. Indeed, the word choice is obviously one of art at best and legalese at worst, which could be construed as an admission or simply notice of the statements that are contained in this compromise document. Absent more, this court has no way of telling for certain which it is.

         As such, the Statement of Facts constitutes a “statement” “made by the party in an individual or representative capacity” under Rule 801(d)(2)(A), while the court is hard-pressed to find that the statement was one Credit Suisse “manifested that it adopted or believed to be true.” Fed.R.Evid. 801(d)(2)(B). On the other hand, Credit Suisse did not insist that the Settlement Agreement contain the word disavowal of any liability, and the best evidence as to why it paid a fortune to resolve its dispute with the Justice Department would seem to be the so-called Statement of Facts.

         As such, the motion is GRANTED in so far as Rule 408 does not bar Credit Suisse's statements in the Settlement Agreement and the Statement of Facts is admitted under Rule 801(d)(2)(A), although the court expresses no opinion without more context as to what weight, if any, the court should attach to it in light of Credit Suisse's having “acknowledge[d]” those facts.

         B. MIL No. 2: Exclude Expert Testimony of William N. Goetzmann, Ph.D. (dkt. #176)

         In this motion in limine, plaintiffs seek an order excluding expert testimony. The admissibility of expert testimony in federal courts is principally governed by Federal Rule of Evidence 702, as elucidated by Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). Rule 702 provides:

A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if:
(a) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue;
(b) the testimony is based on sufficient facts or data;
(c) the testimony is the product of reliable principles and methods; and
(d) the expert has reliably applied the principles and methods to the facts of the case.

         In applying Rule 702, a district court is to function as a “gatekeeper, ” determining whether a party's proffered expert testimony is relevant and reliable. Daubert, 509 U.S. at 589; see also United States v. Johnsted, 30 F.Supp.3d 814, 816 (W.D. Wis. 2013) (expert testimony must be “not only relevant, but reliable”). Although “liberally admissible under the Federal Rules of Evidence, ” Lyman v. St. Jude Med. S.C., Inc., 580 F.Supp.2d 719, 723 (E.D. Wis. 2008), expert testimony must, therefore, satisfy the following three-part test:

(1) the witness must be qualified “as an expert by knowledge, skill, experience, training, or education, ” Fed.R.Evid. 702;
(2) the expert's reasoning or methodology underlying the testimony must be scientifically reliable, Daubert, 509 U.S. at 592-93; and
(3) the testimony must assist the trier of fact to understand the evidence or to determine a fact in issue. Fed.R.Evid. 702.

Ervin v. Johnson & Johnson, Inc., 492 F.3d 901, 904 (7th Cir. 2007). Still, “[v]igorous cross-examination, presentation of contrary evidence, and careful instruction on the burden of proof are the traditional and appropriate means of attacking shaky but admissible evidence.” Daubert, 509 U.S. at 596.

         Given that this case will be tried to the bench, where the court need not worry about protecting a jury, “the court's gatekeeping role is necessarily different.” In re Salem, 465 F.3d 767, 771 (7th Cir. 2006). In particular, “the need to make [reliability] decisions prior to hearing the testimony is lessened.” Id. In deciding this motion and the other motions challenging expert testimony, therefore, the court's focus will be on the relevance or usefulness of the expert opinion, rather than its reliability. Although for the reasons explained below, the court will strike some proposed testimony that is so unreliable the court need not wait to rule.[2]

         As for William Goetzmann's statistical analysis that is the subject of plaintiff's MIL No. 2, he opines that the loans underlying the Certificates at issue in this case performed as expected based on the loan characteristics disclosed in the Offering Documents and prevailing macroeconomic conditions during the relevant period. More specifically, relying on his statistical analysis and other economic studies, Goetzmann concludes that macroeconomic conditions caused a historic rise and fall in U.S. housing prices that ultimately led to the decline in value of the RMBS at issue in this case. Defendant argues that Goetzmann's testimony, therefore, refutes plaintiffs' position that: (1) there were misrepresentations in the offering documents; and (2) these misrepresentations caused the underperformance of the Certificates.

         1. ...

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