CMFG Life Ins. Co. v. UBS Sec.
| Decision Date | 01 July 2014 |
| Docket Number | No. 13–cv–576–wmc.,13–cv–576–wmc. |
| Citation | 30 F.Supp.3d 822 |
| Parties | CMFG LIFE INSURANCE COMPANY, Members Life Insurance Company and Cumis Insurance Society, Plaintiffs, v. UBS SECURITIES, Defendant. |
| Court | U.S. District Court — Western District of Wisconsin |
Andrew C. Shen, David C. Frederick, Scott K. Attaway, Silvija A. Strikis, Whitney Cloud, Kellogg, Huber, Hansen, Todd, Evans & Figel, PLLC, Washington, DC, Garrett R. Broshuis, John Charles Craig, Steven Michael Berezney, Tamara Marie Spicer, Greg Garrell Gutzler, Michael E. Klenov, Korein Tillery LLC, St. Louis, MO, George A. Zelcs, Korein Tillery LLC, Chicago, IL, Peggy A. Lautenschlager, Bauer & Bach LLC, Madison, WI, for Plaintiffs.
Charles F. Smith, Jr., Lara Ann Flath, Skadden, Arps, Slate, Meagher & Flom LLP, Chicago, IL, Jay Bennett Kasner, Christopher Peter Malloy, Scott David Musoff, Skadden, Arps, Slate, Meagher & Flom LLP, New York, NY, for Defendant.
This civil action is one of a number of similar, relatively recent suits filed by plaintiffs (collectively, “CUNA Mutual”) to rescind their purchase of various residential mortgage-backed securities (“RMBS”), all of which performed dismally and lost much of their value during the collapse of the real estate market. CUNA Mutual does not seek relief under the civil liability provisions of the Securities Act of 1933, 15 U.S.C. § 77a et seq., or under the fraud provisions of the Wisconsin Uniform Securities Law, Wis. Stat. § 551.501 —likely because any such claims are now clearly time-barred. Rather, CUNA Mutual seeks relief in the form of common law contractual rescission on the grounds of misrepresentation and mistake, as well as damages for unjust enrichment.
Defendant UBS Securities (“UBS”) now moves to dismiss this case in its entirety pursuant to Federal Rule of Civil Procedure 12(b)(6). (See dkt. # 20.) Although UBS puts forth numerous grounds for dismissal, its central contention is that CUNA Mutual's claims are time-barred. The court agrees with UBS that, under Wisconsin law, CUNA Mutual's claims sound in contract; CUNA Mutual cannot invoke the statute of limitations for actions for relief on grounds of fraud; and the six-year statute of limitations for contract claims applies to bar this suit as pled. Accordingly, it will grant UBS's motion to dismiss.1
OPINIONIn United Vaccines, Inc. v. Diamond Animal Health, Inc., 409 F.Supp.2d 1083 (W.D.Wis.2006), this court held that a claim for contractual rescission based on intentional misrepresentation sounds in contract under Wisconsin law. Id. at 1094–95. Relying on the Wisconsin Supreme Court's decision in First National Bank & Trust Co. of Racine v. Notte, 97 Wis.2d 207, 293 N.W.2d 530 (1980), and the Seventh Circuit's decision in Harley–Davidson Motor Co. v. PowerSports, Inc., 319 F.3d 973 (7th Cir.2003), this court began with the general proposition “that Wisconsin law recognizes that an action for fraud/intentional misrepresentation may lie in either contract or tort.” Id. at 1094 ; see also Harley–Davidson, 319 F.3d at 986 (). Considering the bounds of Wisconsin's economic loss doctrine, the court determined that a claim for rescission based on intentional misrepresentation was grounded in contract, not tort. As the Seventh Circuit explained in Harley–Davidson:
The economic loss doctrine is intended to keep a party from effecting an end run around contract law to recover under tort law what it could not recover under contract law and through contract remedies. Here, Harley–Davidson is not seeking to end run around contract law; rather, it is seeking a remedy expressly given to it through contract law—rescission of contract as expounded in Notte .
319 F.3d at 987 (citations and quotations omitted) (emphasis added).
Thus, consistent with both United Vaccines and Harley–Davidson, the court begins here with the proposition that CUNA Mutual's claims for rescission seek a contractual remedy under Wisconsin common law of contract. See also United Vaccines, Inc. v. Diamond Animal Health, Inc., No. 05–C–604–C, 2006 WL 1666271, at *9 (W.D.Wis. June 12, 2006) ().2
The parties do not really disagree that the remedy CUNA Mutual seeks is contractual and that the present action, therefore, sounds in contract law. Indeed, CUNA Mutual itself characterizes this case as one for “contractual rescission.” Their positions diverge, however, as to which statute of limitations applies. Consistent with the contractual nature of CUNA Mutual's claim, UBS argues that Wisconsin's statute of limitations for actions on contract, Wis. Stat. § 893.43, governs.3 While acknowledging that its claim is a contract claim at its core, CUNA Mutual contends that Wisconsin's “miscellaneous” six-year statute of limitations for “action[s] for relief on the ground of fraud,” Wis. Stat. § 893.93(1)(b), applies to save its otherwise untimely claim.4
Both § 893.43 and § 893.93(1)(b) prescribe a six-year statute of limitations. The key difference between the two is when that period begins to run. Section 893.43 does not allow for the application of the discovery rule, meaning that the six-year limitations period begins to run at the moment of breach. CLL Assocs. Ltd. P'ship v. Arrowhead Pac. Corp., 174 Wis.2d 604, 497 N.W.2d 115 (1993). Since there is a single RMBS certificate at issue in this case, which CUNA Mutual purchased from UBS on April 7, 2006—more than six years before CUNA Mutual filed this action on August 15, 2013—CUNA Mutual's claims for rescission are time-barred if the contract statute of limitations applies. (See Am. Compl. (dkt. # 36) ¶ 189.) In contrast, § 893.93(1)(b) provides that an action for relief on the grounds of fraud “is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud.” If this statute of limitations applies, therefore, the discovery rule may save CUNA Mutual's claims, at least at the motion to dismiss stage. The critical question, then, is whether CUNA Mutual's case constitutes an “action for relief on the ground of fraud,” notwithstanding its contractual nature.
Here, CUNA Mutual's complaint disavows any claim of intentional misrepresentation or fraud in its pleadings, leaving it with claims for rescission based on either negligent or strict responsibility misrepresentation.5 According to UBS, this is fatal to CUNA Mutual's claim, because negligent and strict responsibility misrepresentation do not constitute fraud for § 893.93(1)(b) purposes. In support, UBS points to In re Demos' Estate, 50 Wis.2d 262, 184 N.W.2d 117 (1971). In that case, the claimant had filed an action against his brother's estate based upon three debts allegedly evidenced in writing. The central issue was whether the action was time-barred. The Wisconsin Supreme Court began by noting that “since the appellant is suing on three simple debts which purport to be evidenced in writing, the section normally applicable would be the six-year provision” for actions upon “any other contract, obligation or liability, express or implied.” Id. at 264, 184 N.W.2d 117 (quoting Wis. Stat. § 893.19(3) (1971) (current version at Wis. Stat. § 893.43 )). As here, the claimant in Demos' Estate argued that his complaint alleged fraud and that the fraud statute of limitations applied. The Wisconsin Supreme Court disagreed, noting that “[n]owhere in the complaint is fraud specifically alleged, nor does the complaint state facts, even when viewed most favorably to the claimant, from which fraud can reasonably be inferred.” Id. at 266, 184 N.W.2d 117.
The Wisconsin Supreme Court went on to discuss the “requisite elements for a cause of action based on fraud”:
To be actionable the false representation must consist first, of a statement of fact which is untrue; second, that it was made with intent to defraud and for the purpose of inducing the other party to act upon it; third, that he did in fact rely on it and was induced thereby to act, to hi[s] injury or damage.
Id. (emphasis added) (quoting Int'l Milling Co. v. Priem, 179 Wis. 622, 624, 192 N.W. 68 (1923) ). Ultimately, the court found the fraud statute of limitations inapplicable, applied the contract statute of limitations, and held the action time-barred. Demos' Estate, therefore, supports the proposition that “fraud,” as that term is used in Wis. Stat. § 893.93(1)(b), requires intent, which CUNA Mutual has chosen not to plead. 50 Wis.2d at 266, 184 N.W.2d 117.
Tellingly, CUNA Mutual fails to address the Wisconsin Supreme Court's decision in Demos' Estate in any way. Instead, it argues that “fraud” encompasses not only intentional misrepresentation but also negligent or strict responsibility misrepresentation. This argument is premised primarily on general language from Whipp v. Iverson, 43 Wis.2d 166, 168 N.W.2d 201 (1969). In Whipp, the Wisconsin Supreme Court stated that “[f]raud is a generic and an ambiguous term” that “embranches misrepresentation which may be separated into the three familiar tort classifications of intent, negligence, and strict responsibility.” Id. at 169, 168 N.W.2d 201. Based on this broad observation, CUNA Mutual argues that its claims are premised “on the ground of fraud,” even though it has not pled intentional misrepresentation in the inducement of contract.
CUNA Mutual also cites to a number of other cases as applying a broad reading of “fraud,” although none are particularly helpful in the context of its claim for contractual rescission based on negligent and strict responsibility misrepresentations.
Koehler v. Haechler, 27 Wis.2d 275, 276, 133 N.W.2d 730 (1965), applied § 893.93(1)(b) to an action for contractual...
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