Paquin et al v. Bank Mutual Corporation et al

Filing 24

ORDER signed by Judge J.P. Stadtmueller on 10/11/2017: GRANTING 4 Plaintiffs' Motion to Remand; DENYING as moot 17 and 19 Defendants' Motions to Dismiss; DENYING as moot 21 Plaintiffs' Motion to Stay; and DIRECTING Clerk of Court to take all appropriate steps to REMAND this case back to the Milwaukee County Circuit Court. (cc: all counsel) (jm)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
RUSSELL SCHUMEL, ALEX JAMES
KOWALSKI, and HOLLY KAY
KOWALSKI,
Plaintiffs,
v.
BANK MUTUAL CORPORATION,
MICHAEL T. CROWLEY, JR., DAVID
A. BAUMGARTEN, RICHARD A.
BROWN, MARK C. HERR, MIKE I.
SHAFIR, DAVID C. BOERKE, LISA A.
MAUER, ROBERT B. OLSON,
THOMAS H. BUESTRIN, WILLIAM J.
MIELKE, and ASSOCIATED BANCCORP,

Case No. 17-CV-1240-JPS-JPS

ORDER

Defendants.
THOMAS L. PAQUIN, TODD BESTUL,
and DAVID BIRKHOLZ,
Plaintiffs,
v.
BANK MUTUAL CORPORATION,
MICHAEL T. CROWLEY, JR., DAVID
A. BAUMGARTEN, RICHARD A.
BROWN, MARK C. HERR, MIKE I.
SHAFIR, DAVID C. BOERKE, LISA A.
MAUER, ROBERT B. OLSON,
THOMAS H. BUESTRIN, WILLIAM J.
MIELKE, and ASSOCIATED BANCCORP,
Defendants.

Case No. 17-CV-1241- JPS

ORDER

FREDERICK WOLLENBURG,
Plaintiff,

Case No. 17-CV-1242-JPS

v.
BANK MUTUAL CORPORATION,
MICHAEL T. CROWLEY, JR., DAVID
A. BAUMGARTEN, WILLIAM J.
MIELKE, THOMAS H. BUESTRIN,
ROBERT B. OLSON, MARK C. HERR,
DAVID C. BOERKE, RICHARD A.
BROWN, LISA A. MAUER, MIKE I.
SHAFIR, and ASSOCIATED BANCCORP,

ORDER

Defendants.
As noted in the Court’s prior order, Plaintiffs have filed motions to
remand each of these actions to the Milwaukee County Circuit Court, from
where they were removed to this Court. (Docket #11).1 Defendant
Associated Banc-Corp (“Associated”), the removing defendant, opposes
Plaintiffs’ request. (Docket #14). Defendant Bank Mutual (“Bank Mutual”)
and its individual directors (the “Directors”) also contest the motion.
(Docket #13). Plaintiff replied to both opposition briefs. (Docket #15). For
the reasons stated below, the motions to remand must be granted.
Bank Mutual and Associated are planning to merge, with Associated
paying almost half a billion dollars for the privilege. (Docket #1-1 at 13-15).
As part of the transaction, Bank Mutual’s shareholders will be allowed to
convert their shares into shares of Associated, at a little more than a 2:1

For brevity’s sake, and because the filings in each case are materially
identical, the Court’s docket citations will be exclusively to the Schumel case (17CV-1240) unless otherwise noted.
1

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ratio. Id. at 14. Plaintiffs, individual shareholders in Bank Mutual, believe
that this payment and conversion ratio “is unfair and grossly inadequate”
consideration. Id. at 5, 16. Plaintiffs allege, on behalf of themselves and all
Bank Mutual shareholders, that the Directors violated their fiduciary duties
to the shareholders by agreeing to the transaction. Id. at 9-10, 16-17. Namely,
the Directors entered into “certain onerous and preclusive deal protection
devices” that “all but ensure that the [transaction will be] successful and no
competing offers will emerge” for Bank Mutual. Id. at 16.
Plaintiffs state two causes of action. The first is, of course, for breach
of fiduciary duties by the Directors for “fail[ing] to take steps to maximize
the value of Bank Mutual to its public shareholders.” Id. at 18. The second
targets Associated for knowingly aiding and abetting the Directors in
breaching their fiduciary duties. Id. at 19.2 Bank Mutual is a named
defendant, but it is not expressly implicated in either cause of action. It is
before the Court, presumably, because Bank Mutual would be party to an
injunction issued prohibiting the merger, which is part of Plaintiffs’ request
for relief. Id. at 19-20.
Associated removed each of these actions pursuant to the Court’s
diversity jurisdiction, provided for in 28 U.S.C. § 1332(d), as modified by
the Class Action Fairness Act of 2005 (“CAFA”). The Seventh Circuit
recently explained CAFA’s purpose and implementation:
Congress enacted CAFA in 2005 “to facilitate
adjudication of certain class actions in federal court.” Dart
Cherokee Basin Operating Co., LLC v. Owens, ––– U.S. ––––, 135

The Wollenburg complaint also references an allegedly deficient proxy
statement filed with the SEC by Bank Mutual. Wollenburg v. Bank Mutual Corp. et
al., 17-CV-1242-JPS (E.D. Wis.) (Docket #1-1 at 5-6, 21-26). The causes of action,
however, remain the same. Id. at 26-28.
2

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S.Ct. 547, 554, 190 L.Ed.2d 495 (2014). To meet these
objectives, CAFA expands jurisdiction for diversity class
actions by creating federal subject matter jurisdiction if: (1) a
class has 100 or more class members; (2) at least one class
member is diverse from at least one defendant (“minimal
diversity”); and (3) there is more than $5 million, exclusive of
interest and costs, in controversy in the aggregate. 28 U.S.C. §
1332(d); Hart v. FedEx Ground Package Sys., 457 F.3d 675, 677
(7th Cir. 2006). Consistent with this purpose, CAFA also
loosens removal requirements: any defendant, including instate defendants, can remove; a defendant can remove even if
all defendants do not consent; and there is no one-year limit
on the timing of removal. 28 U.S.C. § 1453(b).
CAFA does not alter the burden of establishing the
district court’s jurisdiction. As in removal in non-CAFA
diversity actions, the party asserting federal jurisdiction
under CAFA must establish that the requirements of § 1332(d)
are satisfied. Hart, 457 F.3d at 679.23
Sabrina Roppo v. Travelers Commercial Ins. Co., 869 F.3d 568, 578 (7th Cir.
2017). Associated’s removal appears to fit with the prima facie requirements
of CAFA, and Plaintiffs do not argue otherwise.3
CAFA jurisdiction is subject to exceptions, however. CAFA’s
expansion of diversity jurisdiction does not apply
to any class action that solely involves a claim—
(A) concerning a covered security as defined under 16(f)(3)1
of the Securities Act of 1933 (15 U.S.C. 78p(f)(3)2) and section
28(f)(5)(E) of the Securities Exchange Act of 1934 (15 U.S.C.
78bb(f)(5)(E)) [the “Covered Security Exception”];

With almost 46 million outstanding shares of common stock, it is all but
certain that the putative class has more than 100 members and at least one of those
shareholders is diverse from one of the defendants. (Docket #1 at 4-5). As for the
amount in controversy, by any method of calculation it exceeds $5 million. Id. at
5-6. Plaintiffs do not dispute this. See generally (Docket #15).
3

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(B) that relates to the internal affairs or governance of a
corporation or other form of business enterprise and that
arises under or by virtue of the laws of the State in which such
corporation or business enterprise is incorporated or
organized [the “Internal Affairs Exception”]; or
(C) that relates to the rights, duties (including fiduciary
duties), and obligations relating to or created by or pursuant
to any security (as defined under section 2(a)(1) of the
Securities Act of 1933 (15 U.S.C. 77b(a)(1)) and the regulations
issued thereunder) [the “Fiduciary Duty Exception”].
28 U.S.C. § 1332(d)(9).
Plaintiffs maintain that all three exceptions apply to this case, but the
vast majority of the parties’ efforts are directed at the Fiduciary Duty
Exception. Plaintiffs argue that their complaint is based entirely on “the
rights, duties (including fiduciary duties), and obligations relating to or
created by or pursuant to” the shares they hold (which are qualifying
securities). 28 U.S.C. § 1332(d)(9)(C) (emphasis added). Associated
responds by focusing on the impact of the word “solely” in the opening
phrase of Section 1332(d)(9) (“Paragraph (2) [the CAFA jurisdiction
paragraph] shall not apply to any class action that solely involves a claim-[exceptions listed]”) (emphasis added). Associated does not contend that
the fiduciary duty claim, alleged against the Directors, would be removable
under CAFA. Instead, Associated’s removal is premised on Plaintiffs’
addition of the aiding-and-abetting claim. Plaintiffs maintain that this claim
must also fall within the Fiduciary Duty Exception because it relates to their
shares and could not exist but-for Plaintiffs’ ownership thereof. Associated
counters that the aiding-and-abetting claim is distinct from the fiduciary
duty claim in two meaningful ways:

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First, the duty allegedly breached by Associated was
neither fiduciary nor imposed by a security; and,
Second, Associated, an alleged aider and abettor, is a
stranger to the relationship between the class members and
the board members.
(Docket #14 at 19).
Associated further emphasizes that the elements of an aiding-andabetting claim appear distinct from the underlying breach of fiduciary duty.
As this Court explained in a similar action, “[t]he tort of aiding and abetting
in Wisconsin requires the defendant: (1) ‘undertake[ ] conduct that as a
matter of objective fact aids another in the commission of an unlawful act;
and (2) consciously desires or intends that his or her conduct will yield such
assistance.’” Dixon v. Ladish Co., Inc., No. 10-CV-1076-JPS, 2011 WL 719018,
at *2 (E.D. Wis. Feb. 22, 2011) (quoting Edwardson v. Am. Family Mut. Ins.
Co., 589 N.W.2d 436, 440 (Wis. App. 1998)). An aiding-and-abetting claim
only lies when the aider knowingly advocates for or assists in the breach,
which requires more than mere “attempts to reduce the sale price through
arm’s-length negotiations.” Id. (quoting Malpiede v. Townson, 780 A.2d 1075,
1096 (Del. 2001)). Associated argues that, even if Plaintiffs’ allegations were
proven entirely true, its conduct would be at best tangential to the fiduciary
duties which run from the Directors to Plaintiffs.4
Associated loses sight, however, of the incredibly broad reach of the
Fiduciary Duty Exception. It is not limited to removing claims for breach of

The Court’s characterization of Plaintiffs’ complaint is generous. Dixon
dismissed similar allegations for failure to state a plausible aiding-and-abetting
claim. Dixon, 2011 WL 719018, at *2-3. Plaintiffs’ position might be bolstered with
allegations that Associated was more a puppeteer than influencer of the Directors
in the merger deal, but such assertions are not found in the present pleadings.
4

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fiduciary duty beyond CAFA’s grasp (which it does so expressly). The
exception applies to any claims which “relate to . . . fiduciary duties,” and
the aiding-and-abetting claim certainly does. 28 U.S.C. § 1332(d)(9)(C)
(punctuation altered). It goes on to state that the fiduciary duties at issue
must be “relat[ed] to or created by or pursuant to” the shares. Id. Associated
cannot dispute that the Directors’ fiduciary duties run to Plaintiffs pursuant
to their Bank Mutual shares. This resolves both of Associated’s above-noted
distinctions. Associated’s “duty” (the duty to avoid aiding-and-abetting,
assumedly) is directly related to the Directors’ fiduciary duty. Its status as
a stranger to the fiduciary relationship, while noteworthy, is not an element
of the Fiduciary Duty Exception, which says that any “claim . . . that relates”
to a fiduciary duty is excepted, without reference to a particular party.
While not so obviously within the bounds of Fiduciary Duty Exception as a
fiduciary duty claim itself, the Court finds that the aiding-and-abetting
claim can find shelter therein.
Put differently, the fiduciary duty claim finds a safe harbor in the
Fiduciary Duty Exception. The aiding-and-abetting claim, by contrast, sits
at the edge of the exception’s reach. It does, nevertheless, directly “relate
to” and rely upon the fiduciary duty claim, and so must likewise be
excepted from CAFA removal. This ties back to the “solely” language
which opens the three exceptions. Plaintiffs’ complaint solely involves
claims which fit within the Fiduciary Duty Exception, one which
inarguably does so, and another which is sufficiently related to that claim
to fall within the exception’s expansive scope.
Associated responds that this reading of the Fiduciary Duty
Exception conflicts with some circuit precedent. The Court concedes that as
a general matter, the Second Circuit has attempted to limit the exception’s
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broad reach. See, e.g., Estate of Pew v. Cardarelli, 527 F.3d 25, 30-33 (2d Cir.
2008). Nevertheless, this Court is not bound by the law of other circuits.
Associated cites no factually analogous case—meaning one involving a
breach of fiduciary duties in a merger transaction, brought by shareholders
against the directors of the issuer and a third-party aider-and-abettor—from
the Seventh Circuit Court of Appeals that is consistent with its
interpretation of the exception.5 In the absence of such controlling authority,

Cardarelli is also distinguishable on this basis, but a preliminary discussion
of that case is necessary to demonstrate why. The Cardarelli plaintiffs sued under
New York’s consumer fraud statute for misrepresentations that influenced them
to purchase securities. Cardarelli, 527 F.3d at 27. In attempting to position this claim
vis-à-vis Section 1332(d)(9)(C), Cardarelli dissected the exception’s language. Id. at
31. The Second Circuit focused not on the first “relates to” clause, but rather the
second “relating to or created by or pursuant to” clause. Id. The court concluded
that to give appropriate meaning to the exception, the “relation” referenced in the
second clause must be limited to “claims grounded in the terms of the security
itself, the kind of claims that might arise where the interest rate was pegged to a
rate set by a bank that later merges into another bank, or where a bond series is
discontinued, or where a failure to negotiate replacement credit results in a default
on principal.” Id. at 32. Cardarelli drew this limitation from CAFA’s legislative
history, which suggests that Congress intended the Fiduciary Duty Exception to
apply “‘only [to] litigation based solely on . . . the rights arising out of the terms of
the securities issued by business enterprises.’” Id. at 33 (emphasis in original)
(quoting S. Rep. No. 109–14, at 45 (2005), reprinted in 2005 U.S.C.C.A.N. 3, 42–43).
Under this formulation, the court held that the consumer fraud claim did not fall
within the exception. Id. at 32. In other words, the plaintiffs did not seek to “enforce
the rights of the Certificate holders as holders,” but instead advanced the rights of
purchasers. Id. (emphasis added).
5

First, as applied here, this Court disagrees that the exception’s plain
language is so ambiguous as to warrant such nuanced scrutiny. Second, and more
importantly, Cardarelli’s primary concern was with the second “relating to” clause
in the Fiduciary Duty Exception, not the first “relates to” clause on which this
Court’s holding is based. The fiduciary duty claim in the present case clearly
relates to the Bank Mutual shares in accordance with Cardarelli’s interpretation of
the second clause, and is in fact expressly provided for in the exception. Plaintiffs
are certainly seeking to enforce their rights as holders of Bank Mutual shares, not
as purchasers or otherwise. Thus, for our purposes, the operative “relates to”

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the Court is bound to apply CAFA’s plain language in a straightforward
manner.6
The outcome here is far from obvious. Regrettably, CAFA itself is the
product of poor draftsmanship, and the opinions interpreting it are either

clause is the first, not the second. The Court’s ruling here interprets the first
“relates to” clause, left relatively untouched by Cardarelli, in accordance with its
broad definition.
The relevant Seventh Circuit decisions located by the Court and the parties
are few and distinguishable. Katz involved a merger, but the parties disagreed on
whether the case was one for breach of the promises made in the issuance of the
security, or whether it was simply a claim for fraud. Katz v. Gerardi, 552 F.3d 558,
563 (7th Cir. 2009). The court did not decide for them, but instead remanded to the
district court so that the plaintiff could clarify his position. Id. Though the lawsuit
was brought against the issuer and some other parties involved in the merger, the
court did not treat the distinction as meaningful. Id. Bezich and Appert were actions
directed solely against the issuer of the security, and like Cardarelli, were primarily
concerned with the second “relating to” clause rather than the first. Lincoln Nat.
Life Ins. Co. v. Bezich, 610 F.3d 448, 448-49, 451 (7th Cir. 2010); Appert v. Morgan
Stanley Dean Witter, Inc., 673 F.3d 609, 613-14, 619-21 (7th Cir. 2012).
6

Similarly, none of the other circuit opinions dealing with the Fiduciary
Duty Exception explicitly addresses whether the first “relate to” clause can sweep
in an aiding-and-abetting claim against a third party. Greenwich Fin. Servs.
Distressed Mortg. Fund 3 LLC v. Countrywide Fin. Corp., 603 F.3d 23, 24-26, 30 (2d
Cir. 2010) (applying exception to security holders who sued to enforce an
agreement to repurchase the shares, where the agreement came with the purchase
of the securities but was not technically on the face of the certificates themselves);
BlackRock Fin. Mgmt. Inc. v. Segregated Account of Ambac Assur. Corp., 673 F.3d 169,
177-79 (2d Cir. 2012) (applying exception to claim regarding a trustee’s good faith
execution of its duties, and further holding that “duties superimposed by state law
as a result of the relationship created by or underlying the security fall within the
plain meaning of the [exception], which expressly references ‘duties (including
fiduciary duties).’”); Eminence Investors, L.L.L.P. v. Bank of New York Mellon, 782
F.3d 504, 508-10 (9th Cir. 2015) (applying exception to an action for breach of
fiduciary duty against a trustee, though without third-party involvement, finding
that “[t]o hold that the securities exception does not apply to such causes of action
would run counter to the statute’s text, which expressly includes causes of action
based on ‘fiduciary duties.’”).

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not factually analogous, supply even more confusion with their nuanced
and potentially conflicting holdings, or suffer from the lack of any
meaningful analysis at all. This lack of clarity is particularly impactful in
the realm of federal court jurisdiction, which is of course limited. The
Court’s doubts must be resolved in favor of rejecting jurisdiction. Hart, 457
F.3d at 679. If Congress had intended a different result, they could have
carefully crafted CAFA’s language more succinctly.
In the end, without controlling Seventh Circuit authority, the Court
is constrained to rely on the plain text of the statute.7 That language
suggests that the aiding-and-abetting claim is sufficiently “relate[d] to the
rights, duties (including fiduciary duties), and obligations relating to or
created by or pursuant to any security” to warrant application of the
Fiduciary Duty Exception.8 The Court must therefore apply the exception

In addition to the circuit opinions they cite, both parties rely on district
court opinions from inside and outside this Circuit. In attempting to “unravel
some of the mysteries of CAFA’s cryptic text,” the Court finds it most prudent to
avoid reliance on non-precedential decisions. Lowery v. Alabama Power Co., 483 F.3d
1184, 1187 (11th Cir. 2007); Camreta v. Greene, 563 U.S. 692, 709 n.7 (2011) (“’A
decision of a federal district court judge is not binding precedent in either a
different judicial district, the same judicial district, or even upon the same judge
in a different case.’”) (quoting 18 J. Moore et al., Moore’s Federal Practice §
134.02[1] [d], p. 134–26 (3d ed. 2011). Accordingly, the Court takes little account of
whether its order agrees or disagrees with those decisions.
7

The Court has not addressed which side bears the burden of persuasion
with regard to application of the exceptions. The parties disagree, and the Seventh
Circuit has not provided the clearest of guidance. In March 2012, Appert expressly
placed the burden on the proponent of the exceptions, here Plaintiffs. Appert, 673
F.3d at 619. It further suggested that the exceptions should be interpreted
narrowly. Id. at 621. Nevertheless, in November 2012, the LaPlant court stated that
8

[a]lthough [the Second Circuit] has held that the statutory language
reflects a preference for remand to state court, . . . this circuit’s
approach is to read the exceptions in § 1332(d) . . . without a
presumption for either remanding or retaining jurisdiction. We try

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and grant the motions to remand.9 The parties’ other pending motions, to
dismiss and to stay, will be denied as moot.
Accordingly,
IT IS ORDERED that Plaintiffs’ motions to remand (Docket #4 (all
actions)) be and the same are hereby GRANTED;
IT IS FURTHER ORDERED that Defendants’ motions to dismiss
(Docket #16 and #18 (Schumel); Docket #17 and #19 (Paquin and
Wollenburg)) be and the same are hereby DENIED as moot;
IT IS FURTHER ORDERED that Plaintiffs’ motions to stay (Docket
#20 (Schumel); Docket #21 (Paquin and Wollenburg)) be and the same are
hereby DENIED as moot; and
The Clerk of the Court is directed to take all appropriate steps to
effectuate the remand of this case back to the Milwaukee County Circuit
Court.

to give the statutory language a natural meaning in light of its
context, without a thumb on the scale. See, e.g., Appert v. Morgan
Stanley Dean Witter, Inc., 673 F.3d 609 (7th Cir. 2012); Katz v. Gerardi,
552 F.3d 558 (7th Cir. 2009).

LaPlant v. Northwestern Mut. Life Ins. Co., 701 F.3d 1137, 1139 (7th Cir. 2012).
LaPlant’s citations are curious; Appert says the burden rests with the remandseeking plaintiff, and Katz says nothing at all on the subject. Though Appert gives
more specific treatment, LaPlant is the later-decided case. In the end, the Court
need not resolve the conflict; if Plaintiffs bore the burden of persuasion, they
carried it.
Defendants refer to a fourth case involving this merger, Parshall v. Bank
Mutual Corp., 17-CV-1209-JPS (E.D. Wis.), as being related to the three addressed
here. (Docket #14 at 8-10). Whether or not the case is truly related—it is focused
only the allegedly improper SEC disclosures and says nothing about fiduciary
duties—there has been no service of process in the case or any motion practice.
That case must remain pending for the time being.
9

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Dated at Milwaukee, Wisconsin, this 11th day of October, 2017.
BY THE COURT:

____________________________________
J. P. Stadtmueller
U.S. District Judge

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