CMFG Life Insurance Company et al v. Morgan Stanley & Co., LLC

Filing 72

ORDER Staying Case Signed by District Judge Rudolph T. Randa on 12/19/2014 and GRANTING 57 Defendants Motion to Amend Court's 9/12/2014 Order to Clarify; DENYING 58 Defendants Motion to Petition for Certification of Interlocutory Appeal Under 28 U.S.C. Sec. 1292(b); DENYING AS MOOT 59 Defendants Motion to Stay Proceedings Pending Appeal; and GRANTING 62 Plaintiffs Motion to Stay Pending the Outcome of the Appeal in a Similar Case [7th Cir. Case. 14-2904]. The plaintiffs are allowed to pursue limited discovery regarding loan files and underwriting guidelines during the pendency of the stay. (lmz)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WISCONSIN
CMFG LIFE INSURANCE COMPANY,
CUMIS INSURANCE SOCIETY, and
MEMBERS LIFE INSURANCE COMPANY,
Plaintiffs,
-vs-

Case No. 13-C-577

MORGAN STANLEY & Co., LLC,
Defendant.
DECISION AND ORDER

In September, the Court denied a motion to dismiss filed by Morgan
Stanley as “technically moot” in light of the Court’s corresponding decision
to grant CUNA Mutual’s motion for leave to file an amended complaint.
Now before the Court are a series of motions concerning how to proceed in
the wake of that Order. These motions are addressed herein.
1.

Morgan Stanley moves for an order which clarifies that “all of

plaintiffs’ causes of action, with the exception of their claim for rescission
on the ground of intentional misrepresentation, have been dismissed.” The
Court thought that this was clear enough because it expressly adopted
Judge Conley’s rationale from a separate order, which CUNA Mutual

conceded would compel the dismissal of its original complaint in its
entirety. September 12, 2014 Decision and Order at 2. The only changes
from the original complaint to the amended complaint were meant to
buttress

and

assert

a

claim

for

fraudulent

or

intentional

misrepresentation. ECF No. 49, at 1-2 (“in an abundance of caution, and in
light of recent rulings by Judge William Conley on the applicable statute of
limitations in similar litigation, CUNA Mutual seeks to specifically allege
that Morgan Stanley committed intentional fraud”). CUNA Mutual’s
argument to the contrary – that the foregoing was not the clear import of
the Court’s previous decision – is mystifying.
2.

Morgan Stanley moves to certify the aforementioned order for

interlocutory appeal. 28 U.S.C. § 1292(b) (“When a district judge, in
making in a civil action an order not otherwise appealable under this
section, shall be of the opinion that such order involves a controlling
question of law as to which there is substantial ground for difference of
opinion and that an immediate appeal from the order may materially
advance the ultimate termination of the litigation, he shall so state in
writing such order”). There are four statutory criteria for the grant of a
section 1292(b) petition: there must be a question of law, it must be
controlling, it must be contestable, and its resolution must promise to
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speed up the litigation. Ahrenholz v. Bd. of Trustees of Univ. of Ill., 219
F.3d 674, 675 (7th Cir. 2000).
Morgan Stanley’s motion fails on contestability. The issue Morgan
Stanley seeks to appeal is whether claims for rescission of contract based
on intentional or fraudulent misrepresentation are governed by Wis. Stat. §
893.43 or § 893.93(1)(b). 1 The Court held that while the case law on this
issue is “somewhat conflicting,” the Wisconsin Supreme Court has “at least
implicitly recognized” that an “action for relief on the ground of fraud,” see
§ 893.93(1)(b), is a “more accurate characterization of a claim based upon
an intentional misrepresentation.” Decision and Order at 3 (citing Koehler
v. Haechler, 133 N.W.2d 730 (Wis. 1965)). Moreover, CUNA Mutual’s
pursuit of a contractual remedy (rescission) means that the claim “doesn’t
run afoul of the economic loss doctrine.” Id. (citing Harley-Davidson Motor
Co., Inc. v. Powersports Inc., 319 F.3d 973, 987 (7th Cir. 2003)).
Morgan Stanley argues that the issue is contestable because the
Wisconsin courts have never explicitly recognized the applicability of §
893.93(1)(b)

to

a

claim

for

rescission

based

on

intentional

misrepresentation. Morgan Stanley also asserts that Koehler’s “implicit
At page three of the Court’s previous Decision and Order, the Court wrote that
“[w]hile § 893.43 applies to an action ‘upon any contract,’ § 893.43(1)(b) applies to an
‘action for relief on the ground of fraud.’” (emphasis added). The latter citation should be
§ 893.93(1)(b), not § 893.43(1)(b). There is no § 893.43(1)(b).
1

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recognition” was undermined by subsequent Wisconsin Supreme Court
decisions, citing First Nat. Bank & Trust Co. of Racine v. Notte, 293
N.W.2d 530, 533-34 (Wis. 1980) and Kaloti Enters. v. Kellogg Sales Co., 699
N.W.2d 205, 219 (Wis. 2005). The Court considered these cases and did not
find them persuasive. Most importantly, in a case that post-dates Notte
(but pre-dates Kaloti), the Seventh Circuit applied § 893.93(1)(b) to a fraud
claim under Wisconsin law seeking rescission. Owen v. Wangerin, 985 F.2d
312, 314-15 (7th Cir. 1993). The Seventh Circuit did so without discussion,
but the absence of a judicial opinion addressing the arguments presented
by Morgan Stanley does not mean that the issue is contestable. Indeed, the
absence of such an opinion suggests the exact opposite. Ultimately, the
Seventh Circuit’s reflexive application of § 893.93(1)(b) in Owen
demonstrates that the issue is not truly contestable.
3.

Morgan Stanley moves for a stay pending its requested

interlocutory appeal. This motion can be denied as moot.
4.

For its part, CUNA Mutual moves for a stay pending a

decision from the Seventh Circuit in a related case, CMFG Life Ins. Co. v.
RBS Sec., Inc., No. 14-2904 (7th Cir. filed Aug. 27, 2014), on appeal from
CMFG Life Ins. Co. v. RBS Sec., Inc., No. 12-CV-037-WMC (W.D. Wis.).
District courts have the inherent authority to stay its own proceedings,
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generally considering the following factors: (1) whether the litigation is at
an early stage; (2) whether a stay will unduly prejudice or tactically
disadvantage the non-moving party; (3) whether a stay will simplify the
issues in question and streamline the trial; and (4) whether a stay will
reduce the burden of litigation on the parties and on the court. Tonn &
Blank Const., LLC v. Sebelius, 968 F. Supp. 2d 990, 993 (N.D. Ind. 2013).
This litigation is at an early stage, and Morgan Stanley does not
argue that it will be prejudiced by a stay. Instead, Morgan Stanley argues
that a stay would not simplify the issues or reduce the burdens of litigation
because fraud is not at issue in the RBS appeal. 2014 WL 3696233, at *36
(W.D. Wis. July 23, 2014) (denying leave to amend because CUNA Mutual
“expressly disavowed a fraud claim from the outset and cannot now, two
weeks before trial, fundamentally alter the nature of its claims”). Even so,
the Seventh Circuit’s ruling may still inform the remaining elements of the
claim. See id. at *26 (to prove a claim for rescission on grounds of
misrepresentation, CUNA Mutual required to prove justifiable reliance on
a misrepresentation of fact that was material or fraudulent) (citing Notte).
Therefore, the Court finds that a stay is warranted pending the RBS
appeal. As requested, CUNA Mutual will be allowed to pursue limited
discovery regarding loan files and underwriting guidelines during the
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pendency of the stay.
NOW, THEREFORE, BASED ON THE FOREGOING, IT IS
HEREBY ORDERED THAT:
1.

Morgan Stanley’s motion to amend [ECF No. 57] is

GRANTED;
2.

Morgan Stanley’s motion for a certificate of appealability [ECF

No. 58] is DENIED;
3.

Morgan Stanley’s motion to stay [ECF No. 59] is DENIED as

moot; and
4.

CUNA Mutual’s motion to stay [ECF No. 62] is GRANTED.

Dated at Milwaukee, Wisconsin, this 19th day of December, 2014.
BY THE COURT:
__________________________
HON. RUDOLPH T. RANDA
U.S. District Judge

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