CMFG Life Insurance Company et al v. Credit Suisse Securities (USA) LLC

Filing 108

ORDER denying 88 Motion to Strike by Plaintiffs CMFG Life Insurance Company, CUMIS Insurance Society, MEMBERS Life Insurance Company. Signed by District Judge William M. Conley on 6/12/2017. (arw)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN

CMFG LIFE INSURANCE COMPANY,
CUMIS
INSURANCE
SOCIETY,
and
MEMBERS LIFE INSURANCE COMPANY,
Plaintiffs,

ORDER

v.
14-cv-249-wmc
CREDIT SUISSE SECURITIES (USA) LLC,
Defendant.

After the court granted in part and denied in part the motion to dismiss of
defendant Credit Suisse Securities (USA) LLC (“Credit Suisse”), it filed an answer to
plaintiffs’ claims for rescission of certain residential mortgage-backed securities on the
grounds of unintentional misrepresentation, intentional misrepresentation, unilateral
mistake and mutual mistake under the common law of Wisconsin. Before the court is
plaintiffs’ (collectively, “CUNA Mutual’s”) motion to strike the fourth, tenth, twelfth
and thirteenth defenses asserted in defendant’s answer (dkt. #88), which will be denied.
Although generally disfavored, Federal Rule of Civil Procedure Rule 12(f) gives
courts the discretion to “strike from a pleading an insufficient defense or any redundant,
immaterial, impertinent, or scandalous matter.”

Purportedly, in the interest of

“streamlin[ing] discovery and preparation for trial,” plaintiffs move to strike as
“inapplicable and legally invalid” (Pls.’ Opening Br. (dkt. #89) at 2) four of the thirtytwo “affirmative and other defenses” asserted in defendant’s answer:
[Fourth Defense:] Plaintiffs’ claims are barred, in whole or in
part, because Credit Suisse at all times acted with reasonable

care and due diligence with respect to the matters alleged in
the Complaint to have been misrepresented or misleadingly
omitted from the Offering Documents. After reasonable
investigation, Credit Suisse had reasonable grounds to believe
and did believe that the statements contained in the Offering
Documents were true as of the date they were made and that
there was no omission to state a material fact required to be
stated therein or necessary to make statements therein not
misleading.
[Tenth Defense:] Plaintiffs’ claims are barred, in whole or in
part, because any damage, loss or injury sustained by
Plaintiffs was proximately caused or contributed to, in whole
or in part, by market conditions and/or the conduct of others,
rather than any conduct of Credit Suisse.
[Twelfth Defense:] Plaintiffs’ claims are barred, in whole or
in part, because, to the extent Plaintiffs have suffered any
legally cognizable injury or damages, which Credit Suisse
denies, any injury or damages were caused by intervening or
superseding events, factors, occurrences, conditions or acts of
others, and/or other factors over which Credit Suisse had no
control, and not the alleged wrongful conduct on the part of
Credit Suisse.
[Thirteenth Defense:] Plaintiffs’ claims are barred, in whole
or in part, because, to the extent that Plaintiffs incurred any
injury or damages, which Credit Suisse denies, any such
injury or damages were caused and brought about by the acts,
conduct or omissions of individuals and/or entities other than
Credit Suisse, and, as such, any recovery herein should be
precluded or diminished in proportion to the amount of fault
attributable to such other individuals and/or entities.
(Answer to Am. Compl. (dkt. #87) at 124, 126.) Specifically, plaintiffs argue that these
defenses should be struck because “[d]ue diligence and lack of loss causation are valid
defenses to claims under the [Securities Act of 1933, 15 U.S.C. § 77a et seq.], but not to
CUNA Mutual’s claims for rescission under Wisconsin common law.” (Pls.’ Opening Br.
(dkt. #89) at 1.)
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As previously mentioned, “motions to strike are disfavored” because of their
potential to “serve only to delay.” Heller Fin., Inc. v. Midwhey Powder Co., Inc., 883 F.3d
1286, 1294 (7th Cir. 1989). This is particularly true for a “motion to strike a defense for
insufficiency,” which “is appropriate only when the defense is frivolous or clearly presents
no bona fide issue of fact or law.” Prudential Ins. Co. of Am. v. Marine Nat’l Exch. Bank, 55
F.R.D. 436, 438 (E.D. Wis. 1972).
In response to plaintiffs’ motion, defendant argues that its due diligence is
relevant

with

respect

to:

(1)

scienter,

an

element

of

plaintiffs’

intentional

misrepresentation and unilateral mistake claims; and (2) the relative fault of the parties,
which is material in determining whether plaintiffs are entitled to rescission on the basis
of mutual mistake. Similarly, defendant argues that the cause of CUNA Mutual’s losses
is relevant both because: (1) it may reasonably inform the court’s discretion in deciding
whether rescission is an appropriate remedy; and (2) plaintiffs infer wrongdoing on
defendant’s part based in part on the poor performance of the loans.
In reply, plaintiffs dispute that the cause of their losses is relevant, since proximate
cause is not an element of their rescission claims.

While plaintiffs concede that

defendant’s due diligence is relevant to assigning fault, they argue that defendant
misunderstands the “important distinction between a relevant subject matter and a
defense. The former impacts the permissible scope of discovery. The latter, if proven,
absolves the defendant of liability.” (Pls.’ Reply Br. (dkt. #93) at 3 (footnote omitted).)
While sympathetic to any effort to streamline discovery and preparations for trial,
the court is decidedly skeptical of the benefit of doing so by cherry-picking four
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affirmative defenses out of thirty-two that were plainly pleaded for the purpose of
waiving nothing. Indeed, plaintiffs’ reply essentially concedes that its motion has nothing
to do with streamlining discovery or preparation for trial, since all of the underlying
factual issues will still need to be explored as part of proving intentional
misrepresentation and proof of harm. At the same time, defendant essentially concedes
that its formal defenses of due diligence and loss causation are ill-fitted, if not legally
unavailable, for purposes of responding to plaintiffs’ claims.
As a result, plaintiffs’ motion to strike amounts to little more than legal argument
regarding distinctions between the Securities Act of 1933, under which due diligence and
loss causation are available defenses to liability, and the Wisconsin common law of
rescission. Plaintiffs’ arguments on this issue appear to be well-supported, particularly
given the nature of their rescission claims, which will likely require the court to consider a
broad scope of evidence -- perhaps including defendant’s due diligence and the causes of
plaintiffs’ losses -- in determining both liability and an appropriate remedy, if any. In the
end, plaintiffs have, therefore, presented little reason for the court to exercise its
discretion under Rule 12(f) to police the line between “a relevant subject matter and a
defense.” On the contrary, the motion underscores why motions to strike defenses are
particularly disfavored: (1) while raising potentially important legal issues, they will
almost certainly be rendered moot since the parties appear to agree neither defense is
really in issue; (2) if really disputed, the issues will be better answered on a more fulsome
record than is possible at the pleading stage; and (3) the factual underpinnings for these

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defenses are duplicative of those that will have to be explored anyway as part of
plaintiffs’ affirmative claims. Accordingly, plaintiffs’ motion is DENIED.
Entered this 12th day of June, 2017.

BY THE COURT:
/s/
__________________________________
WILLIAM M. CONLEY
District Judge

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