CMFG Life Insurance Company v. RBS Securities, Incorporated

In the

United States Court of Appeals

For the Seventh Circuit

____________________

No. 14-2904

CMFG LIFE INSURANCE CO.,

CUMIS INSURANCE SOCIETY, INC., and

MEMBERS LIFE INSURANCE CO.,

Plaintiffs-Appellants,

v.

RBS SECURITIES, INC.,

Defendant-Appellee.

____________________

Appeal from the United States District Court for the

Western District of Wisconsin.

No. 3:12-CV-00037 — William M. Conley, Chief Judge.

____________________

ARGUED APRIL 1, 2015 — DECIDED AUGUST 21, 2015

____________________

Before WOOD, Chief Judge, FLAUM, Circuit Judge, and

KENNELLY, District Judge.1

KENNELLY, District Judge. Between 2004 and 2007, CUNA

Mutual, an insurance company, purchased fifteen residential

1 Of the United States District Court for the Northern District of Illi-

nois, sitting by designation.

2 No. 14-2904

mortgage-backed securities from RBS Securities, Inc. Then

the housing market crashed, and the securities with it.

CUNA now wants out of the deals. CUNA alleges that RBS

induced it to purchase the securities by materially misrepre-

senting that the underlying mortgages complied with un-

derwriting guidelines. The district court granted summary

judgment on all but one of CUNA’s rescission claims, and

CUNA appealed. We reverse in part and affirm in part.

I. Background

The plaintiffs in this case are CMFG Life Insurance Co.,

CUMIS Insurance Society, Inc., and Members Life Insurance

Co., collectively called CUNA Mutual. CUNA sells insur-

ance and other investment products to credit unions. In ad-

dition to selling investment products, CUNA maintains its

own investment portfolio. Between 2004 and 2007, CUNA

purchased a number of residential mortgage-backed securi-

ties from RBS Securities, Inc. This case involves fifteen of

those securities.

During the time period at issue in this case, creation of a

mortgage-backed security began with origination of indi-

vidual mortgage loans. In deciding whether to make a loan,

originators evaluated credit risk using underwriting guide-

lines. These guidelines were “designed to gauge two crucial

factors of credit risks: (1) borrower ability to pay and (2) suf-

ficiency of collateral (the mortgaged property) if the borrow-

er defaults.”2 Appellant's Br. at 5. Through a complicated

2 CUNA notes that “[o]ccasionally, noncompliant loans [could] be

made appropriate credit risks by legitimate ‘compensating factors’ such

as low debt-to-income ratio, high borrower assets, or low [loan-to-value]

ratio.” Appellant’s Br. at 5. As used by the parties, “guidelines compli-

No. 14-2904 3

process involving several intermediaries, hundreds or thou-

sands of mortgages would be purchased from originators

and bundled into securities. Securities underwriters—here,

RBS—then sold these securities to investors. The mortgage

payments (or, in the event of default, foreclosure sale pro-

ceeds) provided a stream of income to investors.

Underwriting guidelines were important to investors for

determining the value of securities: the lower the borrower’s

ability to pay (or the lower the property value), the greater

the risk of default (and more defaults, of course, means less

income for investors). Written representations of guidelines

compliance were also important to investors because such

representations created a legally-enforceable duty. Because

originators did not keep the mortgages on their books, they

did not bear any risk of default by the mortgagors. Thus,

aside from reputational consequences, litigation was the

primary deterrent against lax compliance with underwriting

guidelines.

The fifteen securities RBS sold to CUNA were registered

under SEC Form S-3, known as “shelf” registration. Shelf

registration permitted the issuer to “register asset-backed

securities to be offered on a delayed basis in the future

through one or more offerings, or ‘takedowns,’ of securities

off of the shelf registration statement.” Final Rule, Asset-

Backed Securities, 70 Fed. Reg. 1506, 1512 (Jan. 7, 2005); see also

17 C.F.R. § 230.415.3 If registered in this manner, “the regis-

ance” refers to loans that complied with the guidelines and loans with

legitimate compensating factors.

3 RBS argues that the excerpts of this SEC final rule from the Federal

Register are inadmissible hearsay. But "[t]he contents of the Federal Reg-

ister shall be judicially noticed." 44 U.S.C. § 1507. Additionally, CUNA’s

4 No. 14-2904

tration statement [was] often presented through the use of

two primary documents: the ‘base’ or ‘core’ prospectus and

the prospectus supplement.” Id. The base prospectus “out-

line[d] the parameters of the various types of [asset-backed

securities] offerings that may be conducted in the future”;

the prospectus supplement “outline[d] the format of deal-

specific information that [would] be disclosed at the time of

each takedown.” Id. at 1512–13. “At the time of a takedown,

a final prospectus supplement [was] prepared which de-

scribe[d] the specific terms of the takedown, and the base

prospectus and the final prospectus supplement together

form[ed] the final prospectus … .” Id. at 1513; see also 17

C.F.R. § 230.430B; 17 C.F.R. § 229.512(a)(1). After a Form S-3

registration was filed, the SEC permitted issuers to sell secu-

rities using term sheets—even before availability and deliv-

ery of the final prospectus supplement. Id. at 1554–55. As we

will discuss in greater detail below, investors in the mort-

gage-backed securities market often made purchase deci-

sions on term sheets alone.

Following the housing market crash, the fifteen securities

at issue in this case declined in value. CUNA commissioned

a forensic study of the loan pools underlying the securities.

The study found that approximately 40.8 percent of the

loans were materially defective, meaning that “they violated

applicable underwriting guidelines in a manner that materi-

ally increased the credit risk of the loan and that was not jus-

tified by sufficient compensating factors.” App. at 1681.

expert witness may testify based on this final rule. See Fed. R. Evid. 703.

Thus, because the final rule can be "presented in a form that would be

admissible in evidence," it may be considered at summary judgment. See

Fed. R. Civ. P. 56(c)(2).

No. 14-2904 5

CUNA now alleges that RBS induced it to purchase the

securities by materially misrepresenting that the underlying

loans complied with underwriting guidelines. First, CUNA

alleges that RBS repeatedly assured CUNA’s mortgage-

backed securities trader, Mark Prusha, that extensive due

diligence was conducted on the loan pools. Second, CUNA

alleges that the relevant base and supplemental prospectuses

expressly represented that the loans complied with the

guidelines. Absent these misrepresentations, CUNA asserts,

it would not have purchased the securities.

CUNA sued RBS in Wisconsin state court for rescission

based on these alleged misrepresentations. Defendants re-

moved the case to federal court in 2012. Two years later, the

parties cross-moved for summary judgment. The district

court granted summary judgment in RBS’s favor on all but

one of CUNA’s rescission claims. The district court also held

that CUNA’s claims with regard to nine of the fifteen securi-

ties were time-barred and denied CUNA’s motion for leave

to amend. CUNA stipulated to judgment on the remaining

claim and appealed.

II. Discussion

CUNA has appealed the district court’s decisions grant-

ing summary judgment in favor of RBS and denying CUNA

leave to amend its complaint. We review the district court’s

grant of summary judgment de novo, construing all facts

and reasonable inferences in the light most favorable to

CUNA. Ripberger v. Corizon, Inc., 773 F.3d 871, 876 (7th Cir.

2014). We also review summary judgment based on a statute

of limitations de novo. Bernstein v. Bankert, 733 F.3d 190, 199

(7th Cir. 2013). We review denial of leave to amend a com-

6 No. 14-2904

plaint for abuse of discretion. Johnson v. Cypress Hill, 641 F.3d

867, 871 (7th Cir. 2011).

A. Statute of Limitations

Section 893.43 of the Wisconsin Statutes provides that

“[a]n action upon any contract, obligation or liability, ex-

press or implied … shall be commenced within 6 years after

the cause of action accrues or be barred.” Wis. Stat. § 893.43.

The district court held that this statute of limitations gov-

erned claims for rescission and, accordingly, that CUNA's

claims regarding nine of the fifteen certificates at issue in this

case were time-barred. CMFG Life Ins. Co. v. RBS Sec. Inc.,

No. 12–cv–037–wmc, 2014 WL 3696233, at *26 (W.D. Wis. Ju-

ly 23, 2014). CUNA has appealed this determination. Alt-

hough CUNA acknowledges that rescission is a contractual

remedy, it contends that a claim for rescission is not an ac-

tion “upon” a contract, as required by the section 893.43. Ra-

ther, CUNA contends, “rescission seeks to disaffirm a con-

tract, not sue ‘upon’ it.” Appellant’s Br. at 29.

“To avoid the danger of subverting the legislative in-

tent,” the Wisconsin Supreme Court “interpret[s] statutes of

limitation so that no person’s cause of action will be barred

unless clearly mandated by the legislature.” Saunders v. DEC

Int’l, Inc., 85 Wis. 2d 70, 74, 270 N.W.2d 176, 177 (1978); see

also Erdman v. Jovoco, Inc., 181 Wis. 2d 736, 760, 512 N.W.2d

487, 495 (1994) (citing Saunders with approval). Where a

cause of action is not “clearly within” a statute of limitations,

the statute “should not be extended by construction.” Green

v. Granville Lumber & Fuel Co., Inc., 60 Wis. 2d 584, 590, 211

N.W.2d 467, 470 (1973). This standard accords with a “gen-

eral philosophy of insuring that litigants shall have their day

No. 14-2904 7

in court unless clearly barred.” Saunders, 85 Wis. 2d at 74,

211 N.W.2d at 178.

The Wisconsin Supreme Court has not ruled on whether

section 893.43 applies to claims for rescission. We must

therefore predict how the court would decide this question.

We begin with Wisconsin precedent. Although not a

statute of limitations case, the Wisconsin Supreme Court’s

decision in Beers v. Atlas Assurance Co., 231 Wis. 361, 285

N.W. 794 (1939), provides insight into the meaning of the

phrase “action upon the contract.” There, the court held that

“the plaintiff having elected in two of his complaints to af-

firm the contract and to sue for such damage as he had sus-

tained as a result of the asserted fraud and deceit, he may

not now allege a cause of action based upon a disaffirmance

of the contract and ask for rescission.” Id. at 361, 285 N.W. at

797. The court explained that “a person has a right to elect

either to stand upon the contract which the defendant has in-

duced and recover the damages resulting, or rescind the con-

tract, and upon returning what he has received, recover back

that with which he has parted.” Id. (emphasis added). These

remedies are “wholly inconsistent,” the court added, be-

cause “[e]ither there is a contract, for breach of which plain-

tiff is entitled to recover damages, or the contract is set aside

and goes out of existence.” Id.; see also Schnuth v. Harrison, 44

Wis. 2d 326, 340, 171 N.W.2d 370, 377 (1969) (“[W]hen a con-

tract is rescinded the parties are placed in the status quo as if

no contract had ever been made.”). The Wisconsin Supreme

Court has frequently repeated this distinction. Smeesters v.

Schroeders, 123 Wis. 116, 101 N.W. 363, 363–64 (1904); Palmer

v. Goldberg, 128 Wis. 103, 107 N.W. 478, 479 (1906); Bischoff v.

Hustisford State Bank, 195 Wis. 312, 218 N.W. 353, 357 (1928);

8 No. 14-2904

Schlotthauer v. Krenzelok, 274 Wis. 1, 4, 79 N.W. 2d 76, 78

(1956). More recently, a Wisconsin appellate court observed

that “an action on a contract for breach and an action to re-

scind a contract … are inconsistent because the former

stands on the contract and the latter seeks to set it aside.” Ga-

latowitsch v. Wanat, 239 Wis. 2d 558, 570, 620 N.W.2d 618, 624

(Ct. App. 2000).

Although somewhat dated, these decisions indicate that

the Wisconsin Supreme Court would hold that rescission is

not an “action upon a contract” as used in section 893.43.

Our prediction finds additional support in the Restatement

of Restitution. Although the Restatement acknowledges that

“[r]escission is usually invoked in a contractual setting,” it

indicates that the remedy is not “upon” the contract. Re-

statement (Third) of Restitution and Unjust Enrichment

§ 54 cmt. b (2011). Rather, “[a] claimant who is allowed to

rescind has usually been given a choice between (i) dealing

with the other party on the basis of their agreement, which

the claimant was free to ratify and enforce, and (ii) dealing

with the other party ‘off the contract,’ where benefits that ei-

ther party may have derived at the expense of the other give

rise to a liability in unjust enrichment.” Id. (emphasis add-

ed). The drafters of the Restatement describe the former

remedy as “contractual”; they describe the latter as “ex-

tracontractual.” Id. In deciding cases involving rescission,

the Wisconsin Supreme Court has drawn from restatements,

including the Restatement of Restitution.4 This leads us to

4For instance, when faced with the question of “when a contract will

be deemed voidable and subject to rescission by one of the parties,” the

Court expressly “adopt[ed] the position taken in the Restatement (Sec-

ond) of Contracts.” First Nat’l Bank & Trust Co. of Racine v. Notte, 97 Wis.

No. 14-2904 9

believe that the Restatement view would inform how the

court would decide the question presented in this case.

Based on this authority, we predict that the Wisconsin

Supreme Court would hold that rescission is not an “action

upon the contract,” as that phrase is used in section 893.43.

Although we think this reading follows from Wisconsin case

law, it also hews more closely to the plain wording of section

893.43. Claims for rescission do not “stand upon” the rights

and obligations established by the contract; they seek to put

the contract “out of existence.” Beers, 231 Wis. at 361, 285

N.W. at 797. We therefore reverse the district court’s grant of

RBS’s motion for summary judgment on its statute of limita-

tions defense.

RBS points us to Harley-Davidson Motor Co. v. Pow-

erSports, Inc., 319 F.3d 973 (7th Cir. 2003). There, we observed

that rescission based on intentional misrepresentation is “a

remedy expressly given … through contract law,” not tort

law, and thus not an “end run around contract law” for the

2d 207, 222, 293 N.W.2d 530, 538 (1980). The Court has also cited to the

Restatement of Restitution, both in rescission cases, see Thompson v. Vill.

of Hales Corners, 115 Wis. 2d 289, 319, 340 N.W.2d 704, 718 (1983) (citing

the Restatement (First) of Restitution for the proposition that “[a] party’s

right to rescind for fraud or mistake is waived if he unreasonably delays

in asserting that right or affirms the agreement after learning of the fraud

or mistake giving rise to the right of rescission”), and in other contexts,

see Lawlis v. Thompson, 137 Wis. 2d 490, 498, 405 N.W.2d 317, 320 (1987)

(noting that “[t]he jurisprudence of unjust enrichment in Wisconsin is

consistent with that found in the recognized treatises and encyclopedi-

as,” and specifically citing the Restatement (First) of Restitution); Wis.

Patients Comp. Fund v. Wis. Health Care Liab. Ins. Plan, 200 Wis. 2d 599,

621, 547 N.W.2d 578, 586 (1996) (noting that the Court’s conclusion was

“bolstered” by the Restatement (First) of Restitution).

10 No. 14-2904

purposes of Wisconsin’s economic loss doctrine. Id. at 987.

The fact that a remedy arises from contract law, however,

does not make it a remedy upon the contract. Indeed, as we

explained in Harley-Davidson, the duty underlying the rescis-

sion remedy does not “arise from the terms of the agree-

ment,” but from “a duty not to fraudulently induce a person

into a bargain.” Id. at 986.

RBS also relies on First National Bank and Trust Co. of Ra-

cine v. Notte, 97 Wis. 2d 207, 293 N.W.2d 530 (1980). For simi-

lar reasons, however, Notte is inapposite. In that case, the

suit itself was to “recover on [the] contract” for breach; re-

scission was raised as a defense “to the contract.” Id. at 212,

293 N.W.2d at 533. The Wisconsin Supreme Court was asked

to decide whether the lower court had erred by instructing

the jury on comparative negligence (the rescission defense

was based on negligent misrepresentation). Id. at 211–12, 293

N.W.2d at 533. Because rescission is a contractual remedy,

the court concluded that it must “look to principles of con-

tract and suretyship law in framing the issues and formulat-

ing a mode of analysis,” not “traditional tort concepts of

misrepresentation.” Id. at 212, 293 N.W.2d at 533. Applying

this framework, the court held that “discussion of compari-

son of negligence between the parties”—a defense that only

arises in tort—”is inappropriate.” Id. at 213, 293 N.W.2d at

533. Thus, like Harley-Davidson, Notte simply stands for the

proposition that rescission arises from contract law. That

does not make rescission an action upon a contract.

CUNA urges us to also hold that the proper statute of

limitations is section 893.93(1)(b). Section 893.93(1)(b) pro-

vides that “[a]n action for relief on the ground of fraud”

must be “commenced within 6 years after the cause of action

No. 14-2904 11

accrues or be barred.” Wis. Stat. § 893.93(1)(b). However, un-

like section 893.43, section 893.93(1)(b) includes a discovery

provision: “The cause of action in such case is not deemed to

have accrued until the discovery, by the aggrieved party, of

the facts constituting the fraud.” Id. If measured from the

date of discovery, all of CUNA’s rescission claims would be

timely.

We do not need to decide whether section 893.93(1)(b)

applies to CUNA’s rescission claim, because the alternative

to applying section 893.93(1)(b) is that no statute of limita-

tions applies. Although Wisconsin has a general statute of

limitations for any “action upon a liability created by statute

when a different limitation is not prescribed by law,” it does

not have an equivalent statute of limitations for equitable

remedies such as rescission. Wis. Stat. § 893.93(1)(a).5 Thus,

regardless of whether section 893.93(1)(b) applies, CUNA’s

rescission claim is not time-barred.

Of course, CUNA’s rescission claim still may be subject to

the defense of laches, a defense that is available to RBS re-

gardless of whether section 893.93(1)(b) applies. See Zizzo v.

Lakeside Steel & Mfg. Co., 312 Wis. 2d 463, 469, 752 N.W.2d

889, 892 (2008) (“Laches is distinct from a statute of limita-

5 At one time, Wisconsin had a 10-year statute of limitations for “[a]n

action which, on and before February 28, 1857, was cognizable by the

court of chancery, when no other limitation is prescribed in this chapter.”

Hammes v. First Nat’l Bank, 102 Wis. 2d 720, 308 N.W.2d 419 (Ct. App.

1981); see also Pietsch v. Wegwart, 178 Wis. 498, 190 N.W. 616, 619 (1922).

The chancery statute of limitations, however, “was repealed by ch. 323,

Laws of 1979.” Id. at *4 n.4. No statute of limitations was adopted to re-

placed it. See Tyler v. Schoenherr, 2012 WI App 97, ¶ 38, 344 Wis. 2d 124,

820 N.W.2d 156 (unpublished decision).

12 No. 14-2904

tions and may be found where the statute of limitations has

not yet run.”); Haferman v. St. Clare Healthcare Found., Inc., 286

Wis. 2d 621, 647, 707 N.W.2d 853, 866 (2005) (noting that

even when “the legislature has not provided a statute of lim-

itations … the affirmative defense of laches remains availa-

ble in an appropriate case”). But the district court concluded

that laches was an issue for trial. See CMFG, 2014 WL

3696233, at *24 (holding that that “laches [was] best left for

trial” because a reasonable factfinder “could conclude that

CUNA Mutual’s delay, while acquiring the information nec-

essary to make its claims against RBS plausible, was reason-

able under the circumstances”). The merits of this defense

thus are not before us in this appeal.

B. Material Misrepresentations

Having concluded that CUNA's rescission claims are not

time-barred, we turn to the merits of the claims. Under Wis-

consin law, “[t]o rescind a contract based on a fraudulent or

material misrepresentation made during contract formation,

the recipient must have justifiably relied on the misrepresen-

tation in deciding to enter into the contract.” Archdiocese of

Milwaukee v. Doe, 743 F.3d 1101, 1106 (7th Cir. 2014) (citing

Notte, 97 Wis. 2d at 222, 293 N.W.2d at 538). “The reliance

inquiry thus involves two subsidiary questions: (1) Did the

party actually rely on the misrepresentation? (2) If so, was

the reliance justifiable?” Id.

As we recently noted, “[t]he Wisconsin Supreme Court

has not addressed the standard that governs [the actual reli-

ance] aspect of a fraudulent-inducement claim.” Id. Based on

relevant Wisconsin precedent, we predicted that Wisconsin

would follow the Restatement (Second) of Contracts. Id. Un-

der this approach, a person actually relies on a misrepresen-

No. 14-2904 13

tation if the misrepresentation “substantially contributes to his

decision to manifest his assent.” Id. (citing Restatement (Sec-

ond) of Contracts § 167 (1981)). “Substantially contributes” is

a less demanding standard than “‘but for,’ ‘sole,’ or even

‘predominant,’ causation.” Id. The party asserting fraudulent

inducement must also show that the representation was ma-

terial to his or her decision. Id. at 1107. “A misrepresentation

is material if it is likely to induce a reasonable person to

manifest his assent, or if the maker knows that it is likely

that the recipient will be induced to manifest his assent by

the misrepresentation.” Notte, 97 Wis. 2d 207 at 222–23, 293

N.W.2d at 538.

CUNA argues that it relied on two types of representa-

tions: RBS’s written representations that the loans underly-

ing its securities complied with underwriting guidelines,

and RBS’s oral representations that it performed due dili-

gence on every deal to confirm guidelines compliance. RBS

contests actual reliance. We address each representation in

turn.

1. Written Representations of Guidelines Compli-

ance

CUNA contends that Prusha relied on written represen-

tations contained in the prospectuses. All of the base pro-

spectuses represent that the underlying loans will have been

originated in compliance with underwriting guidelines. All

of the prospectus supplements also represent that the loans

comply with underwriting guidelines, and they provide de-

tail about the originators’ underwriting standards. Although

there are variations among the representations, they all une-

quivocally state that the loans will comply with underwrit-

ing guidelines of some kind.

14 No. 14-2904

The parties do not dispute the existence and content of

the prospectus representations. What they do dispute, how-

ever, is whether Prusha actually relied on these representa-

tions in deciding to purchase the securities at issue. In fact,

Prusha could not specifically recall reading the prospectus

representations. For five of the ten deals, Prusha made an

initial commitment to purchase before RBS provided the

prospectus supplements.6 For the remaining five deals,

Prusha made an initial commitment to purchase after receiv-

ing the prospectus supplements, but he does not recall read-

ing them; he could testify only that it was his habit and prac-

tice to do so. The district court concluded that Prusha did

not actually rely on the written representations in deciding

to purchase the securities. CMFG, 2014 WL 3696233, at *29–

32.

On appeal, CUNA argues that Prusha need not have read

the written representations to have relied on them. CUNA

contends that Prusha “properly expected that RBS’s prospec-

tuses would represent guideline compliance” based on their

course of dealing. Appellant’s Br. at 35.

The Restatement of Contracts defines a course of dealing

as “a sequence of previous conduct between the parties to an

agreement which is fairly to be regarded as establishing a

common basis of understanding for interpreting their ex-

pressions and other conduct.” Restatement (Second) of Con-

tracts § 223 (1981); see also Wis. Stat. § 401.303(2) (2010) (codi-

6 In a sixth deal, RAMC 2005-4, Prusha also made his initial com-

mitment to purchase before the prospectus supplement was provided to

him. For this deal, however, Prusha had received a preliminary prospec-

tus supplement. Accordingly, the district court did not include the deal

in this category. See CMFG, 2014 WL 3696233, at *20.

No. 14-2904 15

fying section 223). “Course of dealing may become part of an

agreement either by explicit provision or by tacit recogni-

tion, or it may guide the court in supplying an omitted

term.” Id. § 223 cmt. b.; see also Wis. Stat. § 401.303(4) (2010)

(“[C]ourse of dealing between the parties … is relevant in

ascertaining the meaning of the parties’ agreement, may give

particular meaning to specific terms of the agreement, and

may supplement or qualify the terms of the agreement.”).

Through their course of dealing, CUNA contends, RBS and

CUNA reached an understanding that every prospectus

supplement would include a written representation of

guidelines compliance and that CUNA would not assent to a

contract without this representation.

The transactions between CUNA and RBS took place in a

broader market for residential mortgage-backed securities.

Understanding how this market operated is essential to un-

derstanding the course of dealing between CUNA and RBS.

In 2005, three industry associations—all of which count RBS

as a member—submitted letters to the SEC commenting on

“the SEC’s proposed rules … for securities offering re-

form … as they relate[d] to asset-backed securities.” App. at

2340; see also App. at 2275, 2368. These letters provide insight

into how the market functioned at that time.7

The American Securitization Forum’s letter to the SEC

observes that “parties often forego the preparation of a pre-

liminary prospectus prior to pricing and pricing is based on

a term sheet alone.” App. at 2311. This practice, the letter ex-

7 RBS argues that these letters are inadmissible hearsay. But as dis-

cussed above with regard to the SEC final rule, CUNA’s expert witness

may testify based on these letters. See supra note 3; Fed. R. Evid. 703.

16 No. 14-2904

plains, is necessitated by the “fluid nature” of these transac-

tions. App. at 2311. Thus, where “only a term sheet is deliv-

ered … any contract with investors is also subject to the con-

dition that the more detailed terms of the offering set forth in

the final prospectus are reasonably consistent with market

customs and standards (or with prior issuances by the relat-

ed depositor or its affiliates).” App. at 2313. Put another

way, there is an “implied representation that the terms of the

offering … will be reasonably consistent with market cus-

toms and standards or with prior issuances by the related

depositor or its affiliates.” App. at 2314. Because “it is diffi-

cult for investors to review and digest revisions to the in-

formation previously delivered at the time of pricing,”

moreover, issuers generally “notify investors that there is a

material change that investors should be aware of.” App. at

2316. The letter describes this as a “general view” in the in-

dustry, “reflect[ing] both widespread current practice and

best practice.” App. at 2312, 2320. Aware of these market

norms, “[i]nvestors in many transactions for which only a

term sheet is prepared prior to pricing … make their invest-

ment decision based on the issuer’s reputation and their pri-

or course of dealing with the related depositor, or based on

market customs and standards for the asset class and trans-

action structure involved in the offering.” App. at 2318 (em-

phasis added).

The Bond Market Association’s letter to the SEC de-

scribes the market in nearly identical terms. The letter says

that “long-standing practice” in the asset-backed securities

market is that “to the extent the final prospectus contains

material terms not described in the [p]reliminary

[i]nformation, those material terms will be consistent with

[asset-backed securities] market customs and standards or

No. 14-2904 17

prior similar transactions of the same depositor or an affili-

ated depositor.” App. at 2348. Thus, “[i]f the underwriter be-

lieves that there are [m]aterial [c]hanges between the

[p]reliminary [i]nformation and the final prospectus, current

standard practice is to alert the investor prior to settlement

and give the investor an opportunity to break the trade, or to

agree to re-price the trade.” App. at 2348. Likewise, the

Mortgage Bankers Association’s letter to the SEC says, “in-

vestors expect that … the final prospectus … will be con-

sistent with market custom and standards as well as any

prior dealings with the same depositor.” App. at 2374. With

regard to guidelines-compliance representations specifically,

RBS’s own expert testified that “representations and warran-

ties about compliance with underwriting guidelines [were]

standard, common and customary in the secondary mort-

gage market,” and that “active, regular participants in the

market understood these provisions to be a part of the foun-

dational pieces enabling the transaction to go forward, sup-

porting the economics of the transactions and specifically

allocating risk.” App. at 1565, 1571. Notably, RBS has not

presented any evidence—from industry associations, ex-

perts, or otherwise—that contradicts these descriptions of

how the mortgage-backed securities marketplace operated.

It is in this context that CUNA and RBS entered into the

ten deals at issue in this case. Like other investors in this

market, Prusha often made commitments to purchase on

term sheets alone. He testified that he felt confident doing so

because his decision was “conditional … on the understand-

ing that any subsequent information I received would be

consistent with generic information that is always included

in the final prospectus supplements.” App. at 1579, ¶ 13.

That is, if “the generic information was materially different

18 No. 14-2904

from what was typically disclosed in prospectus supple-

ments,” Prusha understood that “RBS would contact [him]

to make sure [he] still wanted to go through with the trade.”

App. at 1579, ¶ 13.

CUNA’s evidence shows that Prusha's expectation was

not only the predominant one in the market, but one that

was urged by securities issuers—to both investors and the

SEC. There is no evidence, furthermore, that RBS’s course of

dealing with CUNA was any different; specifically, there is

no evidence that RBS ever deviated from these market

norms. Every base prospectus and prospectus supplement

between CUNA and RBS included written representations of

guidelines compliance. RBS’s head of mortgage trading and

asset-backed finance testified that it was his “understanding

of market practice” that an investor had “the right to break

the trade” if there were “material changes between the pre-

liminary information and the final prospectus.” App. at 976.

And, as we will discuss in greater detail below, Prusha testi-

fied that RBS repeatedly assured him that it performed due

diligence on all deals brought to market. Based on this evi-

dence, a reasonable factfinder could find that RBS’s course of

dealing with CUNA was consistent with prevailing market

norms.

We now come to the issue presented on appeal: Could a

reasonable factfinder also find that Prusha actually relied on

the prospectus representations even though he had not read

them in advance? Or does failure to read a contractual repre-

sentation preclude actual reliance on that representation as a

matter of law?

A person can come to know facts in any number of ways.

Here, CUNA contends that Prusha came to know that RBS

No. 14-2904 19

made guidelines-compliance representations in its prospec-

tuses through his course of dealing with RBS. CUNA alleges

that its course of dealing with RBS included a common basis

of understanding that any and all mortgage-backed securi-

ties agreements between them would contain a guidelines-

compliance representation.

Based on CUNA’s course-of-dealing evidence, we con-

clude that a reasonable factfinder could find that Prusha ac-

tually relied on the guidelines-compliance representations

that he reasonably expected to be made in the prospectuses.

CUNA and RBS’s course of dealing took place in a market

where guidelines-compliance representations were ubiqui-

tous and understood to be “foundational pieces” of any deal.

See App. at 1571. Industry practice, moreover, was to inform

the investor if the final prospectus deviated from “market

custom and standards” or the parties’ “prior dealings.” See

App. at 2374. (Indeed, this practice was so entrenched that

RBS’s industry association told the SEC it amounted to an

“implied representation” in any offering. See App. at 2314.)

CUNA and RBS conducted over a dozen deals, each of

which included the guidelines-compliance representation.

RBS never told CUNA that any of their deals would deviate

from market custom. To the contrary: Prusha testified that

throughout their relationship, RBS repeatedly assured him

that due diligence would be performed on every deal be-

tween them. That is effectively the same as saying that each

deal would include the guidelines-compliance representa-

tion; as RBS’s own policy manual states, the entire point of

conducting due diligence was to minimize “legal and repu-

tational exposure” from its representations about the charac-

teristics of the underlying mortgages. See App. at 2522.

20 No. 14-2904

That is not to say, however, that a reasonable factfinder

could find that Prusha relied on the prospectus representa-

tions down to the letter. For instance, if one of the prospec-

tuses stated that Guideline X had been used when, in fact,

Guideline Y had been used, and both guidelines complied

with industry standards, CUNA could not sue RBS for mate-

rially misrepresenting that Guideline X had been used.8

That’s because Prusha does not recall reading the specific

prospectuses at issue in this case; he thus could not have re-

lied on a specific set of guidelines being used. A reasonable

factfinder could find, however, that Prusha relied on a rep-

resentation of compliance with guidelines that met industry

standards. Exactly what this means—what Prusha would

have understood about the prospectus representations

through course of dealing and market custom—is an issue

for trial, not summary judgment.

RBS argues that this amounts to misrepresentation by si-

lence. The actual representation at issue, however, was writ-

ten. CUNA does not argue that RBS’s silence represented

that the prospectus supplements contained guidelines-

compliance representations when, in fact, they didn’t. Nor

could they: every prospectus supplement did contain the

representation.

RBS also contends that Prusha “rel[ied] on his assump-

tions about what the documents might say,” not the actual

written representations. Appellee’s Br. at 18. Thus, RBS con-

8 It is undisputed that the originators did not all use the same un-

derwriting guidelines. Def.’s Reply in Supp. of Def.’s Proposed Findings

of Fact ¶ 52. CUNA emphasizes, however, that “all underwriting guide-

lines [were] meant to assess the ability of the borrower to repay the loan

and the sufficiency of the collateral.” Id.

No. 14-2904 21

tends, “[i]f CUNA purchased securities based on its assump-

tions, it did not act on representations made by RBS.” Id. at

19. We disagree. CUNA does not contend that Prusha made

an assumption about what the prospectuses contained that

just happened to be correct. Rather, CUNA contends—and

Prusha testified—that Prusha understood, via his course of

dealing with CUNA, that the prospectuses contained the

representations. If he understood, based on the parties'

course of dealing, that the contract would contain a particu-

lar representation, a reasonable factfinder could determine

that he did not have to read it immediately before signing in

order to say that he relied on the representation, particularly

when the contract actually contained the representation he

understood would be there.

We wish to emphasize, however, the narrowness of our

conclusion. We do not establish a rule that a party to a trans-

action may claim justifiable reliance on representations that

were not made, or that he had not read. To the contrary, a

party entering into a business transaction cannot do so based

on assumptions and suppositions and then complain after

the fact that they turned out to be unfounded. That would

not constitute justifiable reliance. And indeed, the finder of

fact in this case may conclude after a trial that CUNA has

not proven reliance or at least not justifiable reliance. Our

determination that the issue is reserved to the finder of fact

in this case is premised on the relatively unusual situation

laid out in Prusha's testimony—which we are required to

take as true at the summary judgment stage—that his prior

dealings with RBS warranted him in understanding that the

representations that he knew had been made in the prior

deals he had reviewed and that were established standards

in the industry were also being made in the deals at issue.

22 No. 14-2904

Given that testimony, but only given that testimony, entry of

summary judgment in RBS's favor was inappropriate.

In summary, a reasonable factfinder could find that

Prusha actually relied on the prospectuses' guidelines-

compliance representations. A reasonable factfinder could

also find that the representations were material—that is, that

they would induce a reasonable investor to enter the con-

tract. There is ample evidence in the record that the guide-

lines-compliance representations were foundational to the

deals at issue in this case. CUNA was thus entitled to a trial

on these claims.

2. Oral Representations of Due Diligence

In its response to the motion for summary judgment,

CUNA also contended that RBS represented to Prusha that it

performed due diligence on every mortgage-backed securi-

ties deal. These representations, CUNA argued, are “inde-

pendently actionable”—that is, they can support the rescis-

sion claim even without the prospectus representations. Pls.’

Resp. to Def.’s Mot. for Summ. J. at 48. The district court

ruled that CUNA inappropriately sought to add a new claim

at summary judgment. CMFG, 2014 WL 3696233, at *17.

On appeal, CUNA argues that the due-diligence repre-

sentations did not amount to a new claim. CUNA notes that

both its first and second amended complaints alleged the

due-diligence representations. Thus, CUNA contends,

Prusha’s “independent reliance” on the due-diligence repre-

sentations are merely “a permissible view of the facts,” not

an amendment of its complaint. Appellant’s Br. at 44.

The district court’s ruling concerns how it read the com-

plaint, not a decision to permit or deny leave to amend. Our

No. 14-2904 23

review is therefore de novo. Cf. Reger Dev., LLC v. Nat’l City

Bank, 592 F.3d 759, 763 (7th Cir. 2010) (district court’s grant

of a motion to dismiss under Fed. R. Civ. P. 12(b)(6) is re-

viewed de novo). As CUNA observes, both the first and sec-

ond amended complaints alleged due-diligence representa-

tions. See, e.g., First Am. Compl. ¶¶ 302–03; Second Am.

Compl. ¶¶ 135–69, 306, 876. Accordingly, RBS was on notice

that CUNA was asserting Prusha’s reliance on the due-

diligence representations (indeed, RBS deposed Prusha on

precisely this question). The due-diligence representations

are not a new claim; they are simply another factual basis for

rescission based on misrepresentation of guidelines compli-

ance. CUNA was entitled to refine its rescission theory at

summary judgment based on evidence produced in discov-

ery. See Whitaker v. Milwaukee Cty., 772 F.3d 802, 807–09 (7th

Cir. 2014) (argument raised on summary judgment was not

improper “attempt to amend the pleadings” because plain-

tiff was merely “offer[ing] an alternative legal characteriza-

tion of” a fact); Rabe v. United Air Lines, Inc., 636 F.3d 866, 872

(7th Cir. 2011) (“A complaint need not identify legal theo-

ries … .”).

Despite ruling that CUNA could not assert the due-

diligence representations as an independent basis for rescis-

sion, the district court addressed this theory out of “an

abundance of caution.” CMFG, 2014 WL 3696233, at *17. The

court acknowledged that “by advertising its underwriting

procedures to potential buyers,” RBS was effectively

“vouching for the accuracy of the original underwriting da-

ta.” Id. at *27. Thus, the court reasoned, the due-diligence

representations could potentially serve as an independent

basis for rescission based on misrepresentation of guidelines

compliance. The court nevertheless concluded, however,

24 No. 14-2904

that Prusha’s testimony about the due-diligence representa-

tions was “too vague to allow for the reasonable inference

that any representations RBS made were material” because

they “do not refer to ‘re-underwriting’ or any other specifics

regarding RBS’s ‘due diligence.’“ Id. at *27–28. Lack of speci-

ficity,” the court said, can render a statement so vague that

“no reasonable investor could rely on it.” Id. at *28. We must

therefore also decide whether Prusha’s recollection regard-

ing RBS’s due-diligence representations is specific enough to

create a genuine dispute of fact.

Prusha testified that “RBS representatives repeatedly told

me that RBS performed due diligence on every deal to en-

sure compliance with underwriting guidelines.” App. at

1580, ¶ 15. RBS described this due diligence, Prusha alleged,

as “a reunderwriting of loans according to the guidelines of

the originator which includes doing valuation appraisals

or … appraisal review … and other things that are part of

due diligence.” App. at 846; see also App. at 901 (testifying

that he felt “comfortable [ ] because … RBS said they did due

diligence on all deals and that they sampled all deals and …

because they had the mathematicians and the quantitative

personnel to determine what was a significant sample size”).

Asked when he heard these representations, Prusha replied,

“[i]t’s in documentation that [RBS] did due diligence on eve-

ry deal that they bring to market,” and “I would talk about

that with either Mike Carothers [one of RBS’s salespeople] or

others at conferences.” App. at 847. Prusha also alleged that

“RBS put on meetings themselves where they made presen-

tations” about “their due diligence process.” App. at 895; see

also App. at 895 (“[W]e would have meetings with RBS and

with originators. And … RBS would go through their due

diligence process … .”). The district court ruled that this evi-

No. 14-2904 25

dence was insufficient to create a genuine dispute of fact be-

cause Prusha could not testify “as to when these statements

were made, who made them and whether they were made in

connection with these offerings,” and because his descrip-

tions of the statements lacked detail. CMFG, 2014 WL

3696233, at *28.

Prusha’s recollection is thin on specifics. He attributes

this, however, to the number of offerings that he reviewed.

By the time Prusha did his first deal with RBS, he “had al-

ready purchased more than 100 [residential mortgage-

backed securities] certificates” and had reviewed many more

offers. App. at 1577, ¶ 8. Accordingly, Prusha testified, he

could not remember specific details “because of the fact that

I’m looking at deals on a daily basis … over the course of a

15 year career.” App. at 899. In other words, Prusha says that

he is unable to recall specific dates and locations because

RBS’s offers did not stand out from the hundreds—possibly

thousands—of other offers he reviewed.

Although Prusha cannot recall when and where he heard

the due-diligence representations, his recollection of their

substance is corroborated by evidence produced in discov-

ery. RBS produced internal policy manuals stating that due

diligence was to be performed on all asset-backed securitiza-

tions. See, e.g., App. at 2522. RBS also produced slides from

presentations that were delivered to investors in 2004, 2006,

and 2007. These presentations uniformly state that “[a]ll

whole loan pools are re-underwritten,” “each loan under-

goes a full [due diligence] review” using random sampling,

and that RBS “has followed consistent strategies for due dil-

igence for whole loan trades.” See, e.g., App. at 1983, 1990,

1994. It is undisputed, moreover, that RBS actually discussed

26 No. 14-2904

its due diligence procedures in these presentations. See App.

at 1929 (stating that presentation was “something we’ve sent

to investors in the past,” and that RBS’s head of due dili-

gence typically talked potential investors through the due

diligence slides); App. at 982–93 (“We certainly discussed

our loan file diligence procedures with investors … [t]o let

them know that we had done the appropriate amount of

work to ensure that what we had presented to them in the

prospectus was accurate.”); App. at 1884 (“I found myself

repeating with investors [that] … we perform extensive loan

file and appraisal diligence … .”). It is true that CUNA has

not produced evidence tying Prusha to one of these docu-

mented presentations. But these presentations are offered as

corroborating evidence, not misrepresentations in their own

right. And, notably, all of the evidence on this issue points in

the same direction; RBS has not pointed to any evidence of

investor presentations that did not include representations

of due diligence.

We conclude that CUNA’s evidence is sufficient to pre-

clude entry of summary judgment. There are, to be sure, de-

ficiencies in Prusha’s testimony. But Prusha’s plausible ex-

planation for these deficiencies, as well as the evidence cor-

roborating the substance of his testimony, is enough to get

past summary judgment. The deficiencies go to weight, a

matter appropriately addressed by the factfinder at trial.

Moreover, there is ample evidence in the record that the due

diligence described by Prusha was essential to evaluating

the riskiness—and, accordingly, the price—of the securities.

A reasonable factfinder therefore could find that the due-

diligence representations were material.

No. 14-2904 27

The district court also ruled that the due-diligence repre-

sentations were non-actionable puffery as a matter of Wis-

consin law. CMFG, 2014 WL 3696233, at *28. We disagree.

The touchstone case is United Concrete & Const., Inc. v.

Red-D-Mix Concrete, Inc., 349 Wis. 2d 587, 836 N.W.2d 807,

816 (2013). In United Concrete, the plaintiff had terminated its

relationship with a concrete supplier when it encountered a

specific, technical problem with the concrete—excessive

bleed water. Id. at 594, 836 N.W.2d at 810–11. The plaintiff

later contacted the concrete company about restoring their

business relationship, and the concrete company represented

that the bleed water problem had been resolved. Id. at 594,

836 N.W.2d 811. In fact, however, the concrete remained de-

fective. Id. at 595, 836 N.W.2d 811.

The Wisconsin Supreme Court held that these represen-

tations did not amount to non-actionable puffery. Puffery,

the court explained, is an “exaggeration[] reasonably to be

expected of a seller as to the degree of quality of his product,

the truth or falsity of which cannot be precisely deter-

mined.” Id. at 605, 836 N.W.2d at 816. Such exaggerations

“do not subject the speaker to liability … because they con-

vey only the seller’s opinion and are not capable of being

substantiated or refuted.” Id. Excessive bleed water, by con-

trast, “is a technical problem, with a technical definition and

a technical solution.” Id. Indeed, both parties had “retained

experts who undertook extensive investigations into the pre-

cise composition of the concrete used in the relevant proper-

ties, and then submitted elaborate reports on that composi-

tion.” Id. at 605–06, 836 N.W.2d at 816. Thus, the court con-

cluded, there was “nothing in the record to suggest that a

trier of fact, properly instructed and assisted by expert tes-

28 No. 14-2904

timony, would be unable to ascertain whether [the defend-

ant] used an acceptable combination of ingredients in its

concrete or did not.” Id. at 606, 836 N.W.2d at 816.

In this case, a reasonable factfinder could find that the

due-diligence representations were not puffery. Under cer-

tain circumstances, a general representation of due diligence

could be puffery. There is evidence, however, that in the

mortgage-backed securities market, this representation car-

ried a very specific meaning: due diligence that was ade-

quate to ensure guidelines compliance (generally by means

of statistically-significant loan sampling). Like the represen-

tations in United Concrete, guidelines compliance involves “a

technical problem, with a technical definition and a technical

solution.” Id. at 605, 836 N.W.2d at 816. Such representations

do not amount to non-actionable puffery.

The cases cited by RBS and the district court are distin-

guishable. Only one comes from Wisconsin, and it involved

a vague superlative that could not be verified as true or false.

See Tietsworth v. Harley-Davidson, Inc., 270 Wis. 2d 146, 172,

677 N.W.2d 233, 246 (2004) (advertisement claimed that mo-

torcycle engine was a “masterpiece” of “premium quality”).

The case from our circuit is distinguishable for the same rea-

son. See Searls v. Glasser, 64 F.3d 1061, 1066 (7th Cir. 1995)

(“[T]he phrase ‘recession-resistant’ is simply too vague to

constitute a material statement of fact. Plaintiffs apparently

interpret the phrase to mean ‘recession-proof.’ But it could

be just as easily used to describe a company that although

not impervious to the effects of a recession will nevertheless

survive it better than others. It is a promotional phrase used

to champion the company but is devoid of any substantive

information.”).

No. 14-2904 29

The remaining cases that RBS cites are out-of-circuit cas-

es. Although four of these cases involved representations

about due diligence, they are not instructive here. In two of

the cases, the due-diligence representation was vague and

undefined. See ECA & Local 134 IBEW Joint Pension Trust of

Chi. v. JP Morgan Chase Co., 553 F.3d 187, 205–06 (2d Cir.

2009) (statements that company had “risk management pro-

cesses [that] are highly disciplined and designed to preserve

the integrity of the risk management process” and that com-

pany “set the standard for integrity,” were puffery (internal

quotation marks omitted)); City of Austin Police Ret. Sys. v.

Kinross Gold Corp., 957 F. Supp. 2d 277, 297 (S.D.N.Y. 2013)

(concluding that “very detailed,” “in-depth,” and “exhaus-

tive” were “rosy but general portraits of [defendant’s] due

diligence” and therefore puffery, but acknowledging that

“representations about due diligence anchored in specific

factual claims may be actionable”). Here, by contrast, there is

evidence that both parties understood the due-diligence rep-

resentations to have a definite meaning that conveyed specif-

ic facts about the securitization process and underlying

loans. In the third case, the court held that reliance on the

due-diligence representation was unjustifiable for reasons

that are irrelevant here. See Rosenzweig v. Azurix Corp., 332

F.3d 854, 869 (5th Cir. 2003) (holding that “a rational investor

would not have relied on the due diligence statements con-

tained in the prospectus” because the prospectus warned

that the company “had not yet assumed operations” and

provided nine pages of risk disclosures, including risks that

the defendant allegedly misrepresented). And in the last

case, the district court held that a statement that “representa-

tives from the two banks met and discussed, among other

things, ‘due diligence matters generally’“ was not actionable

30 No. 14-2904

because it was true. See Lighthouse Fin. Grp. v. The Royal Bank

of Scot. Grp., PLC, 902 F. Supp. 2d 329, 341 (S.D.N.Y. Sept. 28,

2012). Here, by contrast, there is evidence that RBS’s due-

diligence representations were false.9

Finally, RBS observes that the presentations “noted that

the material was informational, was not intended as an offer

to buy or sell securities, and that ‘no representation or war-

ranty, whether express or implied, is made and no liability or

responsibility is accepted … as to the accuracy or complete-

ness thereof.” Appellee’s Br. at 23–24. As CUNA notes, how-

ever, the presentations also contained prefatory language

stating that “[t]he information contained in these materials is

believed to be reliable.” See, e.g., App. at 494. And, in any

event, CUNA’s due diligence claim is not based on the

presentations; it is based on Prusha’s testimony. The presen-

tations are offered simply as corroborating evidence.

In sum, the due-diligence representations are inde-

pendently actionable, and CUNA's claim based on them

must proceed to trial.

9 In a footnote, RBS argues that if it “made a general representation

regarding how it would conduct its due diligence process on future of-

ferings, that would be a non-actionable statement of future events.” Ap-

pellee’s Br. at 23 n.11. As presented by Prusha, however, the due-

diligence representations were not statements of future events; they were

statements of fact about RBS’s process for creating mortgage-backed se-

curities. The due-diligence representations at issue here are therefore

different from those in the case cited by RBS, which involved a promise

to perform a future action in a one-off transaction. See Badger Pharmacal,

Inc. v. Colgate-Palmolive Co., 1 F.3d 621, 626 (7th Cir. 1993) (defendant’s

promise to “launch a national advertising and marketing campaign” was

“promissory in nature” and thus did not “relate to present or preexisting

facts”).

No. 14-2904 31

3. Disclaimers

In four of the ten deals at issue in this case, the prospec-

tus supplements contained liability disclaimers. These dis-

claimers stated that guidelines-compliance information was

provided by the originator and that RBS did not vouch for

the accuracy or completeness of such information. CUNA

moved for partial summary judgment on these disclaimers,

arguing that they were void under federal law. Because the

district court granted summary judgment for RBS on other

grounds, it denied CUNA’s motion as moot. CMFG, 2014

WL 3696233, at *32. The district court noted, however, that

the remaining prospectuses “include[d] statements to the

effect of: ‘The information set forth in the following para-

graphs has been provided by the originator.’“ Id. The district

court ruled that no reasonable factfinder could “find that

RBS independently made representations that the origina-

tors had complied with their underwriting guidelines” be-

cause the latter statements establish “that the originators, not

RBS, actually made the representations at issue, and that

[RBS] was simply passing along the information.” Id. The

district court acknowledged that “if RBS actually told CUNA

Mutual that it had re-underwritten the loans to ensure com-

pliance with guidelines [i.e. represented that it had per-

formed due diligence], then a reasonable factfinder could

conclude that RBS was making those same representations.”

Id. Because the district court ruled that Prusha’s testimony

was too vague to make these representations actionable,

however, it concluded that they were also “not enough to

keep CUNA Mutual’s claim based on compliance with un-

derwriting guidelines alive.” Id.

32 No. 14-2904

The district court's ruling on the originators' guidelines-

compliance representations was predicated on its ruling on

the due-diligence representations. Because we have reversed

the district court's ruling on the due-diligence representa-

tions, we also reverse the district court's ruling that no rea-

sonable factfinder could find that RBS “independently made

representations that the originators had complied with their

underwriting guidelines.” Id.

Although this alone is grounds for reversal, we think that

a reasonable factfinder could find that RBS vouched for the

originators’ guidelines-compliance representations even

without the due-diligence representations. To begin, the of-

fering documents came from RBS, included the RBS logo,

and were drafted by RBS. One could infer from this that RBS

was making the representations contained in the documents.

It is true that the offering documents state that the origina-

tors provided the guidelines-compliance information and do

not state that RBS vouches for this information. One possible

interpretation of these statements, then, is that RBS simply

intended to convey information it had received from the

originators, not represent that this information was accurate.

But the prospectus supplements did not disclaim the accura-

cy of this information either—even though other RBS pro-

spectuses did disclaim the accuracy of this information. Thus,

another possible interpretation is that by excluding the dis-

claimers, RBS intended to represent (and CUNA understood

RBS to be representing) that the guidelines-compliance in-

formation was accurate.

RBS's response to an SEC letter regarding express dis-

claimers supports the latter interpretation. In 2006, the SEC

sent a letter to RBS that said the following: “[D]isclaimers of

No. 14-2904 33

liability for material information provided by the issuer or

underwriters or any of their affiliates is not appropriate.

Please revise the disclaimers mentioned above, and delete

any other similar disclaimers in the prospectus.” App. at 541.

Elsewhere in the letter, the SEC reminded RBS that it was

“responsible for the accuracy and adequa[c]y of the disclo-

sures … made [in the base and supplemental prospectuses]”

because “its management are in possession of all the facts

relating to [its] disclosure[s].” App. at 543.

The original language in RBS’s prospectus supplement

read as follows:

The Mortgage Loans were originated or pur-

chased by [______] (either directly or through

affiliates) from mortgage loan brokers or origi-

nated by its retail division, generally in accord-

ance with the underwriting criteria described

herein. The information set forth in the follow-

ing paragraphs has been provided by [______],

and none of the Depositor, the Servicer, the

Sponsor, the Indenture Trustee, the Under-

writer or any other party makes any represen-

tation as to the accuracy or completeness of

such information.

App. at 558. After receiving the SEC’s letter, RBS agreed to

remove the disclaimer. The final language, approved by the

SEC, read as follows:

The Mortgage Loans were originated or pur-

chased by [______] (either directly or through

affiliates) from mortgage loan brokers or origi-

nated by its retail division, generally in accord-

34 No. 14-2904

ance with the underwriting criteria described

herein. The information set forth in the follow-

ing paragraphs has been provided by [______].

Id. at 588. Given this drafting history, it does not appear that

RBS viewed the second sentence as a disclaimer of the in-

formation's accuracy.

A reasonable factfinder could find that, by providing the

guidelines-compliance representation in the prospectus sup-

plements and excluding express disclaimers of the infor-

mation's accuracy, RBS intended to vouch for the infor-

mation. Thus, even without the due-diligence representa-

tions, a reasonable factfinder could find that RBS represent-

ed that the originators had complied with their underwriting

guidelines.

C. Leave to Amend

The district court denied CUNA’s motions to amend the

complaint to add claims for rescission based on mutual mis-

take and intentional misrepresentation. See CMFG Life Ins.

Co. v. RBS Sec. Inc., No. 12-CV-037-WMC, 2013 WL 4483068,

at *18 (W.D. Wis. Aug. 19, 2013); CMFG, 2014 WL 3696233, at

*36–37. CUNA appeals these rulings.

Both motions were filed after the district court’s deadline

to amend the pleadings of April 20, 2012. The motion to add

the mistake claim was filed one year after the amendment

deadline (on April 12, 2013); the motion to add the inten-

tional misrepresentation claim was filed over two years after

the deadline (on July 14, 2014). “To amend a pleading after

the expiration of the trial court’s [s]cheduling [o]rder dead-

line to amend pleadings, the moving party must show ‘good

cause.’” Trustmark Ins. Co. v. Gen. & Cologne Life Re of Am.,

No. 14-2904 35

424 F.3d 542, 553 (7th Cir. 2005). In making this determina-

tion, “the primary consideration … is the diligence of the

party seeking amendment.” Alioto v. Town of Lisbon, 651 F.3d

715, 720 (7th Cir. 2011).

CUNA does not argue good cause on appeal. Instead,

CUNA argues unfairness, pointing to the fact that the district

court excused RBS’s delay in asserting the statute of limita-

tions defense. But a court need not excuse one party’s delay

simply because it excused the other’s. Here, the district court

believed it was compelled to excuse RBS’s delay by King v.

Kramer, 763 F.3d 635 (7th Cir. 2014). In that case, we held that

delay alone is insufficient to justify trying a case “under the

incorrect legal standard, when all parties and the court are

aware of the correct standard.”10 Id. at 644. King does not ap-

ply to CUNA’s motions to amend, however, and the court

provided reasoned bases for denying them. With regard to

the mistake claim, the district court held that CUNA had

failed to “convincingly explain why an argument based up-

on mistake could not have been added to the original com-

plaint—or at least proposed as an amendment in response to

RBS’s motion to dismiss filed a full year earlier than its re-

quest to amend.” CMFG, 2013 WL 4483068, at *18. With re-

gard to the intentional misrepresentation claim, the district

court concluded that CUNA’s delay was “too long” and

“highly prejudicial” because “[b]elieving that its intent was

not at issue, RBS has proceeded to litigate this case based on

other grounds.” CMFG, 2014 WL 3696233, at *37. Thus, the

district court concluded, “[t]o allow CUNA Mutual to aban-

10 Although we have reversed the district court on this point, the

court believed section 893.43 to be the correct statute of limitations at the

time.

36 No. 14-2904

don the need to prove materiality, in favor of proving

knowledge and intent to defraud, would either substantially

alter the course of trial or effectively deny RBS the oppor-

tunity (and certainly the reason) to take discovery on an in-

tent-based theory and/or attack CUNA Mutual’s purported

fraud claims at summary judgment.” Id. The district court

did not abuse its discretion by denying leave to amend.

D. Circuit Rule 36

CUNA asks us to invoke Circuit Rule 36 on remand. Rule

36 requires that a case be assigned to a different judge when

“we reverse a judgment entered after a trial and remand for

a new trial.” Dey v. Colt Const. & Dev. Co., 28 F.3d 1446, 1463

(7th Cir. 1994). We have also invoked Rule 36 “to avoid the

operation of bias or mindset which seems likely to have de-

veloped from consideration and decision of motions to dis-

miss or motions for summary judgment and the like.” Cange

v. Stotler & Co., 913 F.2d 1204, 1208 (7th Cir. 1990). CUNA ar-

gues that bias is shown because the district court “has al-

ready weighed Prusha’s credibility and rejected the course-

of-dealing evidence.” Appellant’s Br. at 54.

We decline to invoke Rule 36. Chief Judge Conley has

demonstrated impartiality in his handling of this case, even

if we have overturned some of his rulings. It is true that he

noted a “glaring inconsistency” in Prusha’s testimony (and

questioned whether trial was required to assess his credibil-

ity on this point), see CMFG, 2014 WL 3696233, at *32, but

this isolated comment does not evidence bias.

III. Conclusion

For the reasons stated above, we reverse in part and af-

firm in part. We REVERSE the district court’s grant of RBS’s

No. 14-2904 37

motion for summary judgment. We AFFIRM the district

court’s denial of CUNA’s motions for leave to amend.