Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca7-14-02904/USCOURTS-ca7-14-02904-0/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 

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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 Illinois, sitting by designation. 

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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 misrepresenting that the underlying mortgages complied with underwriting 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 insurance and other investment products to credit unions. In addition to selling investment products, CUNA maintains its 

own investment portfolio. Between 2004 and 2007, CUNA 

purchased a number of residential mortgage-backed securities 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 individual mortgage loans. In deciding whether to make a loan, 

originators evaluated credit risk using underwriting guidelines. These guidelines were “designed to gauge two crucial 

factors of credit risks: (1) borrower ability to pay and (2) sufficiency of collateral (the mortgaged property) if the borrower 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 compliCase: 14-2904 Document: 59 Filed: 08/21/2015 Pages: 37
No. 14-2904 3

process involving several intermediaries, hundreds or thousands 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 proceeds) 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, AssetBacked 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 Register shall be judicially noticed." 44 U.S.C. § 1507. Additionally, CUNA’s 

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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 “outline[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 dealspecific 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 describe[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 securities using term sheets—even before availability and delivery of the final prospectus supplement. Id. at 1554–55. As we 

will discuss in greater detail below, investors in the mortgage-backed securities market often made purchase decisions 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 materially increased the credit risk of the loan and that was not justified 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). 

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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 mortgagebacked 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 removed 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 securities 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 granting 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 comCase: 14-2904 Document: 59 Filed: 08/21/2015 Pages: 37
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, express 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 governed 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. July 23, 2014). CUNA has appealed this determination. Although CUNA acknowledges that rescission is a contractual 

remedy, it contends that a claim for rescission is not an action “upon” a contract, as required by the section 893.43. Rather, CUNA contends, “rescission seeks to disaffirm a contract, not sue ‘upon’ it.” Appellant’s Br. at 29. 

“To avoid the danger of subverting the legislative intent,” 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 “general philosophy of insuring that litigants shall have their day 

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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 affirm the contract and to sue for such damage as he had sustained 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 induced and recover the damages resulting, or rescind the contract, 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, because “[e]ither there is a contract, for breach of which plaintiff 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 contract 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); 

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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 rescind a contract ... are inconsistent because the former 

stands on the contract and the latter seeks to set it aside.” Galatowitsch 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. Restatement (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 either party may have derived at the expense of the other give 

rise to a liability in unjust enrichment.” Id. (emphasis added). The drafters of the Restatement describe the former 

remedy as “contractual”; they describe the latter as “extracontractual.” Id. In deciding cases involving rescission, 

the Wisconsin Supreme Court has drawn from restatements, 

including the Restatement of Restitution.4 This leads us to 

 4 For 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 (Second) of Contracts.” First Nat’l Bank & Trust Co. of Racine v. Notte, 97 Wis. 

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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 limitations defense. 

RBS points us to Harley-Davidson Motor Co. v. PowerSports, 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 encyclopedias,” 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). 

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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 rescission remedy does not “arise from the terms of the agreement,” 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 Racine v. Notte, 97 Wis. 2d 207, 293 N.W.2d 530 (1980). For similar reasons, however, Notte is inapposite. In that case, the 

suit itself was to “recover on [the] contract” for breach; rescission 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 contract and suretyship law in framing the issues and formulating 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 comparison 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) provides that “[a]n action for relief on the ground of fraud” 

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

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accrues or be barred.” Wis. Stat. § 893.93(1)(b). However, unlike 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 limitations 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 regardless 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 replaced it. See Tyler v. Schoenherr, 2012 WI App 97, ¶ 38, 344 Wis. 2d 124, 

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

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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 limitations ... the affirmative defense of laches remains available 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 necessary to make its claims against RBS plausible, was reasonable 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 Wisconsin 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 misrepresentation 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 reliance] aspect of a fraudulent-inducement claim.” Id. Based on 

relevant Wisconsin precedent, we predicted that Wisconsin 

would follow the Restatement (Second) of Contracts. Id. Under this approach, a person actually relies on a misrepresenCase: 14-2904 Document: 59 Filed: 08/21/2015 Pages: 37
No. 14-2904 13

tation if the misrepresentation “substantially contributes to his 

decision to manifest his assent.” Id. (citing Restatement (Second) 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 material 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 representations: RBS’s written representations that the loans underlying its securities complied with underwriting guidelines, 

and RBS’s oral representations that it performed due diligence on every deal to confirm guidelines compliance. RBS 

contests actual reliance. We address each representation in 

turn. 

1. Written Representations of Guidelines Compliance 

CUNA contends that Prusha relied on written representations contained in the prospectuses. All of the base prospectuses 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 detail about the originators’ underwriting standards. Although 

there are variations among the representations, they all unequivocally state that the loans will comply with underwriting guidelines of some kind. 

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The parties do not dispute the existence and content of 

the prospectus representations. What they do dispute, however, is whether Prusha actually relied on these representations 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 receiving the prospectus supplements, but he does not recall reading them; he could testify only that it was his habit and practice 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 prospectuses 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 expressions and other conduct.” Restatement (Second) of Contracts § 223 (1981); see also Wis. Stat. § 401.303(2) (2010) (codi-

 6 In a sixth deal, RAMC 2005-4, Prusha also made his initial commitment to purchase before the prospectus supplement was provided to 

him. For this deal, however, Prusha had received a preliminary prospectus supplement. Accordingly, the district court did not include the deal 

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

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

agreement either by explicit provision or by tacit recognition, 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 understanding 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 reform ... 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 preliminary 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 discussed 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.

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plains, is necessitated by the “fluid nature” of these transactions. App. at 2311. Thus, where “only a term sheet is delivered ... any contract with investors is also subject to the condition 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 related 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 customs and standards or with prior issuances by the related 

depositor or its affiliates.” App. at 2314. Because “it is difficult for investors to review and digest revisions to the information 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 industry, “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 investment decision based on the issuer’s reputation and their prior course of dealing with the related depositor, or based on 

market customs and standards for the asset class and transaction structure involved in the offering.” App. at 2318 (emphasis added). 

The Bond Market Association’s letter to the SEC describes 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 

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prior similar transactions of the same depositor or an affiliated depositor.” App. at 2348. Thus, “[i]f the underwriter believes 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, “investors expect that ... the final prospectus ... will be consistent 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 warranties about compliance with underwriting guidelines [were] 

standard, common and customary in the secondary mortgage market,” and that “active, regular participants in the 

market understood these provisions to be a part of the foundational pieces enabling the transaction to go forward, supporting the economics of the transactions and specifically 

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

presented any evidence—from industry associations, experts, 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 understanding 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 

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18 No. 14-2904 

from what was typically disclosed in prospectus supplements,” 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 preliminary information and the final prospectus.” App. at 976. 

And, as we will discuss in greater detail below, Prusha testified that RBS repeatedly assured him that it performed due 

diligence on all deals brought to market. Based on this evidence, 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 representation 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 

Case: 14-2904 Document: 59 Filed: 08/21/2015 Pages: 37
No. 14-2904 19

made guidelines-compliance representations in its prospectuses 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 securities agreements between them would contain a guidelinescompliance representation. 

Based on CUNA’s course-of-dealing evidence, we conclude that a reasonable factfinder could find that Prusha actually 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 ubiquitous 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 between them. That is effectively the same as saying that each 

deal would include the guidelines-compliance representation; as RBS’s own policy manual states, the entire point of 

conducting due diligence was to minimize “legal and reputational exposure” from its representations about the characteristics of the underlying mortgages. See App. at 2522. 

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20 No. 14-2904 

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

could find that Prusha relied on the prospectus representations down to the letter. For instance, if one of the prospectuses 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 materially 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 relied on a specific set of guidelines being used. A reasonable 

factfinder could find, however, that Prusha relied on a representation 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 silence. The actual representation at issue, however, was written. CUNA does not argue that RBS’s silence represented 

that the prospectus supplements contained guidelinescompliance 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 assumptions 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 underwriting guidelines. Def.’s Reply in Supp. of Def.’s Proposed Findings 

of Fact ¶ 52. CUNA emphasizes, however, that “all underwriting guidelines [were] meant to assess the ability of the borrower to repay the loan 

and the sufficiency of the collateral.” Id. 

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No. 14-2904 21

tends, “[i]f CUNA purchased securities based on its assumptions, 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 particular 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 transaction 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. 

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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' guidelinescompliance representations. A reasonable factfinder could 

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

they would induce a reasonable investor to enter the contract. There is ample evidence in the record that the guidelines-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 securities deal. These representations, CUNA argued, are “independently actionable”—that is, they can support the rescission 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 representations 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 representations 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 complaint, not a decision to permit or deny leave to amend. Our 

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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 reviewed de novo). As CUNA observes, both the first and second amended complaints alleged due-diligence representations. 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 duediligence 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 compliance. CUNA was entitled to refine its rescission theory at 

summary judgment based on evidence produced in discovery. 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 plaintiff was merely “offer[ing] an alternative legal characterization of” a fact); Rabe v. United Air Lines, Inc., 636 F.3d 866, 872 

(7th Cir. 2011) (“A complaint need not identify legal theories ... .”). 

Despite ruling that CUNA could not assert the duediligence representations as an independent basis for rescission, 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 data.” 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, 

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24 No. 14-2904 

that Prusha’s testimony about the due-diligence representations 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 specificity,” 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 regarding 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 ensure 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 every 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 presentations” 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 eviCase: 14-2904 Document: 59 Filed: 08/21/2015 Pages: 37
No. 14-2904 25

dence was insufficient to create a genuine dispute of fact because 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 descriptions 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 already purchased more than 100 [residential mortgagebacked 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 discovery. RBS produced internal policy manuals stating that due 

diligence was to be performed on all asset-backed securitizations. 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 undergoes a full [due diligence] review” using random sampling, 

and that RBS “has followed consistent strategies for due diligence for whole loan trades.” See, e.g., App. at 1983, 1990, 

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

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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 diligence 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 documented 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 preclude entry of summary judgment. There are, to be sure, deficiencies in Prusha’s testimony. But Prusha’s plausible explanation for these deficiencies, as well as the evidence corroborating 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 duediligence representations were material. 

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No. 14-2904 27

The district court also ruled that the due-diligence representations were non-actionable puffery as a matter of Wisconsin 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 defective. Id. at 595, 836 N.W.2d 811. 

The Wisconsin Supreme Court held that these representations 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 determined.” Id. at 605, 836 N.W.2d at 816. Such exaggerations 

“do not subject the speaker to liability ... because they convey only the seller’s opinion and are not capable of being 

substantiated or refuted.” Id. Excessive bleed water, by contrast, “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 precise composition of the concrete used in the relevant properties, and then submitted elaborate reports on that composition.” Id. at 605–06, 836 N.W.2d at 816. Thus, the court concluded, there was “nothing in the record to suggest that a 

trier of fact, properly instructed and assisted by expert tesCase: 14-2904 Document: 59 Filed: 08/21/2015 Pages: 37
28 No. 14-2904 

timony, would be unable to ascertain whether [the defendant] 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 certain circumstances, a general representation of due diligence 

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

mortgage-backed securities market, this representation carried a very specific meaning: due diligence that was adequate to ensure guidelines compliance (generally by means 

of statistically-significant loan sampling). Like the representations 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 distinguishable. 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 motorcycle engine was a “masterpiece” of “premium quality”). 

The case from our circuit is distinguishable for the same reason. 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.”). 

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No. 14-2904 29

The remaining cases that RBS cites are out-of-circuit cases. 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 processes [that] are highly disciplined and designed to preserve 

the integrity of the risk management process” and that company “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 “exhaustive” 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 representations to have a definite meaning that conveyed specific 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 contained 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 “representatives from the two banks met and discussed, among other 

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

Case: 14-2904 Document: 59 Filed: 08/21/2015 Pages: 37
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 duediligence 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 warranty, whether express or implied, is made and no liability or 

responsibility is accepted ... as to the accuracy or completeness thereof.” Appellee’s Br. at 23–24. As CUNA notes, however, 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 presentations are offered simply as corroborating evidence. 

In sum, the due-diligence representations are independently 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 offerings, that would be a non-actionable statement of future events.” Appellee’s Br. at 23 n.11. As presented by Prusha, however, the duediligence representations were not statements of future events; they were 

statements of fact about RBS’s process for creating mortgage-backed securities. 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”). 

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No. 14-2904 31

3. Disclaimers 

In four of the ten deals at issue in this case, the prospectus supplements contained liability disclaimers. These disclaimers 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 paragraphs has been provided by the originator.’“ Id. The district 

court ruled that no reasonable factfinder could “find that 

RBS independently made representations that the originators had complied with their underwriting guidelines” because 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 compliance with guidelines [i.e. represented that it had performed 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 underwriting guidelines alive.” Id. 

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32 No. 14-2904 

The district court's ruling on the originators' guidelinescompliance representations was predicated on its ruling on 

the due-diligence representations. Because we have reversed 

the district court's ruling on the due-diligence representations, we also reverse the district court's ruling that no reasonable 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 offering 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 originators 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 accuracy of this information either—even though other RBS prospectuses did disclaim the accuracy of this information. Thus, 

another possible interpretation is that by excluding the disclaimers, RBS intended to represent (and CUNA understood 

RBS to be representing) that the guidelines-compliance information was accurate. 

RBS's response to an SEC letter regarding express disclaimers supports the latter interpretation. In 2006, the SEC 

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

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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 disclosures ... 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 purchased by [______] (either directly or through 

affiliates) from mortgage loan brokers or originated by its retail division, generally in accordance with the underwriting criteria described 

herein. The information set forth in the following paragraphs has been provided by [______], 

and none of the Depositor, the Servicer, the 

Sponsor, the Indenture Trustee, the Underwriter or any other party makes any representation 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 purchased by [______] (either directly or through 

affiliates) from mortgage loan brokers or originated by its retail division, generally in accordCase: 14-2904 Document: 59 Filed: 08/21/2015 Pages: 37
34 No. 14-2904 

ance with the underwriting criteria described 

herein. The information set forth in the following 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 information's accuracy. 

A reasonable factfinder could find that, by providing the 

guidelines-compliance representation in the prospectus supplements and excluding express disclaimers of the information's accuracy, RBS intended to vouch for the information. Thus, even without the due-diligence representations, a reasonable factfinder could find that RBS represented 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 mistake 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 intentional 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 deadline to amend pleadings, the moving party must show ‘good 

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

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No. 14-2904 35

424 F.3d 542, 553 (7th Cir. 2005). In making this determination, “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 limitations 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 apply 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 upon mistake could not have been added to the original complaint—or at least proposed as an amendment in response to 

RBS’s motion to dismiss filed a full year earlier than its request to amend.” CMFG, 2013 WL 4483068, at *18. With regard 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. 

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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 opportunity (and certainly the reason) to take discovery on an intent-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 developed from consideration and decision of motions to dismiss or motions for summary judgment and the like.” Cange 

v. Stotler & Co., 913 F.2d 1204, 1208 (7th Cir. 1990). CUNA argues that bias is shown because the district court “has already weighed Prusha’s credibility and rejected the courseof-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 credibility 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 affirm in part. We REVERSE the district court’s grant of RBS’s 

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No. 14-2904 37

motion for summary judgment. We AFFIRM the district 

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

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