The Seventh Circuit Court of Appeals ruled on Friday that RBS Securities must face trial on claims that it made material misrepresentations in connection with its sale of residential mortgage-backed securities to CUNA Mutual Group—a leading provider of financial services to credit unions and their members. EGS attorneys Greg Gutzler, Tamara Spicer, and Richard Elias represented CUNA Mutual in the underlying case while at their former firm.
Between 2004 and 2007, CUNA Mutual purchased the 15 RMBS certificates at issue from RBS Securities, the investment-banking arm of the Royal Bank of Scotland. CUNA Mutual alleges that RBS made various material misrepresentations in conjunction with the sale of the securities, including misrepresentations that the underlying mortgage loans complied with underwriting guidelines. CUNA Mutual seeks damages exceeding $70 million.
A week before trial was scheduled to begin in August 2014, the district court judge dismissed CUNA Mutual’s claims for rescission. On appeal, the Seventh Circuit reversed, holding that CUNA Mutual’s claims are not time-barred and that a reasonable fact-finder could find that CUNA Mutual justifiably relied on RBS’s misrepresentations about underwriting compliance and RBS’s due diligence process. After its de novo review, the Court concluded there is “ample evidence” in the record that RBS’s representations were foundational to the deals at issue. The Court further held that RBS’s due-diligence representations were independently actionable and that RBS’s inconsistent use of generic disclaimers failed to preclude liability.