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National Credit Union Administration Board v. Cumis Insurance Society, Inc.

United States District Court, D. Minnesota

March 15, 2019

National Credit Union Administration Board, as Receiver/Liquidating Agent of St. Francis Campus Credit Union, 808 Third Street Southeast, Suite 100, Little Falls, Minnesota 56345-2143, Plaintiff,
CUMIS Insurance Society, Inc., Defendant.

          Ariel O. Howe, Esq., and Steven M. Philips, Esq., Anthony Ostlund Baer & Louwagie PA; Givonna S. Long, Esq., and Randall D. Lehner, Esq., Kelley Drye & Warren LLP, counsel for Plaintiff.

          Daniel N. Moak, Esq., Briggs & Morgan, PA; F. Joseph Nealon, Esq., Nicholas T. Moraites, Esq., and Rosa Schware Trembour, Esq., Eckert Seamans Cherin & Mellott, LLC, counsel for Defendant.




         This matter is before the Court on cross motions for summary judgment brought by Plaintiff National Credit Union Administration Board (“NCUAB”) (Doc. No. 221) and Defendant CUMIS Insurance Society, Inc. (“CUMIS”) (Doc. No. 215). For the reasons set forth below, the Court denies both motions.


         The Court has previously described, in detail, the background facts of this case in its March 17, 2017 Memorandum Opinion and Order. (Doc. No. 43 (“Order”).) The Court will only summarize the relevant facts here. St. Francis Campus Credit Union (“St. Francis”) was a credit union insured under a fidelity bond (“Bond”) issued by CUMIS. The Bond insured against, among other things, theft by employees. (Doc. No. 1 (“Compl.”) ¶¶ 4, 8 & Ex. C.) On January 23, 2014, St. Francis discovered that one of its managers, Margurite Cofell (“Cofell”), had embezzled in excess of $3 million from St. Francis. (Id. ¶¶ 10-11.)

         NCUAB was appointed the receiver of St. Francis on February 14, 2014. (Id. ¶ 5.) The receiver was put into place “in whole or in large part” as a result of the theft. (Id. ¶ 10.) On December 8, 2014, Plaintiff filed a proof of loss totaling $3, 086, 755.94. (Id. ¶ 14.)

         On June 10, 2015, CUMIS called NCUAB's in house counsel, Robert Roach (“Roach”), to inform the NCUAB that it was rescinding the Bond. (Doc. No. 218 (“Moraites Decl.”) ¶ 5, Ex. 1 at 16.) CUMIS also sent an e-mail to NCUAB's outside counsel, Ray Leake (“Leake”), to inform him that CUMIS was rescinding the Bond and that a rescission letter and premium refund check were on the way. (Moraites Decl. ¶ 6, Ex. 2.) CUMIS attached a copy of the rescission letter and the premium refund check to the e-mail. (Id.) In the letter, CUMIS explained that its basis for seeking rescission was that Cofell lied on the application for the Bond's renewal. (Compl. ¶ 15 & Ex. G (“CUMIS Denial Letter”).

         Leake and Roach forwarded copies of the CUMIS Denial Letter and premium check to several individuals at the National Credit Union Association-the federal agency who oversees NCUAB. (Moraites Decl. ¶¶ 6-8, Exs. 2-4.) The recipients included: (1) two attorneys, including Associate General Counsel, John Ianno (“Ianno”); (2) NCUA Liquidation Analyst, Elizabeth Martin (“Martin”); (3) the President of the NCUA Asset and Management and Assistant Center (“AMAC”), Mike Barton (“Barton”), and his Deputy, Donald Klein (“Klein”); and (4) the Director of AMAC's Division of Liquidation and Member Services, Jennifer Murphy (“Murphy”), and Acting Director, Angela Veghts (“Veghts”). (Id.)

         On June 11, 2015, several attorneys, including NCUA General Counsel, Michael McKenna, corresponded over the strengths and weaknesses of the rescission. (Id. ¶¶ 8-9, Exs. 4-5 (“E-mail String”).) On June 12, 2015, Roach forwarded the E-mail String to Murphy, who subsequently forwarded it to Martin. (Id.) On June 16, 2015, Leake sent Roach a letter with legal advice concerning rescission via overnight delivery. (Id. ¶ 9, Ex. 6.) Leake's office e-mailed a copy to Ianno and one of his colleagues. (Id. ¶ 10, Ex. 7.)

         NCUAB received the original CUMIS Denial Letter and check on June 17, 2015. (Id. ¶ 6, Ex. 6.) The check was for $18, 790 in premiums that St. Francis had paid from April 2012 to April 2014. (CUMIS Denial Letter.) During the mail-sorting process, a clerk separated the check from the letter. (Doc. No. 32 (“Peeples Decl.”) ¶ 10.) The check was then forwarded to St. Louis and cashed pursuant to the procedures in place because of the receivership. (See id.) According to NCUAB, the clerk did not understand that the letter was a purported offer for rescission. (Id. ¶ 11.) On June 22, 2015, CUMIS's computer system mistakenly generated a second rescission check. (See Moraites Decl. ¶¶ 13(1)-13(2), Exs. 9-10.) NCUAB deposited the second check on June 29, 2015. (Id. ¶ 14, Ex. 11.)

         On October 29, 2015, Murphy e-mailed Martin to inquire whether the NCUAB “cashed the premium refund when [CUMIS] rescinded the bond, ” because cashing the check “constitutes acceptance.” (Id. ¶ 18, Ex. 15.) Martin responded that “[NCUAB] did cash the check, ” but that she was unsure of how it could have been avoided because “the standard policy is to cash all checks [received].”[1] (Id. ¶ 19, Ex. 16.) Murphy advised Martin to “leave [the money]” in NCUAB's account.[2] (Id.)

         On November 16, 2015, Ianno e-mailed Roach to inquire whether NCUAB had decided to file a complaint against CUMIS. (See Id. ¶ 20, Ex. 17.) Roach responded that he was discussing the matter with Murphy, Klein, and Barton, but that a decision whether to pursue litigation had not yet been made.[3] (See id.) Roach explained that the discussion included the contents of two memos from outside counsel regarding the prospect of litigation for “attempted rescission.” (Id.) Murphy forwarded the e-mail to Martin and Max Peeples, another NCUA Liquidation Analyst. (Id.)

         On January 21, 2016, NCUAB filed its Complaint against CUMIS seeking a declaration that CUMIS must provide coverage under the Bond. (Compl. ¶ 33.) Prior to the commencement of discovery, on June 13, 2016, CUMIS filed a motion for summary judgment arguing that it rightfully rescinded the Bond because either: (1) Cofell's misrepresentation increased CUMIS's risk of loss, which is grounds for rescission under Minn. Stat. § 60A.08, subd. 9; or (2) NCUAB agreed to rescind the bond after receiving the CUMIS Denial Letter and cashing and retaining the premium refund check. (Doc. No. 25.) At that time, NCUAB argued that it did not know the premium reimbursement check was coming, and that it did not have the benefit of counsel prior to cashing it. (Doc. Nos. 29, 56.) The Court denied CUMIS's motion but observed that the completion of discovery may render a different outcome with respect to rescission. (Order at 13.)

         CUMIS now moves for summary judgment arguing that discovery cleary shows that NCUAB mutually rescinded the Bond when it did not to respond to the CUMIS Denial Letter and cashed and retained the premium refund(s). (Doc. No. 215.) NCUAB also moves for summary judgment arguing that Cofell's fraudulent acts against St. Francis fall within the Bond's coverage for “employee dishonesty, ” and that NCUAB has satisfied all other conditions for coverage under the Bond. NCUAB argues further that the Bond cannot be rescinded because Cofell's misrepresentations in the Bond application cannot ...

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