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CENTRALE RAIFFEISEN-BOERENLEEN v. NNIC

November 19, 1991

COOPERATIVE CENTRALE RAIFFEISEN-BOERENLEEN BANK B.A., PLAINTIFF,
v.
NORTHWESTERN NATIONAL INSURANCE COMPANY OF MILWAUKEE, WISCONSIN, DEFENDANT.



The opinion of the court was delivered by: Robert P. Patterson, Jr., District Judge.

OPINION AND ORDER

In this action a bank sues to recover on a surety bond due to the default of a limited partnership in making payments of interest and principal on a loan. Plaintiff moves for summary judgment under Fed.R.Civ.P. 56. Defendant has filed a cross-motion to stay this action pending the outcome of parallel litigation in the United States District Court for the Eastern District of Wisconsin. For the reasons set forth in this opinion, plaintiff's motion is granted in part and denied in part, and defendant's motion is denied.

BACKGROUND

A. Procedural history

Plaintiff Cooperative Centrale Raiffeisen-Boerenleen Bank B.A. ("Rabobank") is a cooperative association chartered as a bank under Netherlands law and authorized to do business in New York. Defendant Northwestern National Insurance Company ("NNIC") is a Wisconsin corporation with its principal place of business in Wisconsin.

On March 6, 1991 NNIC filed a declaratory judgment suit against Rabobank in the United States District Court for the Eastern District of Wisconsin. Northwestern Nat'l Ins. v. Rabobank Nederland, No. 91-C-426 (SBN). Several weeks later, on March 28, 1991, Rabobank filed suit against NNIC in this Court seeking damages. This second suit is based on the same transactions and calls for a determination of the same issues as the suit filed in Wisconsin.

At a pre-trial conference held by this Court on July 1, 1991, NNIC asked the Court to hold this matter in abeyance pending the outcome of the parallel Wisconsin litigation. Because it was unclear whether the Wisconsin court had jurisdiction over the parties, NNIC's request was denied. After the July 1 pre-trial conference, the Wisconsin court issued an opinion in which it (1) accepted jurisdiction over the parties, and (2) denied without prejudice Rabobank's motion to transfer the case to this Court because Rabobank had failed to indicate the residences of the likely witnesses in the action. Northwestern Nat'l Ins. v. Rabobank Nederland, No. 91-C-426 (SBN), 1991 WL 284552 (E.D.Wis. September 26, 1991).

Discovery in this action has been limited by agreement to the exchange of documents, and this exchange has been completed. Plaintiff moves for summary judgment based on that discovery.

B. Factual background

On December 21, 1984, 17 individuals (the "Limited Partners") invested in a limited partnership known as "Beefmasters," the purpose of which was to breed and sell livestock. Each Limited Partner purchased his participation interest by paying a sum in cash and delivering a six-year promissory note ("Investor Note") with payments of 13.5% interest due quarterly and a balloon payment of principal due on December 21, 1990. Jones Aff., Exh. 3.

The Limited Partners made their investments based on a private placement memorandum of June 21, 1984 ("Offering Memorandum"). Jones Aff., ¶ 10, Exh. 4. Pursuant to the Offering Memorandum, Beefmasters was to secure a loan from a bank and purchase certificates of deposit which, by the end of the term of the Investor Notes, would accrue interest such that their redemption value and interest would approximate the principal amounts of the Investor Notes.

  will be held in trust until the due date of the
  Note or a lender certified acceleration of
  principal, at which time the trust will terminate,
  and the funds therein will be applied to the
  remaining principal.

Jones Aff., Exh. 4 at 34 (emphasis added).*fn1

NNIC issued an investor surety bond ("Surety Bond") naming Beefmasters as beneficiary and Rabobank as a permitted assignee. Jones Aff., Exh. 7. NNIC contends that it relied on the provision in the Offering Memorandum regarding the use of the proceeds of the certificates of deposit in assessing the risks involved in issuing the Surety Bond. An NNIC officer involved in issuing the Surety Bond states that:

  (1) the Trust Agreement, as contained in the
    Offering Memorandum, was an essential element in
    inducing NNIC to issue the Surety Bond;
  (2) that the premium charged on the Surety Bond
    reflected the fact that the Offering Memorandum
    and the Trust Agreement required the ...

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