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