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

Background

St. Francis Campus Credit Union was insured under a fidelity bond issued by CUMIS Insurance Society, Inc. The bond covered, among other things, theft by employees. St. Francis discovered that its manager, Margurite Cofell, had embezzled more than $3 million. The National Credit Union Administration Board (NCUAB) was appointed receiver of St. Francis and later sought coverage from CUMIS for the losses.

CUMIS sought to rescind the bond, arguing that Cofell had lied on the renewal application and that NCUAB’s inadvertent cashing of a premium-refund check amounted to agreement to rescission. NCUAB’s insurance case against CUMIS was already well advanced, with substantial discovery and motion practice. NCUAB later filed a separate case against Cofell for civil theft, conversion, breach of fiduciary duty, fraud, and unjust enrichment. That case was stayed, and it did not involve a jury demand.

Motion to Consolidate

CUMIS moved under Federal Rule of Civil Procedure 42(a) to consolidate the two cases. Consolidation allows related cases with common factual or legal questions to be handled together. The court explained that the party seeking consolidation must show that it would promote convenience and judicial economy, and that consolidation remains improper if it would unfairly prejudice a party.

CUMIS argued that both cases turned on whether Cofell stole approximately $3 million from St. Francis. The court agreed that the cases shared some factual issues, but found that the alleged theft was not disputed in the insurance case. Cofell had also admitted her fraudulent conduct. Because the central alleged theft was not contested, combining the cases would not help a factfinder resolve that issue.

The court identified other factual issues unique to the insurance case, including the return of the premium-refund checks, NCUAB’s handling of those checks, and facts supporting CUMIS’s counterclaim. The court also found that the cases involved different legal issues and remedies. The insurance case concerned whether CUMIS owed coverage under the bond and whether it had properly rescinded the bond. The case against Cofell sought recovery of the money she allegedly stole or converted.

Different Case Stages and Prejudice

The court further found that the cases were at significantly different stages and involved different defendants. The insurance case had been pending for nearly three years, while the case against Cofell had been stayed since February 2018. Consolidation would require delaying the insurance case to allow additional discovery in the stayed case. The court also noted that CUMIS could have brought claims against Cofell in the insurance case or sought consolidation earlier.

The court determined that consolidation would unfairly prejudice NCUAB and Cofell. NCUAB would face delay and additional discovery, and its lawyers in the two cases would each need to become familiar with the other case’s facts and legal theories. Cofell would also face expedited discovery if the court delayed trial only briefly.

Disposition

The court held that consolidation would not promote judicial economy and would cause unfair prejudice. Judge Donovan W. Frank therefore denied CUMIS Insurance Society, Inc.’s Motion to Consolidate.