McAninch v. Wintermute

• Decision Date: 06 March 2007
• Docket Number: No. 05-2870.,No. 05-2798.,No. 05-2938.,05-2798.,05-2938.,05-2870.
• Citation: 491 F.3d 759
• Parties: Joseph W. McANINCH, Administrator of the Estate of Damian Sinclair, Plaintiff-Appellant/Cross-Appellee, v. Susan WINTERMUTE, Plaintiff/Cross-Appellee, v. The Kansas Bankers Surety Co., Defendant-Appellee/Cross-Appellant. Joseph W. McAninch, Administrator of the Estate of Damian Sinclair; Plaintiff, v. Susan Wintermute, Plaintiff-Appellant, v. The Kansas Bankers Surety Co., Defendant-Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

491 F.3d 759

Joseph W. McANINCH, Administrator of the Estate of Damian Sinclair, Plaintiff-Appellant/Cross-Appellee, v. Susan WINTERMUTE, Plaintiff/Cross-Appellee, v. The Kansas Bankers Surety Co., Defendant-Appellee/Cross-Appellant.

Joseph W. McAninch, Administrator of the Estate of Damian Sinclair; Plaintiff, v. Susan Wintermute, Plaintiff-Appellant, v. The Kansas Bankers Surety Co., Defendant-Appellee.

No. 05-2798.

No. 05-2938.

No. 05-2870.

United States Court of Appeals, Eighth Circuit.

Submitted: May 17, 2006.

Filed: March 6, 2007.

Substituted: June 27, 2007.

Counsel who presented argument on behalf of the appellant/cross-appellee Wintermute was Peter W. Smith of New York, New York. Also appearing on the brief was Helen Davis Chaitman, New York, New York; Donald Cooley, Springfield, Missouri; and Philip L. Guarino, New York, New York.

Counsel who presented argument on behalf of the appellant/cross-appellee McAninch was William H. McDonald, Springfield, Missouri.

Counsel who presented argument on behalf of the appellee/cross-appellant was Ann L. Hoover, Topeka, Kansas.

Before BYE, HANSEN, and SMITH, Circuit Judge.

SMITH, Circuit Judge.

Damian Sinclair and Susan Wintermute, former directors of Sinclair National Bank ("SNB"), brought breach of contract claims and tort claims against their insurer, Kansas Bankers Surety Company ("KBS"), arguing that KBS wrongfully refused to indemnify and defend them under a Directors, Officers and Employees Indemnity and Bank Lender Liability Policy DL 1859 AR ("D & O Policy"). The district court¹ granted summary judgment to KBS on all the claims and subsequently denied Wintermute's motion for reconsideration of its grant of summary judgment. The administrator of Sinclair's estate, Joseph McAninch, and Wintermute appeal. We affirm in part and reverse in part.

I. Background

Sinclair and Wintermute² purchased Northwestern National Bank ("NWNB") of Gravette, Arkansas, on March 3, 2000, and changed its name to SNB. They served as the principal shareholders of SNB. KBS issued a D & O Policy to SNB for the policy period of October 7, 2000, to October 7, 2001. Sinclair and Wintermute were listed as directors of SNB in the application for insurance.

The D & O Policy provided that KBS "shall" indemnify each bank director, officer, or employee "for personal Loss which the Director or Officer or Employee is legally obligated to pay by reason of any Wrongful Act solely in their capacities of Director or Officer or Employee of the Bank which is first Discovered during the Policy Period."³

On September 7, 2001, the Office of the Comptroller of the Currency (OCC) closed SNB, and the Federal Deposit Insurance Corporation (FDIC) was appointed receiver of SNB's assets. KBS initially sent a letter to SNB purporting to cancel existing policies but followed that letter one day later with a corrected notification advising SNB that it would not renew the D & O Policy and that the policy would expire by its terms on October 7, 2001.

By letter dated September 26, 2001, Eli Greenburg, Wintermute's attorney, advised KBS that the FDIC might assert possible claims against officers and directors of SNB. The letter specifically stated that "[t]he FDIC has provided oral, informal notice that there may be claims against the officers and directors of Sinclair National Bank for negligence, breach of fiduciary duty and possibly other wrongful conduct." The letter named Sinclair and Wintermute, among others, as individuals against whom claims may be made.

By letter dated September 27, 2001, Helen Davis Chaitman, Wintermute's attorney, provided notice to KBS that her law firm received a subpoena from the OCC demanding production of files of SNB's officers and directors. The next day, Charles M. Towle, Vice President of KBS, spoke with Chaitman by telephone and advised her that the D & O Policy provided no coverage for any future claims made against any officer or director of SNB by the OCC, FDIC, or any other state or federal officials or agencies. Towle subsequently wrote a letter to Chaitman, affirming his previous statement that Exclusion No. 3 of the D & O Policy applied and excluded coverage for any future claims made against the officers and directors of SNB.⁴

On June 17, 2003, Sinclair filed the instant action against KBS in the circuit court of Green County, Missouri. The case was removed to the United States District Court for the Western District of Missouri on August 4, 2003. The third amended complaint alleged three causes of action: (1) a declaratory judgment that KBS had a duty to defend Sinclair in any legal or other proceeding brought that alleged any "wrongful act" as the term is defined in KBS's insurance policy; (2) breach of contract; and (3) libel and slander per se.

On September 12, 2003, the State of Missouri filed an indictment against Sinclair, charging him with 24 counts of securities fraud. Five days later, a federal grand jury indicted Wintermute on charges of conspiracy and making false statements. Sinclair's attorney, William McDonald, notified KBS on September 25, 2003, about Sinclair's state indictment and Wintermute's federal indictment. In response, Towle told McDonald that Exclusion No. 3 applied.

On November 20, 2003, a nine-count superseding federal indictment was returned against Wintermute and Sinclair. Count I charged them with conspiracy to commit five of the substantive offenses. Count II charged them with filing a false statement, alleging that on December 8, 1999, before they purchased NWNB, Sinclair and Wintermute "knowingly and willfully falsified, concealed and covered up by a trick, scheme and device a material fact in an application to the [OCC]. . . ." Count III only charged Sinclair with filing a false statement in August 2000 to the OCC. Count IV charged both Wintermute and Sinclair with illegal participation, alleging that Wintermute and Sinclair, "as owners and directors of [SNB,] caused [SNB] to purchase loans from Stevens Financial Group while concealing their financial relationship with Stevens Financial Group." (Emphasis added). Under Count V, only Sinclair was charged with obstructing examination of a financial examination in May 2000. Both Wintermute and Sinclair were charged with misapplication of funds under Count VI for "being directors and otherwise connected in any capacity with [SNB]" that "knowingly and willfully embezzled, abstracted, purloined and misapplied monies, funds, and credits belonging to and entrusted to the care and custody of [SNB]" by causing SNB "to purchase and acquire loans for approximately $15 million from Stevens Financial Group." Count VII and Count VIII charged them both with bank fraud. Finally, Count IX— Criminal Forfeiture—stated that, if convicted of certain counts, Wintermute and Sinclair would forfeit property gained through the violations.⁵

Prior to Wintermute's criminal trial, Wintermute's counsel, Devon Sherwood, subpoenaed Towle to appear at Wintermute's trial; the subpoena directed Towle to bring the crime-bond file with him to trial. KBS had written a separate policy which indemnified the bank from criminal defalcations of its officers and employees (which the parties called the "crime bond"), and the FDIC, acting as Receiver on behalf of the failed Bank, had filed a proof of loss with KBS seeking to recover on the crime bond for Sinclair's alleged criminal activities. On Towle's behalf, Ann Hoover, an attorney for KBS, made an offer to Sherwood that KBS would produce a copy of the file in response to the subpoena without Towle's attendance at trial. Sherwood accepted the offer, on the condition that the government stipulated to the documents. Because KBS was unable to obtain the stipulation, Hoover filed a motion to quash the subpoena on the ground that it was "unreasonable and oppressive." Because the court never issued an order on the motion to quash, Towle and Hoover attended Wintermute's trial on July 29, 2004. They were present in the courthouse from 1:15 p.m. until 5:05 p.m. Towle brought the KBS file with him as the subpoena directed. Wintermute's attorneys, however, never called Towle to testify, nor did Hoover or Towle identify themselves to Wintermute's attorneys to notify them of their presence.

On August 4, 2004, Wintermute was convicted of Counts I and II of the superseding indictment: conspiracy to file a false statement and filing a false statement in connection with her application for a change in control of the bank. She was acquitted of Counts IV, VI, VII, and VIII of the superseding indictment, as well as the charges of conspiracy to commit those offenses. The court dismissed Count IX after the return of the verdict because Wintermute was acquitted on the counts on which Count IX depended.

On October 19, 2004, Wintermute filed her second amended complaint in the instant action, setting forth three causes of action against KBS: (1) declaratory judgment as to coverage under the D & O Policy; (2) breach of contract for failure to reimburse Wintermute for her legal expenses in successfully defending against the claims of the indictment covered by the D & O Policy; and (3) malicious interference with Wintermute's defense.⁶

On February 14, 2005, Wintermute filed a motion to compel KBS to produce documents responsive to Wintermute's written document demand. Specifically, she sought the production of documents relating to the crime bond that KBS issued to SNB. Sherwood requested the same documents in Wintermute's criminal trial. On March 1, 2005, the district court ordered KBS to produce all responsive documents for in camera inspection and, on March 11, 2005, granted in part Wintermute's motion to compel, ordering KBS to produce 525 pages of documents. Among the 525 pages of documents is a September 7, 2001 "Proof of Loss" filed in the name of SNB, attributing losses in the amount of $ 838,884.22 to the "dishonest actions of Damian Sinclair." The 525 pages of documents...