Fidelity & Deposit Co. v. Port of Seattle

• Decision Date: 27 November 1939
• Docket Number: No. 9054.,9054.
• Citation: 106 F.2d 777
• Parties: FIDELITY & DEPOSIT CO. OF MARYLAND v. PORT OF SEATTLE.
• Court: U.S. Court of Appeals — Ninth Circuit

106 F.2d 777 (1939)

FIDELITY & DEPOSIT CO. OF MARYLAND v. PORT OF SEATTLE.

No. 9054.

Circuit Court of Appeals, Ninth Circuit.

October 3, 1939.

Rehearing Denied November 27, 1939.

Grinstead, Laube & Laughlin and Arthur Grunbaum, all of Seattle, Wash., for appellant.

G. W. Hamilton, Atty. Gen. of Washington, L. C. Brodbeck, Asst. Atty. Gen., and Fairbrook & Williams, Glenn J. Fairbrook, and David J. Williams, all of Seattle, Wash., for appellee.

Before GARRECHT, HANEY, and STEPHENS, Circuit Judges.

STEPHENS, Circuit Judge.

An appeal was taken from a judgment of the district court in an action brought by appellee Port of Seattle on a bond issued by appellant surety company. The action was commenced in the Superior Court of the State of Washington, and was removed to the district court on the ground of diversity of citizenship. It was there tried by the court after a jury had been waived. Written findings of fact and conclusions of law were made and judgment was made and entered thereon for appellee-plaintiff in the amount of $50,000 with interest from October 17. 1934.

The trial court found, among other things, that on February 21, 1922, one Matt H. Gormley was the auditor of the Port of Seattle (hereinafter referred to as the Port) a duly organized port district of the State of Washington; that Gormley, as auditor of said Port, had charge of all the books of account of the Port and of the keeping thereof and had charge of the collecting of all funds received by the Port and of depositing them with the Treasurer of King County, State of Washington; that on February 21, 1922, Fidelity and Deposit Company of Maryland (hereinafter referred to as the Company) executed and delivered to plaintiff a certain bond covering, among other employees, said Matt H. Gormley, as auditor of the Port; that the Company from time to time transmitted to the Port certain documents designated as "Annual Premium Lists" and on April 30, 1934, executed and transmitted to the Port a document purporting to increase the amount of surety-ship carried under said bond on Matt H. Gormley.

The court also found that from February 21, 1922, to May 8, 1934, the books of account and records of the Port truly and correctly showed all moneys received by the Port and truly showed all moneys properly deposited or disbursed by the Port; that at all times the books of the Port correctly reflected the exact amount of money, funds and other securities which should have been in the possession of the Port; that, as of the close of business on April 30, 1934 the books and records of the Port showed a sum in the amount of $157,336.55 in the possession of Gormley, as auditor, or in banks subject to his check; that on the 8th day of May, 1934, said Gormley was called upon by J. L. Dittemore, one of the examiners for the State Auditor of the State of Washington, to account for said funds, and said Gormley accounted only for the sum of approximately $35,000; that on said date Gormley failed to account for approximately $120,000; "that of said sum lost to the plaintiff most thereof, except for relatively small sums the exact amount of which the court is unable to determine, were taken from the possession of plaintiff prior to April 1, 1934".

The court further found that Matt H. Gormley died on May 8, 1934, leaving no estate and that on October 17, 1934, the Port and the State of Washington made demand upon the Company for payment to the Port of the sum of $50,000, the full amount of the bond under the increased coverage, and that payment of the same was then, and has ever since been, refused by the Company.

On the basis of the findings summarized above the court concluded that "on the 8th day of May, 1934, Matt H. Gormley failed to account to the plaintiff for a sum in excess of $50,000.00 of funds belonging to the plaintiff" and that "under its bond of February 21, 1922, and the documents executed by the defendant on the 30th day of April, 1934, the defendant owes to plaintiff the sum of $50,000.00 with interest thereon from the 17th day of October, 1934".

The bond executed on February 21, 1922, was in terms as follows:

"That Fidelity and Deposit Company of Maryland, hereinafter called the surety, hereby agrees to indemnify and save harmless the Port of Seattle from any and all loss which it may sustain through the failure of any employee named in the schedule hereto attached, or added thereto by acceptance notices, as therein provided, to faithfully perform such duties as may be required of him from time to time, by the Commissioners of the Port of Seattle, or shall sic fail to account for all funds, properties or securities of any kind or description which may come into his possession and belonging to said Port of Seattle, or which it may sustain because of any fraudulent or unlawful deed committed by him, acting alone, or in collusion with others.

"This bond is executed upon the following express conditions:

"First: On application other employees may be added hereto, from time to time by the surety, issuing acceptance in writing, stating the date added, and this insurance on any employee may be increased or decreased by the surety without impairing the continuity thereof, provided that the surety's aggregate liability under all its bonds and engagements, on any one employee, shall not exceed the largest bond or engagement on such employee.

"Second: This bond as to any and all of the employees may be terminated by

"a. The obligee giving notice in writing to the surety specifying the date of termination.

"b. The surety giving 10 days notice in writing to the Secretary of the Commissioners of the Port of Seattle."

Attached to the bond was a schedule listing numerous employees, stating their respective positions, the amount of the bond as to each and the premium thereon. Gormley was listed as "Auditor". The bond amount as to him was given as $20,000 and the premium as $50.

The document executed by the Company on April 30, 1934, recited that the "amount of the Suretyship carried under said bond" on "Matt H. Gormley, Auditor", is increased from "Present Amount $20,000.00" to "$50,000.00", "effective as of April 1, 1934". It was further recited: "And the Surety does hereby agree that continuity of protection under said bond shall not be impaired hereby; provided that the liability of the Surety on Account of the Employee named above, for defaults committed during the periods during which such Employee shall have been covered in the amounts above written * * * shall not be cumulative; and provided further, that in case there shall have been more than one change in the amount carried on any Employee above named, the liability of the Surety on account of defaults committed by such Employee during the periods during which such Employee shall have been covered in different amounts, or committed during the periods during which such Employee shall have been covered in the same amount, or committed partly during the periods during which such Employee shall have been covered in different amounts and partly during the periods during which such Employee shall have been covered in the same amount, shall not be cumulative".

Certain facts as to which the court made no findings are not disputed by the parties. They relate to a former action on the same bond. It appears that on December 29, 1934, the Port commenced an action on the bond in the Superior Court of Washington for King County. March 22, 1935, appellee filed its second amended complaint in that cause to which appellant filed a motion to require appellee to separately state the two causes of action therein contained. That complaint alleged, as does the complaint in the present cause, the issuance of the bond and the execution of the document of April 30, 1934, the official position and duties of Gormley, and that "on or about the 8th day of May, 1934, plaintiff called upon said Matt H. Gormley to account for" the sum charged to him on the books but that he failed to account for $233,822.52 thereof "whereby there was and now is lost to the plaintiff in excess of the sum of $50,000.00." The motion to separately state was heard and granted in the Superior Court.

A memorandum decision filed by the judge presiding discloses that the motion was granted upon the theory that liability arose under the "failure to account" provision of the bond coincidentally with the misappropriation by Gormley of the funds, that every added schedule to the original bond constituted in effect a new bond, and consequently that the complaint in question stated two causes of action, one for the misappropriations prior to April 1, 1934 and another for the misappropriations subsequent to that date, which separate causes of action should have been separately stated.

Despite this ruling the Port filed a third amended complaint substantially identical with that ruled upon. This complaint was stricken from the files because it did not conform to the previous order requiring separate statement. On appellee's failure to plead further the action was dismissed. From the judgment of dismissal the Port took an appeal to the Supreme Court of the State of Washington. The Supreme Court made its judgment affirming the judgment of the Superior Court "without prejudice to appellant's Port's rights against the respondent Company in another action upon its bond". It was further ordered that the "cause be remitted to the Superior Court for further proceedings, in accordance herewith". The Supreme Court rendered an opinion (Port of Seattle v. Fidelity & Deposit Co., 185 Wash. 247, 53 P.2d 740, 743) in connection with its judgment in which the reason for its ruling was stated as follows: "The amended complaint stated in form one cause of action, and no attempt was made to conform to the court's order for separate statements based upon the schedules contained in the policy. In filing its third amended complaint, the appellant waived any error in...