F.D.I.C. v. Mmahat, s. 90-3123
| Decision Date | 20 May 1992 |
| Docket Number | 90-3130,Nos. 90-3123,s. 90-3123 |
| Citation | 960 F.2d 1325 |
| Parties | FEDERAL DEPOSIT INSURANCE CORPORATION, as Manager of the FSLIC Resolution Fund substituted for Federal Savings & Loan Insurance Corporation, Plaintiff-Appellant, v. JOHN A. MMAHAT, ET AL., Defendants-Appellees. FEDERAL DEPOSIT INSURANCE CORPORATION, as Manager of the Federal Savings & Loan Insurance Corporation Resolution Fund, Plaintiff-Appellant, v. PETER E. DUFFY and NEW ENGLAND INSURANCE COMPANY, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
James C. Gulotta, Jr., Phillip A. Whittmann, Stone, Pigmann, Walther, Wittman & Hutchinson, New Orleans, La., David R. Boyd, Sean M. Fitzpatrick, Robert F. Schiff, Eugene J. Comey, Comey & Boyd, Mary P. Davis, Sr. Atty., FDIC, Washington, D.C., for plaintiff-appellant.
John A. Mmahat, Mmahat & Associates, New Orleans, La., Richard T. Simmons, Jr., Hailey, McNamara, Hall, Larmann & Papale, Metairie, La., for Mmahat.
John V. Baus, Jr., Donald A. Hammett, Hammett & Baus, New Orleans, La., for New England Ins.
Robert G. Stassi, Chehardy, Sherman, Ellis & Breslin, Metairie, La., for Peter E. Duffy.
Appeals from the United States District Court for the Eastern District of Louisiana.
Before KING, DAVIS and JOHNSON, Circuit Judges.
The Federal Deposit Insurance Corporation (FDIC) appeals the dismissal with prejudice of its suit against Peter E. Duffy, a former partner in the law firm of Mmahat & Duffy, and New England Insurance Company, Duffy's malpractice insurance carrier (Duffy ). It also appeals from part of the district court's denial of the Federal Savings & Loan Insurance Corporation's (FSLIC's) motion to enforce the oral settlement agreement entered into in its suit against Duffy's former partner, John Mmahat, and Mmahat & Duffy (Mmahat ). The district court concluded that the terms of the Mmahat settlement agreement, and the pretrial order in that suit, barred the subsequent action against Duffy. Finding that the district court erred both in its interpretation of the Mmahat settlement agreement and the legal effect of the Mmahat pretrial order on the Duffy suit, we reverse the Mmahat judgment in part, vacate the dismissal of Duffy, and remand Duffy for trial.
The Mmahat and Duffy suits both arise from Mmahat's activities as general counsel of the now-defunct Gulf Federal Savings Bank (Gulf Federal) performed during the tenure of his partnership at the law firm of Mmahat & Duffy (M & D). After Gulf Federal was placed in receivership in 1986, the FSLIC, as receiver, brought various claims against Gulf Federal's former management and others, including an action against Mmahat and M & D. The FSLIC did not name Duffy as a defendant in any of these claims.
In an effort to simplify the trial, the Mmahat case was divided into two parts. Phase I included the suit against M & D and Mmahat individually, and New England Insurance Company (New England), their professional liability insurer, 1 for legal malpractice and breach of fiduciary duty. The professional malpractice action rested on the claim that Mmahat had repeatedly advised Gulf Federal to make loans in violation of the "loans-to-one-borrower" restrictions of the Federal Home Loan Bank Board. 2 Phase II consisted of malpractice claims relating to three loan transactions in which Mmahat made defective title examinations and other errors. The Phase I case culminated in a jury verdict for $35 million against Mmahat and M & D.
After the verdict was returned, but before the district court determined whether the partnership's insurance policy covered the verdict, counsel announced a settlement on the Mmahat Phase II claims. Counsel for the FSLIC dictated the terms of the settlement into the record. The settlement covered the Phase II claims for malpractice. The parties also reserved their rights and defenses in connection with the jury verdict and any judgments rendered in the Phase I claim. New England specifically reserved its right to contest both coverage and policy limitations on both phases of the lawsuit and how payments of the Phase II settlement would be credited against the policy limitations. The FSLIC reserved the right to oppose. When these terms were recorded, the district court asked all attorneys present whether they had their client's authority to enter into the settlement. They responded that they did. The district court then asked if the settlement affected anyone else. Michael Ellis, co-counsel for Mmahat and M & D, announced that Duffy concurred.
In response to the district court's request, the parties listed the following issues as requiring resolution to conclude the case: (1) whether Mmahat and New England had any claim against American Casualty Insurance Company; (2) whether the policy exclusions of New England precluded it from liability for payment of the Phase I judgment; (3) whether Mmahat was entitled to discharge in bankruptcy; and (4) the apportionment of damages between the officers and directors of Gulf Federal and Mmahat and M & D.
After the parties reached this settlement on the Phase II claims, the district court ruled that the New England policy did not cover any of the judgment against Mmahat and M & D because it excluded coverage for "dishonesty." The FSLIC appealed this ruling. 3 While the appeal was pending, the parties tried unsuccessfully to reduce their settlement to writing. On November 3, 1989, the FSLIC filed a motion to enforce the Mmahat oral settlement agreement. On November 14, 1989, the FSLIC filed suit against Duffy and New England, contending that Duffy, as a 40% partner in M & D at all relevant times, was liable under Louisiana law for his virile share of the $35 million judgment against the partnership rendered in Phase I. 4 In opposition, New England argued that because the FSLIC failed to reserve its claims against Duffy or New England as his insurer, the FSLIC had settled and released those claims under the agreement. The district court agreed. It denied the FSLIC's motion and sua sponte dismissed the Duffy complaint with prejudice. Specifically, the district court based its decision on the following grounds: (1) the FSLIC failed to include potential claims against Duffy in the Mmahat pretrial order; (2) the settlement of Phase II in Mmahat implicitly included relinquishment of all malpractice claims remaining after litigation of Phase I, including any against Duffy; (3) the reservation of rights announced during the settlement served only to preserve both parties' appeal rights from the jury verdict in Phase I; (4) neither party mentioned any claim against Duffy when the district court requested a listing of unresolved claims; and (5) since the FSLIC was the party who dictated the terms of the settlement offer into the record, any ambiguity, if it exists, should be construed against the FSLIC. The FDIC 5 appealed both rulings. We granted the FDIC's motion to consolidate these appeals. The FDIC contends that the district court erred in (1) concluding that the FDIC waived its claim against Duffy and New England by failing to include the issue in the Mmahat pleadings or pretrial agreement; and (2) interpreting the scope of the December 14, 1988 Mmahat settlement agreement. We address these issues in turn.
The parties disagree as to the appropriate standard to review oral settlement agreements. New England maintains that Stipelcovich v. Sand Dollar Marine, Inc., 805 F.2d 599, 603 (5th Cir.1986), instructs us to review a court's interpretation of an oral settlement agreement under the clearly erroneous standard. We do not believe Stipelcovich applies directly to the case at bar. See id. (applying clearly erroneous standard to discern whether oral agreement entered into record and written settlement agreement constituted one agreement or two separate settlements). Unlike Stipelcovich, the issue here involves the interpretation of settlement terms. When the terms of the settlement are clearly specified in the record, as they are in this case, we find it appropriate to use the de novo standard we apply to review written contracts. See LTV Educ. Systems, Inc. v. Bell, 862 F.2d 1168, 1172 (5th Cir.1989) () (citing Weingart v. Allen & O'Hara, 654 F.2d 1096, 1103 (5th Cir.1981)). Compare In re Raymark Indus., Inc., 831 F.2d 550, 553 (5th Cir.1987) ().
The FDIC contests the soundness of the district court's rationale in dismissing its claim against Duffy. The district court first reasoned that the FDIC was precluded from proceeding against Duffy individually because it did not name Duffy as a defendant or include a claim against Duffy in the Mmahat pretrial order. We agree with the FDIC that the district court erred in determining that the FDIC's failure to include Duffy as a party to Mmahat or mention him in the Mmahat pretrial order barred the suit against him.
Federal Rule of Civil Procedure 16 governs the scope and course of a trial. A court may properly reject an attempt to pursue an issue not contained in the pretrial order unless its consideration is necessary to prevent manifest injustice. Trinity Carton Co. v. Falstaff Brewing Corp., 767 F.2d 184, 192 n. 13 (5th Cir.1985), cert. denied, 475 U.S. 1017, 106 S.Ct. 1202, 89 L.Ed.2d 315 (1986). However, this rule does not establish whether an individual must be joined as a party to an action. 6 We therefore consider whether the FDIC's failure to join Duffy as a defendant in the Mmahat suit prevented it from bringing the subsequent...
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