F.D.I.C. v. Great American Ins. Co.
| Decision Date | 13 February 2009 |
| Docket Number | Civil Action No. 3:06-cv-00091 (VLB). |
| Parties | FEDERAL DEPOSIT INSURANCE CORPORATION, in its Capacity as Receiver of Connecticut Bank of Commerce, Plaintiff, v. GREAT AMERICAN INSURANCE COMPANY, Defendant. |
| Court | U.S. District Court — District of Connecticut |
Christopher D. Kiesel, Dustin R. Bagwell, J. Brian Juban, Kyle M. Keegan, Victor L. Roy, III, Roy, Kiesel, Keegan & Denicola, APLC, Baton Rouge, LA, John B. Hughes, U.S. Attorney's Office, New Haven, CT, Katharine H. Haygood, Washington, DC, for Plaintiff.
F. Joseph Nealon, Jennifer E. Lattimore, Kirsten E. Keating, Ballard, Spahr, Andrews & Ingersoll, Washington, DC, Margaret A. Little, Law Offices of Margaret A. Little, Stratford, CT, for Defendant.
This is an action for damages for breach of an insurance contract. The Federal Deposit Insurance Corporation (FDIC), in its capacity as receiver of Connecticut Bank of Commerce (CBC), brought this action to recover on a fidelity bond issued by Great American Insurance Company (GAIC). The Court has federal question jurisdiction over all cases to which the FDIC is a party. 12 U.S.C. § 1819. Venue is proper in this Court as CBC was domiciled in Connecticut and the fidelity bond was issued in Connecticut. GAIC has filed the within motion for summary judgment arguing that there is no disputed issue of material fact as to misrepresentations made by CBC in its application for insurance, entitling GAIC to rescission as a matter of law. [Doc. # 99] For the reasons hereinafter set forth, the Court GRANTS summary judgment in favor of GAIC.
Examination of the exhibits attached to the motion for summary judgment and responses thereto disclose the following undisputed material facts. Randolph Lenz was the majority shareholder and Chairman of the Board of CBC. In 1999, while CBC had assets of approximately $89 million, it entered into a Purchase and Assumption Agreement to acquire MTB Bank, a New York bank with approximately $299 million in assets. CBC purchased "substantially all" of MTB's assets, including its factoring unit. [Doc. # 93, Ex. 4] This transaction required the approval of the FDIC, which approval MTB sought on August 4, 1999.
In September of 1999, MTB management discovered that one or more of its agents had advanced $950,000 based on fraudulent invoices under a factoring agreement with Harmony Designs, Inc. MTB submitted a claim for indemnity under its fidelity bond (also referred to as a "blanket banker's bond") issued by Lloyd's of London ("Lloyd's"), its insurance carrier of 15 years.
On February 5, 2000, the FDIC approved the CBC's acquisition of MTB, subject to CDC's infusion of $20 million of new capital into MTB. Lenz agreed to infuse the additional capital from his own personal assets.
In March 2000, CBC made a series of loans totaling approximately $20 million to individuals and entities who then loaned the funds to Lenz, who was working with CBC President Don Weand to raise the required new capital. Lenz reused the proceeds of these loans to purchase CBC stock, the proceeds of which were then used to purchase MTB (the "straw loan scheme").
In March 2000, the president and several other officers of MTB were indicted in a conspiracy involving the importation of Argentinian minerals. MTB again submitted a claim to Lloyd's for its losses relating to the conduct resulting in the indictments. On March 31, 2000, the Purchase and Assumption Agreement was finalized. CBC was added to MTB's insurance policy with Lloyd's.
The Lloyd's insurance policy was scheduled to expire by its terms on June 30, 2000. In April 2000, CBC began seeking renewal of the policy. Lloyd's expressed concern about the two claims that MTB had made, and refused to issue a new policy or extend coverage without a visit by CBC representatives to Lloyds' headquarters in London. Thereafter, CBC employed the services of an insurance broker to replace the Lloyd's policy. [Doc. # 111, Ex. 24]
CBC's Chief Financial Officer, Barbara Van Bergen, filled out an application for insurance from CBC's insurance broker. Although the application was from Reliance Insurance, CBC knew that it would be submitted to multiple insurers to obtain quotes for insurance. The application contained the following questions: "[Does CBC have] any knowledge of or information concerning any occurrence or circumstance whatsoever which might materially affect [this insurance proposal]?"; "Has any insurance of this nature been declined or cancelled during the past three years?"; "List all losses sustained during the past three years, whether reimbursed or not." Van Bergen answered "No," "No," and "None," respectively. [Doc # 100, Ex. 24] The application contained the statement, Id. Van Bergen signed the application form on behalf of CBC on June 19, 2000 and gave it to CBC's insurance broker for submission to multiple insurers. On June 30, 2000, CBC's insurance broker submitted the Reliance application to GAIC.
On July 19, 2000, GAIC issued a fidelity bond to CBC. The bond was effective retroactively to June 30, 2000. The bond states that it is issued "in reliance upon all statements made and information furnished to the Underwriter by the Insured in applying for this bond" and [Doc # 100, Ex. 28]
On June 26, 2002, CBC went into FDIC receivership. On January 18, 2006, the FDIC brought this suit alleging that GAIC breached its contractual duty by dishonoring the claim for coverage under the fidelity bond for losses sustained by CBC relating to the loans issued to fund Lenz' capital contribution required for the CBC acquisition of MTB and other transactions overseen by MTB and then CBC employee David Clapman.
GAIC has moved for summary judgment on the grounds that it had properly rescinded the fidelity bond due to omissions and misstatements made by CBC in its application for the fidelity bond.
Summary judgment "should be rendered if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The Court "construe[s] the evidence in the light most favorable to the non-moving party and . . . draw[s] all reasonable inferences in its favor." Huminski v. Corsones, 396 F.3d 53, 69-70 (2d Cir.2004). "[I]f there is any evidence in the record that could reasonably support a jury's verdict for the nonmoving party, summary judgment must be denied." Am. Home Assurance Co. v. Hapag Lloyd Container Linie, GmbH, 446 F.3d 313, 315 (2d Cir.2006). "The moving party bears the burden of showing that he or she is entitled to summary judgment." Huminski, 396 F.3d at 69. "[T]he burden on the moving party may be discharged by `showing'—that is pointing out to the district court—that there is an absence of evidence to support the nonmoving party's case." PepsiCo, Inc. v. Coca-Cola Co., 315 F.3d 101, 105 (2d Cir.2002). "If the party moving for summary judgment demonstrates the absence of any genuine issue as to all material facts, the nonmoving party must, to defeat summary judgment, come forward with evidence that would be sufficient to support a jury verdict in its favor." Burt Rigid Box, Inc. v. Travelers Prop. Cas. Corp., 302 F.3d 83, 91 (2d Cir.2002).
GAIC argues that it is entitled to summary judgment on the FDIC's breach of contract claims because it properly rescinded the fidelity bond in accordance with its clear and express terms. Specifically, it argues that four misrepresentations in the Reliance application constitute grounds under the terms of the fidelity bond for rescinding the fidelity bond. The FDIC argues two points in response. First, it argues that 12 U.S.C. § 1823(e) bars GAIC from asserting a defense of misrepresentation against the FDIC's enforcement of the fidelity bond. Second, the FDIC argues that there is an issue of material fact as to whether CBC made misrepresentations in its application.
The Application of 12 U.S.C. § 1823(e)
The FDIC argues that 12 U.S.C. § 1823(e) bars consideration of the Reliance application in determining whether GAIC breached the fidelity bond contract. The statute provides in relevant part, "No agreement which tends to diminish or defeat the interest of the Corporation [FDIC] in any asset acquired by it . . . shall be valid against the Corporation unless such agreement" fulfills four requirements of authentication by the acquired institution. The parties do not dispute that by itself the Reliance application does not fulfill the four requirements of authentication. The FDIC argues that allowing misrepresentations in the Reliance application to bar recovery under the fidelity bond would impermissibly diminish the FDIC's interest in the fidelity bond application, as the Board of Directors of CBC did not approve the statements made in the fidelity bond application. GAIC argues that a fidelity bond should not be considered an "asset" under the terms of 12 U.S.C. § 1823(e). It further argues that the Reliance application is not a separate "agreement" under the terms of 12 U.S.C. § 1823(e) but part of the "asset" that the FDIC seeks to recover on.
The issue presents a case of...
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