FDIC v. CNA Cas. of Puerto Rico

• Decision Date: 22 November 1991
• Docket Number: Civ. No. 90-2315 (JP).
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION as Manager of the FSLIC Resolution Fund, Plaintiff, v. CNA CASUALTY OF PUERTO RICO, Defendant.
• Court: U.S. District Court — District of Puerto Rico

786 F. Supp. 1082

FEDERAL DEPOSIT INSURANCE CORPORATION as Manager of the FSLIC Resolution Fund, Plaintiff, v. CNA CASUALTY OF PUERTO RICO, Defendant.

Civ. No. 90-2315 (JP).

United States District Court D. Puerto Rico.

November 22, 1991.

COPYRIGHT MATERIAL OMITTED

Enrique Peral Soler, Muñoz, Boneta, González, Arbona, Benitez & Peral, Hato Rey, P.R., for plaintiff.

María E. Picó, Rexach & Picó, Miramar, P.R., for defendant.

OPINION AND ORDER

PIERAS, District Judge.

This is an action by the Federal Deposit Insurance Corporation ("FDIC"), as manager of the FSLIC Resolution Fund, seeking payment of a claim made under a fidelity bond issued by CNA Casualty of Puerto Rico ("the Underwriter") and for damages as a result of the Underwriter's alleged bad faith in adjusting the claim. The Court has before it defendant's Motion for Summary Judgment and the plaintiff's opposition thereto.

I. THE FACTS

In 1981 CNA issued a Savings & Loan Blanket Bond ("the fidelity bond") to Home Federal Savings & Loan Association of Puerto Rico ("Home Federal") providing for indemnification as a result of dishonest or fraudulent acts of employees of the insured. On October 4, 1984, the Federal Home Loan Bank Board ("FHLBB") appointed the Federal Savings & Loan Insurance Corporation as receiver for Home Federal following the discovery of substantial losses incurred by that institution. On October 6, 1984, the FSLIC-receiver took possession of Home Federal and pursuant to Section 547.7 of the Rules and Regulations for the Federal Savings & Loan System succeeded all the rights, titles, powers and privileges of Home Federal. On October 6, 1984, FSLIC-receiver transferred to the FSLIC in its corporate capacity, the receiver's rights to any claims, demands or causes of action against the former controlling persons, directors, and offices of Home Federal or their sureties. Pursuant to Section 215 of the Financial Institutions Recovery, Reform and Enforcement Act of 1989 ("FIRREA"), Pub.L. No. 101-73, 103 Stat. 183, 12 U.S.C. § 1821(a), the FDIC as Manager of the FSLIC Resolution Fund succeeded to all claims of the FSLIC that arose before August 9, 1989.

The plaintiff alleges that on August of 1984, the FHLBB gave notice to the defendant of a loss which resulted in a claim under the bond. On February 7, 1985, the FSLIC submitted its proof of loss to the Underwriter. Shortly after notice of the loss was given, the Underwriter appointed Mr. Harry N. Wood, of Harcourt Ltd., to investigate and adjust the claim of the FSLIC. The plaintiff further alleges that, by October 3, 1990, the Underwriter had not yet informed the FDIC whether it would pay or deny coverage for the claim made under the bond. Thus, on October 4, 1990, the FDIC, as Manager of the FSLIC Resolution Fund, filed the Complaint in this case. In its Complaint, the FDIC alleges that Mr. Jaime Dávila, the president of Home Federal, committed dishonest or fraudulent acts within the meaning of the bond in connection with a transaction involving a $14 million loan to Universal Tank & Iron Works, Inc. As a result of Mr. Dávila's dishonest or fraudulent conduct in connection with the Universal Tank loan transaction, the FSLIC suffered losses in excess of $9 million. In November of 1988 FSLIC settled several claims against Shearson American Express, Inc. and Shearson American Express (Puerto Rico), Inc. in Civil Case No. 84-0758 (RLA).

The defendant CNA alleges that this action is in complete contravention of the plaintiff's prior assertions that Miguel Serrano and Shearson American Express were the actual cause of the Home Federal's demise. Thus CNA contends that its behavior has not been in bad faith. The Motion for Summary Judgment principally alleges that: 1) the plaintiff should be judicially estopped from bringing this complaint, by their admissions in prior pleadings; 2) as a matter of law Dávila's conduct does not rise to the level of dishonest or fraudulent acts as defined in the bond; and 3) the claim is barred due to noncompliance with the notice and proof of loss provisions of the bond.

II. SUMMARY JUDGMENT STANDARD OF REVIEW

A motion for summary judgment is appropriate when:

The pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.

Fed.R.Civ.P. 56(c). Brennan v. Hendrigan, 888 F.2d 189, 191 (1st Cir.1989); see e.g., Medina-Muñoz v. R.J. Reynolds, 896 F.2d 5 (1st Cir.1990). A "genuine" issue is one that is dispositive, and must therefore be decided at trial. Mack v. Great Atlantic and Pacific Tea Co., 871 F.2d 179, 181 (1st Cir.1989); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202 (1986). A "material" fact is one which affects the outcome of the suit and must be resolved before attending to related legal issues. Mack v. Great Atlantic and Pacific Tea Co., 871 F.2d at 181.

Essentially, Federal Rule of Civil Procedure 56(e) mandates that summary judgment be entered against a party who fails to establish the existence of an element essential to that party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). Thus, the burden is first on the movant, to show "that there is an absence of evidence to support the non-moving party's case." Celotex Corp. v. Catrett, 477 U.S. at 325, 106 S.Ct. at 2554. Thereafter, the burden shifts to the nonmovant to establish the existence of a genuine material issue. Brennan v. Hendrigan, 888 F.2d at 191. The nonmovant, however, cannot rest upon mere allegation or denial of the pleadings. Fed.R.Civ.P. 56. In the instant case, a number of genuine issues of material fact exist which require evaluation by a jury, thus the defendants' Motion for Summary Judgment must be denied.

III. JUDICIAL ESTOPPEL DOCTRINE

The defendant asserts that the plaintiff should be precluded in this case from alleging that Home Federal President Dávila committed fraudulent or dishonest acts under the CNA fidelity bond, because plaintiff asserted a different position in a prior litigation. Specifically, FSLIC (which the FDIC manages) was a co-defendant in a civil RICO suit brought by the Municipality of Ponce in 1984 before Judge Acosta, Municipality of Ponce v. Shearson-American Express, et al., Civ. No. 84-0758 (RLA). In the FSLIC Cross-Claim against co-defendants: Shearson American Express, Inc., Shearson American Express, Inc. (Puerto Rico), Miguel Serrano Arreche, Ponce M.A. Developers, Inc., Owne Beverage, North American International, Inc., Juan Luis Boscio, and William Stamps; in addition to other FSLIC pleadings in Civ. No. 84-0758 (RLA), FSLIC focused upon the wrongdoing of Shearson and Serrano. Defendant CNA asserts that the position of those earlier pleadings, now judicially estops the plaintiff from asserting the position that Dávila was responsible for the fraud committed upon Home Federal.

The doctrine of judicial estoppel prevents a party from asserting a position in a legal proceeding that is contrary to a position previously taken by her in the same or some earlier legal proceeding.¹ The function of the judicial estoppel doctrine is to protect the integrity of the courts, because an effective legal system depends upon norms of candor and responsibility. Patriot Cinemas, Inc. v. General Cinema Corp., 834 F.2d 208, 214 (1st Cir.1987). See also Hurd v. Di Mento & Sullivan, 440 F.2d 1322 (1st Cir.), cert. denied, 404 U.S. 862, 92 S.Ct. 164, 30 L.Ed.2d 105 (1971). "If parties feel free to select contradictory positions before different tribunals to suit their ends, the integrity and efficacy of the courts will suffer." Id.

The doctrine is applied only when the positions are truly inconsistent — that is, the truth of one must necessarily preclude the truth of the other.² In order to utilize the doctrine, the two positions in question must be diametrically opposed. 18 Charles A. Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure, § 4477 (1981). In the instant case, the Court's review of the prior pleadings does show that FSLIC focused upon the wrongdoing of Serrano and Shearson even though Dávila was another co-defendant against whom a cross-claim could have been filed. Yet, the focus upon Serrano and Shearson cannot be strictly interpreted as an assertion that Dávila was not involved at all in the wrongdoing. As a matter of fact, the FSLIC Amended Cross-Claims Against Shearson-American Express, Inc., et al., expressly states that: "The cross-plaintiff cannot presently state with exact particularity the precise extent, dates and persons participating in the cover-up and obstruction of justice alleged herein, except to the extent testified by Pujol, and need further discovery in order to allege such facts with more particularity." FSLIC Amended Cross Claim at 19-20, in Civ. No. 84-0758 (RLA).

Even though FSLIC's 12th Affirmative Defense in Answer to Shearson Cross-Claims states the following: "Dávila and Home Federal acted without any intent to defraud or scienter concerning any schemes or artifices to defraud devised and/or carried out by Serrano, Stamps and Juan Luis Boscio;" the statement was made with reference to the repurchase agreement transactions discussed by Shearson in its Cross Claim against FSLIC, which are not at issue in this case. The plaintiff in this case claims that it is entitled to coverage under the CNA Bond only with regard to the Universal Tank loan transaction in which Dávila was involved. Furthermore, defendant CNA cannot claim to have been misguided by the FSLIC 12th Affirmative Defense focus upon Serrano, when the pleading itself was filed on August 17, 1987—two years after FSLIC submitted its February 7, 1985, Proof of Loss Claim to CNA, detailing Dávila's dishonest acts under the Bond.

Moreover, the doctrine of...