Federal Deposit Ins. Corp. v. National Sur. Corp.

• Decision Date: 12 July 1977
• Docket Number: 76 C 515.,No. 76 C 494,76 C 494
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, in its Corporate Capacity and as Receiver of Franklin National Bank, Plaintiff, v. NATIONAL SURETY CORPORATION et al., Defendants. Sol Neil CORBIN, as Trustee in Bankruptcy of Franklin New York Corporation, Plaintiff, v. NATIONAL SURETY CORPORATION et al., Defendants. The AETNA CASUALTY AND SURETY COMPANY, Insurance Company of North America, National Surety Corporation and Fireman's Fund Insurance Companies, Third-Party Plaintiffs, v. Raymond T. ANDERSEN et al., Third-Party Defendants.
• Court: U.S. District Court — Eastern District of New York

434 F. Supp. 61

FEDERAL DEPOSIT INSURANCE CORPORATION, in its Corporate Capacity and as Receiver of Franklin National Bank, Plaintiff, v. NATIONAL SURETY CORPORATION et al., Defendants.

Sol Neil CORBIN, as Trustee in Bankruptcy of Franklin New York Corporation, Plaintiff, v. NATIONAL SURETY CORPORATION et al., Defendants.

The AETNA CASUALTY AND SURETY COMPANY, Insurance Company of North America, National Surety Corporation and Fireman's Fund Insurance Companies, Third-Party Plaintiffs, v. Raymond T. ANDERSEN et al., Third-Party Defendants.

Nos. 76 C 494, 76 C 515.

United States District Court, E. D. New York.

July 12, 1977.

Casey, Lane & Mittendorf, New York City, for plaintiffs.

Rivkin, Leff & Sherman, Garden City, N. Y., Paul, Weiss, Rifkind, Wharton & Garrison, Shea, Gould, Climenko, Kramer & Casey and Barrett, Smith, Schapiro & Simon, New York City, for defendants.

Poletti, Freedin, Prashker, Feldman & Goldman, New York City, for third-party defendant Howard Crosse.

MEMORANDUM AND ORDER

PLATT, District Judge.

The third-party defendants Beisler, Hogan, Kittay, Kraft, Sears, Slaughter, Tuohy, Wangeman and Webster move for an order pursuant to Rules 9(a) and (b), 12(b)(6) and 14(a) of Federal Rules of Civil Procedure dismissing the third-party complaints of the third-party plaintiffs Aetna Casualty & Surety Company, Insurance Company of North America, National Surety Corporation and Fireman's Fund Insurance Companies ("Surety Companies").

FACTS

On October 8, 1974, the Franklin National Bank ("FNB") was declared insolvent by the Comptroller of the Currency who appointed the Federal Deposit Insurance Corporation ("FDIC") as Receiver of FNB. On the same day the Court approved a purchase and assumption agreement whereby certain assets of FNB were transferred to the European-American Bank and Trust Company as the purchasing and assuming bank. The FDIC, as Receiver, sold to itself in its corporate capacity all the remaining assets of FNB, including the action to recover on various "Bankers Blanket Bonds" issued by the Surety Companies to FNB and its parent, the Franklin New York Corporation ("FNYC"). In a companion action Sol Neil Corbin, as Trustee in Bankruptcy of FNYC, also sues on those bonds.

The Surety Companies, by way of third-party complaints, have claimed against the individual defendants named above who were directors of FNB and FNYC. These directors were only directors of those corporations and were not officers and so they will be referred to as the "Outside Directors". The Surety Companies allege that if they are liable to the FDIC and Corbin on the fidelity bonds for losses incurred by FNB, then the Outside Directors are liable to them for indemnity or contribution.

The Outside Directors move to dismiss the third-party actions on several grounds.

DISCUSSION

The Outside Directors first argue that the Surety Companies have no standing to assert any claims against them because any claim in this case accrues solely to the corporation or its stockholders, citing Index Fund, Inc. v. Hagopian, 417 F.Supp. 738 (S.D.N.Y.1976). In that case the defendant banks were alleged to have participated in the causing of the loss of the plaintiff corporation. The Court held those banks had no standing to sue the directors of the plaintiff corporation because any such right could only be derived from the corporation. The Court fails to see how the Index Fund case is relevant here. If the Surety Companies pay the claims on the bonds to the plaintiffs, then to that extent the claims of the plaintiffs will be subrogated to the Surety Companies and a right of subrogation is clearly derived from the corporation that suffered the loss.

The Outside Directors also argue that the Surety Companies have no right to implead them because the bonds do not cover losses caused by directors acting as directors. The bonds do have a provision that states as follows:

"Section 2. THIS BOND DOES NOT COVER

* * * * * * (d) loss resulting from any act or acts of any director of the insured other than one employed as a salaried, pensioned or elected official or an Employee of the insured, except when performing acts coming within the scope of the usual duties of an Employee, or while acting as a member of any committee duly elected or appointed by resolution of the board of directors of the insured to perform specific, as distinguished from general, directoral acts on behalf of the insured."

This provision may well be a defense at trial if the Surety Companies can show that the loss here was caused by directors excluded from coverage by the above provision. It is far different, however, to argue that if the Surety Companies are found liable on their bonds, this provision prevents them from claiming against directors who may have contributed to the loss at FNB.

The only authority the Outside Directors cite in support of their position is Hall v. Aetna Casualty & Surety Co., 89 F.2d 885 (2d Cir.), cert. denied, 302 U.S. 725, 58 S.Ct. 47, 82 L.Ed. 560 (1937). In that case, as in this one, there was a clause in the bond being sued on that limited liability of insurance companies to losses caused by employees or persons acting as employees. The insured bank went bankrupt, and the receiver of the bank settled his claim against the bank's directors. The surety company which had not yet paid on its bond argued that this settlement impaired its right of subrogation and discharged its obligation under the bonds. The Court held as follows (89 F.2d at 888):

"The contention that a settlement by the receiver of his claim against five of the directors of the bank resulted in the discharge of the defendant as surety, because it impaired its right of subrogation, is entirely without merit. The subrogation would only be to claims that the bank might have against DuBois and Moore employees. Causes of action against them, even though valueless, still exist."

The Outside Directors argue that this result was reached because the surety company never had any subrogation right against the directors and thus none was impaired. However, we read the Court's opinion to state that the receiver's settlement with the directors eliminated any rights the surety companies had against them and so any future subrogation would only be to claims that the bank might have against the employees. The receiver clearly had the right to make such a settlement for as the Second Circuit said in Bunge Corp. v. London & Overseas Insurance Co., 394 F.2d 496, 497 (2d Cir.), cert. denied, 393 U.S. 952, 89 S.Ct. 376, 21 L.Ed.2d 363 (1968):

"It is well settled that, at least after a

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