Fidelity and Deposit Co. of Maryland v. Southern Utilities, Inc.

• Decision Date: 05 March 1984
• Docket Number: No. 83-8105,83-8105
• Parties: FIDELITY AND DEPOSIT COMPANY OF MARYLAND, Plaintiff-Appellee, v. SOUTHERN UTILITIES, INC., et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 692

726 F.2d 692

FIDELITY AND DEPOSIT COMPANY OF MARYLAND, Plaintiff-Appellee, v. SOUTHERN UTILITIES, INC., et al., Defendants-Appellants.

No. 83-8105.

United States Court of Appeals, Eleventh Circuit.

March 5, 1984.

Daniel M. Dibble, Kathryn H. Vratil, Kansas City, Mo., for defendants-appellants.

George C. Reid, Atlanta, Ga., Gene Mac Winburn, John J. Barrow, Athens, Ga., for plaintiff-appellee.

Appeal from the United States District Court for the Middle District of Georgia.

Before GODBOLD, Chief Judge, RONEY and KRAVITCH, Circuit Judges.

GODBOLD, Chief Judge:

In this case, in which a jury trial was demanded, the district court, 555 F.Supp. 206, granted a "directed verdict" without a trial and in circumstances where summary judgment was not appropriate. It must be reversed.

Southern Utilities, Inc. is an electrical contractor insured by Fidelity & Deposit Loss of Money, Securities and other property which the Insured shall sustain ... through any fraudulent or dishonest act or acts committed by any of the Employees, acting alone or in collusion with others.

                Co.  (F & D) under a "Comprehensive Dishonesty, Disappearance and Destruction Policy."    The policy covered Southern for employee dishonesty for losses up to $1 million, including
                

Southern notified F & D of its claim that Hayworth, Southern's former vice-president, acquired and converted construction materials worth $261,685.01. F & D refused to pay. Southern brought suit in Missouri state court to recover the loss plus interest, damages, and attorney's fees under Mo.Rev.Stat. Secs. 375.296, 375.420 for F & D's vexatious refusal to pay. F & D removed that action to the U.S. District Court W.D. Missouri and filed a third-party complaint against Hayworth seeking indemnity for any sum F & D was required to pay to Southern. Prior to that removal F & D filed a complaint in the U.S. District Court M.D. Georgia, seeking a declaration that F & D had no liability to Southern and that Hayworth would be liable to F & D for any sum it paid Southern. The Missouri action was transferred to M.D. Georgia and the two cases consolidated.

Prior to trial the district court expressed doubt whether Southern could present sufficient evidence to submit the case to a jury. The court utilized plaintiff's trial brief, a narrative statement of evidence required of plaintiff, and a further summary of plaintiff's evidence given at a pretrial conference. ¹ It considered this material as though it had been presented in court before a jury and a motion for directed verdict had been made by defendant, and the court then granted a "directed verdict" for F & D and dismissed without prejudice F & D's third-party claim against Hayworth.

The court recognized that the case was not appropriate for summary judgment ² and that the procedure it used was outside the provisions of the Federal Rules of Civil Procedure. The court based its action on two grounds: (1) judgment may be ordered following a pretrial conference pursuant to Rule 16 if there is no triable issue left at the end of the discussion, and (2) the procedure is analogous to directing a verdict after an opening statement describing the evidence to be presented.

Rule 16 by its terms does not confer special powers to enter judgment not contained in Rule 56 or the other rules. The Second Circuit aptly described the relation between Rule 16 and Rule 56 in Syracuse Broadcasting Corp. v. Newhouse, 271 F.2d 910, 914 (2d Cir.1959):

In dismissing the action the district court relied upon Rules 16 and 41(b), 28 U.S.C.A. Rule 16 appears to have been invoked on the theory that dismissal at the pre-trial stage is proper where it clearly appears that plaintiff will be unable to prove the allegations of its complaint. We hold, however, that Rule 16 confers no special power of dismissal not otherwise contained in the rules. Rule 12(b) and Rule 12(c) provide that summary judgment, under Rule 56, is mandatory when matters outside the pleadings are considered in disposing of a motion to dismiss for failure to state a cognizable claim, or for judgment on the pleadings. Disposition under Rule 56 would appear to be no less mandatory when analogous See also 6 C. Wright & A. Miller, Federal Practice and Procedure Sec. 1525, at 592-93 (1971) (although judgment may be ordered "at the conference if there is no triable issue left at the end of the discussion," the pretrial judge lacks power "to determine disputed issues of fact or to render a decision after all the issues have been presented" (footnotes omitted)). Some of Southern's evidence of employee dishonesty was disputed, and conflicting inferences could be drawn from it. ³ A triable genuine issue of material fact remained after the pretrial conference. Rule 16 did not authorize entry of judgment.

motions are considered at the pre-trial stage.

Likewise, the court's ability to direct a verdict after an opening statement did not allow entry of judgment. Best v. District of Columbia, 291 U.S. 411, 415, 54 S.Ct. 487, 489, 78 L.Ed. 882 (1934), allows the court to direct a verdict after opening statement if the statement shows the plaintiff has no right to recover. See also Hanley v. U.S., 416 F.2d 1160, 1164 (5th Cir.1969), cert. denied, 397 U.S. 910, 90 S.Ct. 908, 25 L.Ed.2d 91 (1970). Pretermitting whether this power is available before trial, we hold that the court may not direct a verdict where "the opening statement leaves doubt as to the facts or permits conflicting inferences." Best, 291 U.S. at 415, 54 S.Ct. at 489. Where fair-minded men may draw different conclusions from the evidence, "the question is not one of law but of fact to be settled by the jury." Id.

Moreover, the district court applied incorrect standards in analyzing the evidence. The court appears to have held Southern to the criminal beyond a reasonable doubt standard of proof instead of the civil preponderance of the evidence standard applicable to such claims. See Savannah Wholesale Co. v. Continental Casualty Co., 279 F.2d 706, 708 (5th Cir.1960) (proof of employee dishonesty under policy is by preponderance of the evidence); Goffe v. National Surety Co., 321 Mo. 140, 9 S.W.2d 929, 934 (1928) (employee embezzlement in connection with recovery on fidelity bond need be proven by only a preponderance of the evidence). The court also held that for plaintiff to recover it must present "circumstances which conclude in no other reasonable hypothesis than guilt" (for example, theft or unexplained disappearance of materials from the job site). This is a nonfederal standard for sufficiency of circumstantial evidence. See Stark v. American Bakeries Co., 647 S.W.2d 119, 125 (Mo.1983) (en banc) (under Missouri law in order to survive a motion for directed verdict in a case based on circumstantial evidence, the evidence must tend to exclude every reasonable conclusion other than that sought). The federal standard controls. See Boeing Co. v. Shipman, 411 F.2d 365, 368 (5th Cir.1969) (en banc). It is set out in Daniels v. Twin Oaks Nursing Home, 692 F.2d 1321, 1323-26 (11th Cir.1982). There we held that a verdict based on circumstantial evidence is not infirm simply because the evidence supports an equally probable inference to the contrary, as long as the inference on which the verdict is based is a reasonable one. Id. at 1326. Under federal law, which allows the jury to choose among reasonable inferences in a case based on circumstantial evidence, Southern's evidence is sufficient to survive a motion for directed verdict. Reasonable men could infer that Hayworth converted the goods, that Hayworth was merely negligent, or that someone else outside the company stole the goods. ⁴ Choosing among reasonable inferences was for a jury in this case, not the district court.

The district court also held that the policy's exclusion for a loss that is dependent upon an inventory calculation or profit or loss computation required entry of judgment for F & D. The policy excluded from coverage loss

the proof of which, either as to its factual existence or as to its amount, is dependent upon an inventory computation or a profit and loss computation; provided, however, that this paragraph shall not The district court held that Southern had failed to provide the court with "sufficient independent facts or circumstances showing that the loss occurred from employee dishonesty ... which merit allowing defendant to prove its loss by an inventory or profit/loss computation in light of the exclusion in the policy."

apply to loss of Money, Securities or other property which the Insured can prove, through evidence wholly apart from such computations, is sustained by the Insured through any fraudulent or dishonest act or acts committed by any one or more of the Employees ....

An inventory computation is " 'an inventory arrived at by taking a beginning inventory, adding purchases and deducting the cost of merchandise sold.' " Chenoweth-Chapman Corp. v. American Insurance Co., 553 S.W.2d 872, 876 (Mo.App.1977) (quoting Fort Smith Tobacco & Candy Co. v. American Guarantee & Liability Insurance Co., 208 F.Supp. 244, 254 (W.D.Ark.1962)). A profit and loss computation presumably would be a subtraction of expenses from gross receipts. The amount of proof necessary to allow use of inventory or profit or loss comparisons was discussed in Prager & Bear, Inc. v. Federal Insurance Co., 66 Cal.App.3d 970, 975-76, 136 Cal.Rptr. 340, 342-43 (1977):

Prior to 1970, the weight of authority allowed the use of inventory comparisons only for corroboration of independent evidence of employee dishonesty. As a result, coverage was often denied in spite of fairly convincing evidence of employee dishonesty. No evidence of inventory comparisons was allowed to establish the amount of loss even though employees had confessed to dishonesty in Locke Distributing Co. v. Hartford Acc. & Indem. Co. (Mo.App.1966) 407 S.W.2d 658 ....

More recent decisions tend to allow an...