Fidelity & Deposit Co. of Maryland v. Conner
| Citation | 973 F.2d 1236 |
| Decision Date | 01 October 1992 |
| Docket Number | No. 91-2782,91-2782 |
| Parties | , 23 Fed.R.Serv.3d 1109 FIDELITY & DEPOSIT COMPANY OF MARYLAND, Plaintiff-Appellee Cross-Appellant, v. THOMAS R. CONNER, et al., Defendants-Appellants Cross-Appellees, and Federal Deposit Insurance Corporation, Defendant-Intervenor-Appellant Cross-Appellee. |
| Court | United States Courts of Appeals. United States Court of Appeals (5th Circuit) |
W. Ralph Canada, Teresa E. Brown, Hopkins & Sutter, Dallas, Tex., Eugene J. Comey, Sean M. Fitzpatrick, Beth M. Bollinger, Washington, D.C., for FDIC.
Alvin Laser, Jennifer A. Bryant, Bruce D. Beach, Kruse & Laser, Houston, Tex., for Conner.
Barry G. Flynn, Mark W. Thayer, Houston, Tex., for Roger Mott.
Robert N. Hinton, Hinton & Cox, Houston, Tex., for Kovacs and Moreland.
Steven E. Halpin, Houston, Tex., for Christian and Poe.
Van E. McFarland, Houston, Tex., for Dressen, Goss & Trausch.
P. Michael Jung, Duncan L. Clore, Michael Keeley, Strasburger & Price, Dallas Tex., for Fidelity & Deposit Co. of Maryland.
Paul D. Schoonover, Scott E. Hayes, Vial, Hamilton, Koch & Knox, Dallas, Tex., for National Union Fire Ins. Co. of Pittsburgh, Pa.
Barbara E. Etkind, Peter G. Thompson, Ross, Dixon & Masback, Washington, D.C., for Casualty Co. of Reading, Pa., and Intern. Ins. Co.
Appeals from the United States District Court for the Southern District of Texas.
Before WISDOM, SMITH, and EMILIO M. GARZA, Circuit Judges.
The Federal Deposit Insurance Corporation ("FDIC") appeals a judgment declaring that Fidelity and Deposit Company of Maryland ("F & D") has no duty to provide coverage under a directors and officers ("D & O") liability insurance policy issued to Northwest Commercial Bank, N.A. ("the Bank") for claims brought by the FDIC against former Bank directors. Concluding that (i) the FDIC's claim does not constitute a derivative shareholder/depositor claim, (ii) public policy does not invalidate the D & O policy exclusions at issue, and (iii) the regulatory exclusion is effective against the FDIC, we affirm.
F & D brought this action to obtain a judgment declaring its rights and obligations under a D & O policy it issued to the Bank. The policy--effective January 3, 1986 through January 3, 1987--provides up to $1 million in liability coverage for (i) claims made against the Bank's directors and officers during the policy period and (ii) potential claims against these directors and officers arising out of occurrences about which F & D was notified. 1 The policy includes a regulatory exclusion, which provides:
It is understood and agreed that the Company shall not be liable to make payment for Loss in connection with any claim made against the Directors and Officers by any State or Federal Official or Agency, including but not limited to the Federal Deposit Insurance Corporation or Federal Savings and Loan Insurance Corporation. 2
It also contains an insured v. insured exclusion:
It is understood and agreed that the Company shall not be liable to make any payment for Loss in connection with any claim made against the Directors and Officers by any other Director or Officer of the Bank/Association or by the Bank/Association, except for a shareholders' derivative action when such action is brought by a shareholder who is neither a Director nor Officer of the Bank/Association nor a beneficial holder of shares for a Director or Officer of the Bank/Association. 3
On June 11, 1987, the Office of the Comptroller of the Currency declared the Bank--a federally-chartered national banking association--insolvent and appointed the FDIC receiver in accordance with 12 U.S.C. § 1821(c) (1987). The FDIC then sold certain Bank assets it held as receiver to the FDIC in its corporate capacity, including the Bank's right to assert claims against its officers and directors arising from the performance of their duties as officers and directors.
On January 9, 1989, the FDIC filed suit in federal district court against a number of the Bank's former directors. 4 The FDIC's complaint sought damages in excess of $2 million against the directors for breach of fiduciary duty, negligence, negligence per se, and breach of contract under federal law. On February 1, 1990, Conner--a defendant in the FDIC action--filed a third-party complaint against a number of former directors who had not been named as defendants by the FDIC, alleging that these directors were jointly liable in connection with the acts and omissions alleged in the FDIC action. All defendants except McKinney notified F & D of the lawsuit, and all defendants except McKinney, Goss, and Trausch demanded that F & D defend them under the terms of the D & O policy. F & D refused to provide a defense.
F & D filed this action on March 17, 1989, seeking a declaratory judgment that it has no duty to provide coverage under the D & O policy for claims asserted against the Bank's directors by the FDIC. The FDIC intervened in this action and moved for partial summary judgment declaring that the regulatory and insured v. insured exclusions in the D & O policy do not preclude coverage for its claims; F & D cross-moved for summary judgment declaring that these exclusions preclude coverage.
The district court granted summary judgment in favor of F & D, holding that coverage for the claims asserted by the FDIC is barred by the regulatory exclusion. Although the district court found it unnecessary to resolve issues regarding applicability and enforceability of the insured v. insured exclusion, it did hold that this exclusion bars coverage for the third-party claims asserted by Conner.
Appealing the district court's grant of summary judgment in favor of F & D, the FDIC and Conner (together referred to as "the FDIC") assert that:
A. The district court's holding that the regulatory exclusion bars coverage for the FDIC's claims violates public policy because it deprives the FDIC of the rights of the Bank's shareholders and depositors--rights Congress specifically granted to the FDIC; and
B. The regulatory and insured v. insured exclusions do not unambiguously exclude coverage for claims asserted by the FDIC.
The FDIC challenges the district court's grant of summary judgment in favor of F & D on the grounds that such coverage is barred by the D & O policy's regulatory exclusion clause. In considering this summary judgment challenge, we review the record de novo, and with the guidance of Rule 56 of the Federal Rules of Civil Procedure and several Supreme Court cases interpreting this rule. See Topalian v. Ehrman, 954 F.2d 1125, 1131 (5th Cir.1992), citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986), cert. denied, 484 U.S. 1066, 108 S.Ct. 1028, 98 L.Ed.2d 992 (1988); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-52, 106 S.Ct. 2505, 2509-12, 91 L.Ed.2d 202 (1986); Matsushita Elec. Ind. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538 (1986), cert. denied, 481 U.S. 1029, 107 S.Ct. 1955, 95 L.Ed.2d 527 (1987). The summary judgment standard is securely settled: "Summary judgment is proper if the movant demonstrates that there is an absence of genuine issues of material fact." Topalian, 954 F.2d at 1131.
The FDIC asserts that:
[j]udicial enforcement of the Regulatory Exclusion (or the Insured v. Insured Exclusion) to bar coverage for the claims asserted by the FDIC in the FDIC Action would violate public policy because it would substantially impair the congressional policy to grant the FDIC "all rights, titles, powers, and privileges" of the shareholders and depositors of Northwest Commercial Bank with respect to the assets of the Bank. Among the assets of the shareholders and depositors of the Bank under federal law is the right to assert derivative claims against the Bank's officers and directors for mismanagement. 5
Untangled, these contentions separate into the following: (a) the FDIC's claim is a derivative shareholder claim and, to the extent that the regulatory exclusion bars the FDIC from bringing such claims but does not bar shareholders, the exclusion is invalid as a matter of public policy because the FDIC is entitled to exercise all shareholders' and depositors' rights and privileges, and, (b) more generally, the D & O policy exclusions deprive the FDIC of its statutory rights under 12 U.S.C. § 1821(d)(2)(A)(i) as subrogee of the Bank or as subrogee of the Bank's stockholders and depositors.
The D & O policy unambiguously excludes coverage for losses "in connection with any claim made against the Directors and Officers by any State or Federal Official or Agency, including but not limited to the Federal Deposit Insurance Corporation or Federal Savings and Loan Insurance Corporation." 6 Therefore, although section 1821(d)(2)(A)(i) empowers the FDIC to act as successor to the rights of the Bank, its stockholders, depositors, and directors, 7 the policy's regulatory exclusion explicitly omits coverage for all of these entities for claims brought by the FDIC.
The FDIC attempts to ride around this exclusion by characterizing its action as a shareholder/depositor derivative action. 8 We find that the FDIC's action is not "derivative" for section 1821(d)(2)(A)(i) purposes.
The FDIC's complaint makes no attempt to show an independent breach of duty toward the Bank's depositors or shareholders--a requirement for independent shareholder liability. See Commonwealth of Mass. v. Davis, 140 Tex. 398, 407-08, 168 S.W.2d 216, 221-22 (1942) (), ...
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