First Am. Bank v. First Am. Transp. Title Ins. Co.

• Decision Date: 16 July 2014
• Docket Number: No. 13–30888.,13–30888.
• Citation: 759 F.3d 427
• Parties: FIRST AMERICAN BANK, Plaintiff–Appellant, v. FIRST AMERICAN TRANSPORTATION TITLE INSURANCE COMPANY, Defendant–Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

759 F.3d 427

FIRST AMERICAN BANK, Plaintiff–Appellant,

v.FIRST AMERICAN TRANSPORTATION TITLE INSURANCE COMPANY, Defendant–Appellee.

No. 13–30888.

United States Court of Appeals,Fifth Circuit.

July 16, 2014.

John M. Landis, Esq., Andrew D. Mendez, Esq., Stone Pigman Walther Wittmann, L.L.C., New Orleans, LA, for Plaintiff–Appellant.

Charles Louis Stern, Jr., Esq., Steeg Law Firm, L.L.C., Edward Francis Lebreton, III, Fowler Rodriguez, New Orleans, LA, for Defendant–Appellee.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before BARKSDALE, CLEMENT, and OWEN, Circuit Judges.

PRISCILLA R. OWEN, Circuit Judge:

On remand from this court, the district court conducted a bench trial to determine the extent of First American Transportation Title Insurance Company's (FATTIC) liability to First American Bank (First American) under certain vessel title insurance policies. First American appeals the district court's final judgment, asserting that the court erred in calculating the amount due under the policies by using the wrong date of valuation, miscalculating the value of one of the insured vessels, and improperly making certain deductions. First American also challenges the district court's conclusion that FATTIC did not act in bad faith under Louisiana law. We affirm.

I

This case is before our court for the second time.¹ Titan Cruise Lines, Inc. (Titan) defaulted on loans obtained from First American. As we previously recounted, First American loaned Titan $28,000,000 to finance its operation of a gaming vessel known as the Ocean Jewel. The loan was secured by a ship mortgage on the Ocean Jewel as well as mortgages on the Emerald Express (Emerald) and the Sapphire Express (Sapphire), two high speed catamarans that transported customers to and from the Ocean Jewel.

FATTIC issued two title insurance policies to First American, one for the Ocean Jewel and one for the Emerald and Sapphire (collectively, the Shuttles). Both policies provide that FATTIC is liable for “actual loss or damage ... sustained or incurred by [the Insured] by reason of” nineteen enumerated risks. Relevant to the issues before us, those risks include:

Lack of priority of the Mortgage insured hereunder over any statutory lien for Necessaries (as that term is defined in 46 U.S.C. § 31301 or its equivalent under the law of [the vessels' country of registration] ) provided to the Vessel[s] prior to or after the Date of Policy whether or not the statutory lien for Necessaries arises prior to or after the Date of Policy.

Section 7(a) of the policies provides the extent of FATTIC's liability. It states, in relevant part, that the company's liability shall not exceed:

(iii) The difference between the value of the Title as insured and the value of the Title subject to the defect, lien or encumbrance insured against by this policy....

Titan's operations were unsuccessful and the company filed for bankruptcy in August 2005. At that time, the Ocean Jewel and Shuttles were encumbered by necessaries liens resulting from debts owed to suppliers of necessaries for the vessels. Shortly after Titan's filing, First American hired Norman Dufour, a qualified marine surveyor and appraiser, to appraise the three vessels. Dufour concluded that, as of August 2005, the Ocean Jewel had a fair market value of $10,800,000; the Sapphire had a value of $2,000,000; and the hull of the Emerald, which was under repair, was worth $200,000.

The bankruptcy court approved an agreement for Tampa Bay Shipbuilding & Repair Company (TBSR) to provide berthing and related services to Titan's vessels. As security for payment, the court granted TBSR perfected first-priority liens on each of the berthed vessels. The court also approved a motion by Titan's estate to sell the Ocean Jewel and the Sapphire. Before the sale could be completed, however, the Sapphire sank at her moorings. The estate negotiated with the purchaser to reduce the purchase price by $500,000 and to exclude the Sapphire from the sale. The bankruptcy court approved this agreement, and the Ocean Jewel was sold for $6,450,000. With First American's consent, the bankruptcy court ordered $1,110,000 of the sale proceeds carved out for the benefit of the estate. Of the remaining balance that was left after certain further payments, $1,162,815 was distributed to holders of necessaries liens, leaving $4,172,215 to First American.

The bankruptcy court subsequently approved the estate's abandonment of the Sapphire. TBSR then filed an in rem action against the vessel in federal court, asserting that it had a maritime lien as a result of providing necessaries. Following the court's entry of a default judgment against the Sapphire, the U.S. Marshal seized the vessel and sold it at a public auction to TBSR for a $99,227 credit-bid. Eastern Shipbuilding Group, Inc. (Eastern), meanwhile, purchased the Emerald's hull following that vessel's abandonment for a $10,000 credit-bid.

First American filed suit against FATTIC under the Shuttles policy after the insurer claimed that its liability under that policy was limited to the amounts paid to TBSR and Eastern in the foreclosure sales. Following several months of litigation, the district court granted FATTIC's motion for partial summary judgment. The court held that First American was not entitled to recover consequential damages and that FATTIC's liability was limited to the amount by which the payments to necessaries lienholders reduced First American's recovery, thus confining the covered loss to the amount bid at the foreclosure sales.

On interlocutory appeal, we affirmed in part and reversed in part.² We agreed that First American was not entitled to consequential damages and that its recovery was limited to the “difference between the value of First American's ship mortgages when unencumbered and the value of First American's ship mortgages subject to the necessaries liens.” ³ Nonetheless, we held that this difference could not be ascertained solely by reference to the proceeds from the foreclosure sale. Rather, Louisiana law required that “the finder-of-fact ... take into consideration all other relevant information when valuing loss under a title insurance policy,” including “any appraisals, the foreclosure proceeds, and other market data.” ⁴ Accordingly, we remanded to the district court to determine the difference in value as well as “the proper date of valuation.” ⁵

While the first appeal was pending, First American filed suit under the Ocean Jewel policy. After negotiating or settling necessaries claims on First American's behalf, FATTIC had tendered $1,162,287 to the Bank, the approximate amount paid to the necessaries lienholders out of the revenue from the Ocean Jewel. FATTIC asserted that sum constituted the full amount due under the Ocean Jewel policy. First American disagreed, claiming that its covered losses exceeded the amount received by the necessaries lienholders.

On remand from this court, the district court consolidated the cases and permitted discovery. During discovery, the parties learned that Eastern had sold the Emerald's hull for $500,000 on the open market. After making deductions for the expenses Eastern incurred in preparing the hull for sale, FATTIC remitted $450,139.50 to First American under the Shuttles policy. The parties also discovered that the Sapphire had been sold for $500,000. FATTIC, however, only paid First American $10,515.38, claiming that amount represented the difference between the bank's mortgage as unencumbered and as subject to covered necessaries liens.

After a bench trial, the district court issued findings of fact and conclusions of law. The court first concluded that the policies unambiguously required the vessels to be valued as of the date of their judicial sales. Based on those dates, the court found that the Ocean Jewel was worth the amount for which it had sold at the foreclosure sale; accordingly, First American incurred an insured loss of $1,162,287 under the Ocean Jewel policy. The court concluded, however, that the Emerald's foreclosure sale price was not a strong indicator of that vessel's value. Instead, it found that First American had incurred an insured loss of $445,137.50, the amount of Eastern's net proceeds from the resale of the vessel's hull on the open market. The court likewise determined that the $500,000 resale price was the best evidence of the Sapphire's value. However, it held that First American was not entitled to recover that amount; rather, the bank's insured loss was limited to $411,288 because $88,712 of TBSR's credit-bid consisted of Uninsured “superpriority claims.”

Prior to making its calculations, the district court concluded that this court's holding from the first appeal regarding the appropriate method of calculation under the Shuttles policy also applied to the Ocean Jewel. Accordingly, in calculating the value of the three vessels, the district court “note[d] for the record that it considered all available relevant evidence.” However, it stated that it did not consider First American's appraisals relevant because they were conducted well in advance of the vessels' sales.

Lastly, the court concluded that FATTIC did not act in bad faith. This appeal followed.

II

Following a bench trial, “a district court's findings of fact are reviewed for clear error and its conclusions of law de novo.” ⁶ The court's interpretation of a contract, including whether the contract is ambiguous, “is a matter of law reviewable de novo.” ⁷ The parties agree that Louisiana law governs the policies in this case.

III

First American challenges the district court's calculation of FATTIC's liability on several grounds. First, it argues that the court erred in determining the appropriate date of valuation. It contends that the policy is ambiguous on this question and therefore should be construed against FATTIC or, in the alternative, that the policy unambiguously requires...