FIRST COMMONWEALTH v. HIBERNIA BANK NEW ORLEANS, Civ. A. No. 91-2743.

• Decision Date: 19 June 1995
• Docket Number: Civ. A. No. 91-2743.
• Citation: 891 F. Supp. 290
• Parties: FIRST COMMONWEALTH CORP. v. HIBERNIA NATIONAL BANK OF NEW ORLEANS.
• Court: U.S. District Court — Eastern District of Louisiana

891 F. Supp. 290

FIRST COMMONWEALTH CORP. v. HIBERNIA NATIONAL BANK OF NEW ORLEANS.

Civ. A. No. 91-2743.

United States District Court, E.D. Louisiana.

June 19, 1995.

John C. Combe, Jr., Warren M. Schultz, Jr., M. Richard Schroeder, T. Michael Twomey, Jones, Walker, Waechter, Poitevent, Carrere & Denegre, New Orleans, LA, for First Com. Corp., plaintiff.

Robert Stephen Rooth, Corinne Ann Morrison, James Calvin Young, Chaffe, McCall, Phillips, Toler & Sarpy, New Orleans, LA, John F. Weeks, II, Usry & Weeks, Metairie, LA, for Hibernia Nat. Bank New Orleans.

ORDER AND REASONS

JONES, District Judge.

Pending before the Court are First Commonwealth Corporation's "Renewed Motion for New Trial and Amended Judgment" and "Hibernia's Third Renewed Motion for Judgment as a Matter of Law."¹ Having reviewed the memoranda of the parties, the record and the applicable law, the Court GRANTS First Commonwealth Corporation's Motion in part and DENIES it in part. Further, the Court DENIES the motion of Hibernia National Bank.

Background

The parties tried this matter before a jury from January 23, 1995, through January 31, 1995. Plaintiff First Commonwealth Corporation (hereinafter "First Commonwealth") contended that Hibernia National Bank ("Hibernia") breached a "Custodian Agreement" entered into between the parties through its gross negligence.² First Commonwealth further alleged that as a result Hibernia's gross negligence, it had sustained damages. One of the crucial issues in the case was whether the damages allegedly sustained were foreseeable under Louisiana law.³

It is necessary to paint the backdrop of this matter in order to set the stage for the instant motions. First Commonwealth had entered into a financial arrangement with an entity named Public Investors, Inc. (PII) whereby First Commonwealth agreed to purchase from PII all of the issued and outstanding stock of Universal Guaranty Life Insurance Co. (Universal) and Alliance Life Insurance Company (Alliance) for $36.25 million. First Commonwealth paid $26.25 in cash and issued a promissory note to PII for the remaining $10 million. Pursuant to the same agreement, First Commonwealth loaned $8.25 million to Insurance Premium Assistance Company (IPAC), an affiliate of PII.

At the time that First Commonwealth and PII entered this agreement, Universal had an outstanding loan of $3.3 million to Fidelity Fire and Casualty Insurance Company (Fidelity Fire), another affiliate of PII, and Alliance had an outstanding unsecured loan of $750,000 to PII.

According to the terms of the agreement between First Commonwealth and PII, First Commonwealth had a right of setoff against indebtedness owing on its note for any amounts not paid when due on loans from First Commonwealth or its affiliates to IPAC, PII or Fidelity Fire.

The terms of the agreement provided that IPAC pledge and maintain as collateral a pool of approximately $9.2 million worth of "premium finance notes," which represented loans made to consumers by IPAC to finance automobile insurance premiums on policies issued by Fidelity Fire. The insureds in turn made monthly payments to IPAC. Because the notes decreased in value monthly, IPAC was required to periodically replenish the collateral.

In regard to this maintenance of collateral, First Commonwealth, IPAC and Hibernia entered into a written "Custodian Agreement" with Hibernia, in which Hibernia agreed to receive, catalog and store premium finance notes and to account for all notes delivered into and withdrawn from its custody. Hibernia was further obligated to forward to First Commonwealth certain documents furnished by IPAC which essentially indicated that old notes had been withdrawn and new notes deposited.

In March 1990 IPAC stopped delivering premium finance notes to Hibernia and defaulted on its payment obligations to First Commonwealth in July 1990. By the time First Commonwealth seized premium finance notes in September 1990, their value had decreased to approximately $1.171 million.

In February 1991 First Commonwealth entered into a settlement agreement with PII and its affiliates in which First Commonwealth applied the approximate $1.171 million recovered to satisfy a portion of the IPAC note and then used its right of setoff to satisfy the remainder of the IPAC note and other claims. Even with this compromise, $3.3 million on the Fidelity Fire note and $970,000 of breach of warranty claims against PII and its affiliates remained. (First Commonwealth held $1.2 million in collateral on the Fidelity Fire note.)

First Commonwealth sued Hibernia claiming a breach of the Custodian Agreement, which, in turn, caused a collateral deficiency for First Commonwealth. It sought damages on the outstanding indebtedness on the Fidelity Fire loan and the warranty claims less the value of the remaining collateral. First Commonwealth also sought to recover legal expenses incurred during the 1991 litigation against PII and its affiliates as well as the fees incurred while attempting to replace an alleged cash shortfall it suffered because of the defaults. First Commonwealth additionally sought the return of $64,400 in custodial fees paid to Hibernia and the interest that had subsequently accrued on the Fidelity Fire loan.

Hibernia answered, raising various defenses, including but not limited to fault of a third party (IPAC), setoff already received by First Commonwealth, and lack of causation. Hibernia also counterclaimed for custodial fees it did not receive since June 1990 and for indemnity from First Commonwealth pursuant to the terms of the Custodian Agreement. Hibernia dismissed the first part of its counterclaim at the start of trial. (R.Doc. 239.)

After hearing all of the evidence and being instructed on the applicable law, the jury answered the first three special interrogatories on the Verdict Form.⁴ The jury answered "Yes" to the initial question: "Do you find from a preponderance of the evidence that Hibernia National Bank breached the Custodian Agreement entered into with First Commonwealth Corporation through its gross negligence?" In its answer to the second interrogatory, the jury found that "Hibernia's breach of the Custodian Agreement caused First Commonwealth damages." However, the jury answered "No" to the third question: "Do you find that any damages caused by Hibernia's breach of the Custodian Agreement with First Commonwealth were foreseeable?"

Because foreseeability was an element that First Commonwealth had to prove in order to succeed, the Court entered judgment in favor of Hibernia on First Commonwealth's claim, dismissing its claim with prejudice and taxing costs against First Commonwealth.⁵

Hibernia also had filed a counterclaim against First Commonwealth, which the parties agreed to submit to the Court instead of to the jury for resolution. In an "Order and Reasons" dated February 17, 1995,⁶ the Court granted First Commonwealth's motion for judgment as a matter of law on the counterclaim. Hibernia had alleged that it was entitled to attorneys' fees and expenses as a result of the litigation pursuant to Section E.(b) of the Custodian Agreement. This section provided that First Commonwealth agreed to indemnify and hold harmless Hibernia for certain matters "including reasonable counsel fees and expenses suffered or incurred by Hibernia ... provided Hibernia has fulfilled its obligations hereunder...." One of those obligations provided that Hibernia would not be liable for any acts or omissions unless committed by willful misconduct or gross negligence.⁷

In ruling on the issue of whether Hibernia was entitled to attorneys' fees, the Court adopted the jury's finding that Hibernia was grossly negligent. Therefore, the indemnity relied on by Hibernia had no effect, and the Court ordered that the counterclaim of Hibernia be dismissed with prejudice. (R.Doc. 249.)

First Commonwealth brings the instant motion seeking a new trial on the issues of foreseeability and damages on the grounds that the jury's verdict was contrary to the weight of the evidence, that the jury's verdict resulted from an error in the verdict form on the issue of foreseeability, that the jury's verdict was inconsistent, and that the jury's verdict resulted in a miscarriage of justice.

First Commonwealth also seeks a new trial or, alternatively, an amended judgment on the issue of whether it is entitled to reimbursement of fees paid to Hibernia under the Custodian Agreement. Finally, First Commonwealth seeks amendment of the judgment such that Hibernia is taxed for costs due to the jury's finding of gross negligence by Hibernia.

Hibernia's motion is also related to the jury's finding of gross negligence on Hibernia's part. Specifically, Hibernia argues that the findings of gross negligence and causation are not supported by substantial evidence. Additionally, Hibernia contends that the judgment dismissing Hibernia's counterclaim is not supported by substantial evidence and contrary to the law.

Because Hibernia's motion addresses the first two issues answered by the jury, the Court will analyze Hibernia's motion first, followed by a review and analysis of First Commonwealth's motion, which deals with the jury's answer to the third interrogatory finding that First Commonwealth's damages were not foreseeable by Hibernia.

Law and Application

I. Hibernia's Motion for Judgment as Matter of Law

"A motion for judgment as a matter of law (previously motion for directed verdict or J.N.O.V.) in an action tried by jury is a challenge to the legal sufficiency of the evidence supporting the jury's verdict." Hiltgen v. Sumrall, 47 F.3d 695, 699 (5th Cir. 1995). "A jury verdict must be upheld unless `there is no legally sufficient evidentiary basis for a reasonable jury to find' as the jury did." Id. at 700, quoting Fed.R.Civ.P. 50(a). The Fifth Circuit has explained this standard and its application as follows:

A jury may draw reasonable inferences from the evidence,

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