Decision Date10 March 2010
Docket Number1:03-2129.,Civil Action No. 1:00-0655
Citation694 F. Supp.2d 506
CourtU.S. District Court — Southern District of West Virginia
PartiesGRANT THORNTON, LLP, Plaintiff, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Defendant; and Federal Deposit Insurance Corporation, Plaintiff, v. Grant Thornton, LLP, Defendant.

Andrew J. Morris, Mark W. Ryan, Mayer Brown, Washington, DC, Catherine L. Doyle, Stanley J. Parzen, Mayer Brown, Chicago, IL, John H. Tinney, Jr., Kimberley R. Fields, The Tinney Law Firm, Charleston, WV, for Grant Thornton, LLP.

Brad A. Harman, Clint R. Latham, David Mullin, John M. Brown, John G. Turner, III, Mullin Hoard & Brown, Amarillo, TX, Charles T. Miller, Stephen M. Horn, U.S. Attorney's Office, Charleston, WV, John A. Davidovich, John Wessling, Mary P. Davis, Federal Deposit Insurance Corporation, Washington, DC, for Federal Deposit Insurance Corporation.


DAVID A. FABER, Senior District Judge.


On March 14, 2007, the court issued findings of fact and conclusions of law, pursuant to Fed.R.Civ.P. 52. Thereafter, on the basis of those findings of fact and conclusions of law, the court entered judgment in favor of the Federal Deposit Insurance Corporation ("FDIC") on its claims against Grant Thornton in the amount of $25,080,777. Remaining for decision was a determination of the amount of credit, if any, to be given Grant Thornton for the FDIC's settlement with Kutak Rock who served as legal counsel to the First National Bank of Keystone ("Keystone" or "the Bank"). On September 29, 2008, the court granted Grant Thornton's motion for a settlement credit. The reasons for that decision and the amount of credit follow.

Because this case was tried before the court as a bench trial, the court's findings are presumed to be based on admissible evidence. Fishing Fleet, Inc. v. Trident Ins. Co., Ltd., 598 F.2d 925, 929 (5th Cir.1979); see also Chicago Title Ins. Co. v. IMG Exeter Associates Ltd. P'ship, 985 F.2d 553, 1993 WL 27392, at *4 (4th Cir.1993) (unpublished); see also Harris v. Rivera, 454 U.S. 339, 346, 102 S.Ct. 460, 70 L.Ed.2d 530 (1981) ("In bench trials, judges routinely hear inadmissible evidence that they are presumed to ignore when making decisions."). Accordingly, the court finds it unnecessary to rule on each separate objection raised by the parties. The court has considered those objections relating to the evidence supporting the findings contained herein and, to the extent such objections relate to the evidence which the court cites in support of its findings, such objections are hereby overruled.


Rule 52(a)(6) of the Federal Rules of Civil Procedure sets forth the standard of review of actions tried without a jury. Rule 52(a) provides that "findings of fact, whether based on oral or other evidence, must not be set aside unless clearly erroneous, and the reviewing court must give due regard to the trial court's opportunity to judge the witnesses' credibility."

"It surely does not stretch the language of Rule 52(a) to characterize an inquiry into what a person knew at a given point in time as a question of `fact.'" Bose Corp. v. Consumers Union of U.S., Inc., 466 U.S. 485, 498, 104 S.Ct. 1949, 80 L.Ed.2d 502 (1984); see also Investors Title Ins. Co. v. Bair, 296 Fed.Appx. 332, 333 (4th Cir.2008) ("An inquiry as to what a person knew at a given point in time is a question of fact."). In a bench trial, the court, as the trier of fact, is the sole judge of the credibility of witnesses and its findings are "deserving of the highest degree of appellate deference." Evergreen International, S.A. v. Norfolk Dredging Co., 531 F.3d 302, 308 (4th Cir.2008) (quoting United States Fire Ins. Co. v. Allied Towing Corp., 966 F.2d 820, 824 (4th Cir. 1992)). The reviewing court "must give due regard to the opportunity of the district court to judge the credibility of the witnesses." Multi-Channel TV Cable Co. v. Charlottesville Quality Cable, 65 F.3d 1113, 1122 (4th Cir.1995). "The trial court, sitting as a trier of fact, has the duty to weigh evidence and draw reasonable inferences and deductions from that evidence." Investors Title Ins. Co. v. Bair, 296 Fed. Appx. 332, 333 (4th Cir.2008); United States v. Bales, 813 F.2d 1289, 1293 (4th Cir.1987).

If the district court's account of the evidence is plausible in light of the record viewed in its entirety, the court of appeals may not reverse the district court's decision even though convinced that it would have weighed the evidence differently. Anderson v. Bessemer City, 470 U.S. 564, 574, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985). "Where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous." Id. (citations omitted).

Absent special circumstances, federal district courts must decide questions involving the application of state law even if they are extremely difficult to resolve. Meredith v. City of Winter Haven, 320 U.S. 228, 234-35, 64 S.Ct. 7, 88 L.Ed. 9 (1943). When state law is unsettled, the federal court must attempt to predict how the state's highest court would rule if confronted with the issue. Commissioner of Internal Revenue v. Estate of Bosch, 387 U.S. 456, 465, 87 S.Ct. 1776, 18 L.Ed.2d 886 (1967); Food Lion, Inc. v. Capital Cities/ABC, Inc., 194 F.3d 505, 512 (4th Cir.1999); Sanderson v. Rice, 777 F.2d 902, 905 (4th Cir.1985); Hatfield v. Palles, 537 F.2d 1245, 1248 (4th Cir.1976).

In the absence of direct authority, the federal court may look to state high court decisions in related or analogous cases for an indication of how the state's highest court is likely to rule. Perez-Trujillo v. Volvo Car Corp. (Sweden), 137 F.3d 50, 55 (1st Cir.1998). In the absence of other authority, federal courts may follow the considered dicta of the state's highest court. Anderson v. Nissan Motor Co., Ltd., 139 F.3d 599, 601-02 (8th Cir. 1998); State Farm Fire and Cas. Co. v. Fullerton, 118 F.3d 374, 378 (5th Cir.1997); McKenna v. Ortho Pharm. Corp., 622 F.2d 657, 661-63 (3d Cir.1980). Additionally, a federal court may examine cases from other jurisdictions to determine what law the controlling state would adopt. Ross v. Creighton Univ., 957 F.2d 410, 414-15 (7th Cir.1992). "In determining state law, a federal tribunal should be careful to avoid the danger of giving a state court decision a more binding effect than would a court of that state under similar circumstances. Rather, relevant state precedents must be scrutinized with an eye toward the broad policies that informed those adjudications, and to the doctrinal trends which they evince." McKenna, 622 F.2d at 662 (internal citations and quotations omitted).

Where the issues in this case are somewhat unsettled under West Virginia law, the parties have offered the law of other jurisdictions in an effort to support their respective positions. In making its Conclusions of Law herein, the court has relied on only those cases which it feels are reflective of the way the West Virginia Supreme Court of Appeals would decide the issue.

I. Background

1. This case arises from the fraudulent operation and eventual collapse of the First National Bank of Keystone. This case is but one of many that have come before this court in the wake of Keystone's collapse. See, e.g., Waynesburg College, et al. v. Church, et al., Civil Action No. 1:00-0081; United States v. Cherry, et al., Criminal No. 1:01-0092; United States v. Church, Criminal No. 1:02-0024; City National Bank v. FDIC, et al., Civil Action No. 2:99-0862; United States v. Church, Criminal No. 1:99-0222; United States v. Graham, Criminal No. 1:00-0226; Gariety, et al. v. Grant Thornton, LLP, et al., Civil Action No. 2:99-0992; Gariety, et al. v. Church, et al., Civil Action No. 1:02-0344; Grant Thornton, LLP v. Kutak Rock, LLP, Civil Action No. 1:04-0215; Ellis v. Grant Thornton, LLP, Civil Action No. 1:04-0043; Coast Partners Fin., et al. v. FDIC, Civil Action No. 1:01-0959; FDIC v. Mitchell, Civil Action No. 1:02-1087.

2. As the court found previously, the Bank's failure was caused in large part by the substantial losses incurred in connection with the securitization of high risk mortgage loans. See also FDIC v. Bakkebo, 506 F.3d 286, 298 (4th Cir.2007) (noting that losses from the Bank's collapse totaled approximately $660 million).

3. On September 1, 1999, the Bank was deemed insolvent and closed and the Comptroller of the Currency appointed the FDIC as receiver.

4. When the FDIC is appointed receiver of a failed bank it conducts a professional liability investigation of the professionals associated with or that worked for the bank in order to determine if any of them breached fiduciary duties owed to the bank. Robinson, November 28, 2007, Tr. at 177-78. Floyd Robinson, an attorney with the FDIC, was the "first line supervisor" with respect to the professional liability investigation surrounding the failure of the First National Bank of Keystone. Id. at 178. Mr. Robinson was charged with overseeing the investigation and the pursuit of claims against third parties stemming from Keystone's failure. See Id. at 180. One of the parties investigated by the FDIC was Grant Thornton, Keystone's outside auditor. On the basis of that investigation, the instant lawsuit was filed. Also as part of this effort, the FDIC investigated the conduct of Kutak Rock LLP ("Kutak") who served as legal counsel to Keystone. See Id. at 180-82.

II. Kutak Rock

5. In 1993, Kutak Rock, a national law firm of more than 325 lawyers, began serving as legal counsel to The First National Bank of Keystone ("Keystone" or the "Bank"). Lambert Depo., September 26, 2002, pp. 10-11 (GT 1080); Lambert Depo., February 12, 2001, pp. 29-43 (FDIC 2175)2; Robinson, November 29, 2007, Tr. at 422.

6. Michael Lambert, a partner in Kutak's Denver office, was the partner...

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