Renasant Bank v. St. Paul Mercury Ins. Co.

• Decision Date: 21 February 2017
• Docket Number: CIVIL ACTION NO.: 1:15–cv–00090–GHD–RP
• Citation: 235 F.Supp.3d 805
• Parties: RENASANT BANK, Plaintiff v. ST. PAUL MERCURY INSURANCE COMPANY, Defendant
• Court: U.S. District Court — Northern District of Mississippi

235 F.Supp.3d 805

RENASANT BANK, Plaintiff

v.ST. PAUL MERCURY INSURANCE COMPANY, Defendant

CIVIL ACTION NO.: 1:15–cv–00090–GHD–RP

United States District Court, N.D. Mississippi, Aberdeen Division.

Signed February 21, 2017

John G. Wheeler, Mitchell, McNutt & Sams, Kevin Bryan Smith, Renasant Bank, Tupelo, MS, Newell Tyler Darby, Patrick Michael Ardis, R. H. "Chip" Chockley, Wolff Ardis, PC, Stephen W. Vescovo, Thomason, Hendrix, Harvey, Johnson & Mitchell, PLLC, Memphis, TN, for Plaintiff.

Justin Wade Sweat, Alec Michael Taylor, Krebs Farley & Pelleteri, Jackson, MS, Matt J. Farley, Rebecca B. Farina, Krebs Farley & Pelleteri, New Orleans, LA, for Defendant.

MEMORANDUM OPINION GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT AND GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

GLEN H. DAVIDSON, SENIOR U.S. DISTRICT JUDGE

Presently before the Court are the parties' cross-motions for summary judgment: Defendant St. Paul Mercury Insurance Company's motion for summary judgment [192] and Plaintiff Renasant Bank's motion for partial summary judgment [195], as well as Plaintiff Renasant Bank's motion to strike [211] specific argument in Defendant St. Paul Mercury Insurance Company's reply [207] in support of its motion for summary judgment [192]. Upon due consideration, the Court finds that Plaintiff Renasant Bank's motion for partial summary judgment [195] should be granted in part and denied in part, and Defendant St. Paul Mercury Insurance Company's motion for summary judgment [192] should be granted in its entirety. Because the Court does not consider Defendant St. Paul Mercury Insurance Company's reply [207] in its ruling on the motion for summary judgment [192], Plaintiff Renasant Bank's motion to strike [211] is denied as moot.

I. Factual and Procedural Background

Plaintiff Renasant Bank ("Renasant" or "Renasant Bank") brings this breach-of-contract claim against Defendant St. Paul Mercury Insurance Company ("St. Paul") to recover under a Financial Institution Bond for damages arising out of the alleged dishonest or fraudulent activities of a former bank Vice–President of Construction Lending, Wendy Hurt ("Hurt"). According to Renasant's complaint, Hurt was a veteran loan officer for Renasant, having been involved in commercial and construction lending since 1990 and having joined Renasant in March of 1999. Also according to Renasant's complaint, Hurt approved, extended, administrated, and funded two large commercial real estate loan transactions with Renasant customers H.B.O. Holdings, LLC ("HBO"); Hackmeyer/Hyneman/Bourne, LLC ("HHB"); and/or their common principals, William R. Hyneman ("Hyneman") and Michael Bourne ("Bourne") (collectively, the "Loans").

Renasant alleges that Hurt was responsible for ensuring the Loans were properly underwritten in accordance with Renasant's policies and procedures and the commercial/construction lending industry, submitting the proposed loans to Renasant's loan committee, closing on the terms and conditions of committee approval, and funding the Loans only on the approved terms and conditions and in accordance with Renasant's policies and procedures.

Renasant further alleges, inter alia , that Hurt had a significant, sixteen-year banking and lending relationship with Hyneman, who "was a well-known real estate developer/investor at the time of the Loans and is now notorious for colluding to manipulate lending transactions in order to receive substantial profits on the front end instead of in the normal course and during the life of development projects." Pl.'s Compl. [1] ¶¶ 23–24. According to Renasant, Hurt worked in concert with Hyneman and Bourne so that Hyneman and Bourne could receive financial gain and Hurt could receive an improper financial benefit and/or intended improper financial benefit, including "gifts, entertainment, travel, and/or goods and services, all with the expressed or implied understanding that Hurt would in turn facilitate and administer extensions of credit for Hyneman[-]related projects that would ensure front [-]end profit for Hyneman and Bourne and continued business and improper financial benefits for Hurt." Id. ¶ 27. Renasant avers that when Hurt's actions in connection with the Loans came to light, Hurt left Renasant's employment and accepted employment with another financial institution, where she continued to extend credit to Hyneman, despite her knowledge of Hyneman's fraudulent dealings and Renasant's losses on the Loans.

Renasant Bank, which is owned by Renasant Corporation, is a Mississippi-chartered bank with its principal place of business in Tupelo. Id. ¶ 1; Pl.'s Corp. Disclosure Statement [8] at 1. St. Paul is an insurance company incorporated in Connecticut with its principal place of business in Connecticut; St. Paul is authorized to and is conducting business in Mississippi. Pl.'s Compl. [1] ¶ 2; Def.'s Answer & Aff. Defenses [23] ¶ 2. As part of its business, St. Paul issues Financial Institution Bonds. Pl.'s Compl. [1] ¶ 5; Def.'s Answer & Aff. Defenses [23] ¶ 5. St. Paul issued a Financial Institution Bond, Policy No. 468PB1324 (the "Bond"), to Renasant Corporation with an effective date of September 6, 2008. Pl.'s Compl. [1] ¶ 6; Def.'s Answer & Aff. Defenses [23] ¶ 6; Def.'s Mem. Br. Supp. Mot. Summ. J. [193] at 8; Bond [1–1] at 5. On September 11, 2008, an Endorsement was executed that amended the Insured as stated in the Declarations of the Bond to include Renasant Bank, effective September 6, 2008. Pl.'s Compl. [1] ¶ 7; Def.'s Answer & Aff. Defenses [23] ¶ 7; Bond [1–1] at 34.

In pertinent part, the Bond covers "[l]oss resulting directly from: ... [d]ishonest or fraudulent acts committed by an Employee acting alone or in collusion with others, which acts are committed by the Employee with the intent: (a) to cause the Insured to sustain such a loss; or (b) to obtain financial benefit for the Employee or another person or entity." Bond [1–1] at 9, Insuring Clause (A). The Bond provides that if the "Insured's loss results directly or indirectly from Loans, that portion of the loss is not covered unless the Employee: (i) acted with the intent to cause the Insured to sustain such a loss; (ii) was in collusion with one or more parties to the transaction; and (iii) has received, in connection therewith, an improper financial benefit."Id. The Bond further provides that "in the case of loss resulting from ... Loans ... where such Employee fails to receive an improper financial benefit, such loss nevertheless will be covered hereunder as if the Employee had received such benefit if: (i) other persons with whom the Employee was dishonestly or fraudulently acting in collusion received proceeds from the Loan ... and (ii) the Insured establishes that the Employee intended to share or participate in the proceeds of the Loan...." Id. The Bond also provides that "financial benefit does not include any employee benefits earned in the normal course of employment, including: salaries, commissions, fees, bonuses, promotions, awards, profit sharing[,] or pensions." Id. The Bond defines the term "Loan" as "all extensions of credit by the Insured and all transactions creating a creditor relationship in favor of the Insured and all transactions by which the Insured assumes an existing creditor relationship." Id. at 21, Conditions and Limitations, § 1(ff).

After Renasant allegedly suffered the losses in connection with Hurt's Loans, Renasant contacted St. Paul, and indicated that the losses potentially triggered the Bond's coverage. St. Paul acknowledged receipt of Renasant's notice of potential loss on July 28, 2009, and provided Renasant with a blank Proof of Loss form. Pl.'s Compl. [1] ¶ 16; Def.'s Answer & Aff. Defenses [23] ¶ 16. On May 19, 2011, St. Paul received correspondence from Renasant concerning its claim against the Bond and enclosing a notarized Proof of Loss with a Statement of Facts in Support of Proof of Loss. Pl.'s Compl. [1] ¶ 13; Def.'s Answer & Aff. Defenses [23] ¶ 13; Proof of Loss [1–2]. The Proof of Loss provided information concerning Renasant's alleged losses due to Hurt's alleged dishonesty in connection with the Loans. Proof of Loss [1–2] at 2.

On July 6, 2011, St. Paul received further correspondence from Renasant concerning its claim against the Bond and enclosing a Supplemental Proof of Loss, wherein Renasant provided materials purporting to support its claim. Pl.'s Compl. [1] ¶ 18; Def.'s Answer & Aff. Defenses [23] ¶ 18; Supplemental Proof of Loss [1–3]. Subsequently, Renasant and St. Paul engaged in communication concerning Renasant's claim against the Bond. Pl.'s Compl. [1] ¶¶ 19–20; Def.'s Answer & Aff. Defenses [23] ¶¶ 19–20. On September 28, 2012, St. Paul denied Renasant's claim. Pl.'s Compl. [1] ¶ 21; Def.'s Answer & Aff. Defenses [23] ¶ 21.

On May 15, 2015, Renasant filed this lawsuit against St. Paul, alleging that St. Paul's denial of Renasant's claim for coverage on the Bond constitutes breach of contract. On June 9, 2015, St. Paul filed a motion to dismiss [9] pursuant to Rules 12(b)(6) and 12(e) of the Federal Rules of Civil Procedure. On July 23, 2015, the Court entered an Order [21] and memorandum opinion [22] denying St. Paul's motion to dismiss.¹ On August 5, 2015, St. Paul filed its answer and affirmative defenses [23]. The parties then engaged in extensive discovery.

On December 22, 2016, St. Paul filed a motion for summary judgment [192]. On December 26, 2016, Renasant filed a motion for partial summary judgment [195]. Responses and replies have been filed to the two dispositive motions. The cross-motions for summary judgment are now ripe for review.

II. Summary Judgment Standard

Summary judgment "should be rendered if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law."Celotex Corp. v. Catrett , 477 U.S. 317, 322, 106...