Towne Management v. Hartford Acc. and Indem. Co.

• Decision Date: 18 October 1985
• Docket Number: Civ. A. No. R-84-2966.
• Citation: 627 F. Supp. 170
• Parties: TOWNE MANAGEMENT CORP., et al., Plaintiffs, v. HARTFORD ACCIDENT AND INDEMNITY CO., et al., Defendants.
• Court: U.S. District Court — District of Maryland

627 F. Supp. 170

TOWNE MANAGEMENT CORP., et al., Plaintiffs, v. HARTFORD ACCIDENT AND INDEMNITY CO., et al., Defendants.

Civ. A. No. R-84-2966.

United States District Court, D. Maryland.

October 18, 1985.

M. Michael Cramer, Benjamin A. Klopman, Rockville, Md., for plaintiffs.

John C. Hayes, Jr., Washington, D.C., for defendant—Hartford Acc. and Indem. Co.

Dan Free, Washington, D.C., for defendant —Howard & Hoffman.

MEMORANDUM AND ORDER

RAMSEY, District Judge.

Presently before the Court are plaintiff's motion for partial summary judgment, defendant Hartford Accident and Indemnity Company's motion for summary judgment, and defendant Howard & Hoffman, Inc.'s motion for summary judgment. Both defendants have responded to plaintiff's motion for partial summary judgment. Plaintiff has in turn responded to both defendants' summary judgment motions. Defendant Hartford Accident and Indemnity Company has filed a reply to plaintiff's memorandum in opposition to Hartford's motion for summary judgment. In addition, plaintiff has filed a supplemental memorandum opposing defendant Hartford's motion for summary judgment and has replied to defendant Hartford's opposition to plaintiff's motion for summary judgment. Plaintiff has also filed a supplemental reply memorandum and opposition to defendant Howard & Hoffman's motion for summary judgment, and a second supplemental memorandum in response to defendant Hartford's opposition to plaintiff's motion for summary judgment.

Maryland law is the appropriate law to apply in this case. Finding oral argument unnecessary, the Court now rules pursuant to Local Rule 6 (D.Md.1985).

When presented with cross-motions for summary judgment, "the court must rule on each party's motion on an individual and separate basis, determining, in each case, whether a judgment may be entered in accordance with the Rule 56 standard." Wright, Miller & Kane, Federal Practice and Procedure: Civil 2d § 2720.

A grant of a motion for summary judgment is appropriate only when "there is no genuine dispute as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56; National Constructors Ass'n v. National Electrical Contractors Ass'n, Inc., 498 F.Supp. 510, 529 (D.Md.1980), modified on other grounds, 678 F.2d 492 (4th Cir.1982). In addition, there should be "no disagreement as to the inferences which may be drawn from the undisputed facts." Steinberg v. Elkins, 470 F.Supp. 1024, 1030 (D.Md.1979). The burden is on the moving party and any doubts as to the existence of a genuine issue of material fact will be resolved against the movant. See Adickes v. S.H. Kress & Co., 398 U.S. 144, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). The Court is satisfied that the issue to be resolved in this case is one of law and not of fact, and that decision for the defendants under Rule 56 is appropriate.

Towne Management Corporation (hereinafter "Towne") was incorporated in Maryland in February, 1980 to engage in the business of property management. Eighty-one percent of the stock of Towne from February, 1980, to April 29, 1982, was owned by Diversified Property Investments, Inc. (hereinafter "Diversified"), and nineteen percent was owned by Daniel Burrier.

Prior to Towne's incorporation, defendant Hartford Accident and Indemnity Company (hereinafter "Hartford") had issued a commercial blanket fidelity bond to Diversified. Pursuant to the request of Janna Warner, Secretary of Diversified Property Investments, Inc., Hartford added Towne under the bond previously issued to Diversified, as an additional insured, effective October 24, 1980.

Plaintiff was providing property management services to Walker Mill Associates Limited Partnership in 1981 and 1982. Walker Mill Associates was an owner of a HUD apartment project in District Heights, Maryland. On April 29, 1982, Diversified sold its eighty-one percent stock interest in Towne to Daniel Burrier.

During the years of 1981 and 1982, Towne managed monies in accounts at various banks for the Walker Mill project.

These funds included HUD monies provided under an agreement between HUD, D.C. National Bank and Walker Mill whereby HUD would pay monies for project improvements. These monies were in the D.C. National Bank. Other funds included security deposit accounts which represented funds paid by the tenants of Walker Mill as security deposits. These funds were being held at Central National Bank in Maryland. Finally, Towne Management Corporation was charged with the management of an operating account for the benefit of Walker Mill. These funds were also at Central National Bank.... Towne Management Corporation had access to all of the above monies.

Plaintiff's Memorandum of Points and Authorities in Support of Motion for Partial Summary Judgment at 6.

Plaintiff argues that several of the withdrawals made from the above accounts "could not be supported and there was no evidence that the withdrawals were made for the benefit of Walker Mill." Id. at 7. Plaintiff claims that $114,346 were withdrawn from the HUD monies at D.C. National Bank & Trust and $111,886 were taken from the security deposits and monies held in the operating account at Central National Bank. Plaintiff argues that these withdrawals were made by an employee of Towne, Daniel Burrier and that "these monies were not expended for the benefit of Walker Mill and were withdrawn by Daniel Burrier for purposes other than the management of the Walker Mill project for which they were intended." Id.

On July 27, 1983, Mr. Burrier pled guilty to the charge of interstate transportation of stolen property from D.C. to Virginia, knowing that said monies were stolen and taken by fraud. This charge related to Mr. Burrier's misappropriation of $69,700.50 of the HUD monies held at D.C. National Bank. D.C. National Bank has paid Walker Mill $69,700. Upon petition of Walker Mill, Towne has been placed into receivership.

Towne filed a proof of loss with Hartford, providing that $226,232.00 of unauthorized withdrawals were made by Daniel Burrier while an employee of Towne. Hartford has refused to make payment under the bond. Towne filed suit in the Montgomery County Circuit Court. Hartford removed the case to this Court. Towne has brought this suit "to recover monies for the entire loss it has sustained, part of which is for the benefit of D.C. National Bank in the amount of $69,700.00, which D.C. National Bank has paid over to Walker Mill." Id. at 9.

The motions and responses in this case focus on three main issues:

1) Did Towne sustain a "loss" within the meaning of the bond;

2) Was Daniel Burrier an "employee" of Towne; and,

3) Did defendant Howard and Hoffman, Inc. make certain misrepresentations made in relation to the addition of Towne to the bond.

For reasons detailed below, the Court finds that Towne has the burden to prove that it did sustain a loss, and has offered no proof on this issue. Accordingly, summary judgment in favor of defendant Hartford is appropriate. Because of this finding, the Court need not reach the issue of whether Daniel Burrier was an employee of Towne, within the meaning of the bond, but will assume arguendo that he was. The question of who was responsible for certain alleged misrepresentations made in relation to the addition of Towne under the bond is really not an issue in this case for two main reasons. First, Hartford has not relied in its motions or responses on these misrepresentations to deny liability under the bond and second, given the Court's finding that there was no "loss," Hartford incurs no liability regardless of who was responsible for any misrepresentations. Therefore, summary judgment in favor of defendant Howard & Hoffman is also appropriate.

1. Defendant Hartford's Motion for Summary Judgment.

As modified by a rider effective August 17, 1979, the Insuring Agreement states, in pertinent part, that the underwriter "agrees to indemnify the Insured against loss of money or other property which the insured shall sustain resulting directly from one or more fraudulent or dishonest acts of an Employee, acting alone or in collusion with others, to an amount not exceeding in the aggregate the amount stated in item 3 of the Declarations."

The rider also added the following paragraph to the Insuring Agreement:

Dishonest or fraudulent acts as used in this Insuring Agreement shall mean only dishonest or fraudulent acts committed by such Employee with the manifest intent:

(a) to cause the Insured to sustain such loss; and,

(b) to obtain financial benefit for the Employee, or for any other person or organization intended by the Employee to receive such benefit, other than salaries, commissions, fees, bonuses, promotions, awards, profit sharing, pensions or other employee benefits earned in the normal course of employment.

(Emphasis added).

It is clear from the plain language of the Insuring Agreement that Hartford need only indemnify Towne if Towne has "sustained" a "loss" of money or other property.

It is elementary that a surety or insurer on a fidelity bond is not liable unless the insured employer actually suffers a loss. An undertaking to indemnify "against the direct loss sustained while this bond is in force" refers to an actual present loss, as distinguished from a theoretical or bookkeeping loss.

35 Am.Jur.2d, Fidelity Bonds and Insurance § 39, p. 530 (citations omitted). Numerous Fourth Circuit cases support this view. See Note 1 infra and accompanying text.

Defendant Hartford states that:

With the exception of three checks totaling $798 there is absolutely no evidence that any money taken from the Walker Mill accounts controlled by Towne Management Corporation was paid to Daniel Burrier or any other individual employed by Towne Management Corporation. The undisputed facts are that Towne Management took the funds out of the Walker Mill accounts by checks payable to itself.

Hartford's Memorandum of Points and Authorities...