U.S. v. Ettrick Wood Products, Inc.

Decision Date19 October 1990
Docket NumberNo. 88-3399,88-3399
Citation916 F.2d 1211
PartiesUNITED STATES of America, Plaintiff, v. ETTRICK WOOD PRODUCTS, INC., et al., Defendants, and UNITED BANK OF OSSEO and Robert J. Ofsdahl, Defendants, Third-Party Plaintiffs-Appellants, v. Arnold BROVOLD and Victor Folkedahl, Third-Party Defendants-Appellees.
CourtU.S. Court of Appeals — Seventh Circuit

David C. Sarnacki, Asst. U.S. Atty., Office of the U.S. Atty., Madison, Wis., for plaintiff.

William Kirkpatrick, Hale, Skemp, Hanson & Skemp, LaCrosse, Wis., Lawrence Piersol, Davenport, Evans, Hurwitz & Smith, Sioux Falls, S.D., for plaintiffs-appellants.

Jeff P. Brinckman, Bosshard & Associates, LaCrosse, Wis., for defendants-appellees.

Before CUDAHY, EASTERBROOK and MANION, Circuit Judges.

PER CURIAM.

United Bank of Osseo and Robert J. Ofsdahl appeal the district court's decision to grant summary judgment dismissing their third-party complaint for indemnity and contribution against Arnold Brovold and Victor Folkedahl. Before deciding the merits we must determine whether we have jurisdiction to hear this appeal under 28 U.S.C. Sec. 1291 and Fed.R.Civ.P. 54(b). We find that jurisdiction exists, and we remand for further proceedings.

I

In 1980 Ettrick State Bank (which has since changed ownership and is now named United Bank of Osseo, and which we refer to as "the Bank") made two loans to Ettrick Wood Products. The Farmers Home Administration (FmHA) guaranteed 90% of those loans, allegedly as a result of misrepresentations the Bank's agents made in applying for the guarantees. (We refer to the entire transaction as the "FmHA loans.") The loans went bad, and FmHA ended up repaying the guaranteed portions of the loans. In July 1987 FmHA sued the Bank, several of the Bank's former directors, and its accountant. Among the individual defendants were Robert J. Ofsdahl and Robert O. Ofsdahl, former Bank directors. The complaint alleged that the defendants were liable for losses the FmHA sustained as a result of the loan guarantees. Claims were based on the False Claims Act, 31 U.S.C. Sec. 3729 et seq., and common law theories of fraud, breach of contract, and unjust enrichment. In May 1988 the Bank and Robert J. Ofsdahl filed a third-party complaint against Arnold Brovold and Victor Folkedahl, former Bank directors that FmHA had not sued. 1 That complaint sought contribution or indemnity from Brovold and Folkedahl, alleging that their negligence had contributed to FmHA's losses.

Back in 1985 the Bank had filed a suit against the Ofsdahls. That suit also named as a defendant Fidelity and Deposit Company of Maryland (F & D), which had issued a directors and officers liability policy to the Bank. See Wis.Stat. Secs. 632.24 and 803.04(2)(a), which allow direct actions against insurance companies in Wisconsin. F & D's policy provided $1,000,000 of coverage for losses occurring in any given policy year. The Ofsdahls were insureds under the F & D policy. In its complaint against the Ofsdahls, the Bank alleged claims for negligence, breach of contract, breach of fiduciary duty, and violations of the federal and Wisconsin RICO statutes. The complaint's factual allegations, for the most part, centered around improper loans the Ofsdahls had been involved in making. The Bank's 1985 complaint, however, did not mention the FmHA loans.

The Bank's 1985 complaint also did not mention Brovold and Folkedahl, but the Bank's attorney discussed several times with Brovold and Folkedahl their potential liability as Bank directors. Correspondence among the parties to the suit and Brovold and Folkedahl also indicates that the parties considered more than the claims and parties in the suit as they discussed settlement. In a June 10, 1985, letter to F & D and the Ofsdahls' attorney, the Bank's attorney specifically discussed the FmHA loans:

The other aspect of the Ettrick Wood Products situation is the FMHA guaranteed portion.... A demand letter has been received from FMHA indicating that the amounts due to it, including interest, are approximately $650,000. This amount has not been included as an element of our damages in the settlement discussions to date due to the fact that no demand had been received from FMHA. Since the criminal charges [against Ofsdahl, the Bank, and others concerning the FmHA loans] are still pending and I recognize that FMHA's claim can still be considered a contingent liability, I am not including that in the settlement discussions at this time though we would, naturally, reserve any rights we may have to recovery against the Officers, Directors [including Brovold and Folkedahl] and F & D in the event the bank's liability to repay FMHA becomes an actual obligation.

The June 10 letter also threatened to sue the other directors if the case was not settled.

On June 25 the Bank's attorney wrote Brovold and Folkedahl, specifically threatening to sue them. On July 31 F & D's attorney wrote to, among others, the attorney for Brovold and Folkedahl. The letter advised their attorney that Brovold and Folkedahl were insureds under the F & D policy, discussed aspects of the actual and potential claims at issue (including that the Bank had prepared but not yet filed a complaint against Brovold and Folkedahl), and stated F & D's hope to resolve the matter without litigation. The letter also discussed potential defenses F & D might raise to any claim for coverage or defense by Brovold and Folkedahl. Brovold's and Folkedahl's attorney responded to this letter on August 16. The August 16 letter noted Brovold's and Folkedahl's potential liability, focusing in large part on the potential liability from the FmHA loans. In light of this potential liability, Brovold's and Folkedahl's attorney urged F & D to settle the Bank's claims against all directors for the amount the Bank then requested, an amount well below F & D's policy limits.

Time passed, and the Bank's lawsuit continued. In June 1987 the Bank, the Ofsdahls, and F & D executed a written agreement settling the case for a $550,000 payment from F & D to the Bank. The agreement started by naming the parties to the Bank's suit against the Ofsdahls and F & D. The agreement did not mention Brovold and Folkedahl, but the agreement stated this purpose (emphasis added):

WHEREAS, [the Bank, the Ofsdahls] and F & D desire to settle and compromise all disputes arising out of the Action and, except as specifically provided herein, all potential disputes between [the Bank] and F & D which may arise under any and all policies issued by F & D to [the Bank] and any of its officers and/or directors, including but not limited to those policies referenced herein.

The agreement went on to provide (emphasis added):

THIRD: Before the Stipulation of Dismissal and Prejudice is filed and served, and within Ten (10) days from the date of execution of this Settlement Agreement, F & D shall deliver to [the Bank] its check made payable to "United Bank, formerly known as Ettrick State Bank" in the amount of Five Hundred Fifty Thousand Dollars ($550,000) in full settlement and compromise of the Action and all other disputes and potential disputes settled, indemnified or released herein.

FOURTH: [The Bank] hereby irrevocably and unconditionally releases, acquits, and forever discharges the OFSDAHLS and F & D and each of OFSDAHLS' or F & D's predecessors, successors, assigns, agents, directors, officers, employees, representatives and attorneys, or any one or more of them, from any and all charges, complaints, claims, liabilities, obligations, promises, agreements, controversies, damages, actions, cause [sic] of action, suits, rights, demands, costs, losses, debts and expenses (including attorneys' fees) relating to or arising out of the Action.

OFSDAHLS and F & D hereby irrevocably and unconditionally release, acquit, and forever discharge [the Bank] and its successors, assigns, agents, directors, officers, employees, representatives and attorneys, or any one or more of them, from any and all charges, complaints, claims, liabilities, obligations, promises, agreements, controversies, damages, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses (including attorneys' fees) relating to or arising out of the Action.

FIFTH: As a material inducement to F & D to enter into this Settlement Agreement, [the Bank] further agrees to indemnify and hold harmless F & D from and against any and all charges, complaints, claims, liabilities, losses, suits, costs and expenses (including attorneys' fees) arising out of any claim or alleged claim from any party whatsoever under any policies of insurance issued by F & D to [the Bank] or its officers or directors, and in the event of any such claim or action, [the Bank] agrees, at its own expense, to defend F & D against such claim or action and to pay any settlement or judgment resulting therefrom. It is agreed that the foregoing indemnification is not intended to apply to, and F & D is not released from, any liability, if any, for attorneys' fees incurred by [the Bank] in the cases of McLeod vs. Ettrick State Bank or Bishop vs. Ettrick State Bank, both of which are claims under the Special Multi-Peril Policy No. 6904771....

NINTH: This Settlement Agreement shall be binding upon [the Bank, the Ofsdahls] and F & D and upon their respective successors, assigns, agents, directors, officers, employees, representatives, attorneys, heirs, administrators, executors, and shall inure to the benefit of [the Bank, the Ofsdahls] and F & D, and each of them, and to their respective successors, assigns, agents, directors, officers, employees, representatives, attorneys, heirs, administrators, and executors.

A few weeks after the Bank, the Ofsdahls, and F & D executed the agreement, the United States filed its suit against the Bank and the Ofsdahls. Shortly afterward, the Bank added Brovold and Folkedahl. Brovold and Folkedahl met...

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