2013 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

5-16-2013

David Marion v. Hartford Fire Ins Co

Precedential or Non-Precedential: Non-Precedential

Docket No. 12-1553

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NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

________________

No. 12-1553

________________

DAVID H. MARION, RECEIVER FOR BENTLEY FINANCIAL SERVICES, INC.,

Appellant

v.

HARTFORD FIRE INSURANCE COMPANY

________________

Appeal from the United States District Court

for the Eastern District of Pennsylvania

(D.C. Civil Action No. 2-06-cv-04666)

District Judge: Honorable Mitchell S. Goldberg

________________

Argued September 19, 2012

________________

Before: AMBRO, GREENAWAY, JR., and O‟MALLEY*,Circuit Judges

(Opinion filed: May 16, 2013)

David D. Langfitt, Esquire

Locks Law Firm

601 Walnut Street

The Curtis Center, Suite 720 East

Philadelphia, PA 19106

John H. Lewis, Jr. Esquire

 

* Honorable Kathleen M. O‟Malley, United States Court of Appeals for the Federal Circuit, sitting by designation.
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Montgomery, McCracken, Walker & Rhoads

120 South Broad Street, 28th Floor

Philadelphia, PA 19109

David H. Marion, Esquire

Richard G. Tuttle, Esquire (Argued)

Oleg V. Nudelman, Esquire

Archer & Greiner, P.C.

One Liberty Place

1650 Market Street, 32nd Floor

Philadelphia, PA 19103-7393

Counsel for Appellant

Bruce L. Phillips, Esquire (Argued)

Jeffrey C. Venzie, Esquire

Venezie, Phillips & Warshawer

2032 Chancellor Street

Philadelphia, PA 19103

Counsel for Appellee

________________

OPINION 

________________

O‟MALLEY, Circuit Judge

David H. Marion (“Marion”), in his capacity as receiver for Bentley Financial 

Services, Inc. (“BFS”), brought suit against Hartford Fire Insurance Company 

(“Hartford”) seeking indemnification under a fidelity bond issued by Hartford to BFS and 

the Entrust Group (“Entrust”). The district court granted summary judgment in favor of

Hartford, holding that Marion failed to raise a genuine dispute of material fact regarding 

whether BFS suffered a covered loss under the fidelity bond. Because Marion set out 

sufficient material facts to support his claim that BFS incurred a covered loss when its 
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president and chief executive officer, Robert Bentley (“Bentley”), embezzled funds from 

both BFS and Entrust accounts, we reverse.

I. BACKGROUND

Bentley was the president and controlling shareholder of BFS, a Pennsylvania 

investment firm that brokered certificates of deposit (“CDs”). Bentley formed Entrust to 

act as custodian for CDs brokered by BFS. From June 1996 to October 2003, Bentley 

orchestrated a Ponzi scheme through BFS and Entrust. A Ponzi scheme is an investment 

fraud in which investors are paid off, not with returns generated by their investments—

because their money usually is converted, not invested—but with revenue generated from 

later investors. Here, Bentley oftentimes sold fictitious CDs, even selling the same fake

CD to multiple customers. When he sold actual CDs, he often misrepresented their terms

to his customers. Bentley would sell the CDs on behalf of BFS and instruct investors to 

send their funds to Entrust. Entrust would sometimes transfer funds to BFS accounts, 

from which interest payments would be made to investors to help keep the scheme afloat. 

Throughout the scheme, it appears that Bentley also used both the Entrust and BFS 

accounts as personal banks—embezzling the bulk of the funds taken in for his own uses. 

Bentley was eventually prosecuted, convicted of fraud, and sentenced to fifty-five months 

of imprisonment. 1

In an action bought by the Securities and Exchange Commission against Bentley, 

BFS, and Entrust, Marion was appointed receiver for all three defendants. In this

 

1

In a previous case involving Bentley‟s scheme, this court described the fraud in more detail than is necessary here. 

See Marion v. TDI Inc., 591 F.3d 137, 141-43 (3d Cir. 2010). 
4

capacity, Marion brought the current action on behalf of BFS against Hartford, seeking to 

recover under a fidelity bond issued by Hartford for the losses incurred from Bentley‟s

scheme.

The fidelity bond in dispute was issued by Hartford and insured both BFS and 

Entrust. While Marion filed no action on behalf of Entrust, even though Entrust is a 

named insured on the fidelity bond, the Entrust assets are included in the BFS 

receivership. The policy limit on the fidelity bond is $2 million, with a $10,000 

deductible. The bond states:

The Underwriter . . . agrees to indemnify the Insured for:

INSURING AGREEMENTS

FIDELITY

(A) Loss resulting directly from dishonest or 

fraudulent acts committed by an Employee acting alone or in 

collusion with others.

Such dishonest or fraudulent acts must be committed 

by the Employee with the manifest intent:

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

(b) to obtain financial benefit for the Employee or 

another person or entity.

J.A. 65. An “Employee” is defined to include, among others:

[A]n officer or other employee of the Insured, while

employed in, at, or by any of the Insured‟s offices or premises 

covered hereunder, and a guest student pursuing studies or 

duties in any of said offices or premises.

J.A. 66. In a section entitled “OWNERSHIP,” the bond provides further detail on 

covered losses:
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OWNERSHIP

Section 10. This bond shall apply to loss of Property (1) 

owned by the Insured, (2) held by the Insured in any capacity,

or (3) for which the Insured is legally liable. This bond shall

be for the sale use and benefit of the Insured named in the 

Declarations.

J.A. 69. “Property” is defined to include, among other things, “Money,” J.A. 67, which, 

in turn, means “a medium of exchange in current use authorized or adopted by a domestic 

or foreign government as a part of its currency,” J.A. 66.

Before the district court, Hartford moved for summary judgment, arguing that no 

genuine dispute existed regarding whether BFS suffered a covered loss. Specifically, 

Hartford asserted that “Bentley did not steal any money which was owned by BFS, or 

held by BFS, or for which BFS was legally liable,” J.A. 110 (Def. Hartford Fire Ins. 

Co.‟s Br. in Supp. of Mot. for Summ. J. 11), tracking the language in the fidelity bond‟s 

ownership provision quoted above. According to Hartford, BFS suffered no covered loss 

because “all of the money belonged to the investors.” J.A. 112. And BFS did not “hold”

the money, Hartford contended, because the investor funds were held instead by Entrust 

or Bentley. Hartford last argued that BFS was not “legally liable” for the investor funds. 

On this point, Hartford urged that, to be covered under the fidelity bond, the purportedly 

lost funds must have been obtained lawfully, not, as here, through fraud.

Marion responded with two arguments. First, Marion asserted that BFS 

experienced an actual loss when BFS incurred contractual liability to its investors through 

the investment contracts in which Bentley sold fictitious or misrepresented CDs on behalf 

of BFS. But Marion did not develop this argument in his brief. Instead, most of 
6

Marion‟s opposition was based on his second argument, an embezzlement theory: BFS 

incurred a covered loss when Bentley embezzled funds that were “owned” by BFS under 

the bond. That is, the embezzled funds were either “held” by BFS itself or were funds for 

which BFS was “legally liable.” BFS was liable for the investor funds held by Entrust, 

Marion argued, because BFS was the entity that actually sold the fraudulent investments

and, thus, was liable to investors for those sales. Marion further contended that the

embezzled funds were constructively held by BFS, and that the corporate distinction 

between BFS and Entrust should be disregarded (Marion acknowledged that BFS and 

Entrust are legally distinct from Bentley).

The district court sided with Hartford, finding that Marion failed to raise a genuine 

dispute that BFS suffered a covered loss. It rejected Marion‟s first argument because a 

fidelity bond, which is distinct from liability insurance, is an insurance contract that 

indemnifies against the loss of property, not a contract that insures against liability to 

third parties. Although it recognized that the fidelity bond covers the loss of property for 

which the insured is legally liable, the district court believed that a loss under the bond is 

not incurred unless the insured spends its own money as a result of the liability, i.e., until 

the insured experiences an actual monetary loss arising from the legal liability. Because 

it found that BFS expended no money to make good on the obligations to its investors,

the district court held that BFS suffered no covered loss. The district court also rejected 

Marion‟s argument that BFS suffered a loss when Bentley embezzled the investor funds

out of BFS and Entrust accounts because BFS did not “own” the embezzled funds, since 

the money belonged to the investors. BFS challenges these rulings on appeal. 
7

II. DISCUSSION

We review a district court‟s grant of summary judgment under a plenary standard, 

applying the same standard as the district court. See Smith v. Borough of Dunmore, 633 

F.3d 176, 179 (3d Cir. 2011). “The court shall grant summary judgment if the movant 

shows that there is no genuine dispute as to any material fact and the movant is entitled to 

judgment as a matter of law.” Fed. R. Civ. P. 56(a). “The non-moving party is „entitled 

to every favorable inference that can be drawn from the record,‟ and we will affirm only 

if there is no genuine issue for trial.” Smith, 633 F.3d at 179 (quoting Kautz v. Met–Pro 

Corp., 412 F.3d 463, 466 (3d Cir. 2005)).

This case involves the interpretation of a fidelity bond, and the parties agree that 

Pennsylvania law applies. In that state, a “fidelity bond is a contract of insurance, and the 

rules of interpretation of insurance policies apply.” Penn Twp. v. Aetna Cas. & Sur. Co., 

719 A.2d 749, 750 (Pa. Super. Ct. 1998). We undertake plenary review of the scope of 

an insurance policy because “the proper coverage of an insurance contract when the 

underlying facts are not in dispute is a question of law.” Niagara Fire Ins. Co. v. 

Pepicelli, Pepicelli, Watts & Youngs, P.C., 821 F.2d 216, 219 (3d Cir. 1987). When 

interpreting insurance contracts, “the intent of the parties as manifested by the language 

of the written instrument” controls. Standard Venetian Blind Co. v. Am. Empire Ins. Co., 

469 A.2d 563, 566 (Pa. 1983). That is, if “the language of the contract is clear and 

unambiguous, a court is required to give effect to that language.” Id.
8

On appeal, Marion abandons any argument that BFS‟s contractual liability to 

investors—liability it has insufficient funds to satisfy—constitutes a recoverable loss 

under the fidelity bond. See Br. of Appellant 19 (“In no sense did Receiver ever suggest 

that BFS‟s legal liability gave rise to an insurable interest unrelated to the property 

embezzled.”). Marion appears to recognize that such contractual obligations are not the 

proper subject of fidelity bonds. A “fidelity bond is a contract of indemnity against loss,” 

not against liability untied to an actual loss. 11 Lee R. Russ & Thomas F. Segalla, Couch 

On Insurance § 160:7 (3d ed. 2012). For its part, Hartford does not defend the trial 

court‟s conclusion that the fidelity bond would not cover funds for which an insured is 

legally liable unless and until the insured expends its own funds to reimburse those whose 

property was stolen. The parties narrow their focus on appeal.

Marion argues that, to the extent Bentley embezzled funds from BFS accounts, 

that money was clearly money “held” by BFS for investors and were funds for which 

BFS was “legally liable.” To the extent the money was kept in Entrust accounts, Marion 

argues that Entrust was acting as the custodian of funds for which BFS remained liable at 

all times. Hartford responds by contending that, because investor money went directly to 

Entrust accounts, it was never held by BFS; according to Hartford, that Bentley 

occasionally moved funds through BFS accounts does not change which entity actually 

“held” them. As for the argument regarding BFS‟s legal liability for funds in either 

account, Hartford argues that one cannot be legally liable for funds within the meaning of 

the fidelity bond unless those funds were “legally” or “lawfully” obtained. 
9

We agree with Marion that there are genuine disputes of fact regarding whether 

BFS suffered covered losses under the fidelity bond arising from Bentley‟s 

embezzlement activities. Accordingly, for the reasons explained below, we vacate the 

judgment entered in favor of Hartford and remand for further proceedings.

The fidelity bond is clear about what it covers: it insures against the “[l]oss

resulting directly from dishonest or fraudulent acts committed by an Employee.” J.A. 65. 

The fidelity bond‟s ownership provision elaborates on the losses covered under the bond: 

“This bond shall apply to loss of Property (1) owned by the Insured, (2) held by the 

Insured in any capacity, or (3) for which the Insured is legally liable.” J.A. 69. There is 

no strict ownership requirement under the bond—property losses are covered under the 

bond even when the property is only held in some capacity for another or is property for 

which the insured is legally liable.

Marion adduced evidence that Bentley embezzled funds which BFS held. Bentley 

sold fraudulent CDs to investors on behalf of BFS. The investors sent their money to

Entrust and, at times, Entrust would, in turn, transfer investor money to BFS accounts

from which payments to certain investors would occur. Marion presented several

cancelled checks that Bentley wrote to either himself or third-parties from BFS bank 

accounts. See J.A. 271-84, 339-57. BFS undoubtedly “held” certain funds in its own 

bank accounts and it appears undisputed that some of Bentley‟s embezzlement was of 

those funds. We are unpersuaded that BFS had to be designated the formal custodian of 

the funds before the funds sitting in its accounts could be deemed “held” by BFS. The 
10

bond references funds “held in any capacity,” J.A. 69; even a temporary capacity or a 

clearinghouse capacity would satisfy this broad provision.

Marion‟s argument that BFS suffered covered losses to the extent funds were 

embezzled from Entrust accounts is more complicated than his argument regarding the 

funds in BFS‟s own accounts. Marion argues that the funds in Entrust accounts, while 

not “held” by BFS, were still funds for which BFS was legally liable. Marion adduced 

substantial evidence in support of this theory. He first presented evidence regarding the 

relationship between BFS and Entrust. The investment contracts of record indicate that 

BFS was the entity making the sale. See J.A. 201-26. Under those contracts, BFS was 

required to purchase on behalf of the investors CDs with specific terms, and had an 

obligation to pay interest to the investors. See id. Pursuant to those same contracts, 

investors transferred funds to Entrust, as custodian of the sale proceeds. BFS directed the 

transfer of monies from the Entrust accounts to the BFS accounts for various purposes, 

including making interest payments to investors. Testimony of Bentley confirmed this 

relationship. See J.A. 181 (Tr. of Jury Trial, Bentley Direct 90, May, 25, 2006, Marion v. 

TDI, Inc., No. 02-17176 (E.D. Pa.)) (“I formed the Entrust Group to act as the custodian 

for their certificates of deposit for the clients of Bentley Financial Services.”). From this, 

a reasonable juror could conclude that BFS was at all times legally liable for the funds 

directed to the Entrust accounts. We see nothing in the fidelity bond that requires that 

funds for which an insured is legally liable be maintained in an account in the insured‟s 

name.
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Marion next adduced evidence that Bentley embezzled substantial funds from the 

Entrust accounts. Marion produced several checks drawn from Entrust accounts. See

J.A. 285-95, 329-33. And he proffered Bentley‟s testimony that Bentley regularly wrote 

checks from Entrust accounts to himself and others. J.A. 173. Marion then proffered 

testimony that Bentley directly deposited embezzled funds into his personal accounts and

used the stolen money to pay taxes to cover up the scheme, to “entertain” himself and his 

employees, for his own personal country club expenses, to cover his personal trading 

losses, and for “escort services.” J.A. 862-67. There is, thus, material evidence on the 

record that the very type of loss covered by the fidelity bond occurred.

Hartford‟s only contention refuting Marion‟s argument regarding its legal liability 

for Entrust funds is that, because the investor funds were not legally obtained (i.e., they 

were obtained through Bentley‟s fraud), no covered loss can result from the 

embezzlement. We are not persuaded. No such requirement is evident from the fidelity 

bond. The bond covers the loss of property owned or held by BFS, or property for which

it is legally liable, regardless of how the property is acquired. Pennsylvania‟s principles 

of contract interpretation permit no other reading of the bond—it plainly contains no

requirement that the funds be “legally” obtained before an insured could be deemed 

“legally liable” for them. See Standard Venetian Blind Co., 469 A.2d at 566 (“Where, 

however, the language of the contract is clear and unambiguous, a court is required to 

give effect to that language.”). Indeed, Hartford supplies no legal authority in support of 

the position it urges. In sum, its argument is unpersuasive.

III. REMAND
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We decide today only that the district court erred in granting summary judgment 

in favor of Hartford on the ground that BFS neither owned, held, nor was legally liable 

for any of the embezzled funds. We do not address, because the record is not developed 

on them, other predicate questions relating to liability under the fidelity bond. Thus, we 

do not determine whether the loss of any investor funds resulted “directly” from 

Bentley‟s dishonest acts or if the funds were taken with the requisite intent to cause BFS 

to sustain a loss and gain financial benefit for Bentley. We also cannot and do not 

express an opinion on the amount of any covered loss. 

IV. CONCLUSION

For the foregoing reasons, we vacate the district court‟s grant of summary 

judgment in favor of Hartford and remand this case for further proceedings in accordance 

with this decision.