Opinion ID: 544274
Heading Depth: 3
Heading Rank: 1

Heading: Dishonesty of the Firm

Text: 27 FDIC does not challenge the district court's finding of dishonesty as to Mmahat. Rather, they argue that Mmahat & Duffy cannot be held dishonest as they are liable only vicariously and did no culpable acts outside of Mmahat's personal participation. The policy's dishonesty exclusion has a safety hatch for innocent co-insureds who are not so adjudged to have committed a dishonest act. But this is not just an issue of vicarious liability; here the firm was adjudged dishonest: the jury found specifically that Mmahat & Duffy had breached its fiduciary duty. 28 In Ashland Oil, Inc. v. Miller Oil Purchasing Co., Inc., 678 F.2d 1293 (5th Cir.1982), the president, vice-president and three managers of a company conspired to commit an environmental tort. We held there that the conduct was excluded from insurance coverage because the conspiracy was not the unauthorized intentional act of an individual employee, but was a deliberate execution of a preconcerted plan, conceived in the mind of [the company] and carried out by a central nervous system of key [company] personnel. Id. at 1317. Here, though only Mmahat himself did the culpable acts, they weren't one-time, individual acts. Nor were they unauthorized. Rather, they were continuing and planned, made up a large portion of firm revenue, and were the pet of Mmahat, who was nothing if not key personnel at the firm. 29 The FDIC argues that acts of one player, no matter how key in the firm's structure, cannot transfer dishonesty absent something more. Rivers v. Brown, 168 So.2d 400 (La.Ct.App. 3d Cir.1964), cert. ref'd, 247 La. 250, 170 So.2d 509 (La.1965) (company not excluded from coverage by assault by president and major shareholder), and Baltzar v. Williams, 254 So.2d 470 (La.Ct.App. 3d Cir.1971) (town not excluded by violence of sheriff's deputy). But Mmahat's systematic and pervasive wrongdoing in this case is completely distinguishable from the one-time outbursts at issue in an assault and battery setting, such as Rivers and Baltzar. 30 Had FDIC not asked the jury whether Mmahat & Duffy breached its fiduciary duty to Gulf Federal, the firm would not have been adjudged dishonest, and we might not be here today. But, as the district court correctly pointed out, FDIC was not content to rest its case on whether Mmahat and his firm were guilty of malpractice solely because of improper advice.... Rather, [FDIC] included in its argument and evidentiary presentation to the jury the claim that Mmahat and his firm breached their fiduciary duties as lawyers because of actions taken to generate fees. We will not let FDIC undo what it has wrought. 31 We are now in the throes of an S & L crisis, and the final bill of failures like Gulf Federal is sure to touch us all for years to come. Mmahat and others like him played a big part in that crisis by recklessly granting commercial loans against general banking wisdom, and they are rightly being called on to pay for those errors. But worthy as the cause may be, we will not stretch this insurance policy to help pay the bill. We affirm the district court's exclusion of coverage.