Opinion ID: 156794
Heading Depth: 2
Heading Rank: 2

Heading: Remand Proceedings Concerning Lowe Settlement

Text: 56 Defendants next argue that in the proceedings on remand relating to proof of the FDIC's net recovery from the Lowe settlement they were denied a meaningful opportunity to respond to the FDIC's evidence and were thus denied due process. Defendants specifically assert the district court improperly permitted the FDIC to offer into evidence the affidavits of its counsel as to the attorney fees incurred by the FDIC in settling the Lowe malpractice suit, without allowing Defendants to take any discovery or to cross-examine the affiants. Defendants also contend the district court improperly allowed the FDIC to produce only summary bills for its legal services and prevented further examination into the bills based on the FDIC's assertion of attorney-client privilege. Defendants finally assert they were improperly denied the opportunity to examine the FDIC's witnesses concerning the administrative expenses incurred by the FDIC in settling the Lowe case. 57 Although a district court is required on remand to conduct proceedings consistent with the appellate court's mandate, a district court has broad discretion in determining the procedure to be followed. It is within the district court's discretion to determine what means would afford the parties an adequate opportunity to present and object to evidence, including whether to allow limited discovery and cross-examination of witnesses. Cf. Krell v. Prudential Ins. Co. of Am. (In re Prudential Ins. Co. Am. Sales Practice Litig. Agent Actions), 148 F.3d 283, 342-43 (3d Cir.1998). In this case, however, the district court's blanket denial of Defendants' requests for discovery and cross-examination did not afford Defendants an adequate opportunity to evaluate and object to evidence presented by the FDIC and the denial thus constituted an abuse of the district court's discretion. 58 We note that, while the procedure followed on remand was inadequate, Defendants are not entitled to a mini-trial on the issue of the attorney fees and administrative expenses incurred by the FDIC. The determination of the FDIC's legal fees and expenses should not result in a second major litigation. The district court is also not required to allow Defendants to relitigate issues already raised and resolved under the guise of determining the net recovery from the Lowe settlement. Under section 7(c) of the bonds, Defendants are only entitled to reimbursement from the FDIC's net recoveries from third parties. Because Defendants chose to rely on their rights under section 7(c) rather than pursuing their assignment and subrogation rights under the bonds and attempting to obtain their own recovery from third parties, Defendants were able to avoid incurring their own legal and administrative expenses and were also able to avoid the risk of loss in pursuing such recoveries. In relying on section 7(c), Defendants are therefore required to accept the FDIC's deductions from the Lowe recovery for its legal fees and administrative expenses, so long as such fees and expenses are reasonable. 59 This court remands to the district court to structure the procedure for determining the FDIC's legal fees and expenses so that Defendants can make some reasonable inquiry into the nature of and reasonableness of the costs incurred by the FDIC in settling the Lowe malpractice suit. 6 III. CONCLUSION 60 This court REVERSES and REMANDS for the district court to determine whether Defendants are entitled to relief from the judgment due to the FDIC's post-trial liquidation of collateral on the Hartwell loan and to structure fair procedures for the determination of the FDIC's legal and administrative expenses incurred in obtaining its recoveries from third parties. As this court noted in our prior opinion, the applicable portion of the Lowe settlement proceeds 7 and the FDIC's net recovery from the liquidated collateral must first reduce the FDIC's total loss before these proceeds are applied to reduce the judgment against Defendants. 8