Court Opinion

ID: 219065
Source: CourtListenerOpinion
Date Created: 2011-06-17 18:42:09+00
Date Added: 2024-06-11T17:28:39.187141
License: Public Domain

UNPUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                            No. 10-1306

GRANT THORNTON, LLP,

                Plaintiff - Appellant,

          v.

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver of the
First National Bank of Keystone,

                Defendant – Appellee,

          and

OFFICE OF THE COMPTROLLER OF THE CURRENCY; GARY ELLIS,

                Parties-in-Interest,

          v.

UNITED BANK, INCORPORATED, formerly United National Bank;
KUTAK ROCK, LLP,

                Movants.

                            No. 10-1379

GRANT THORNTON, LLP,

                Plaintiff – Appellee,

          v.
FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver of the
First National Bank of Keystone,

                 Defendant – Appellant,

           and

OFFICE OF THE COMPTROLLER OF THE CURRENCY; GARY ELLIS,

                 Parties-in-Interest,

           v.

UNITED BANK, INCORPORATED, formerly United National Bank;
KUTAK ROCK, LLP,

                 Movants.

Appeals from the United States District Court for the Southern
District of West Virginia, at Bluefield. David A. Faber, Senior
District Judge. (1:00-cv-00655-DAF; 1:03-cv-02129-DAF)

Argued:   March 22, 2011                  Decided:   June 17, 2011

Before TRAXLER, Chief Judge, and MOTZ and AGEE, Circuit Judges.

Affirmed in part and reversed and remanded in part by
unpublished opinion.    Judge Agee wrote the opinion, in which
Chief Judge Traxler and Judge Motz concurred.

ARGUED: Stanley Julius Parzen, MAYER BROWN, LLP, Chicago,
Illinois, for Appellant/Cross-Appellee.        Jaclyn Chait Taner,
FEDERAL DEPOSIT INSURANCE CORPORATION, Arlington, Virginia, for
Appellee/Cross-Appellant.    ON BRIEF: John H. Tinney, THE TINNEY
LAW FIRM PLLC, Charleston, West Virginia; Mark W. Ryan, Miriam
R.   Nemetz,    MAYER    BROWN    LLP,    Washington,    D.C.,   for
Appellant/Cross-Appellee. David Mullin, John M. Brown, Clint R.
Latham, MULLIN HOARD & BROWN, LLP, Amarillo, Texas; Colleen J.
Boles, Assistant General Counsel, Lawrence H. Richmond, Senior
Counsel,   Minodora   D.    Vancea,    FEDERAL   DEPOSIT   INSURANCE
CORPORATION, Arlington, Virginia, for Appellee/Cross-Appellant.

                                  2
Unpublished opinions are not binding precedent in this circuit.

                                3
AGEE, Circuit Judge:

       The Federal Deposit Insurance Corporation (“FDIC”), acting

as receiver for the First National Bank of Keystone (“Keystone”

or “the Bank”), sued Grant Thornton, LLP (“Grant Thornton”), a

national           accounting       firm,    for    professional       malpractice.

Alleging that Grant Thornton negligently performed an audit of

Keystone, 1 the FDIC sought to recover damages from the accounting

firm       after    the   FDIC     closed   Keystone   as   insolvent.     After     a

lengthy bench trial, the district court awarded judgment in the

FDIC’s favor in the initial amount of $25,080,777, which was

reduced by a settlement credit to $23,737,026.43.

       On appeal, Grant Thornton does not challenge the district

court’s finding that it was negligent in the conduct of the

Keystone audit.            Instead, Grant Thornton assigns error to the

district court’s finding that its negligence was the proximate

cause      of   certain       of   Keystone’s    losses.    Grant   Thornton      also

challenges the district court’s refusal to allow some defenses

and claims, which required imputing the actions of the Bank’s

management         to   the    FDIC.    Finally,    Grant   Thornton     claims    the

       1
        The   FDIC’s  claims   were  first   asserted   below as
counterclaims in Grant Thornton v. FDIC, No. 1:00-0655, and in a
complaint in intervention in Gariety v. Grant Thornton, LLP, No.
2:99-0992.   The district court subsequently severed the FDIC’s
claims against Grant Thornton from the other claims in Gariety,
assigned a new case number (No. 1:03-2129), and consolidated
them for trial with the FDIC’s claims in No. 1:00-0655.

                                             4
court    erred     in   calculating      a   settlement      credit   based    on    the

FDIC’s earlier settlement of various claims against Kutak Rock,

LLP     (“Kutak”), the Bank’s outside legal counsel.                   The FDIC has

filed a cross-appeal, challenging the district court’s denial of

an award of prejudgment interest.

        As explained in more detail below, we affirm the judgment

of    the   district     court    as   to    all    issues   except    the    district

court’s calculation of the settlement credit.                      As to that issue,

we reverse and remand for further proceedings.

        We underscore, however, that the results in this case are

driven by its unique facts, particularly the context of heavy

regulatory        oversight,     known      to    Grant   Thornton,    as    the    sole

reason      for   its   engagement.          Accordingly,     it    should    be    well

understood we do not announce any new rule of auditor liability

and none should be implied.

                                             I.

                            A.    Factual Background

       In Ellis v. Grant Thornton LLP, 530 F.3d 280 (4th Cir.

2008),      a   prior   appeal    with       different    parties,     we    described

Keystone’s background and how it came to engage Grant Thornton:

            Prior to 1992, Keystone was a small community
       bank providing banking services to clients located
       primarily in McDowell County, West Virginia. Before
       its   collapse, Keystone  was  a  national  banking

                                             5
association within the Federal Reserve System,        the
deposits of which were insured by the FDIC.

     In   1992,  Keystone   began   to   engage    in   an
investment strategy that involved the securitization
of high risk mortgage loans. . . . Keystone would
acquire Federal Housing Authority or high loan to
value real estate mortgage loans from around the
United States, pool a group of these loans, and sell
interests   in  the   pool   through   underwriters     to
investors. The pooled loans were serviced by third-
party loan servicers, including companies like Advanta
and Compu-Link. Keystone retained residual interests
(residuals) in each loan securitization [but the
residuals] would receive payments only after all
expenses   were  paid   and   all  investors    in    each
securitization pool were paid. Thus, Keystone stood to
profit from a securitization only after everyone else
was paid in full. The residuals were assigned a value
that was carried on the books of Keystone as an asset.
Over time, the residual valuations came to represent a
significant portion of Keystone's book value.

     From 1993 until 1998, when the last loan
securitization was completed, the size and frequency
of these transactions expanded from about $33 million
to approximately $565 million for the last one in
September 1998. All told, Keystone acquired and
securitized over 120,000 loans with a total value in
excess of $2.6 billion.

     [T]he    securitization  program    proved    highly
unprofitable. Due to the risky nature of many of the
underlying mortgage loans, the failure rate was
excessive.   As   a   result, the   residual    interests
retained by Keystone proved highly speculative and, in
actuality, they did not perform well.

     Keystone's valuation of the residuals was greater
than their market value.   [Some members of Keystone’s
management] and others concealed the failure of the
securitizations by falsifying Keystone's books. Bogus
entries and documents hid the true financial condition
of Keystone from the bank's directors, shareholders,
depositors, and federal regulators.

                            6
            Keystone's   irregular   bank  records  drew   the
       attention of the [Office of the Comptroller of the
       Currency (“OCC”)], which began an investigation into
       Keystone's   banking   activities.  This  investigation
       revealed major errors in Keystone's accounting records
       that financially jeopardized Keystone. In May 1998,
       the OCC required Keystone to enter into an agreement
       obligating Keystone to take specific steps to improve
       its regulatory posture and financial condition.    This
       agreement required Keystone to, among other things,
       retain a nationally recognized independent accounting
       firm “to perform an audit of the Bank's mortgage
       banking operations and determine the appropriateness
       of the Bank's accounting for purchased loans and all
       securitizations.”    In August 1998, Keystone retained
       Grant Thornton as its outside auditor.

Ellis, 530 F.3d at 283-84 (internal citation omitted). 2

                   B.      Grant Thornton’s Audit of Keystone

       Since       Grant      Thornton   does    not     challenge     the    district

court’s finding that it was negligent in performing the Keystone

audit, it is not necessary to fully discuss all the negligent

acts       found   by   the    court.    We     simply    note   the   record     fully

supports the numerous factual findings by the district court

regarding Grant Thornton’s negligence.

       In particular, the district court concluded two employees

of   Grant     Thornton       with   primary    responsibility       for     Keystone’s

audit, Stan Quay and Susan Buenger, committed various violations

of the Generally Accepted Auditing Standards (“GAAS”).                        See also

       2
       The general factual background set forth in Ellis and
repeated herein tracks to a large degree the district court’s
findings of fact in this case.

                                           7
Grant   Thornton,       LLP    v.     Office        of    the        Comptroller          of     the

Currency, 514 F.3d 1328, 1340-41 (D.C. Cir. 2008) (Henderson,

J., concurring) (discussing facts of instant case and describing

Quay and Buenger’s conduct as “strikingly incompetent”).

     A crucial error was Buenger’s failure to obtain written

confirmation of a purported oral representation from Advanta,

one of Keystone’s loan servicers, that a substantial number of

mortgages     were     properly       documented          on     Keystone’s             books     of

account.        Buenger        testified           that        she     had     a        telephone

conversation with Patricia Ramirez, who worked for Advanta, in

which   Ramirez      told     Buenger       that    she    had       located        a    pool     of

mortgages owned by Keystone worth approximately $236 million.

But an e-mail from Ramirez minutes later, as well as an earlier

written confirmation, showed that the loans were not owned by

Keystone, but by “Investor Number 406,” identified as “United

National    Bank,”      a   separate     banking         entity.        (J.A.       at     1151.)

While   the    district       court     expressly         concluded          that       the     oral

statements Buenger attributed to Ramirez were not in fact made,

it held that even if they had been, Buenger had an obligation

under   GAAS      to    obtain        all    “significant”             confirmations              of

financial     data     in   writing.         Since       the    $236    million          mortgage

portfolio at issue constituted about one-fourth of the Bank’s

claimed assets, it was clearly significant.                          Yet Buenger did not

utilize the written statements from Advanta and instead chose to

                                             8
rely on the alleged oral misrepresentation, despite the fact

that it conflicted with the written evidence and doing so was

contrary to GAAS accounting procedure. Similarly, “Quay violated

GAAS by failing to supervise or participate in the evaluation of

the Advanta confirmation responses.” (J.A. at 798.)

     Because of this and other negligent acts, Buenger and Quay

failed    to   find      numerous     problems    with    the     Bank’s   financial

statements.          Instead,    Grant     Thornton      issued    a   clean     audit

opinion   on     April    19,   1999,    stating   that    the     audit   had    been

conducted      “in    accordance        with   generally        accepted    auditing

standards” and that the Bank’s financial statements were “free

of material misstatement[s].” (J.A. at 1155.)                    In point of fact,

however, those financial statements overstated Keystone’s assets

by $515 million, making the Bank grossly insolvent.                        During an

annual examination of Keystone a few months later, in August

1999, the OCC discovered the discrepancies and closed the Bank

on September 1, 1999, appointing the FDIC as receiver.

     Of particular importance, the district court concluded that

“[i]f    Grant    Thornton      had   exercised    due    professional      care    in

connection with its audit, the fraud would have been discovered”

and that “[i]f Grant Thornton had disclosed to Keystone’s board

or the OCC the fact that Keystone was carrying over $400 million

in loans on its books that were not owned by Keystone, the Bank

would have been closed by April 21, 1999.”                  (J.A. at 800.)         The

                                           9
court      thus        concluded       that        Grant       Thornton’s          negligence

proximately       caused      damages      in      the   amount      of    Keystone’s     net

operating expenses from April 21, 1999, two days after the audit

report was released, until September 1, 1999, when the Bank was

closed.

        In the context of the analysis of each argument raised on

appeal, we discuss pertinent findings of fact that place each

issue in perspective.               Grant Thornton and the FDIC have timely

filed     their     respective        appeal       and     cross-appeal.            We   have

jurisdiction pursuant to 28 U.S.C. § 1291.

                              II.    Proximate Causation

        Grant     Thornton      makes      three     challenges       to     the    district

court’s       finding       that    its    negligence         proximately      caused     the

Bank’s post-audit operating losses.                      First, it argues that the

district court applied the incorrect legal standard.                           Second, it

contends that the district court’s finding of proximate cause

was clearly erroneous.              Third, it argues that the district court

erred    in     refusing      to    consider    that       actions    and    knowledge     of

Keystone’s management subsequent to Grant Thornton’s audit were

a superseding and intervening cause that cut off any of Grant

Thornton’s liability for post-audit damages.

    We        employ    a    “mixed       standard       of   review”       when    judgment

results from a bench trial.                 Universal Furniture Int’l, Inc. v.

                                              10
Collezione Europa USA, Inc., 618 F.3d 417, 427 (4th Cir. 2010)

(citation and quotation marks omitted).                           Specifically, we review

the    district         court’s     legal      rulings       de   novo.      Id.;      see     also

Murray      v.     United    States,       215    F.3d      460,    463   (4th    Cir.       2000)

(legal conclusions regarding the correct standard of proof for

proximate cause are reviewed de novo). We review the district

court’s      factual        determinations            for    clear    error.           Universal

Furniture        Int’l,     Inc.,        618   F.3d    at    427.      Under     clear       error

review,      this       Court   must      affirm      factual       findings     if    they     are

“plausible         in     light     of    the    [entire]         record,”     “even      though

convinced that had it been sitting as the trier of fact, it

would       have    weighed       the      evidence         differently.”             Walton    v.

Johnson, 440 F.3d 160, 173 (4th Cir. 2006).

                     A.     Legal Standard for Proximate Cause

        We find no merit in the contention that the district court

failed to apply the proper legal standard for proximate cause.

As    the    district       court    concluded         and    the    parties     agree,        West

Virginia law governs the common law claims of the FDIC here.

See O’Melveny & Myers v. Fed. Deposit Ins. Corp., 512 U.S. 79,

89 (1994) (“[w]hat sort of tort liability to impose on lawyers

and accountants in general, and on lawyers and accountants who

provide services to federally insured financial institutions in

particular” did not warrant the “judicial creation of a federal

                                                 11
rule of decision . . . .”).               State law thus governs the claims

here.     See Resolution Trust Corp. v. Everhart, 37 F.3d 151, 154-

55 (4th Cir. 1994) (relying on O’Melveny to hold that whether a

federal       receiver     timely    filed      a   claim    against       the     former

directors and officers of a failed financial institution was an

issue controlled by state law).

       West Virginia law defines a proximate cause of an injury as

one     “which,       in   natural   and       continuous     sequence,          produces

foreseeable injury and without which the injury would not have

occurred.”       Hudnall v. Mate Creek Trucking, Inc., 490 S.E.2d 56,

61 (W. Va. 1997).          Thus, the test requires both (1) “foreseeable

injury”; and (2) but-for causation.                 Id.

       Grant    Thornton      contends     that     the   district        court    relied

solely    on    its    negligence    as    a    but-for     cause   of     the    damages

awarded, but failed to consider whether the resulting injury to

the Bank was in fact foreseeable.                    The record plainly rebuts

this contention as the district court applied the Hudnall two-

part test, and addressed at length the issue of foreseeability

in a separate sub-heading under causation in its written opinion

of    March    14,    2007.    The   district       court    did    not    err    in   its

application of the legal standard for proximate cause.

                                           12
                     B.     Finding of Proximate Cause

     The    district      court    found     that    it    was    foreseeable       to    a

“reasonably prudent auditor” that an auditor’s negligent failure

to discover a Bank’s true losses and actual insolvency could

result in a continuation of those losses.                  (J.A. at 839.)

     Grant Thornton’s negligence in failing to discover the
     fraud at Keystone allowed that fraud to continue, and
     the losses the FDIC seeks to recover are the
     foreseeable result of that ongoing fraudulent scheme.
     As Grant Thornton’s expert conceded, it is certainly
     foreseeable from the standpoint of a reasonably
     prudent auditor that the failure to discover fraud
     will result in the continuation of the fraud.

(J.A. at 840.)

     Consequently,        the     district      court     found    that   the      Bank’s

post-audit    net    operating      loss     (operating      expenses       offset       by

operating income) for the period from April 21, 1999 (2 business

days after the release of the audit) until September 1, 1999

(when    Keystone    was    involuntarily           closed    by    the     OCC)    were

proximately     caused     by     Grant     Thornton’s       negligence.            Grant

Thornton    contends,      however,    that      the    Bank’s     losses    were     not

proximately caused by the audit, but were the result of the

Bank’s     longstanding         “unprofitable        securitizations         and     the

imbalance     between       the     Bank’s       income      and     its      interest

obligations.”       (Opening Br. for Grant Thornton at 24.)                     Because

the specific facts of this case distinguish it from the typical

                                           13
case in which an audit is undertaken, we agree with the district

court.

        We find it particularly significant in this case that Grant

Thornton was hired to perform the audit, not in the ordinary

course, but at the insistence of federal regulators who were

closely watching Keystone.               And Grant Thornton was well aware

that    factor    was    the    reason     behind   its   engagement.      As   the

district court explained:                “The unique position that Keystone

was     in   at   the    time     period    in   question   -   -   with   federal

regulators carefully watching the Bank’s actions and waiting for

assurances from the outside auditor that the Bank’s financial

statements were accurate - - distinguish this case from any of

the other cases relied upon by the parties . . . .” (J.A. at

843.)

       A number of factual findings by the district court support

its     ultimate        finding     of     proximate      causation     based   on

foreseeability.         For example, there was evidence that:

       (1) OCC told Grant Thornton in December 1998 that
       Keystone had overstated its assets by about $90
       million in three earlier quarterly reports;

       (2) by January 1999, both Buenger and Quay testified
       that the OCC informed them there was a “distinct
       possibility” that the bank would fail if the problems
       and weaknesses were not satisfactorily addressed and
       resolved,   which  Buenger   interpreted  as a  “high
       probability” of failure (J.A. at 993-99);

                                           14
        (3) Buenger admitted that, prior to the audit report
        being issued, Grant Thornton had characterized the
        audit as a “highest maximum risk” audit, its highest
        risk category (J.A. at 998); this risk category
        required   certain  additional steps  and  tests  be
        conducted, some of which Buenger and Quay simply
        failed to perform; and

        (4) both Buenger and Quay “testified that their ‘fraud
        antenna’ were up as high as they could get.” (J.A. at
        770.)

These facts, among others, made it reasonably foreseeable to any

prudent auditor that a failure to perform the audit with due

care could result in the continued operation of a Bank that was

in fact woefully insolvent and hemorrhaging losses.

      Additionally, as pointed out by the district court, the

damages awarded were all natural and foreseeable losses as a

result    of    Keystone’s    continued         operations.        Although    Grant

Thornton challenges, for example, the payment of interest on

deposits received before the audit began, it is because of their

recurring nature in the ordinary course of commerce that such

expenses were particularly foreseeable.                  (See J.A. at 845 (“It

was   highly    foreseeable       that   Keystone      would   continue       to   pay

interest expense on deposits, dividends, legal fees, consulting

fees,     salaries,    and    other      routine       operating     expenses.”).)

Again, we see no clear error in that finding.

      Grant     Thornton     argues      that     affirming    the    finding      of

proximate      cause   in   the   case    at     bar   “effectively     makes      the

auditor an insurer for a bank’s future financial performance if

                                         15
it fails to recognize that the bank should close” and “would

impose      arbitrary   and     potentially        breathtaking       liability     on

auditors.”       (Opening Br. for Grant Thornton at 19.)                      It also

argues    that    affirmance     will     expose    “auditors      and     others   who

serve    federally-insured       institutions       to    potentially       limitless

liability that is unbounded by ordinary principles of proximate

causation and proportionate fault” and will “discourage prudent

service     providers   from     future       dealings   with   federally-insured

institutions—particularly those most in need of audit services.”

(Id. at 18.)

        Again, we disagree based on the particular and unique facts

of this case, primarily the specific context in which this audit

occurred.        Given this context, we conclude that the district

court did not clearly err in finding both that the damages from

the continued operation of the Bank would not have occurred but

for Grant Thornton’s negligence and that they were a foreseeable

result of Grant Thornton’s negligence.                   Cf. Hudnall, 490 S.E.2d

at 61.

        Grant   Thornton’s     dire    predictions       of   unlimited     liability

for auditors of insolvent banks also ignores the temporal scope

of the district court’s damage determination here.                       (Cf. Opening

Br.   for    Grant   Thornton     at     27    (referring     to   “crushing”       and

“breathtaking” liability).)             Notably, the district court did not

conclude     that    continued    operating        expenses     for   an    unlimited

                                          16
period of time would have been foreseeable.                        Rather, the damages

period here was for a reasonable — and foreseeable — period. 3                          In

particular, the district court concluded that, had the audit

been       performed      properly          instead     of    negligently,      federal

regulators would have closed the Bank two days after an accurate

audit      report   had    issued,      or    by    April    21,    1999.     The   court

limited the damages to those incurred during the period between

this date and September 1, 1999, when the Bank actually closed.

Cf.    Thabault     v.    Chait,      541    F.3d     512,   519-20    (3d   Cir.   2008)

(upholding jury verdict of almost $120 million as proximately

caused by auditors’ negligent failure to discover insolvency of

insurance company where the damages represented the net cost of

continuing operations from the date of the audit to the date of

liquidation, a period of more than nineteen months).

       We    thus   conclude       that      the    district       court’s   finding    of

proximate      cause      was   not    in     error     as   its    determination      was

supported by the evidence before it and consistent with West

Virginia law.

       3
        At oral argument, the FDIC acknowledged that Grant
Thornton’s liability would not have extended indefinitely, but
instead could have been naturally limited by any subsequent
audit required to be conducted by federal regulators at regular
intervals.

                                              17
                   C.   Intervening and Superseding Cause

     Grant Thornton’s final challenge to the district court’s

finding of proximate cause is that the actions of the Bank’s

management,        post     audit,      constituted          a     superseding      and

intervening cause that extinguished Grant Thornton’s liability

for damages.       Grant Thornton points to evidence that Keystone’s

executives were aware that the Bank was insolvent, but continued

to recklessly operate Keystone and to hide its true financial

condition.        For     example,    Bank    executives         convinced    the   OCC

examiners to allow the Bank to send confirmation requests to

Advanta     and    Compu-Link,       rather   than     the       OCC    sending   those

directly.         The   Bank’s   management      reworded         the    confirmation

letters to its loan servicers so as to request information on

loans owned not just by Keystone but also by United National

Bank.     Management then attempted to intercept the responses to

assure the artifice was not detected.

        West   Virginia’s     Supreme    Court    of    Appeals         (“WVSCA”)   has

explained the defense of an intervening cause as follows:

        The function of an intervening cause is that of
        severing the causal connection between the original
        improper action and the damages.     Our law recognizes
        that an intervening cause, in order to relieve a
        person charged with negligence in connection with an
        injury, must be a negligent act, or omission, which
        constitutes   a  new effective     cause  and  operates
        independently of any other act, making it and it only,
        the proximate cause of the injury.

                                         18
Sydenstricker     v.    Mohan,       618    S.E.2d     561,    568       (W.    Va.    2005)

(internal citations, quotation marks and brackets omitted).

      The   district     court’s       order       contains        a     section       titled

“Intervening and Superseding Cause” in which it discusses the

actions and knowledge of Keystone’s management after the audit.

(J.A. at 849-873.)           However, the district court analyzes the

issue in terms of imputation and did not directly address the

precise argument raised by Grant Thornton, which is that the

actions of management need not be imputed to the FDIC to be a

“superseding cause,” 4 but instead that the actions of a non-party

may give rise to such a cause. (Opening Br. for Grant Thornton

at 36 (citing Sydenstricker, 618 S.E.2d at 568 (the defense of

intervening    cause     can    be    established        based     on     evidence      that

shows “the negligence of another party or a nonparty”)).)

      We agree with the district court’s implicit holding that

the   continued   effort       of    the    Bank’s     management        post    audit    to

conceal     Keystone’s       insolvency          was   not    an       intervening       and

superseding cause under West Virginia law.                    See Ross v. Commc’ns

Satellite     Corp.,    759     F.2d       355,    363   (4th          Cir.    1985)     (“An

appellate    court     has   power     to    determine       independently         whether

summary judgment may be upheld on an alternative ground where

      4
       The question of whether the district court correctly held
that the actions of Keystone’s management could not be imputed
to the FDIC is addressed in detail infra at Section III.

                                            19
the    basis    chosen       by    the       district    court     proves        erroneous.”),

overruled on other grounds by Price Waterhouse v. Hopkins, 490

U.S. 228 (1989).

       Our review of the West Virginia caselaw reveals the WVSCA

would not find the post-audit acts of Keystone’s management a

superseding or intervening cause.                        For example, in Yourtee v.

Hubbard, 474 S.E.2d 613 (W. Va. 1996), the plaintiff’s decedent

was killed while riding as a passenger in a stolen car, and the

owner of the car was being sued because he had negligently left

the car unattended with the keys in the car.                              Id. at 615.          The

WVSCA upheld the trial court’s finding that the theft of the car

by plaintiff’s decedent and his friends and their subsequent

acts (which included driving at high rates of speeds in excess

of ninety miles per hour, losing control of the vehicle, and

running it into a brick wall) constituted an intervening cause

that broke the chain of causation and relieved the car owner of

liability.       Id. at 615, 620-21.

       Similarly,       in    Harbaugh         v.     Coffinbarger,        543    S.E.2d      338,

345-47 (W.       Va.    2000),          a   decedent’s       decision      to    play    Russian

roulette       was     an     intervening            cause    rendering         it    the    only

proximate       cause       of     the       injury     even      though        defendant     had

negligently supplied the loaded gun.                           Federal courts applying

West    Virginia       law       have       reached    similar     results.          See,   e.g.,

Ashworth    v.       Albers      Med.,       Inc.,    410    F.   Supp.     2d    471,      479-81

                                                 20
(S.D.W. Va. 2005) (concluding that a drug manufacturer was not

liable for injuries caused by alleged criminal acts of third

parties       who        introduced               counterfeit           versions        of     the

manufacturer’s drug into the stream of commerce).

       In   the    foregoing             cases,    the    two    acts    of    negligence      are

unconnected       and     unrelated;            the     one     could    not    be    reasonably

foreseen to be the result of the other.                            These cases reflect a

superseding or intervening cause because the event in question

was significantly independent from the initial negligence such

that   the    separate         acts        of   negligence        had    only    a    tangential

relation to each other.                    By contrast, in the case at bar, the

continued fraudulent conduct by the Bank’s management was not

unforeseeable           nor        did     it     “operate       independently”          of    the

established       fact        of    Grant       Thornton’s        negligent      audit.        Cf.

Sydenstricker, 618 S.E.2d at 568.

       As    noted       in     discussing             proximate    cause,       we     find    it

particularly        significant             that       Grant     Thornton       was    hired    by

Keystone — as a requirement of the Bank’s agreement with the OCC

— in order to evaluate the Bank’s financial condition and that

Grant Thornton knew regulators and management would rely on a

clean audit report to allow the Bank to continue to operate.

Thus, Bank’s management’s use of the defective audit report to

continue     to     engage         in     fraudulent       conduct       and    to     stave   off

regulators        was    facilitated              by     Grant    Thornton’s          negligence.

                                                   21
Indeed,    but   for      the    negligent       audit    report,      the    management

conduct posited by Grant Thornton could not have happened.                              In

this sense, the post-audit actions by Bank’s management are not

a “new effective cause” and did not “operate[] independently” of

Grant     Thornton’s         negligence    and     thus    do    not     constitute     a

superseding cause of the Bank’s damages. See Sydenstricker, 618

S.E.2d at 568; see also Wehner v. Weinstein, 444 S.E.2d 27, 32-

33 (W. Va. 1994).

       We thus find no error in the district court’s determination

that    Grant    Thornton’s          liability    for    its    negligence      was    not

absolved by a later intervening and superseding cause.

                                     III. Imputation

       Grant Thornton next contends that the district court erred

by    prohibiting    it       from    offering     certain     claims    or    defenses,

specifically      (1)     comparative/contributory              negligence;      (2)    in

pari delicto; and (3) "similar doctrines."                         (Opening Br. for

Grant Thornton at 20.)               Relying in large part on the decision of

the WVSCA in Cordial v. Ernst & Young, 483 S.E.2d 248 (W. Va.

1996), the district court held that Grant Thornton was barred

from asserting these or similar claims or defenses that involved

the     imputation      of     the     knowledge    or    actions       of    Keystone’s

management to the FDIC.                 Consequently, the court granted the

FDIC’s motion to dismiss the affirmative defenses asserted by

                                            22
Grant Thornton, and dismissed related counts of Grant Thornton’s

third party complaint.         We review de novo a district court’s

decision to strike a defendant’s affirmative defenses or dismiss

a defendant’s counterclaims.         Cf. Murray v. United States,                 215

F.3d 460, 463 (4th Cir. 2000) (conclusions of law are reviewed

de novo).

     As an initial matter, we note that state law controls what

defenses    are   available    against      the   FDIC    when     the   agency    is

acting as the receiver of a failed financial institution.                         See

supra at Section II.A (citing O’Melveny & Myers, 512 U.S. at 89;

and Resolution Trust Corp., 37 F.3d at 154-55).                      Accordingly,

the FDIC simply “‘steps into the shoes’ of the failed” financial

institution and is then subject to whatever defenses state law

provides.     O’Melveny,      512   U.S.    at    86-87    (citation     omitted).

Accordingly, West Virginia law governs the issue of whether the

knowledge or conduct of the Bank’s management can be imputed to

the FDIC here.

     Although the parties have not cited to any West Virginia

cases   directly    addressing      whether       the    actions    of   a   bank’s

management can be imputed to the FDIC as receiver, two WVSCA

decisions offer guidance in predicting how that court would rule

on   this    issue.   Because       those     cases       point     to   seemingly

conflicting conclusions, we examine them in some detail.

                                      23
      The    first    case,       Wheeling      Dollar       Sav.    &     Trust    Co.     v.

Hoffman,     35    S.E.2d    84    (W.    Va.   1945),       involved       an    insurance

company and a loan association, both of which had been placed in

receivership.        See id. at 86.             The insurance-company receiver

sued the loan-association receiver.                     As a defense, the loan-

association receiver asserted fraud and the doctrine of unclean

hands,      predicated      on    facts    showing          that    (1) the        insurance

company and loan association were run by the same secretary-

treasurer,     id.    at    87,   and    (2) “the      whole       system    of    accounts

between     the[]    corporations        and    the    official      reports        made    on

their behalf seem[ed] to be permeated with deliberate fraud.”

Id. at 88.

      Because       the    two    company’s      accounts          were     “created       and

preserved by the common manager,” the WVSCA held that the whole

system of fraudulent accounts was “chargeable to the officers

and directors of each [company], either through actual knowledge

or the gross ignorance or neglect of their official duties, and,

hence, to the corporations themselves.”                      Id.     The WVSCA further

held that the knowledge and/or negligence of the corporations

was   chargeable      to    their    receivers,        as    “[t]he       rights     of    the

respective        receivers       rise    no     higher       than        those     of     the

corporations which they represent.”                   Id.     Accordingly, the WVSCA

applied the doctrine of unclean hands and based on the “high

probability of fraud in the whole subject of th[e] litigation

                                           24
. . .    refuse[d]      [to]     consider[]         . . .    the   plaintiff’s        bill.”

Id. at 89.

      Wheeling Dollar thus favors Grant Thornton’s position in

the present case.           It is not, however, the WVSCA’s most recent

holding regarding the defenses available against a government

entity       serving       as   the      receiver       of     a     failed      financial

institution.

      In Cordial v. Ernst & Young, 483 S.E.2d 248 (W. Va. 1996),

the accounting firm Ernst & Young was hired by both Blue Cross

and Blue Shield (“BCBS”) and the West Virginia Commissioner of

Insurance      (“the    Commissioner”)          to    perform      external     audits      of

BCBS’s accounts.            See id. at 251-52.               The Commissioner later

placed BCBS into receivership, see id. at 255, and filed suit

against      Ernst     &    Young      alleging       various        causes    of     action

including      negligence,           breach    of    fiduciary        duty,    breach       of

contract, and fraud.            Id.

      Citing     Wheeling       Dollar,       Ernst    &     Young    argued     that     the

Commissioner acting as receiver could “assert only those claims

that [BCBS] could itself have brought.”                       Id. at 256 & 257 n.9.

For   several    reasons,        the    WVSCA      disagreed.         First,    the      court

cited    a   prior     case     in    which    it    recognized       the     Commissioner

acting as “‘[r]eceiver is a government official charged with

authority      to      protect        not     only    the     shareholders          of     the

corporation, but also policyholders, creditors and the public.’”

                                              25
Id. at 257 (quoting Clark v. Milam, 452 S.E. 2d 714, 720 (W. Va.

1994)).       In other words, “[r]ather than being deemed to solely

represent       the     interests          of     the       corporation,        the   Insurance

Commissioner          as        [r]eceiver        represents           a     broad    array      of

interests, including those of the public.”                                 Id. (quotation and

emphasis omitted).

       Second, the WVSCA relied on the reasoning of the United

States District Court for the Northern District of Illinois in a

federal case involving a suit brought by a financial institution

receiver      “against          accountants        for      an     improper     audit.”         Id.

(citing    Resolution            Trust     Corp.       v.   KPMG      Peat   Marwick,     845    F.

Supp. 621 (N.D. Ill. 1994)).                     The WVSCA agreed with the Illinois

district court that “‘[p]ublic policy concerns mandate a finding

that    the     duty       of    FDIC      to    collect         on    assets    of   a   failed

institution runs to the public and not to the former officers

and directors of the failed institution,’” and that “‘it is the

public which is the intended beneficiary of FSLIC, just as it is

the    public    which          is   the   beneficiary           of    the   common   law     duty

imposed    upon       officers        and       directors        to    manage    properly       the

institutions entrusted to their case.’”                               Id. (quoting KPMG Peat

Marwick, 845 F. Supp. at 623) (additional citations omitted).

       Third,     the       WVSCA        cited     West       Virginia’s        “comprehensive

scheme of insurance regulation” as evidence of a “broad public

interest in the sound administration of insurance firms.”                                       Id.

                                                  26
The Commissioner, as receiver, thus “carr[ies] out a duty that

runs    to   the         public      in    pursuing      the     claims      of    policyholders,

creditors, shareholders or the public.”                               Id. (internal quotation

marks    omitted).              Accordingly,         the       Commissioner        “acts     as    the

representative             of     interested        parties,          such    as    the     defunct

insurer, its policyholders, creditors, shareholders, and other

affected members of the public” and “has standing . . . to bring

an   action        . . .        to   vindicate       the       rights    of   such    interested

parties.”          Id.

        Critically,         at       the     end    of     this       discussion,     the     WVSCA

inserted       a    footnote         addressing          Ernst    &     Young’s      claim    under

Wheeling Dollar that “[t]he rights of the respective receivers

rise    no     higher        than         those    of    the     corporations        which        they

represent.”              Id. at 257 n.9 (quotation marks omitted).                                This

contention formed part of Ernst & Young’s greater argument that

because BCBS’s “managers indisputably knew what its financial

condition was, . . . they could not bring a valid claim against

E&Y for failure to disclose such.”                         Id.

        The Cordial Court rejected this proposition on two grounds.

First, the court explained “that Wheeling Dollar was decided

prior     to       the      adoption”         of        West     Virginia’s        comprehensive

insurance regulatory scheme.                       Id.     “Consequently, [the case was

not] relevant to the issues at bar.”                            Id.     “Moreover,” the court

explained,         “since        [the]      Commissioner,         acting      as    receiver,       is

                                                   27
vindicating the rights of the public, including the Blue Cross

creditors, policyholders, providers, members, and subscribers,

[there was] no merit in this contention.”                     Id. (emphasis added).

     Footnote 9 of the Cordial opinion thus indicates that the

WVSCA would not limit the Commissioner, as receiver, only to the

rights of the represented corporation because he also serves to

“vindicat[e] the rights of the public.”                       Id.    It also suggests

that Wheeling Dollar is no longer good law, at least in the

context     of      government         receiverships.                Furthermore,        in

formulating the controlling public policy involved, the WVSCA

heavily    relied    on    —    and    favorably        referred     to   —    KPMG     Peat

Marwick,   which     applied         similar    logic    to    the    FDIC    in    a   suit

against auditors.         We see no principled difference between the

Commissioner’s role as receiver in Cordial and that of the FDIC

in the case at bar.            We therefore find no error in the district

court’s    decision       not    to    allow     Grant     Thornton’s         affirmative

defenses of in pari delicto, comparative negligence, or other

defenses   or    claims     that       relied    on   imputation       of     the   Bank’s

management to the FDIC.

                               IV.    Settlement Credit

     Based on the FDIC’s settlement of its claims against Kutak,

the district court awarded a percentage of the settlement amount

as a settlement credit to Grant Thornton.                            On appeal, Grant

                                           28
Thornton     posits      two     challenges      to    the       calculation      of     the

credit.     First, Grant Thornton contends it was entitled to a $22

million setoff based on a computation in the Kutak proceeding.

In   the    alternative,        Grant   Thornton      argues      that     the    district

court improperly calculated the settlement credit by basing it

only   on    amounts     actually       received      by   the    FDIC,    and    instead

should have based the credit on the face value of the Kutak

settlement.         We   address        each    argument     in     turn    after      some

additional factual background.

       Before   trial,         Grant    Thornton      sought      leave     to    file    a

contribution claim against the Bank’s outside counsel, Kutak.

The district court held that the FDIC’s settlement with Kutak

over Kutak’s liability in Keystone’s failure extinguished Grant

Thornton’s contribution claim.                  However, the court noted that

Grant Thornton might be entitled to a settlement credit to be

resolved in a later proceeding.                 After trial, the district court

delayed     entry   of   judgment       against    Grant     Thornton       and    held    a

hearing to determine the amount of any settlement credit.

       As described by the district court, the Kutak settlement

agreement provided that Kutak’s primary insurer, Executive Risk

Indemnity, Inc., would immediately pay the FDIC the remaining

policy limits of $8 million.                   Kutak also signed a $4 million

promissory note bearing 3% interest, to be paid in installments.

The settlement agreement further provided that Kutak and the

                                           29
FDIC would cooperate in pursuing a $10 million claim on Kutak’s

excess insurance policy with Reliance Insurance Company, which

was in receivership.             If the FDIC received less than $8 million

from   Reliance,         then    Kutak        would    make     up    a    portion       of    the

shortfall       according        to     a     formula     set       forth     in    a     second

promissory      note.           The    maximum        amount       that    Kutak    would       be

required     to     pay     under           this     second        promissory       note       was

$2,750,000.

       Before the district court, Grant Thornton argued it was

entitled to a credit of $22 million, the full face amount of the

Kutak settlement agreement ($8 million plus $4 million plus $10

million)    because:       (1)        Kutak    was    jointly        responsible         for   the

operating losses for which Grant Thornton had been held liable

and (2) the settlement agreement did not allocate the proceeds

among joint and alleged non-joint claims.                             The FDIC took the

initial    position       that        Grant    Thornton        was    due    no     settlement

credit    because    the        FDIC    had     planned       to     sue    Kutak    only      for

damages associated with Keystone’s securitizations, a matter for

which Grant Thornton was not liable.                          The FDIC later admitted

that there was some overlap between the damages against Kutak

and against Grant Thornton, but argued that, if a settlement

credit    was     due,    the     amount       should     be       based    on     the    amount

actually recovered from Kutak, rather than the full face value

of the agreed settlement amount.

                                               30
        The district court ruled that: (1) Kutak was responsible

for     $292,899,625      in    damages        to       the    FDIC,      including      the

$25,080,777 of post-audit net operating losses for which it was

jointly liable with Grant Thornton; and (2) in determining the

credit due Grant Thornton, the FDIC/Kutak settlement should be

allocated proportionally by dividing the $292,899,685 amount by

the    $25,080,777      figure,    yielding         a    8.563%    settlement       credit

ratio.      Put   differently,         the    district         court     ruled   that    the

overlapping damages — the indivisible loss — accounted for only

8.563% of the total damages caused by Kutak.

        Using this formula, the district court then calculated the

settlement credit based upon the funds actually received by the

FDIC    from    Kutak.        These    funds       included       what    the    FDIC    was

“guaranteed” to receive from the primary insurer and Kutak’s

promissory      notes    (a    total   calculated         at    $15,692,521),       rather

than the higher stipulated settlement amount of $22 million.

The settlement credit was thus determined to be $1,343,750.57

(8.563%    of   $15,692,521).          The    district         court     also    held   that

Grant    Thornton    should      receive      an    additional         credit    equal    to

8.563% of any additional future payments made by Kutak to the

FDIC under the settlement agreement.

                                             31
                                             A.

       Grant       Thornton    first     contends    that      West     Virginia       law

requires       a    setoff    equal     to   the    full    face      amount    in     the

settlement agreement between FDIC and Kutak, $22 million.                              The

accounting firm argues that West Virginia law and Section 4 of

the Uniform Contribution Among Tortfeasors Act (“UCATA”), which

Grant Thornton contends has been adopted by court decision in

West       Virginia,   require    it. 5       Further,      Grant     Thornton       makes

several       policy    arguments       as   to    why     West    Virginia’s        rules

governing       partial      settlements      in   multi-party        cases    “can     be

meaningfully applied only if the allocation is included in the

settlement agreement.” (Opening Br. for Grant Thornton at 47.)

Lastly,       Grant Thornton argues that hearings on “allocation” of

damages,       such    as    occurred     here,    encourage       protracted        legal

       5
           Section 4 of UCATA provides:

       When a release or a covenant not to sue or not to
       enforce judgment is given in good faith to one of two
       or more persons liable in tort for the same injury .
       . . [i]t does not discharge any of the other
       tortfeasors from liability for the injury . . . .; but
       it reduces the claim against the others to the extent
       of any amount stipulated by the release or the
       covenant, or in the amount of the consideration paid
       for it, whichever is the greater.

Bd. of Educ. of McDowell Cnty. v. Zando, Martin & Milstead,
Inc., 390 S.E.2d 796, 803 n.6 (W. Va. 1990) (“Zando”) (quoting
12 U.L.A. at 98 (1975)) (emphasis added).   As described by the
WVSCA in Zando, this results in a “pro tanto, or dollar-for-
dollar, credit for partial settlements against any verdict
ultimately rendered for the plaintiff.” Id. at 805.

                                             32
proceedings and are inherently unfair, since the settling party

is not involved in the proceedings and the non-settling party is

not in as good a position to contest the plaintiff’s claims

against the settling party.              Grant Thornton thus argues that

where a settlement (like that between the FDIC and Kutak) covers

both joint and non-joint liabilities and does not allocate among

joint and non-joint claims, “the nonsettling party is entitled

to a credit equaling the entire settlement amount.”                      (Opening

Br. for Grant Thornton at 49 (quoting Cohen v. Arthur Andersen

LLP, 106 S.W.3d 304, 310 (Tex. Ct. App. 2003)).)

     We agree with the district court that the determination of

setoff is a complex question and that Grant Thornton’s simple

solution of deducting the $22 million face settlement amount

from the verdict against it, while “appealing for its simplicity

of application,” is “simple, neat, and wrong.”             (J.A. at      958.)

     Under West Virginia law, the threshold question of whether

or not Grant Thornton is entitled to any settlement credit is

based on whether the loss is a single, indivisible loss.                      See

Biro v. Fairmont Gen. Hosp., Inc., 400 S.E.2d 893, 896 (W. Va.

1990)   (“In   order   to   permit   a    verdict   reduction    reflecting      a

prior   settlement,    Zando    held      that   there   must   be   a    ‘single

indivisible loss arising from the actions of multiple parties

who have contributed to the loss.’”) (citation omitted).                    Where

there is an indivisible injury, then a setoff is appropriate.

                                         33
See id. at 896.              But if there are divisible injuries causing

loss,       then    no     setoff      will    be    allowed.        Cf.     id.    at       897

(concluding that an injury from negligently performed surgery

was divisible from injuries from a fall in the hospital while

recovering from that surgery and thus no offset was warranted).

       But in the case at bar we have a partial overlap of the

damages      contemplated         in   the     FDIC’s    settlement     agreement            with

Kutak       and    the    damages      found    to   have    been     caused       by    Grant

Thornton.          That is, the total damages sought against Kutak by

the FDIC included the full $25 million of the Bank’s post-audit

net   operating          loss    for   which     Grant    Thornton     was     also      found

responsible.             Thus,   that    overlapping        portion    of    the    damages

related to the operating loss is indivisible, and a setoff is

appropriate.             Zando, 390 S.E.2d at 809 (“a single indivisible

loss arising from the actions of multiple parties” entitles the

nonsettling defendant to a reduction).

       We agree with the district court, however, that “the FDIC’s

claims against Kutak for the $25 million in damages for which

Grant Thornton has been found liable are divisible” from the

FDIC’s claim for damages against Kutak for the remaining losses

to    the    Bank    because      “one    person      [Kutak]   caused       all        of   the

damages and another person [Grant Thornton] caused only part of

the damages.”            (J.A. at 955.)         See Restatement (Third) of Torts

§ 26 cmt. f (2000) (“[d]ivisible damages can occur . . . when

                                               34
one person caused all of the damages and another person caused

only part of the damages.”).                Simply giving Grant Thornton a

credit   equal    to   the   $22   million     FDIC     settlement      with    Kutak

requires   an    assumption    that    the     entire    amount    of    the    Kutak

settlement was meant to pay for net operating expenses after

April 21, 1999, an assumption not supported by the record or

logic.     Indeed,      as   found     by    the   district       court,     Kutak’s

involvement was for a much longer period of time than Grant

Thornton   and    resulted    in     damages    not     attributable       to   Grant

Thornton at all (such as damages incurred as a result of the

failed securitization programs).              While the FDIC and Kutak did

not allocate specific damages in the settlement agreement, to

give Grant Thornton the full $22 million credit would not be in

accord   with    the   principles     set    out   by    the   WVSCA    in      Zando,

governing verdict credits for nonsettling defendants. 6

     6
       In making the allocation determination, the district court
emphasized that it was attempting to adhere to the principle
expressed in Zando that “a plaintiff is entitled to one, but
only one, complete satisfaction for his injury.” 390 S.E.2d at
803.   The court also discussed favorably the Supreme Court of
Virginia’s decision in Tazewell Oil Co., Inc. v. United Va.
Bank, 413 S.E.2d 611 (Va. 1992), in which a plaintiff sued three
banks for various acts of creditor misconduct resulting in
various harms to the plaintiff.     Id. at 617.    After settling
with two banks, plaintiff obtained a jury verdict against the
third bank, and the trial court allowed a credit against the
verdict for the full amount of the settlements. Id. The Supreme
Court of Virginia reversed, remanding for an allocation among
the multiple injuries and instructing that “the court must look
at the injury or damage covered by the release and, if more than
(Continued)
                                        35
       In short, we find no error in the district court’s approach

in allocating the damages between Kutak and Grant Thornton or in

its conclusion that only a portion of those damages overlapped

and    were    indivisible.    Accordingly,         we    affirm     the    district

court’s decision that Grant Thornton is not entitled to a full

$22 million reduction, but only to a portion of that amount.                       As

to the amount of damages attributed by the district court to

Kutak, (i.e., its arrival at the $292 million figure and the

resulting 8.563% calculation), those findings are reviewed only

for clear error.       We cannot say based on the record before this

Court that these findings were “clearly erroneous.”

                                          B.

       Grant    Thornton   alternatively         contends    that    the    district

court separately erred in basing the settlement credit on the

amounts   actually     recovered     by    the    FDIC,     rather   than     on   the

stipulated amount in the settlement agreement.                    Put differently,

Grant Thornton argues that even if the 8.563% credit ratio is

correct, the amount of the credit should have been 8.563% of $22

million (the full amount of the stipulated agreement), rather

than    8.563%    of   $15,692,521    (the       amount     the    district    court

a single injury, allocate, if possible, the appropriate amount
of compensation for each injury.” Id. at 622.

                                          36
described      as    money       the   FDIC       had       received        to    date        “plus

additional guaranteed recovery” (J.A. at 971)).

       Neither      party   has    pointed        to    a    case    from       West    Virginia

where the agreed settlement amount and the amount actually paid

or    recovered     from    that   settlement           differed,         and    it     does    not

appear that the issue has been directly addressed by any West

Virginia    published       decision.         In       Hardin       v.    New    York    Central

Railroad Co, 116 S.E.2d 697 (W. Va. 1960), the WVSCA stated the

rule as:       “[I]f one joint tort-feasor makes a settlement with

the     plaintiff     the    amount     of        the       settlement,          if    presented

properly during the trial or after the trial, should be deducted

either by the jury or by a court.”                      Id. at 701 (emphasis added).

This language supports Grant Thornton’s position that it is the

amount of the agreed settlement that governs.                             However, there is

somewhat contradictory language in Tennant v. Craig, 195 S.E.2d

727 (W. Va. 1973), which instructs that “[w]here a payment is

made,    and   release      obtained,     by       one      joint        tort-feasor,         other

joint tort-feasors shall be given credit for the amount of such

payment in the satisfaction of the wrong.” Id. at 730 (emphasis

added); see also Savage v. Booth, 468 S.E.2d 318, 323 (W. Va.

1996) (citing Zando for the proposition that the non-settling

joint     tortfeasor        is    “entitled        to       receive        credit       for    the

settlement amount paid”).

                                             37
      Because there was no discrepancy between the face value of

the   settlement        and    the    amount      of    the    settlement             payment       in

Zando,    Tennant,       or    Hardin,      we    are       left     as    a    federal          court

seeking    to    apply       state    law   to    forecast         how     the    WVSCA          would

determine       the    issue.        See    Ellis,      530    F.3d        at    287       (in    case

governed by state law, if the state’s highest court “has spoken

neither directly nor indirectly on the particular issue before

us, we are called upon to predict how that court would rule if

presented with the issue”) (citation omitted).

      We conclude that the best indication of how the WVSCA would

resolve    this       issue    is    set    forth      in    Zando        by    virtue       of    the

approval of both UCATA Section 4 and citation to Tommy’s Elbow

Room, Inc. v. Kavorkian, 754 P.2d 243 (Alaska 1988).                                   See Zando,

390   S.E.2d     at    805    (West    Virginia’s           “practice          with    regard      to

verdict    reduction          basically     comports          with    Section          4    of    the

UCATA”).

      Based on the WVSCA’s statement that its practice “basically

comports” with UCATA Section 4, id., we predict that court would

adopt    the     language       of   the    uniform         act,     including          that      the

settlement credit to the nonsettling defendant is the amount

“stipulated by the release or the covenant, or . . . the amount

of the consideration paid for it, whichever is the greater.”

Cf. 12 U.LA. at 98 (1975), quoted in Zando, 390 S.E.2d at 803.

This conclusion is bolstered by the WVSCA’s statement in Zando

                                             38
after discussing UCATA Section 4 “to have the verdict reduced by

the amount of any good faith settlements previously made with

the plaintiff by other jointly liable parties.”                   Id. at 806.

      The     plain    language   of   UCATA     Section    4    directs    that    the

settlement credit should be based on the amount stipulated by

the release with the settling defendant, if that is greater than

the   amount    paid.      Applying      that    provision       here,    the    setoff

should have been calculated based on the face amount of the

settlement, $22 million.

      Similarly,        Tommy’s      Elbow      Room    interpreted        the     same

language, which had been adopted by statute in Alaska.                      754 P.2d

at 244-45 (citing Alaska Stat. § 09.16.040(1)).                          Indeed, the

issue    in     Tommy’s     Elbow      Room     was     whether     a     nonsettling

defendant’s      liability      should   be     reduced    by     the    face    amount

stipulated in the settlement agreement or by the amount paid.

Id.     The Alaska Supreme Court concluded that the proper amount

for the setoff was the (likely) higher settlement amount, rather

than the amount actually recovered in settlement.                        Id. at 246-

47.

      The district court here noted that other jurisdictions had

criticized      that    rule,   as   adopted     in    Tommy’s    Elbow    Room,    and

concluded that the WVSCA would not follow it, either.                       However,

we find Zando’s favorable reference both to Tommy’s Elbow Room

and to UCATA § 4 to be the better indicators of how the WVSCA

                                         39
would rule.         Accordingly, we predict that the WVSCA would apply

the plain language of UCATA Section 4, just as the Tommy’s Elbow

Room court did, and would base the setoff amount here on the

face       value   of   the   settlement. 7          Thus,    the    proper     settlement

credit      here    should    be    8.563%     of    $22    million,    or     $1,883,860.

Thus, the final judgment against Grant Thornton, adjusted for

the    proper       settlement       credit,       should    have     been     $23,196,917

($25,087,777 minus $1,883,860), not $23,737,026.43.

                              V.     Prejudgment Interest

       The district court denied the FDIC’s request for an award

of prejudgment interest on the judgment amount owed by Grant

Thornton.          It   first      examined    the    federal       statute,    12   U.S.C.

§ 1821(l),         which   authorizes     the       award    of   interest     in    a   bank

receivership proceeding:

       In any proceeding related to any claim against an
       insured depository institution’s director, officer,
       employee, agent, attorney, accountant, appraiser, or

       7
       We understand the criticism of this rule, which may make
it more difficult for a plaintiff to obtain a complete
satisfaction.   However, the same competing policy issues would
have been evident to the WVSCA when it discussed UCATA § 4 in
Zando.   We further note, as did the Tommy’s Elbow Room court,
that any time a plaintiff settles a claim, the plaintiff assumes
the risk that some amount of the settlement will not be
recoverable.   754 P.2d at 245.   The fact that it ultimately is
not recoverable and that the non-recovery works to the detriment
of the plaintiff, is the result of the plaintiff’s own bargain
in agreeing to the settlement amount and its terms of payment.

                                              40
       any other party employed by or providing services to
       an insured depository institution, recoverable damages
       determined to result from the improvident or otherwise
       improper use or investment of any insured depository
       institution’s assets shall include principal losses
       and appropriate interest.

12   U.S.C.        §    1821(l)    (emphasis           added). 8          The    district       court

concluded          that      the   award     of        prejudgment         interest       was    not

appropriate because, under applicable West Virginia law, W. Va.

Code § 56-6-31, “the court does not believe that the damages the

FDIC       seeks       to    recover   are     ‘special         or    liquidated         damages’”

warranting         prejudgment         interest.         (J.A.       at    886.)         The     FDIC

contends in its cross-appeal that this determination was error. 9

       The    FDIC          essentially    argues        that    the      statutory        language

“recoverable damages . . . shall include principal losses and

appropriate interest” means that prejudgment interest must be

awarded in all cases; it is never discretionary.                                        Conversely,

Grant       Thornton          argues    that       the     district             court    correctly

       8
       The district court did not address the question under
§ 1821(l) of whether the damages at issue here resulted from an
“improvident or otherwise improper use of     . . . [Keystone’s]
assets.”   Instead, the court assumed, without deciding, that
this condition was satisfied.    In light of our conclusion that
the district court properly concluded that prejudgment interest
was inappropriate in the case at bar, we too assume, without
deciding, the damages satisfy this condition.
     9
       The parties appear to agree that the district court’s
decision as to whether to award prejudgment interest is reviewed
for abuse of discretion.    (See Principal Br. for FDIC at 64;
Response/Reply Br. for Grant Thornton    at 48-49 (citing  Moore
Bros. Co. v. Brown & Root, Inc., 207 F.3d 717, 727 (4th Cir.
2000)).)

                                                  41
interpreted § 1821(l) to mean that “if prejudgment interest is

available under West Virginia law in a case of this nature, the

court may award prejudgment interest.”                  (Cf. J.A. at 884.)

        There is a dearth of case law applying this statute, and

none of the cases that reference the provision expressly address

the   arguments       raised     by    the    parties        here.     See,    e.g.,      Fed.

Deposit Ins. Corp. v. Mijalis, 15 F.3d 1314, 1326-27 (5th Cir.

1994)    (in   case    where     the    parties       disputed        only    the    rate    of

interest, court seemingly interpreted “appropriate interest” as

meaning    the   “appropriate          rate    of    interest,”        but     declined      to

address the propriety of the interest awarded because defendants

did not properly preserve the issue); Fed. Deposit Ins. Corp. v.

UMIC, Inc., 136 F.3d 1375, 1385 (10th Cir. 1998) (prejudgment

interest could not be awarded under this section because the

conduct upon which the judgment was based occurred before the

enactment of Section 1821(l)).                 Likewise, we have not found any

cases      specifically          discussing            whether          similarly-worded

provisions      require    the    award       of    prejudgment        interest      in     all

cases or simply allow it in appropriate cases.                               See, e.g., 12

U.S.C.    §    1787(i)    (“recoverable            damages    .   .    .     shall   include

principal losses and appropriate interest”); 12 U.S.C. § 4617(h)

(same); 12 U.S.C. § 5390(g)             (same).

        In construing the statute, we must give the words therein

their ordinary meaning.               United States v. Abdelshafi, 592 F.3d

                                              42
602, 607 (4th Cir. 2010) (statutory interpretation requires that

the court “strive to implement congressional intent by examining

the plain language of the statute” and to give a statute its

“plain meaning,” which in turn is “determined by reference to

its     words’     .    .     .    ‘ordinary,          contemporary,          [and]    common

meaning’”) (citations omitted).

       As an initial matter, we note that nothing in § 1821(l)

refers    to     prejudgment        interest,       but      simply     to     “appropriate

interest.”        The    FDIC      argues    that       to   interpret       “interest”     as

referring       only    to     post-judgment           interest     would       render     the

language superfluous, since there is already a statute providing

for    the     award    of    post-judgment            interest    to    all     successful

plaintiffs in civil cases, 28 U.S.C. § 1961(a)).                          On this basis,

we    conclude    that       the   reference       to    “appropriate         interest”     in

§ 1821(l)        may    include       both        postjudgment          and     prejudgment

interest.        See Comeau v. Rupp, 810 F. Supp. 1172, 1180-81 (D.

Kan. 1992).

       However, the mere fact that “appropriate interest” could

include both prejudgment and post-judgment interest, does not

lead to the conclusion that the statute mandates prejudgment

interest       must      always       be     awarded.             See     id.     at      1180

(“Notwithstanding           the    authority      to    award     prejudgment         interest

under     [the     Financial         Institutions            Reform,     Recovery,        and

Enforcement Act of 1989, Pub. L. No. 101-73, 103 Stat. 183,

                                             43
(“FIRREA”)],”       the      court      will      still      have       to   decide     “the

appropriateness of such an award.”).

      Unsurprisingly, the parties offer competing interpretations

for   this   dilemma,        but    both    essentially           add   language   to    the

statute in doing so.           The FDIC’s interpretation of “appropriate

interest”      is     “an     appropriate         rate       of     interest”      or    “an

appropriate         amount         of      interest.”               Grant       Thornton’s

interpretation is that “appropriate interest” means “interest,

if    appropriate”      or     “interest,         in    an    appropriate       case”     or

“interest, if otherwise appropriate.”                        We conclude that Grant

Thornton has the better argument and its interpretation is the

most harmonious with a natural reading of the statute.                                See 62

Cases, More or Less, Each Containing Six Jars of Jam v. United

States, 340 U.S. 593, 596 (1951) (“[O]ur problem is to construe

what Congress has written. After all, Congress expresses its

purpose by words. It is for us to ascertain—neither to add nor

to subtract, neither to delete nor to distort.”).

      First,    the    common       dictionary         definition       of   “appropriate”

more easily comports with Grant Thornton’s interpretation.                              Most

often,     “appropriate”           means    “specially        suitable:        fit,     [or]

proper.”       Webster’s Third New Int’l Dictionary 106 (1961).                           We

could      easily      substitute          those         definitional         words      for

“appropriate” and the statute would continue to mean what Grant

Thornton and the district court interpreted it to mean.                                 That

                                             44
is,    “damages       shall    include      ‘specially          suitable’    interest”      or

“‘fitting’         interest”    or    “‘proper’          interest.”    By    contrast,      to

interpret “appropriate” as specifically referring only to the

rate or amount of interest would require additional words with a

different substantive meaning being written into the statute.

       Second, the FDIC hinges its argument primarily on the fact

that the statute contains the word “shall,” a mandatory and not

permissive term.              (See Principal Br. for FDIC at 62 (citing

United States v. Monsanto, 491 U.S. 600, 607 (1989)).)                                     But

while Congress used the language “shall,” it also included the

word    “appropriate”          for    a    purpose.         Nothing    in        the   statute

suggests       that    “appropriate”            refers     to   a   rate    or    amount   of

interest.          Indeed, other statutes providing that interest shall

be     an    element     of     damages         do   not    include        the    limitation

“appropriate.”         See,    e.g.,       28    U.S.C.     §   1961(a)     (stating      that

postjudgment interest “shall be allowed on money judgment in a

civil       case   recovered     in    a    district       court”    and    specifying     in

detail how interest is to be calculated); 7 U.S.C. § 2564 (in

infringement of plant variety protection, the court “shall award

damages adequate to compensate for the infringement but in no

event less than a reasonable royalty for the use made of the

variety by the infringer, together with interest and costs as

fixed by the court”).

                                                45
       Notably,      moreover,      a    statutory     review       makes    clear    that

Congress knows how to specify rates of interest or to refer to

certain factors in setting interest when it chooses to do so.

See,   e.g.,    42    U.S.C.    §   9607(a)(4)        (setting      forth    damages    in

CERCLA cases and explaining what damages the interest applies

to, the dates of accrual and referring to specific rates of

interest); 15 U.S.C. § 15 (in antitrust actions, instructing

“[t]he court may award . . . simple interest on actual damages,”

describing     prejudgment       interest         period,   and     allowing    such    an

award “if the court finds that the award of such interest for

such period is just in the circumstances”).                       In those statutes,

Congress did not simply say that an “appropriate” rate should be

used, but instead gave specific particulars about the rate, the

time period for interest, and/or or how to calculate it.                                In

contrast, no such directions appear in § 1821(l).

       For these reasons, we find the word “appropriate” is best

read as a limitation as to when prejudgment interest should be

provided, not as a reference to any particular “rate” or amount

of interest nor that its award is mandated in all cases.                             Thus,

we   conclude     that   the     award       of    prejudgment      interest    under    §

1821(l) is discretionary, i.e., that it need only be awarded if

appropriate.

       The   FDIC     next     contends       that,    even    if     we    adopt    Grant

Thornton’s     interpretation           of   the    statute,    the    district      court

                                             46
nonetheless abused its discretion in denying interest because it

looked solely to West Virginia law to determine whether interest

was appropriate in this case.            For support, the FDIC cites to

United States v. Dollar Rent A Car Systems, Inc., 712 F.2d 938

(4th Cir. 1983) (“Dollar”).

       The FDIC’s reliance on Dollar is misplaced.                   In Dollar,

this    Court   concluded     that     the   district     court   abused       its

discretion when it awarded prejudgment interest and considered

itself bound by the lower rate established by state law.                  Id. at

941.    This was an abuse of discretion because federal law, not

state law, governed that case and federal law in fact granted

discretion to award a higher rate.            Id.    Dollar does not stand

for    the   general    proposition,    as   cited   by   the   FDIC,    that    a

district court abuses its discretion when it analyzes whether

interest is warranted under state law.

       The   district     court’s    analysis    here     suggests      that    it

interpreted the language as meaning that it would award interest

if appropriate under West Virginia law.               Although the court’s

opinion does not explicitly state that it was constrained by

West Virginia law, it analyzed the issue under West Virginia law

and concluded as follows:

            Even assuming that the FDIC is entitled to
       prejudgment interest under FIRREA, the court does not
       believe that the damages the FDIC seeks to recover are
       “special or liquidated damages” within the meaning of
       W. Va. Code     § 56-6-31.    Accordingly, the FDIC’s

                                       47
        request    for     an   award       of     prejudgment        interest      is
        denied.

(J.A.    at   886;    see    also     id.     at    885-86     (concluding         that   the

damages here were neither special nor liquidated damages).)

       The district court’s reference to state law here was not an

abuse    of   discretion.            Particularly        in    view    of    our    earlier

discussion of O’Melveny & Myers, where the Supreme Court held

the FDIC in FIRREA cases was to “work out its claims under state

law,” 512 U.S. at 87, the district court correctly looked to the

applicable state law in order to determine whether prejudgment

interest was “appropriate” in this case.                        See United States v.

Am. Mfrs. Mut. Cas. Co., 901 F.2d 370, 372-73 (4th Cir. 1990)

(in the absence of “explicit standards for the allowance of pre-

judgment        interest,”          federal        statutes      are        “treated       as

incorporating        the    applicable           state   law     on    [the]       issue”);

Quesinberry v. Life Ins. Co. of N. Am., 987 F.2d 1017, 1030 (4th

Cir.    1993)     (“absent      a    statutory      mandate      the     award     of     pre-

judgment interest is discretionary with the trial court”).

       Moreover, we find no abuse of discretion in the district

court’s    determination        that    prejudgment           interest      here    was    not

warranted.        Although the court ultimately arrived at a damages

award, until it did so, it was impossible for Grant Thornton to

                                              48
know how much it owed. 10      See Lockard v. City of Salem, 43 S.E.2d

239, 243 (W. Va. 1947) (“interest is denied when the demand is

unliquidated for the reason that the person liable does not know

what sum he owed and therefore cannot be in default for not

paying.”) (citation and quotation marks omitted); Bond v. City

of Huntington, 276 S.E.2d 539, 550 (W. Va. 1981) (prejudgment

interest applies where case involves “only pecuniary losses that

are subject to reasonable calculation that exist at the time of

the trial”).

       Similarly, under federal law, courts may deny prejudgment

interest where “a legitimate controversy existed” regarding the

amounts ultimately deemed to be owed.          Moore Bros., 207 F.3d at

727.        Instead,   the   court   must   “weigh   the   equities   in   a

particular case to determine whether an award of prejudgment

interest is appropriate.” Id.

       In short, we find no error in the district court’s denial

of prejudgment interest.

       10
        In addition to numerous disagreements at trial regarding
a proper measure of damages, here a special separate hearing was
held after the trial to determine the Kutak setoff amount, if
any. Until that hearing was held and the district court issued
its ruling, Grant Thornton could not know what amount it owed.

                                      49
                         VI.   Conclusion

     For the foregoing reasons, we affirm the district court’s

judgment in all respects except the amount of the settlement

credit.   As to that issue, we reverse and remand for further

proceedings consistent with this opinion.

                                              AFFIRMED IN PART AND
                                     REVERSED AND REMANDED IN PART

                                50