Court Opinion

ID: 35093
Source: CourtListenerOpinion
Date Created: 2010-04-25 19:23:51+00
Date Added: 2024-06-11T17:12:58.319318
License: Public Domain

United States Court of Appeals
                                                                 Fifth Circuit
                                                              F I L E D
                  UNITED STATES COURT OF APPEALS
                       For the Fifth Circuit                    April 6, 2004

                                                          Charles R. Fulbruge III
                             No. 03-50464                         Clerk

                          BRADY NATIONAL BANK

                                 and

                     TEXAS COUNTRY BANCSHARES, INC.

                                                Plaintiffs-Appellees,

                                VERSUS

                  GULF INSURANCE COMPANY, et al.

                                                          Defendants,

                      GULF INSURANCE COMPANY

                                                 Defendant-Appellant.

           Appeal from the United States District Court
                 For the Western District of Texas
                              (01-CV-392)

Before DEMOSS, DENNIS, and PRADO Circuit Judges.
DENNIS, Circuit Judge:*

      In this case, we review summary judgments resolving coverage

disputes with respect to a financial institution special bond

  *
   Pursuant to 5TH CIR. R. 47.5, the Court has determined that this
opinion should not be published and is not precedent except under
the limited circumstances set forth in 5TH CIR. R. 47.5.4.

                                   1
between Brady National Bank, the insured, and Gulf Insurance

Company, its insurer.          Defendants-Appellants Gulf Insurance Co.,

et. al. (“Gulf”) appeal from the district court’s grant of summary

judgment    in    favor   of     Brady   National    Bank   and   Texas   County

Bancshares, Inc. (“Brady National”), and the denial of Gulf’s Rule

59(e) motion. Gulf timely appealed. We AFFIRM the district court’s

grant of summary judgment on all issues except for the award of

$35,515.55 to Brady National for costs and attorneys’ fees incurred

because of its intervention as a plaintiff in a conspiracy to

defraud action in Texas state court.            Because we conclude that the

district court’s summary judgment award and subsequent denial of

the Rule 59(e) motion with regard to those costs and fees is in

error, we    REVERSE      this    part   of   the   district   court’s    summary

judgment ruling and RENDER summary judgment on this issue in favor

of Gulf.

I.   BACKGROUND

     In early 1998, Brian Russell Stearns (“Stearns”) created a

Ponzi scheme that eventually defrauded investors of more than $50

million before his arrest in September of 1999.             A few months prior

to that arrest, Stearns opened a personal checking account with

Brady National.       Within days of opening that account, Stearns

instructed his attorneys to wire $12.5 million of funds Stearns had

obtained from his investor victims and deposit those funds in

                                         2
Stearns’ newly opened checking account at Brady National.                Stearns

immediately purchased a $1 million CD from Brady National using the

investor funds in his personal checking account.             Stearns promptly

pledged that CD as collateral on an $800,000 personal letter of

credit loan and two personal credit card accounts, each with a

$100,000 limit.

      Soon    after   these    initial       transactions,   Stearns   had    his

attorneys wire an additional $6 million dollars of investors’ funds

to Stearns’ checking account at Brady National and with those

funds, he purchased a second CD in the amount of $100,000.               Stearns

then pledged this second CD as collateral on a $41,000 personal

line of credit account.          After these transactions, Stearns was

arrested, charged, and convicted in federal district court of 82

counts   of    mail   fraud,    wire     fraud,    securities   fraud,      money

laundering,     social   security      fraud,     false   statements   on    loan

applications, and being a felon in possession of a firearm.

      Along with Stearns’ arrest, the federal government seized both

CDs and initiated forfeiture proceedings in federal district court.

Brady National intervened as a claimant in those proceedings in

order to protect its interest in the CDs and asserted a defense of

innocent ownership.2      The district court ruled in favor of the

  2
   The civil forfeiture statute under which the CDs were seized
prohibits forfeiture of property “to the extent of the interest of
an owner or lienholder” so long as that owner or lienholder has no
knowledge of the criminal violation that gave rise to the

                                         3
government, but the government never enforced the forfeiture order.

The CDs were ultimately returned to Brady National.

      Just before the judgment of forfeiture was entered, Brady

National declared the sums borrowed by Stearns on an $800,000

letter of credit, two credit cards, and the $41,000 line of credit

in default and accelerated the due date on those sums.3       Brady

National then liquidated the CDs to pay off those debts.

      After the CDs were applied toward Stearns’ debt to Brady

National, the investors Stearns had defrauded in the Ponzi scheme

sued Stearns and Brady National. Brady National eventually settled

with these investors.   Soon after settling with the investors that

Stearns had defrauded, Brady National intervened as a plaintiff in

a lawsuit filed by Stearns’ investors against Stearns’ former law

firm.    Brady National alleged, inter alia, that the law firm

conspired with Stearns to defraud the investors and Brady National.

      As a result of the settlement with Stearns’ investors, and the

prior forfeiture action, Brady National claims a net loss under the

forfeiture proceedings. See 18 U.S.C. § 981(a)(2).
  3
   The record shows that as of May 12, 2000, Stearns owed: (1)
$849,835.51 in principal and interest on the $800,000 letter of
credit; (2) $115,155.03 and $99,959.04 in principal and interest on
each of the credit cards, respectively; and (3) $ 42,703.65 in
principal   and  interest   on   the  $41,000   line   of   credit.
Additionally, attorneys’ fees were assessed in the amounts of: (1)
$26,459.86 on the $800,000 letter of credit; (2) $3,582.89 and
$3,110.09 on the credit cards; and (3) $3,252.87 on the line of
credit.

                                 4
CDs of $800,801.40.   It also claims that the aggregate court costs

and attorneys’ fees it incurred in the forfeiture action and the

investors’ lawsuit was $448,864.29.       Brady National contends that

it incurred $35,515.55 in costs and attorneys’ fees because of its

intervention as a plaintiff in the lawsuit against Stearns’ law

firm.

      Gulf had previously issued a financial institution special

bond (the “Bond”)4 to Brady National. Brady National provided

proper notice of its impending claims and sought to be indemnified

by Gulf for both the loss and costs and attorneys’ fees.

      Gulf denied coverage, claiming that Brady National’s loss was

not covered under the Bond.        Brady National then filed suit in

district court seeking monetary damages in the amounts of: (1)

$800,801.40 resulting from the net loss related to two Certificates

of Deposit (“CDs”); (2) $448,864.29 in costs and attorneys’ fees

resulting from a forfeiture action commenced by the United States

Internal Revenue Service (“IRS”) and the investors’ lawsuit; (3)

$35,515.55 in additional costs and attorneys’ fees Brady National

has incurred in asserting a claim for conspiracy to defraud against

Stearns’   former   law   firm;   and   (4)   $15,130.33   in   costs   and

attorneys’ fees incurred in bringing this lawsuit.

  4
   The Bond in question is described by the parties as a “fidelity
policy,” which the parties agree is a first party insurance
contract that covers specific events and risks of loss.

                                    5
      Brady      National   and   Gulf   filed    cross-motions   for   summary

judgment. The district court determined that Brady National’s loss

was covered under the Bond, and awarded it complete relief.                Gulf

filed a motion to alter or amend the judgment under Federal Rule of

Civil Procedure 59(e), but the district court summarily denied that

motion.       Gulf timely appealed.

II.   ANALYSIS

      We review this grant of summary judgment de novo.            See Beeler

v. Rounsavall, 328 F.3d 813, 816 (5th Cir. 2003).                 The parties

agree that the substantive law of Texas applies to resolve the

dispute in this diversity case.              In Texas, courts employ general

rules    of    contract     construction     to   insurance   policies.     See

Balandran v. Safeco Ins. Co. of Am., 972 S.W.2d 738, 740-41 (Tex.

1998).     The terms of an insurance policy are unambiguous as a

matter of law if they can be given a definite or certain legal

meaning.       Nat’l Union Fire Ins. CO. v. CBI Indus., Inc., 907 S.W.
2d 517, 520 (Tex. 1983).           Absent an ambiguity, our duty is to

enforce the policy according to its plain meaning.             See Puckett v.

United States Fire Ins. Co., 678 S.W.2d 936, 938 (Tex. 1984).

Disagreement between the parties regarding the question of coverage

“does not create an ambiguity.” Sharp v. State Farm Fire & Cas.

Ins. Co., 115 F.3d 1258, 1261 (5th Cir. 1997)(applying Texas law).

      If terms in an insurance contract are subject to more than one

                                         6
reasonable interpretation, however, those terms are ambiguous. See

CBI Indus., 907 S.W.2d at 520.   Under Texas law, ambiguous terms

are construed in favor of coverage.   See Barnett v. Aetna Life Ins.

Co., 723 S.W.2d 663, 665 (Tex. 1987).    Because the Bond itself is

equivalent to a “fidelity policy,” and the same liberal rules of

construction that are applied to insurance contracts are applied to

fidelity policies under Texas law, see Federal Deposit Ins. Corp.

v. Aetna Cas. & Surety Co., 426 F.2d 729, 736 (5th Cir. 1970);

Great Am. Ins. Co. v. Langdeau, 279 S.W.2d 62, 65 (Tex. 1964), any

ambiguity in the Bond provisions will be construed against Gulf and

in favor of coverage.   See Snyder Nat’l Bank v. Westchester Fire

Ins. Co., 425 F.2d 849, 852 (5th Cir. 1970).

      Whether Brady National was afforded coverage depends on (1)

whether the CDs were “stolen” for the purposes of the “Securities”

provision of the Bond,5 and if so, (2) whether Brady National’s

loss was caused directly by the stolen CDs.       Finally, we must

consider whether the Bond permits Brady National to recover any of

its claimed costs and attorneys’ fees.

      A.   “Stolen”

      Brady National contends that its net loss under the CDs of

  5
   Alternatively, Brady National sought coverage under the “On
Premises” provision of the Bond. Because we conclude that the CDs
were “stolen” and therefore covered under the “Securities”
provision of the Bond, we need not consider the question of
coverage under the “On Premises” provision.

                                 7
$800,801.40 is covered under the “Securities” and “Court Costs and

Attorneys’ Fees” provisions of the Bond.    The relevant portion of

the “Securities” provision is as follows:

     Loss resulting directly from the insured having in good faith
     and in the usual course of business, whether for its own
     account or for the account of others:

            A.   Purchased or otherwise acquired, accepted or
                 received, or sold or delivered, or given any value,
                 extended any credit or assumed any liability on the
                 faith of any Certificated Security which. . . (2)
                 is lost or stolen. . . .

     Both parties agree that CDs are “Certificated Securities,” and

Gulf does not challenge the extent of Brady National’s claimed

loss, so the critical issue is whether the CDs were “stolen.”

Although the Bond does not expressly define the term “stolen,” Gulf

argues that the generally accepted definition of “stolen” does not

encompass CDs purchased with stolen money.      Gulf further argues

that the term “stolen” is not an ambiguous term as it is used in

the Bond.

     Brady National contends that it is only logical to find that

a CD purchased with stolen money is “stolen” for the purposes of

the “Securities” provision, relying on our prior decision in Bank

of the Southwest v. Nat’l Surety Co., 477 F.2d 73, 76 (5th Cir.

1973).   Brady National also contends that the term “stolen” is

ambiguous as it is used in the Bond.   In ruling for Brady National,

the district court concluded that the CDs were “stolen” for the

                                  8
purposes of the Bond because they were acquired with stolen money.

We agree.

       First,    we   find   that    the    contention      that    “stolen”    has a

generally accepted definition and that the term is therefore

unambiguous as it is used in the Bond is incorrect.                    Not only does

the Bond itself fail to define the term “stolen,” the Supreme Court

has previously stated that the term “‘stolen’ has no accepted or

common-law meaning.”          See United States v. Turley, 352 U.S. 407,

411-12 (1957).

       Second, we find that the term “stolen” may be defined more

broadly than Gulf contends.                Gulf argues that the CDs were not

“stolen” because Stearns “bought” them from Brady National, and

because they were “bought” they were not “tak[en] from another

party dishonestly.” See Defs’ Reply Br. at pg. 3 (citing the

WEBSTER’S NEW WORLD DICTIONARY 585 (1979)).            But Black’s Law Dictionary

has a more expansive definition of “stolen.”                        Black’s defines

“stolen” as “[a]cquired, or possessed, as a result of some wrongful

or dishonest act or taking, whereby a person willfully obtains or

retains possession of property which belongs to another, without or

beyond any permission given, and with the intent to deprive the

owner of the benefit of ownership.”                  See B LACKS’ LAW DICTIONARY 1419

(6th    ed.     1991).       See    also    OXFORD     ENGLISH   DICTIONARY   (2d   ed.

1989)(defining “stolen” as the past participle of steal, “to take

                                            9
or appropriate the property of another dishonestly); AMERICAN HERITAGE

DICTIONARY    1337   (3d     ed.    1993)   (defining     “stolen”   as   the   past

participle of steal, “to take the property of another without right

or permission”).

      Because “stolen” is not defined in the Bond, has no generally

accepted or common-law meaning, and because it is defined narrowly

or expansively depending on the selected dictionary meaning, we

conclude that the term is subject to more than one reasonable

interpretation. Under Texas law, terms in insurance contracts that

are   subject       to    more     than   one    reasonable   interpretation     are

ambiguous, CBI Indus., 907 S.W.2d at 520, and construed in favor of

coverage.     See Barnett, 723 S.W.2d at 665.             Therefore, we conclude

that the definition of “stolen” as used in Bond should be construed

in favor of coverage and would encompass the CDs in this case

because the CDs were “acquired, or possessed as a result of some

dishonest act or taking.” See BLACKS’ LAW DICTIONARY 1419 (6th ed.

1991).

      Our prior decision in Bank of the Southwest v. Nat’l Surety

Co.,477 F.2d 73, reinforces this conclusion.                      In Bank of the

Southwest, a plaintiff bank sought recovery under a banker’s

blanket      bond    for    losses     sustained     on   three   collateral    loan

transactions.            See 477 F.2d at 75.         The bank loaned a person

representing himself as a wholesale automobile dealer, and accepted

                                            10
certain documents purporting to convey a security interest in two

automobiles and stock shares as collateral.     Id.   Soon after the

loans were made, the bank discovered that the documents tendered by

the dealer did not give the bank any rights to the pledged

collateral. Id. at 75.       Additionally, the stock certificates

pledged to the bank were never delivered by the dealer as promised.

Id. Instead, the dealer converted the stock certificates to his own

use.    Id.

       In order to determine whether the documents were “stolen,” and

therefore entitled to coverage, we focused on whether there was any

evidence that the bank had to give up the allegedly stolen document

to the rightful owner. Id. at 77 (citing Maryland Cas. Co. v. State

Bank & Trust Co., 425 F.2d 979).         Because there was no such

evidence in the Bank of the Southwest case, we determined that the

documents were not “stolen.” Id.    But in this case, there is ample

evidence that Brady National would have had to give up the CDs.

       First, in the forfeiture proceedings, the district court found

that the CDs were subject to forfeiture. Second, Texas law dealing

with constructive trusts further indicates that the CDs would have

had to be returned to their rightful owners for summary judgment

purposes.     In Texas, constructive trusts may be imposed when a

party holds property or funds that in equity and good conscience

belongs to another.   See Ginther v. Taub, 675 S.W.2d 724, 728 (Tex.

                                  11
1984).     Stearns’ criminal conviction leaves no doubt in this case

that all the funds used to purchase the CDs were acquired by fraud

and   that   the    CDs    rightfully     belonged     to    Stearns’     investors.

Moreover, Texas courts would impose a constructive trust on the CDs

in favor of Stearns’ investors even though Brady National was

unaware of Stearns’ fraud.             See Pope v. Garrett, 211 S.W.2d 559,

562 (Tex. 1948).

      Therefore, due to the ambiguity of the term “stolen,” and

under the analysis in Bank of the Southwest, we conclude that the

CDs   were   “stolen”      as   that   term   is    used    in   the   “Securities”

provision of the Bond.           Because the Securities provision of the

Bond only provides coverage for “loss resulting directly” from

Brady National’s extension of credit based on the CDs, we must now

determine whether the CDs directly caused Brady National’s loss.

      B.     “Directly Caused”

      Brady National contends that its losses were directly based on

its extension of credit secured by the stolen CDs.                  Brady National

reasons that if the CDs not been “stolen” at the time it extended

credit, the CDs would not have been subject to forfeiture or the

investors’ claims.         The district court accepted Brady National’s

reasoning and ruled in Brady National’s favor.                    Gulf argues that

Brady National’s loss did not directly result from the CDs, and

therefore    that    the    district     court     erred    in   ruling   for   Brady

                                         12
National, for two reasons.     First, Gulf argues that in order for

Brady National’s loss to have directly resulted from the stolen

CDs, the CDs must have had a defect in title at the time the CDs

were pledged to Brady National.        Second, Gulf argues that it was

not the stolen CDs that directly caused Brady National’s loss but

rather Brady National’s subsequent settlement of the investors’

claims against the CDs.

      In support of its first argument, Gulf cites Resolution Trust

Corp. v. Aetna Casualty & Surety Co., 25 F.3d 570 (7th Cir. 1994).

But while we find the language of the relevant bond provision in

Resolution Trust similar to the “Securities” provision here, we

find Gulf’s first argument unpersuasive.      In Resolution Trust, one

of the issues was whether the insured met the condition precedent

of “possession” in order to be eligible for coverage.       See 25 F.3d

at 580.     Because the policy at issue in Resolution Trust required

the insured to have “in good faith acquired” the stolen security,

the insured in Resolution Trust must have had possession of the

security. Id. The Seventh Circuit reasoned that the insured could

not have in “good faith” acquired a security if the insured did not

simultaneously possess that security.       Id.   Moreover, in order to

be a stolen security eligible for coverage, that security had to

“have a defect in title” at the time the insured first possessed

it.   Id.    Because the security at issue in Resolution Trust was

                                  13
stolen    after   the   insured    acquired    it,    the   Seventh   Circuit

determined that there was no coverage.          Id.

       Here, the Bond’s “Securities” provision is similar to the one

in Resolution Trust because Brady National must have “in good faith

and in the usual course of business. . .extended any credit. . .on

the faith of any [CD] which. . .is stolen.”            Additionally, Brady

National must also have “actual physical possession of [the CD]” at

the time it extended credit in order to be eligible for coverage.

But unlike the security in Resolution Trust, the CDs in this case

had a defect in title at very moment that Brady National extended

credit to Stearns.

       First, neither party has alleged that Stearns ever had any

personal right to the funds he deposited in Brady National and used

to buy the CDs.     The record shows that those funds were wired to

him directly from investors and Stearns then wired those funds into

his    newly   opened   personal    checking    account,     which    was   in

contravention of Stearns’ agreement to immediately invest those

funds for the benefit of the investors. The CDs purchased by

Stearns with those funds were then pledged as collateral for

personal line of credit loans and credit cards for his personal

use.   A review of the record shows those accounts were used to buy

things such as jewelry, automobiles, private jets, and Las Vegas

vacations.

                                     14
       Second, there is no indication or allegation that these

purchases were intended for the benefit of Stearns’ investors and

the parties have not contended that any of these purchases were

intended to be investments.             In convicting Stearns on all wire

fraud and securities fraud counts, including the counts tied to the

transactions with Brady National,6 the district court necessarily

made a finding that Stearns intended to defraud his investors at

the    time   he   took   the   funds    and    wired   those   funds   to   Brady

National.7     Thus, because the record shows that Stearns never had

any right to the CDs, it also shows that the CDs had a defect in

title at the time Brady National extended credit on those CDs.

Given that the record amply indicates that the CDs were in Brady

National’s possession at the time Brady National extended credit to

Stearns, we reject Gulf’s first argument.

       Gulf’s second argument is more easily dismissed.             Gulf argues

that    the   harm   suffered    by     Brady   National   resulted     from   the

settlement of the investors’ claims instead of reliance on the

stolen CDs.        But under Texas law, mere settlement of a claim

resulting from a harm that would be covered by an insurance policy

does not mean that the loss came from the settlement as opposed to

  6
      See R. 242-245.
  7
   18 U.S.C. § 1341 (mail fraud statute); 18 U.S.C. § 1343 (wire
fraud statute).

                                         15
the covered harm.    See Willcox v. Am. Home Assur. Co., 900 F. Supp.
850, 856 (S.D. Tex. 1995); See ANN. BANKER’S BLANKET BOND, FIRST SUPPL.

5 (Am. Bar Assn. 1983).     And the language of the provision itself

provides coverage so long as Brady National, “in good faith and in

the usual course of business. . .extended any credit or assumed any

liability on the faith of any Certificated Security which. . . (2)

is lost or stolen.”

     Because settlement of a claim resulting from a covered harm

under an insurance policy does not constitute a loss resulting from

the settlement as opposed to the covered harm, see Willcox, 900 F.

Supp. at 856, it is undisputed that Brady National extended credit

based on the CDs in “good faith,” and we have concluded that those

CDs were “stolen,” then the loss attributable to Brady National’s

settlement of the investors’ claims against the CDs is a covered

loss under the Bond.

     C.   Court Costs and Attorneys’ Fees

     According to Brady National, because its loss attributable to

the CDs was covered under the Bond, all of the court costs and

attorneys’   fees   it   incurred   in   connection   with   its   loss   are

recoverable under the “Court Costs and Attorneys’ Fees” provision

of the Bond.   That provision reads:

     Sums incurred and paid by the Insured as court costs and
     reasonable attorneys’ fees in defending any suit or proceeding
     bought against the Insured to enforce the liability or alleged

                                    16
      liability of the Insured for any loss,
                                           claim or damage, which
      would constitute a valid and collectible loss under this bond.

      Gulf does not challenge the reasonableness of the costs and

fees sought by Brady.     Gulf’s sole argument at summary judgment on

this issue was that because there is no coverage under the Bond for

any of Brady National’s losses, there is no coverage for costs and

attorneys’ fees.8      The district court rejected that argument and

ruled in favor of Brady National.        Gulf then filed a Rule 59(e)

motion challenging only part of the district court’s costs and

attorneys’ fees ruling. Specifically, Gulf challenged the district

court’s   award   of   $35,515.55   resulting   from   Brady   National’s

intervention in the conspiracy lawsuit filed against Stearns’

former law firm.

      On appeal, Gulf reiterates its argument that no costs and fees

should be recoverable because Brady National has not suffered a

covered loss.     Gulf also claims that even if there is a covered

loss under the Bond, Brady National is not entitled to recover any

of the costs and attorneys’ fees it seeks because Brady National

was not a “defendant” in the three legal actions in which it

incurred those costs and fees.

  8
   See R. 69, Defs’ Mot. S.J., “Point VII–BECAUSE THERE WAS NO
COVERED LOSS UNDER THE BOND, THERE IS NO COVERAGE FOR COURT COSTS
AND ATTORNEYS’ FEES.”; R. 727, Defs’ Reply to Pls’ Mot. S.J.,
(same).

                                    17
     We need not consider Gulf’s first argument, because we agree

with the district court that Brady National has suffered a covered

loss attributable     from   the   “stolen”    CDs.   But   Gulf’s   second

argument on appeal does not dissolve upon a finding of coverage for

the CDs.   Thus, we must consider Gulf’s second appellate argument,

and in so doing, consider the scope of that argument as well as the

applicable standard of review.

     Brady National claims that part of Gulf’s second argument on

appeal, which challenges the $448,864.29 incurred in the forfeiture

proceeding and the investors’ lawsuit, is waived because Gulf

failed to raise that part of its argument in the district court.

Brady National also claims that Gulf’s challenge to the $35,515.55

in costs is subject to a lesser standard of review because Gulf did

not raise that part of its argument until Gulf moved to amend or

alter the judgment pursuant to Rule 59(e).             In response, Gulf

contends that   its   motion   for   summary    judgment    did   raise   the

entirety of its second appellate argument.            In support of this

contention, Gulf points to a single paragraph in its initial

summary judgment brief.

     After reading that three sentence paragraph, we disagree that

Gulf has raised the same argument it wishes to present on appeal.

In its motion for summary judgment, Gulf paraphrased the costs and

attorneys’ fees provision, described the investors’ suit against

                                     18
Brady National, and argued that the suit filed against Brady

National “did not contain any allegations which, if proven true,

would have resulted in a covered loss under the Bond.”          Defs’ Mot.

S.J., at pg. 9.      Moreover, the argument was captioned: “BECAUSE

THERE WAS NO COVERED LOSS UNDER THE BOND, THERE IS NO COVERAGE FOR

COURT COSTS AND ATTORNEYS’ FEES.” Id.          Therefore, the district

court could not have reasonably interpreted Gulf’s summary judgment

costs and attorneys’ fees argument as an argument that Brady

National had to be an actual “defendant” in order to recover those

costs and fees even if the loss in this case was a covered loss.

That Gulf’s Rule 59(e) motion conceded the award of court costs and

attorney’s fees sought by Brady National with the exception of the

$35,515.55 incurred in the conspiracy action against Stearns’

former law firm in the event that the district court did not alter

its prior coverage ruling reinforces our conclusion.

      “Although we can affirm a summary judgment on grounds not

relied on by the district court, those grounds must at least have

been proposed or asserted in that court by the movant." Johnson v.

Sawyer, 120 F.3d 1307, 1316 (5th Cir. 1997); see also FDIC v.

Laguarata, 939 F.2d 1231, 1240 (5th Cir. 1991)(refusing to affirm

summary judgment on grounds “neither raised below ... nor even

raised sua sponte by the district court”).       In this case, Gulf did

not   assert   its   appellate   argument   regarding   court   costs   and

                                    19
attorneys’ fees as to the $448,864.29 before the district court.

Arguments not raised in district court are waived, because this

court does not hear arguments raised for the first time on appeal.

See Forbush v. J.C. Penny Co., 98 F.3d 817, 822 (5th Cir. 1996).

      Gulf argues that under the rule set forth in Republic Ins. Co.

v. Silverton Elevators., Inc., 493 S.W.2d 748 (Tex. 1973), waiver

cannot be applied to an insurer seeking to contest coverage, and

thus Gulf is immune from our procedurally based waiver ruling. But

that rule regarding waiver in Republic Insurance relied on caselaw

holding that an insurer does not waive its defenses to coverage by

prematurely or erroneously paying benefits.        See id.     Hence, we do

not read the rule in Republic Insurance to confer upon insurers any

immunity from procedurally based rulings.9

      The only defense Gulf might raise to procedural waiver in this

circumstance   is   that   the   waiver   will   result   in   a   “manifest

injustice.” See Jackson v. United States Postal Service, 666 F.2d
258, 260-61 (5th Cir.1982); West India Indus., Inc. v. Tradex, 664
F.2d 946, 951-52 (5th Cir. 1981). But Gulf has not articulated any

argument that adherence to the general procedural rule will result

in a manifest injustice and we do not believe waiver here will

  9
   Additionally, the substantive law of Texas does not apply to
resolve this procedural question in this diversity case. See Exxon
Corp. v. Burglin, 42 F.3d 948, 950 (5th Cir. 1995)(citing Erie R.R.
v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938)).

                                    20
result in any injustice. It is undisputed that Brady National was

a defendant in the investors’ lawsuit, and the record shows that

Brady National had to file a defense in order to challenge the

government’s forfeiture petition.         Thus, because Gulf’s second

appellate argument challenging the award of $448,864.29 in court

costs and attorney’s fees incurred in the forfeiture and investor

lawsuits was not raised before the district court, it is waived on

appeal. Therefore, we affirm the district court’s summary judgment

imposing those court costs and attorneys’ fees.

     It is undisputed, however, that Gulf properly raised in its

Rule 59(e) motion the argument that the Bond did not provide

coverage for the $35,515.55 in costs and attorneys’ fees incurred

by Brady National in its intervention.       The district court denied

Gulf’s Rule 59(e) motion on this point without discussion.              We

review de novo, as questions of law, alleged errors in contract and

insurance policy interpretation. See T.L. James & Co., Inc. v.

Traylor Bros., Inc., 294 F.3d 743 (5th Cir. 2002); Performance

Autoplex II LTD v. Mid-Continental Casualty Co., 322 F.3d 847, 853

(5th Cir. 2003)(internal citations omitted).

     We agree with Gulf that the Bond’s “Costs and Attorneys’ Fees”

provision   can   not   reasonably   be   interpreted   to   cover   Brady

National’s costs and fees associated with its intervention in the

state civil conspiracy action. The Bond provision affords coverage

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for Brady National’s “liability or alleged liability. . .for any

loss,   claim      or   damage,   which   would   constitute   a   valid   and

collectible loss under” the Bond.           Thus, the Bond provision does

not afford coverage for the $35,515.55 in costs and attorneys’ fees

because they were incurred by Brady National in an action for

damages against another rather than defending against a claim by a

third party seeking to hold Brady National liable for that party’s

loss.    Therefore we find that the district court’s award of

$35,515.55 in costs and attorneys’ fees incurred in asserting a

claim for conspiracy to defraud is in error.               Accordingly, we

reverse the district court’s grant of summary judgment to Brady

National and denial of Gulf’s Rule 59(e) request to modify the

final judgment with regard to these specific costs and fees.

VI.   CONCLUSION

      Because we have concluded that the term “stolen” is ambiguous

as it is used in the “Securities” provision, and that a reasonable

interpretation of that term could encompass coverage for losses

sustained resulting from the “stolen” CDs in this case, we find no

error in the district court’s grant of summary judgment in favor of

Brady National for the $800,801.40 loss resulting from the CDs. We

also find no error in the district court’s grant of summary

judgment in favor of Brady National for $448,864.29 in costs and

attorneys’ fees resulting from the forfeiture action and investors’

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lawsuit.   Accordingly, we affirm the summary judgment favoring

Brady National against Gulf for recovery with respect to Brady

National’s loss relating to the stolen CDs and Brady National’s

costs and attorneys’ fees relating to the forfeiture action and the

investors’ lawsuit.   Because we conclude that the “Court Costs and

Attorneys’ Fees” provision of the Bond does not afford coverage for

the $35,515.55 in costs and attorneys’ fees Brady National incurred

as an intervener in the conspiracy to defraud lawsuit against

Stearns’ former law firm, we reverse the summary judgment for Brady

National against Gulf and render summary judgment in favor of Gulf

on this part of the case.

AFFIRMED in part; REVERSED in part; and RENDERED

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