Court Opinion

ID: 1017627
Source: CourtListenerOpinion
Date Created: 2013-07-04 22:07:58.77057+00
Date Added: 2024-06-11T09:51:42.048671
License: Public Domain

UNPUBLISHED

                    UNITED STATES COURT OF APPEALS
                        FOR THE FOURTH CIRCUIT

                               No. 04-2311

THE   CINCINNATI   INSURANCE  COMPANY;  THE
CINCINNATI CASUALTY COMPANY; THE CINCINNATI
INDEMNITY COMPANY,

                                             Plaintiffs - Appellees,

           versus

DYNAMIC DEVELOPMENT GROUP, LLC,

                                              Defendant - Appellant,

           and

BRANCH BANKING & TRUST COMPANY OF SOUTH
CAROLINA; BETTY HARBIN LITTLE; WILLIAM MASSEY
&   ASSOCIATES,   a/k/a  William   Massey   &
Associates, Incorporated; WILLIAM H. MASSEY;
LANNEAU WILLIAM LAMBERT, JR.,

                                                           Defendants.

Appeal from the United States District Court for the Middle
District of North Carolina, at Greensboro. James A. Beaty, Jr.,
District Judge. (CA-00-280; CA-00-281; CA-00-282; CA-00-283)

Argued:   September 21, 2005             Decided:    November 17, 2005

Before LUTTIG, Circuit Judge, HAMILTON, Senior Circuit Judge, and
James C. DEVER, III, United States District Judge for the Eastern
District of North Carolina, sitting by designation.
Affirmed by unpublished per curiam opinion.

ARGUED: Henry Pickett Wall, Sr., BRUNER, POWELL, ROBBINS, WALL &
MULLINS, L.L.C., Columbia, South Carolina, for Appellant. Andrew
Albert Vanore, III, BROWN, CRUMP, VANORE & TIERNEY, Raleigh, North
Carolina, for Appellees. ON BRIEF: E. Wade Mullins, III, BRUNER,
POWELL, ROBBINS, WALL & MULLINS, L.L.C., Columbia, South Carolina,
for Appellant. Thomas E. Crafton, Gene F. Zipperle, Jr., ALBER
CRAFTON, P.S.C., Louisville, Kentucky, for Appellees.

Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).

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PER CURIAM:

     The present litigation arose from a large-scale construction

project in which performance and payment bonds and a dual obligee

rider, issued in connection with the loan for the project, were

allegedly fraudulently created. The appellant, Dynamic Development

Group, LLC (DDG) seeks a new trial on the basis of alleged errors

in the jury instructions and verdict form.    We affirm.

                                  I.

     A.   Factual Background.1

     On September 10, 1990, the Cincinnati Insurance Company, the

Cincinnati Casualty Company, and the Cincinnati Indemnity Company

(collectively Cincinnati) entered into an agency agreement (the

Agency Agreement) with Massey & Associates (the Massey Agency), an

independent insurance agency, and its president, William H. Massey

(Massey), wherein it was agreed that the Massey Agency and Massey

would act as sales agents for Cincinnati.     Some years later, on

August 25, 1995, Massey was given a Letter of Authority for use

with Power of Attorney from Cincinnati.      This document, for the

first time, conferred authority on Massey to execute surety bonds

on behalf of Cincinnati.   The Letter of Authority was sent to the

     1
      Our statement of the facts is largely verbatim from the
district court’s published opinion in this case denying DDG’s
motion for a new trial. The Cincinnati Ins. Co. v. Dynamic Dev.
Group, LLC, 336 F. Supp. 2d 552, 557-58 (M.D.N.C. Sept. 17, 2004).

                                 - 3 -
Massey Agency along with a “bond kit” containing, among other

things, an embossed Cincinnati seal, bond forms, Cincinnati wafer

seals, and powers of attorney (POAs) naming Massey, and others in

his agency, as Cincinnati attorneys-in-fact for the purpose of

executing authorized Cincinnati surety bonds if the bonds fell

within the 1.6 million dollar authority expressly set forth in the

POAs.   Massey and the authorized employees of the Massey Agency

were not authorized to use the POAs for the purpose of executing

Cincinnati contract bonds, including performance and payment bonds

such as the ones at issue in this case, unless and until they

received prior written approval from Cincinnati.

     On October 4, 1996, Cincinnati terminated the Agency Agreement

by letter and thereby revoked Massey and the Massey Agency’s

ability to execute any new bonds on behalf of Cincinnati.       On

October 7, 1996, Daniel McCurdy, Senior Vice President and Bond

Manager for Cincinnati, wrote Massey directing him to destroy all

Cincinnati POAs previously provided to him and the Massey Agency.

Cincinnati also directed Massey to return all other materials used

to execute bonds, including the Cincinnati bond forms, the embossed

seal, and the wafer seals.   Two days later, Massey, on behalf of

the Massey Agency, signed a limited agency agreement (the Limited

Agency Agreement) acknowledging that the Agency Agreement had been

terminated as of October 4, 1996, and that the Massey Agency would

act as a limited agent for Cincinnati only for the purpose of

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servicing policies which were issued prior to the October 4, 1996

termination date.   During the time span relevant to this action,

Cincinnati never informed the general public nor the North Carolina

Department of Insurance of the termination of the Agency Agreement

and the creation of the Limited Agency Agreement.

     A few months later, on January 15, 1997, Cincinnati’s Bond

Department received a memorandum from Massey stating that he had

destroyed all Cincinnati POAs in accordance with Daniel McCurdy’s

letter of October 7, 1996.      Nevertheless, sometime after the

termination of the Agency Agreement, Cincinnati instructed a field

representative to go to the Massey Agency to physically retrieve

the “bond kit” supplies. The field representative reported back to

Cincinnati headquarters that he was reluctant to pick up the

materials for fear of his personal safety given that Massey’s wife

kept a gun in her purse and harbored resentment against Cincinnati.

Thus, there remained some concern at Cincinnati that Massey still

had bond materials, but Cincinnati took no additional action to

retrieve them.

     In January 1999, DDG entered into a construction contract with

Centech Building Corporation (Centech) in the amount of 2.6 million

dollars for the construction of a Sleep Inn Motel at Interstate 77

and Highway 150 in Iredell County, North Carolina (the Sleep Inn

Project).   DDG obtained its construction financing for the Sleep

Inn Project through Branch Banking & Trust.

                              - 5 -
      In the past, Centech had obtained most of its insurance and

bond needs through the Massey Agency.           During the duration of the

business relationship between the Massey Agency and Centech, the

Massey Agency had written performance and payment bonds through

Travelers Insurance Company, Amwest Surety, and other commercial

sureties, but never through Cincinnati.           At the time of the Sleep

Inn   Project,    Centech     was     having    financial       problems     and,

consequently, its primary surety at the time, Travelers Insurance

Company, refused to bond Centech for the project.                   The Massey

Agency was particularly motivated to provide the bonds that Centech

needed for the Sleep Inn Project because Centech owed the Massey

Agency 30,000 dollars in back premiums for such things as workers’

compensation and general liability coverage.               To prevent Centech

from losing the Sleep Inn Project while the Massey Agency attempted

to obtain legitimate bonds from Amwest Surety, Massey decided to

manufacture   through    Cincinnati       a   fraudulent    payment    bond,   a

fraudulent labor and performance bond, and a fraudulent dual

obligee   rider   to   make   it    appear     that   Centech    had   met    the

requirements of the building contract with DDG. Each of these fake

bonds listed DDG as obligee.

      According to Massey, when he manufactured the fake bonds, he

copied a previously executed Cincinnati performance bond and a

previously    executed   labor      and   material    payment    bond.     Massey

modified the bond by whiting-out the blanks on the old bond, and

                                     - 6 -
then inserting the necessary information on a photocopied form. As

for the dual obligee rider, Massey indicated that he did not have

a standard dual-obligee-rider form because those forms had not been

included in his original “bond kit” from Cincinnati; therefore, he

used a Cincinnati indemnity-type performance bond provided to him,

and manually typed “Dual Obligee Rider” at the top left of the bond

form.     Massey’s manufactured bonds lacked an original agent’s

signature, did not have the proper embossed seal or wafer seal, and

did not have a power of attorney attached.

     Not long after construction started on the Sleep Inn Project,

Centech    was   unable    to   keep    up     with   the   project   schedule.

Accordingly,     subcontractors         and     vendors     began     requesting

information regarding the bonds in order to file payment claims.

According to Cincinnati, only when it began to receive payment

claims from some of these subcontractors and/or vendors did it

begin to suspect something was amiss. Cincinnati then searched its

files but could not find any record of issuing bonds for the Sleep

Inn Project or Centech. Further investigation revealed that Massey

had issued fraudulent Cincinnati bonds for approximately 9 million

dollars,   including      the   2.6    million    dollars    worth    issued   in

connection with the Sleep Inn Project.

     B.    Relevant Procedural History.

     On March 21, 2000, Cincinnati filed the present declaratory

judgment   action   in    the   United    States      District   Court,   Middle

                                       - 7 -
District of North Carolina, against DDG and others.              Cincinnati

based    federal   subject    matter       jurisdiction     on     diversity

jurisdiction.   28 U.S.C. § 1332.    In its action, Cincinnati sought

a declaration that it had no liability to DDG on the fake bonds and

that they were void ab initio.       DDG asserted four counterclaims

against Cincinnati: (1) violation of the North Carolina Unfair and

Deceptive Trade Practices Act; (2) common law bad faith; (3)

negligently misrepresenting that Massey and the Massey Agency

possessed   authority   to   issue   the    bonds   at    issue;   and   (4)

enforcement of the performance bond.

     The district court subsequently disposed of numerous claims

and parties in the case, including granting summary judgment in

favor of Cincinnati with respect to DDG’s counterclaims against it

for violation of the North Carolina Unfair and Deceptive Trade

Practices Act and common law bad faith.          Cincinnati Ins. Co. v.

Centech Building Corp.,      286 F. Supp. 2d 669 (M.D.N.C. Oct. 2,

2003).   However, the district court denied summary judgment in

favor of Cincinnati with respect to Cincinnati’s claim that the

bonds at issue be declared invalid.         The district court reasoned

that “there [were] genuine issues of material fact as to whether

[Cincinnati] negligently enabled Massey, either by failing to

adequately retrieve his indicia of authority and/or by failing to

inform third parties that his agency status was limited, to act

                                 - 8 -
with   apparent   authority   when   he   issued   the   fraudulent   bonds

. . . .”    Cincinnati Ins. Co., 286 F. Supp. 2d at 693.

       Cincinnati’s claim of bond invalidity and DDG’s counterclaims

for negligent misrepresentation and enforcement of the performance

bond proceeded to a jury trial on October 6, 2003.              After DDG

rested its proof, it moved to amend its third counterclaim to

conform to the evidence.      First, DDG’s motion to amend sought to

change the heading of the third counterclaim from “Negligent

Misrepresentation” to “Negligence and Negligent Misrepresentation.”

Second, DDG’s motion sought to add allegations that Cincinnati was

negligent in allowing Massey to retain certain indicia of authority

provided to him by Cincinnati, and/or in failing to notify the

public and North Carolina’s Department of Insurance that Massey was

no longer an active and authorized agent of Cincinnati. During

argument on its motion to amend before the district court, DDG

explained:

       [W]e have made allegations of negligence. We have made
       allegations that put them on notice that that is what we
       are alleging, that is that they were obligated to
       exercise reasonable and ordinary care in terminating the
       agency relationship. That is our allegation. What we
       have said in our pleading is, that -- we have called that
       in our pleading negligent misrepresentation, but what the
       pleading really says and amounts to is, saying that they
       were negligent in the manner that they went about
       terminating this relationship.

            What this amendment does, as you’ll see, is simply
       elaborates on that and states in essence, specifies the
       negligence in that [Cincinnati] left Mr. Massey in
       possession of the bond kit, bond forms, powers of
       attorney, other indicia of authority.

                                 - 9 -
(J.A. 289).

     Further clarifying its position, DDG stated:

     I think that there are two interrelated issues here, and
     I think we can go to the jury on two alternate theories
     of recovery, one being a contractual basis of recovery,
     that is that they had apparent authority, Mr. Massey had
     apparent authority to bind Cincinnati Insurance Company
     to liability under the bond, that would be a contractual
     case of apparent authority.

          The other aspect of apparent authority would be a
     negligent aspect of apparent authority, that is, the
     principal is liable for the acts its agent committed
     within the scope of its apparent authority in tort, not
     saying that the bond is valid necessarily, but that they
     acted negligently . . . .

(J.A. at 295) (emphasis added).

     When the district court asked DDG whether it was indicating

that apparent authority is only part of the breach of contract

notion, DDG’s counsel responded as follows:

     In essence, I think -- I think it’s all tied together,
     Your Honor, and the cases -- certain aspects of the cases
     of apparent authority hone in on these negligence issues
     and certain of them hone in on these just issues of
     apparent authority.

     I agree with Mr. Vanore [Counsel for Cincinnati] that the
     whole concept of negligence is tied in with apparent
     authority.

(J.A. at 296) (emphasis added).

     The district court granted DDG’s motion to amend and then

immediately engaged Cincinnati and DDG in a discussion regarding

what issues should go to the jury.      DDG informed the district

court:

                              - 10 -
     I think, Your Honor, our view is, that it would be
     possible for the jury to conclude that we agree with
     Cincinnati that these bonds are no good, these are
     fraudulent bonds, we’re not going to enforce the bonds,
     and they could agree on that in any number of ways and
     they could come to the conclusion that they were just a
     fraud, but they could also find that even if the bonds
     were no good, that nonetheless, Cincinnati’s conduct in
     the termination of this agent was negligent in failing to
     do these things that we’ve pled.

(J.A. 298).

     The district court immediately responded:

          I don’t disagree with that, and I almost question
     whether or not the issue on the bond validity question to
     the jury could be whether or not the bonds were issued
     fraudulently, and I think the jury, based upon the
     evidence, would have to answer that question yes, but
     then you get to the negligence aspect of it second, there
     still could be liability based upon negligence as tied in
     with apparent authority.

(J.A. 298) (emphasis added).

     DDG responded:

           That’s exactly where [we are], Your Honor. . .
           . That’s the way we perceive the case.

(J.A. at 298-99) (emphasis added).

     Consistent with DDG’s perception of the case as expressed

during argument on its motion to amend and during the charging

conference, the district court instructed the jury that Cincinnati

had brought a claim against DDG alleging that the bonds at issue

were fraudulent, while DDG counterclaimed that Cincinnati “was

negligent in allowing William Massey, or his agency, to hold

himself   out   as   having   apparent   authority   to   issue   the   bonds

involved in this case.”         (J.A. 356).    The district court then

                                  - 11 -
instructed the jury that its verdict would take the form of answers

to three questions:

          First, were the bonds fraudulently issued? There is
     a space for you to answer yes or no, and I’ll give you
     further instructions specifically on that question in a
     moment.

          Question number two: Was William Massey authorized
     under the doctrine of apparent authority to issue the
     bonds for Cincinnati; with a place for you to answer yes
     or no.

          Question number three, what amount of damages, if
     any, is Defendant Dynamic Development Group entitled to
     recover from the Plaintiff Cincinnati?

(J.A. 357).

     Of relevance to the issues on appeal, the district court next

instructed the jury that the relationship between Massey and

Cincinnati, based upon the evidence in the case, is referred to as

an agency relationship.    The district court then defined an agency

relationship as a relationship where one person, the agent, is

empowered   to   take   action   on   behalf   of   another   person,   the

principal. The district court also instructed the jury that “[t]he

authority to have an agent to act with respect to a particular

matter may either be actual or it may be apparent.”           (J.A. 360).

The district court then defined the concept of actual authority for

the jury as follows:

     a situation where the principal has actually authorized
     the agent to act on the principal’s behalf with respect
     to a particular matter. Actual authority may be granted
     by the principal by word of mouth or by writing or it may
     be implied by conduct of the principal amounting to

                                 - 12 -
     consent or acquiescence or by the nature of the work that
     the principal has entrusted to the agent.

(J.A. 360).    The district court then instructed the jury that no

evidence had been presented in the case that Massey possessed

actual authority to issue the bonds in connection with the Sleep

Inn Project.

     The district court next contrasted the concept of apparent

authority:

          Apparent authority, on the other hand, is the
     authority in which the principal has held the agent out
     as possessing or which the principal has negligently
     permitted the agent to hold himself out as possessing.
     If a principal acts or conducts his business either
     intentional or through negligence or failed to disapprove
     of the agent’s acts or course of actions so as to lead
     the public to believe the agent possesses the authority
     to act, then the principal will be bound by the agent’s
     acts within the scope of this apparent authority.

(J.A. 361) (emphasis added).

     The district court then went on to give the jury standard

instructions explaining the concept of negligence.    Notably, the

district court also gave the jury what amounted to a contributory

negligence instruction by instructing that the scope of an agent’s

apparent authority will be governed by what authority the third

person, here DDG, in the exercise of reasonable business prudence

was justified in believing that the principal conferred upon its

agent.

     In wrapping up the bulk of its instructions on negligence, the

district court instructed the jury:

                               - 13 -
           So I finally instruct you on this issue that if
      [DDG] has proven by the greater weight of the evidence
      that Cincinnati negligently performed or negligently
      permitted William Massey to hold himself out as
      possessing authority, which included the authority to
      issue the bonds in this case on behalf of Cincinnati, and
      if you find [DDG] has shown by the greater weight of the
      evidence that [DDG] reasonably relied upon this
      appearance of authority in accepting and relying on the
      bonds, then it would be your duty to answer [the second
      question] in favor of [DDG].

           On the other hand, if [DDG] has failed to prove such
      apparent authority, or its reasonable reliance thereon or
      if after considering all of the evidence you are unable
      to say what the truth is, then it would be your duty to
      answer [the second question] no in favor of [Cincinnati].

(J.A. 364).

      Consistent with the district court’s instructions, the verdict

sheet submitted to the jury asked the jury to answer the following

three questions.

      1.    Were the bonds fraudulently issued?         YES      NO

      2.    Was William Massey authorized under the doctrine of
            apparent   authority  to   issue   the  bonds   for
            Cincinnati? YES NO

      3.    What amount of damages, if any, is defendant
            Dynamic Development Group entitled to recover from
            plaintiff Cincinnati?     _________________

(J.A. 408).        Notably, DDG’s only objection to this verdict form

prior to it being submitted to the jury went to question 2.

Instead of the just quoted version of question 2 actually submitted

to   the   jury,    DDG   had   proposed   that   question   2   read:   “Was

Cincinnati negligent in allowing Massey to hold himself out with

the apparent authority to act for Cincinnati?”           (J.A. 341).

                                    - 14 -
     Following its deliberations, the jury returned a verdict in

favor of Cincinnati, finding that the bonds were fraudulently

issued and that Massey did not have apparent authority to issue the

bonds.     On October 16, 2003, the district court entered judgment

upon the jury’s verdict.

     On October 22, 2003, DDG filed a motion for a new trial

pursuant    to   Federal   Rule   of   Civil   Procedure   59   or,   in   the

alternative, for judgment as a matter of law.          DDG based the new

trial portion of its post-trial motion on the following three

arguments:    (1) the district court’s jury instructions and verdict

form failed to put a simple negligence claim before the jury

separate and apart from its negligence claim intertwined with the

doctrine of apparent authority; (2) the district court failed to

instruct the jury that when one of two persons must suffer from the

fraud of another, the party who first reposed a confidence, or by

his negligent conduct made it possible for the loss to occur, must

bear the loss; and (3) the district court failed to instruct the

jury on the portions of the North Carolina insurance statutes

requiring insurance companies to “report, investigate and control

the activities of corrupt agents.”          (J.A. 415).

    The district court denied DDG’s post-trial motion in toto.

Cincinnati Ins. Co., 336 F. Supp. 2d at 565.           This timely appeal

followed in which DDG repeats each of its three arguments in

support of its motion for a new trial.

                                   - 15 -
                                          II.

      DDG’s overarching argument on appeal is that it deserves a new

trial because the district court’s jury instructions and verdict

form failed to put a simple negligence claim before the jury

separate and apart from its negligence claim intertwined with the

doctrine of apparent authority.                  According to DDG, its simple

negligence claim rests upon its theory that Cincinnati “negligently

supervised or terminated its agent Massey.”                     (DDG’s Br. at 17).

DDG   goes    on     to   assert   that   its     motion     to     amend   its    third

counterclaim       served    to    clarify      its    intent     to   allege     such   a

negligence claim separate and apart from a negligence claim based

upon or intertwined with the doctrine of apparent authority.                         DDG

also represents to us that it repeatedly asked the district court

to submit a separate verdict question to the jury on whether or not

Cincinnati had negligently supervised or terminated its agency

relationship with Massey, but that the district court refused to do

so.

      Cincinnati’s opposition on appeal mirrors the district court’s

reasoning below in rejecting this same argument made by DDG in

support of its motion for a new trial.                  The record in this case is

crystal      clear    that   DDG’s    separate         negligence      theory,    wholly

unrelated to the doctrine of apparent authority, was created by DDG

out of whole cloth after the jury rendered its verdict. Cincinnati

Ins. Co., 336 F. Supp. 2d at 562-63.                  For example, in DDG’s motion

                                       - 16 -
to amend its third counterclaim to conform to the evidence, the

restated allegations all referred to indicia of authority; an

apparent authority concept. Further, in DDG’s arguments before the

district court regarding the jury instructions, DDG admitted that

the issue of negligence as pled by it was intertwined with the

doctrine of apparent authority.   Finally, in the proposed verdict

form that DDG submitted to the district court for consideration,

DDG only requested a specific question on negligence in the context

of the doctrine of apparent authority.

     We wholeheartedly agree with Cincinnati that the district

court correctly ruled that DDG is not entitled to a new trial in

order to put a simple negligence claim before the jury separate and

apart from the doctrine of apparent authority.

     It is settled in this jurisdiction that the formulation
     of issues and the form of interrogatories is committed to
     the sound discretion of the trial judge. In considering
     the adequacy of the verdict form, we consider several
     factors, including whether the interrogatories adequately
     presented the contested issues to the jury when read as
     a whole and in conjunction with the general charge,
     whether submission of the issues to the jury was fair,
     and whether the ultimate questions of fact were clearly
     submitted to the jury.

Klein v. Sears Roebuck & Co., 773 F.2d 1421, 1426 (4th Cir. 1985)

(citations omitted).

     The short of the long is that the record below in no manner

supports DDG’s assertion on appeal that it alleged and pursued a

simple negligence claim separate and apart from its negligence

claim based upon the doctrine of apparent authority.        As the

                              - 17 -
district court correctly observed in its published opinion denying

DDG’s motion for a new trial, from the time of DDG’s motion to

amend its third counterclaim to conform to the evidence until the

case went to the jury, DDG repeatedly and consistently took the

position before the district court that its negligence claim was

intertwined with the doctrine of apparent authority.    Cincinnati

Ins. Co., 336 F. Supp. 2d at 562.   At no time did DDG ever inform

the district court that it sought to pursue a theory of negligence

separate and apart from the doctrine of apparent authority.

     In conclusion, we hold, based upon the reasoning of the

district court, id. at 561-63, that the jury instructions and

verdict form in this case adequately presented all contested issues

to the jury when read as a whole and in conjunction with the

district court’s jury instructions.2   Accordingly, we affirm.

                                                          AFFIRMED

     2
      As previously noted, DDG also makes the same two remaining
arguments pertaining to jury instructions that it made below in
support of its motion for a new trial. We reject such arguments on
the reasoning of the district court as well. Cincinnati Ins. Co.,
336 F. Supp. 2d at 563-565.

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