Court Opinion

ID: 34721
Source: CourtListenerOpinion
Date Created: 2010-04-25 19:19:32+00
Date Added: 2024-06-11T14:56:57.067099
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS

                       FOR THE FIFTH CIRCUIT

                       _____________________

                           No. 95-50294

                       _____________________

          FEDERAL DEPOSIT INSURANCE CORPORATION, in its Corporate
          Capacity

                               Plaintiff - Appellant,

          v.

          CERTAIN UNDERWRITERS OF LLOYDS OF LONDON PURSUANT TO
          AND UNDER BANKERS BLANKET BOND POLICY NO.
          834/FB8808216; ANGLO AMERICAN INSURANCE COMPANY,
          LIMITED; ASSICURIZIONI GENERALI AS PER H.S. WEAVERS
          AGENCIES LTD; BRITISH LAW INSURANCE COMPANY LTD;
          CAMPAGNIE EUROPEENE D'ASSURANCES INDUSTRIELLES S.A.;
          COPENHAGEN REINSURANCE CO., LTD

                              Defendants - Appellees
_________________________________________________________________

           Appeal from the United States District Court
                 for the Western District of Texas
                           (A-93-CA-489)
_________________________________________________________________

                          March 28, 1996
Before KING, DAVIS, and BARKSDALE, Circuit Judges.

PER CURIAM:*

     The Federal Deposit Insurance Corporation ("FDIC") appeals

the take nothing judgment rendered against it by the district

court in an action against certain underwriters of Lloyds of

     *
        Pursuant to Local Rule 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that this opinion should not be published and is not precedent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 Local Rule
47.5.4.
London (collectively "Underwriters") for breach of a fidelity

bond agreement.     For the reasons assigned, we affirm.

I.   FACTUAL AND PROCEDURAL BACKGROUND

       A.   FACTS

       The FDIC brought suit against Underwriters as assignee of a

claim under a financial institution bond issued by Underwriters

to Texas American Bancshares, Inc. ("TAB") and several of its

subsidiaries, including TAB-Austin, TAB-Ft. Worth, TAB-

Fredericksburg, and TAB-Temple.     The bond at issue contains a

"Revised Fidelity Insuring Agreement" that limits insurance

coverage to "[l]oss resulting solely and directly from one or

more dishonest or fraudulent acts of an employee . . . ."

       Two former employees of TAB-Austin, Donald R. Cockerham

("Cockerham") and Lester L. Duncan ("Duncan"), concealed their

financial interests in two real estate ventures to which TAB-

Austin and the other TAB subsidiaries lent funds.     The

concealment of their interests constituted a violation of a

federal banking regulation known as Regulation O.     12 C.F.R. Part

215.

       Each of the participating TAB subsidiaries made an

independent evaluation of the creditworthiness of the loan

principals.     A former president of TAB-Ft. Worth testified at

trial that no effort was made to determine the parties for whom

the principal on the loan in which TAB-Ft. Worth participated was

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acting as trustee, and that it was common to make loans without

such inquiries.   However, representatives of the TAB subsidiaries

testified that they would not have extended the loans if they had

known of Cockerham's and Duncan's concealed financial interests.

     Plummeting real estate prices prevented the principals from

developing or reselling the real estate purchased with the loan

proceeds, and the principals defaulted on the loans.    All of the

loans were secured by the real estate, which was deeded on

foreclosure to TAB-Austin, individually, and as representative of

the other TAB subsidiaries.

     On September 8, 1988, TAB sent written notice of a possible

loss to Underwriters.   A Proof of Loss was submitted on May 5,

1989 in connection with the fraudulent loans.    On July 20, the

Office of Comptroller of the Currency appointed the FDIC as

receiver for the TAB subsidiaries.    When the Underwriters

declined to pay the claim, the FDIC commenced this action.

     B.   PROCEDURAL BACKGROUND

     The FDIC brought suit against Underwriters for breach of

contract on August 17, 1993.   The case was tried before a jury

from February 27 to March 2, 1995.    The district court gave the

following jury instruction, as requested by Underwriters:

          Lloyds of London contends that the dishonest or
fraudulent acts of Cockerham and/or Duncan were not the sole
     and direct cause of loss and that the FDIC, therefore, is
     not entitled to recover on the Bond. The FDIC has the

                                  3
      burden of proof that the acts of Cockerham and/or Duncan
      were the sole and direct cause of the loss.

           Sole cause means there is no other cause.

           A loss is caused solely and directly from dishonest or
      fraudulent acts where the dishonest or fraudulent acts are
      the only cause of the loss. If an act is the sole cause,
      there can be no other cause. If the loss results from more
      than one cause, then no single cause is the sole cause.

           A "but-for" test has no applicability where coverage is
      limited to losses caused solely by a particular act. Mere
      proof that a loss would not have occurred but for a certain
      act is not sufficient.

      The FDIC had submitted written objections to the

Underwriters' proposed jury instructions prior to the charge of

the jury, arguing that "sole cause" means that there is no other

concurrent proximate cause.

      The district court submitted the case to the jury on a

special verdict form.   Based on the finding of the jury that the

misconduct of Cockerham and Duncan was not the sole cause of the

loss of the TAB banks, the district court entered judgment in

favor of Underwriters on March 16, 1995.

II.   ANALYSIS

      The FDIC contends that the jury instruction regarding sole

cause was erroneous because the jury should have been instructed

that "sole cause" means "sole proximate cause."   We need not

reach the issue of the propriety of the jury instruction because

any error in the instruction "could not have affected the outcome

of the case," and was thus harmless.   Bender v. Brumley, 1 F.3d
4
271, 276-77 (5th Cir. 1993) (internal quotations and citation

omitted).

     The FDIC predicates its argument on the notion that, as a

matter of law, a bank's loss from a fraudulent loan occurs at the

time of the disbursement of funds rather than at the time of

default on the loan.   Under such a legal conclusion, events that

occurred subsequent to disbursement of the loan funds, such as

decline in the real estate market, could not have been causes of

the loss because they occurred after the loss.

     The FDIC thus reasons that the only possible causes that the

jury could have considered in reaching its conclusion that

employee dishonesty was not the sole cause of the loss of the TAB

banks were (1) employee dishonesty, and (2) the decisions of the

TAB subsidiaries to make the loans.   The FDIC urges that the jury

could have concluded that (1) employee dishonesty was a proximate

cause of the loss and (2) the TAB subsidiaries' credit decisions

were causes of the loss, but not proximate causes of the loss.

If the jury reached this conclusion, then the outcome of the

trial would have been different if the definition of "sole cause"

proffered by the FDIC had been included in the jury instruction.

Under the FDIC's definition, employee dishonesty would have been

the "sole proximate cause" of the loss, and thus the "sole cause"

of the loss.

     The FDIC's analysis is problematic because it is predicated

on a legal argument not advanced at trial: namely, that a bank's

                                 5
loss in connection with a fraudulent loan occurs at the time of

disbursement of the loan funds rather than at the time of

default.    The FDIC made no request for a jury instruction that

loss in connection with the loans at issue in the case occurred

at the time that the loan funds were disbursed.1    Additionally,

neither the FDIC's proposed jury instruction on sole cause nor

its objection to Underwriters' proposed instruction on sole cause

contained any analysis or citation of legal authority relating to

the timing of the loss.    The FDIC merely argued in closing that

the loss occurred at the time of disbursement.     Thus, the FDIC

consented to the jury's consideration of other factors, such as

decline in the real estate market, as potential causes of the

loss.

     Because the FDIC did not request that the district court

instruct the jury that, as a matter of law, loss occurs at the

time of loan funding, it has not preserved this argument for

appeal.    This court will not consider on appeal matters not

presented to the trial court.    Quenzer v. United States (In re

Quenzer), 19 F.3d 163, 165 (5th Cir. 1993).    The FDIC is

essentially asking this court to view the jury instruction in

     1
        In its written objections to Underwriters' proposed jury
instructions, the FDIC advanced the argument that loss occurs at
the time of loan disbursement and cited supporting authority in
an objection to a requested jury instruction that the FDIC, as
assignee, was limited in its recovery to losses suffered by the
assignors of the contract claim. However, no legal argument
concerning the timing of loss was ever advanced by the FDIC in
connection with jury instructions relating to causation.

                                  6
this case through a legal framework not advanced at trial, and we

decline to do so.

     At oral argument before this court, counsel for the FDIC

conceded that the FDIC's appeal would be unmeritorious in the

absence of a recognition by this court that loss resulting from a

fraudulent loan occurs at the time that loan funds are

disbursed.2    Logically implicit in this concession is a

concession that, if the loss on the fraudulent loans occurred at

the time of default, then decline in the real estate market was a

proximate cause of the loss.    This is the only conclusion that

would necessarily render any error in the jury instruction on

sole cause harmless, and thus render the FDIC's appeal

unmeritorious.    Employee dishonesty could not be the sole

proximate cause of the loan loss, as required by the fidelity

bond, if decline in the real estate market was a proximate cause

of the loss.    Accordingly, the FDIC has conceded that the jury

would have reached the same result with the FDIC's requested

     2
        The following exchange took place between the court and
counsel for the FDIC during oral argument:

THE COURT:    That is why it is that it is so important to your
              cause that you establish that the loss occurred at
              the date that the loan was funded.

COUNSEL:      That's right, your honor.

THE COURT:    Without that . . . you don't have an argument.

COUNSEL:      We really don't, judge, and I will concede that.   We
              have to show that the loss occurred at funding.

                                  7
instruction on the meaning of "sole cause" that it did with the

instruction given at trial.

III.    CONCLUSION

       Because of the FDIC's failure to preserve the question of

whether a loss relating to a fraudulent loan occurs at the time

of the disbursement of the funds and because of its concession

that this issue is dispositive of its appeal, we AFFIRM.

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