Gross v. Shearson Lehman Bros. Holdings, Inc. , 43 F. App'x 672 ( 2002 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
ALFRED W. GROSS, Commissioner of 
Insurance, State Corporation
Commission, as deputy receiver of
Fidelity Bankers Life Insurance
Company,
Plaintiff-Appellee,
v.
SHEARSON LEHMAN BROTHERS  No. 01-1632
HOLDINGS, INCORPORATED,
Defendant-Appellant,
and
ROBERT WEINGARTEN; GERRY R.
GINSBERG; LEONARD GUBAR,
Defendants. 
ALFRED W. GROSS, Commissioner of 
Insurance, State Corporation
Commission, as deputy receiver of
Fidelity Bankers Life Insurance
Company,
Plaintiff-Appellant,
v.
SHEARSON LEHMAN BROTHERS  No. 01-1684
HOLDINGS, INCORPORATED,
Defendant-Appellee,
and
ROBERT WEINGARTEN; GERRY R.
GINSBERG; LEONARD GUBAR,
Defendants. 
2 GROSS v. SHEARSON LEHMAN BROTHERS
Appeals from the United States District Court
for the Eastern District of Virginia, at Richmond.
Richard L. Williams, Senior District Judge.
(CA-92-808-3)
Argued: April 5, 2002
Decided: August 23, 2002
Before WILKINSON, Chief Judge, and MICHAEL and
TRAXLER, Circuit Judges.
Affirmed by unpublished per curiam opinion.
COUNSEL
ARGUED: Helen Lalich Duncan, LEBOEUF, LAMB, GREENE &
MACRAE, L.L.P., Los Angeles, California, for Appellant. Patrick
Herrera Cantilo, CANTILO & BENNETT, L.L.P., Austin, Texas, for
Appellee. ON BRIEF: Allyson S. Taketa, LEBOEUF, LAMB,
GREENE & MACRAE, L.L.P., Los Angeles, California; Douglas M.
Palais, Dana J. Finberg, MCCANDLISH KAINE, P.C., Richmond,
Virginia, for Appellant. Susan E. Salch, Pierre J. Riou, CANTILO &
BENNETT, L.L.P., Austin, Texas; Howard W. Dobbins, Robert D.
Perrow, Elizabeth Mason Horsley, WILLIAMS, MULLEN, CLARK
& DOBBINS, P.C., Richmond, Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
GROSS v. SHEARSON LEHMAN BROTHERS 3
OPINION
PER CURIAM:
Shearson Lehman Brothers Holdings, Inc. ("Shearson") appeals the
district court’s entry of final judgment in favor of Alfred W. Gross,
the deputy receiver of Fidelity Bankers Life Insurance Co., on Shear-
son’s claim for indemnity. Shearson also appeals the denial of its
motion for attorneys’ fees and costs. Finding no error, we affirm.
I.
We will briefly describe the interlocking business relationships
among the related companies that figure in this case. We also describe
other litigation that is central to Shearson’s indemnity claim.
A.
First Capital Holdings, Inc. ("First Holdings"), the grandparent cor-
poration, was a financial services and insurance holding company.
First Holdings owned one hundred percent of Fidelity Bankers Insur-
ance Group, Inc. ("Bankers Group") and First Capital Life Insurance
Group ("Capital Group"). In turn, Bankers Group, a parent corpora-
tion, owned one hundred percent of Fidelity Bankers Life Insurance
Co. ("Bankers Life"), a Virginia corporation. Capital Group, also a
parent corporation, owned one hundred percent of First Capital Life
Insurance Co. ("Capital Life"), a California corporation. In late 1988
Shearson bought approximately thirty-seven percent of the voting
shares of First Holdings. As part of this stock purchase, Shearson
obtained and exercised the right to appoint four of the six directors
on First Holdings’s board, making Shearson a controlling shareholder.
In 1989 Shearson’s interest in First Holdings was diluted to twenty-
eight percent, but the four persons it had appointed to the board
remained.
B.
Bankers Life had an Investment Advisory Agreement with First
Holdings, under which First Holdings managed and administered
4 GROSS v. SHEARSON LEHMAN BROTHERS
Bankers Life’s assets. By early 1991 First Holdings had invested
about thirty-eight percent of Bankers Life’s assets in junk bonds.
Starting in April 1991, due to a downturn in the junk bond market and
adverse publicity about Capital Life, there was a substantial increase
in the number of surrender requests submitted by policyholders to
Bankers Life. These developments, and especially the fact that the
junk bonds owned by Bankers Life were worth less than their book
value, led the Virginia Bureau of Insurance to become concerned that
Bankers Life would be unable to satisfy the surrender requests and
that there would be a "run on the bank." On May 13, 1991, at the
request of the Bureau of Insurance, the Circuit Court for the City of
Richmond placed Bankers Life into receivership and appointed the
State Corporation Commission (the "Commission") as receiver. Act-
ing in its capacity as a court, Va. Code Ann. § 38.2-1508, the Com-
mission appointed a deputy receiver. The Commission asserted "sole
and exclusive jurisdiction over all the [property belonging to Bankers
Life] and any claims or rights respecting such Property to the exclu-
sion of any other court or tribunal." Gross v. Weingarten, 217 F.3d
208, 213 (4th Cir. 2000). In addition, the Commission enjoined any-
one with a claim against Bankers Life from "commencing, bringing,
maintaining or further prosecuting any action at law, suit in equity,
arbitration, or special or other proceeding against [Bankers Life] or
its estate, or the Deputy Receiver and his successors in office," except
as authorized by the deputy receiver. Id.In May 1991 First Holdings, Bankers Group, and Capital Group
declared bankruptcy, which resulted in numerous lawsuits against
Shearson and others. First, in August 1991 policyholders filed an
amended class action complaint against Shearson and others, consoli-
dating various lawsuits that were already pending in the state courts
of California (the "Policyholder Action"). The complaint in the Poli-
cyholder Action among other things alleged that Bankers Life’s and
Capital Life’s officers and directors had unlawfully created an illusion
of growth and successful management which ultimately led to Bank-
ers Life being put into receivership. In particular, the complaint
alleged that Shearson was a control person and liable for improprie-
ties relating to reinsurance treaties, the marketing of insurance prod-
ucts, and the decision to maintain a high percentage of Bankers Life’s
investment portfolio in junk bonds. Second, in early 1992 the Official
Committee of Creditors Holding Unsecured Claims for and on behalf
GROSS v. SHEARSON LEHMAN BROTHERS 5
of First Holdings, Capital Life, and Bankers Life, filed counterclaims
to proofs of claims against Shearson and others in the pending bank-
ruptcy cases (the "Bankruptcy Action"). The Bankruptcy Action
involved claims for breach of fiduciary duty, waste of corporate
assets, fraudulent transfer, and conspiracy. Third, in June 1992 a class
action complaint was filed by securities holders of Bankers Life and
Capital Life against Shearson and others in the United States District
Court for the Central District of California. This action was consoli-
dated under Multidistrict Litigation Docket No. 901 (the "Securities
Action"). The Securities Action included claims that Bankers Life and
Capital Life had insufficient statutory capital and surplus and that
Shearson was a control person and thus liable to the securities holders
of First Holdings. These several lawsuits eventually led Shearson to
enter into a series of settlement agreements. In June 1992 Shearson
entered into a court-approved settlement in the Policyholder Action
and the Securities Action (the "Policyholder and Securities Settle-
ment"). Three years later, in June 1995, Shearson also agreed to a
court-approved settlement in the Bankruptcy Action (the "Bankruptcy
Settlement").
C.
In December 1992 the deputy receiver, acting on behalf of Bankers
Life, its creditors, and its policyholders, sued Shearson in the United
States District Court for the Eastern District of Virginia (the "Deputy
Receiver Action"). The deputy receiver alleged, among other things,
violations of federal and state securities laws, various forms of fraud
and conspiracy, and fraudulent or voidable transfers. In response,
Shearson filed a counterclaim (the "Counterclaim") alleging, among
other things, that it was entitled to indemnity under state and federal
securities laws from Bankers Life for the payments it had made in
connection with the Policyholder and Securities Settlement and the
Bankruptcy Settlement (collectively, the "Settlements"). The district
court, in January 1998, determined that the trial should be bifurcated
into liability and damages phases. The court also severed the Counter-
claim from the Deputy Receiver Action and stayed discovery on the
Counterclaim. The liability phase of the Deputy Receiver Action pro-
ceeded to trial, and on May 19, 1998, a jury rendered a verdict in
favor of Shearson on all counts, providing Shearson with a complete
defense to the allegations contained in the Deputy Receiver Action.
6 GROSS v. SHEARSON LEHMAN BROTHERS
Because Shearson was found not liable in the Deputy Receiver
Action, the district court lifted the stay on Shearson’s Counterclaim
against the deputy receiver. Subsequently, the district court dismissed
the Counterclaim without prejudice, and Shearson petitioned the court
for leave to file an amended counterclaim (the "Amended Counter-
claim"). The court, however, refused to allow the filing of the
Amended Counterclaim, and Shearson appealed to this court. We
reversed the district court’s refusal to permit the filing of the
Amended Counterclaim and remanded the case for further proceed-
ings. Gross v. Weingarten, 217 F.3d 208 (4th Cir. 2000).
After remand, both Shearson and the deputy receiver filed motions
for summary judgment. The district court granted the deputy receiver
summary judgment on Shearson’s federal securities law claim for
indemnification because it determined that indemnification was not an
available remedy under the federal securities laws. The court, how-
ever, came to the opposite conclusion on Shearson’s claim for indem-
nification under the securities laws of Virginia. Specifically, the court
granted Shearson’s motion for summary judgment on the question of
liability on its Virginia securities law claim for indemnification
because it concluded that state law allowed indemnity for an innocent
party. Finally, the court denied Shearson any recovery for attorneys’
fees and costs because it did not believe that such an award was avail-
able under Virginia law. Gross v. Weingarten, 3:92cv808 (E.D. Va.,
Mar. 2, 2001).
After the court ruled that Shearson was entitled to indemnification
from Bankers Life under Virginia law, the court ordered the parties
either to agree on the amount of the damages to be awarded, or if no
agreement could be reached, to submit opposing briefs to the court on
the amount of the award. Not surprisingly, the parties failed to reach
agreement, and, as ordered, they submitted briefs to the court. The
district court then concluded that Virginia law required the party who
has a meritorious claim for indemnity "to offer sufficient evidence to
enable the Court to allocate damages." Gross v. Weingarten,
3:92cv808 (E.D. Va., May 3, 2001). The court concluded that Shear-
son had failed to offer enough proof for it to allocate damages, and
accordingly it entered judgment in favor of the deputy receiver.
Shearson filed a timely notice of appeal with this court, contending
that the district court erred by (1) denying its claim for indemnifica-
GROSS v. SHEARSON LEHMAN BROTHERS 7
tion under the federal securities laws; (2) awarding judgment to the
deputy receiver on its indemnification claim under Virginia law; and
(3) denying it any recovery for attorneys’ fees and costs. In response,
the deputy receiver filed a cross-appeal asserting, among other things,
that Shearson’s claim for indemnity under Virginia law was pre-
empted, in part, by federal law, and that Shearson’s state law indem-
nity claim was released, waived, or barred. We have jurisdiction over
these appeals pursuant to 28 U.S.C. §§ 1291 and 1295. Our review of
the district court’s summary judgment rulings is de novo. Chisholm
v. UHP Projects, Inc., 205 F.3d 731, 734 (4th Cir. 2000); Carbon
Fuel Co. v. USX Corp., 100 F.3d 1124, 1132 (4th Cir. 1996).
II.
The district court entered judgment in favor of the deputy receiver
on Shearson’s indemnity claim under Virginia securities law because
Shearson failed to offer appropriate proof of its damages. The court
noted that the law of Virginia requires a party seeking indemnity from
a third-party for a lump-sum settlement paid to resolve multiple
claims to either (1) demonstrate that indemnity is available for all the
settled claims; or (2) allocate the settlement between indemnifiable
and non-indemnifiable claims. The court concluded that Shearson’s
offer of proof was insufficient to determine what portions of the Set-
tlements were paid on claims for which Shearson was entitled to
receive indemnity from Bankers Life.
Shearson, however, maintains that the district court misapplied Vir-
ginia law. Specifically, it contends that once the district court deter-
mined that Shearson was entitled to indemnity pursuant to Virginia’s
securities laws, the deputy receiver had the burden of proving which
portion, if any, of the Settlements were paid in connection with non-
indemnifiable claims. Thus, because the deputy receiver failed to
prove that Shearson paid any portion of the Settlements to resolve
non-indemnifiable claims, Shearson asserts that it was entitled to be
indemnified for the full value of the Settlements.
Shearson misinterprets the law of Virginia, however. Virginia law
places the burden of establishing damages on the party seeking the
award, with speculation and conjecture providing no basis for recov-
ery. Carr v. Citizens Bank & Trust Co., 325 S.E.2d 86, 90-91 (Va.
8 GROSS v. SHEARSON LEHMAN BROTHERS
1985). Consistent with this principle, a party seeking indemnity under
Virginia law must either allocate a lump-sum settlement between
indemnifiable and non-indemnifiable claims or demonstrate that the
entire settlement was paid in connection with indemnifiable claims.
See Am. Bankers Ins. Co. of Fla. v. Jefferson Pilot Fire & Cas. Co.,
21 Va. Cir. 3 (1989); cf. Collins Dev. Co. v. D.J. Plastering, Inc., 97
Cal. Rptr.2d 83, 86-87 (Cal. Ct. App. 2000) (stating that under Cali-
fornia law the indemnitee has burden of proving portion of settlement
for which indemnification is appropriate). When the party seeking
indemnity fails to provide this proof, final judgment may be entered
against it. Citizens Bank, 325 S.E.2d at 90-91.
The district court properly identified and applied these legal princi-
ples. What Shearson seeks in its Amended Counterclaim is indemnifi-
cation from Bankers Life for the Settlements (specifically, two lump-
sum settlements) that it made in connection with multiple claims filed
against it and others. Shearson had the burden of proving its damages
either by establishing that all the claims resolved in the Settlements
were indemnifiable according to Virginia law, or by allocating the
settlements dollars between indemnifiable and non-indemnifiable
claims. As we demonstrate below, Shearson has failed to meet its bur-
den.
First, under Virginia law, when two or more tortfeasors cause a sin-
gle indivisible injury to a third-party and "it is impossible to deter-
mine in what proportion each contributed to the injury," then an
individual tortfeasor can be held liable for the entire injury. Dickerson
v. Tabb, 156 S.E.2d 795, 801 (Va. 1967). When the injury is divisible,
however, liability must be allocated based on the amount of injury
each tortfeasor’s actions caused the third-party. The Policyholder
Action and the Securities Action included claims brought by policy-
holders of Capital Life and Bankers Life against, among others,
Shearson and the officers and directors of Bankers Life and Capital
Life. Bankers Life’s policyholders maintained that the officers and
directors of Bankers Life unlawfully created the illusion that the com-
pany was experiencing successful growth and that this wrongdoing
caused the Commission to seize Bankers Life, resulting in the devalu-
ation of their insurance policies and annuities. The policyholders also
maintained that Shearson was responsible for these events because
Shearson was a controlling shareholder of First Holdings, which in
GROSS v. SHEARSON LEHMAN BROTHERS 9
turn controlled Bankers Group, Bankers Life’s parent company. The
policyholders of Capital Life made similar allegations against Shear-
son and the officers and directors of Capital Life. These allegations,
along with others, were resolved in the Policyholder and Securities
Settlement. Because the allegations involved multiple tortfeasors,
including Shearson, the liability of each tortfeasor was limited to the
portion of harm it caused the policyholders, unless the injury was
indivisible. The injury alleged in the Policyholder Action and the
Securities Action — losses experienced by the policyholders of two
distinct companies caused by the actions of each company’s officers
and directors and Shearson — was divisible. Thus, in order for Shear-
son to receive indemnification from Bankers Life under Virginia law
for the Policyholder and Securities Settlement, Shearson had to show
what portion of that settlement was due to tortious conduct for which
Banker’s Life was responsible. Shearson’s failure to provide the dis-
trict court with such evidence permitted the court to enter judgment
in favor of the deputy receiver.
Second, in order to receive indemnity under Virginia law, a party
seeking the award must be an innocent party. That is, it must act with-
out personal fault, but nevertheless be liable for damages caused by
the negligence of a third party. Carr v. Home Ins. Co., 463 S.E.2d
457, 458 (Va. 1995). Therefore, when the injury is partially due to the
fault of the indemnitee (here, Shearson), allocation is required. The
Bankruptcy Action alleged, in part, that Shearson engaged in a fraud-
ulent conveyance by selling an insurance company at an inflated
value. This fraudulent conveyance claim is based on an allegation of
fault on the part of Shearson, not the fault of others. The Bankruptcy
Settlement resolved this claim; therefore, in order to receive indem-
nity Shearson was required to allocate the portion of the Bankruptcy
Settlement that resolved the fraudulent conveyance claim. Shearson
failed to provide this allocation with respect to the Bankruptcy Settle-
ment, so the district court properly denied indemnity under Virginia
law.*
*Shearson now argues that this fraudulent conveyance claim was
improperly asserted against it because it did not sell the insurance com-
pany. Rather, Shearson says its subsidiary, E.F. Hutton Group, Inc.,
made the sale. Shearson also maintains that the claim completely lacks
10 GROSS v. SHEARSON LEHMAN BROTHERS
The district court’s judgment and its order denying Shearson’s
motion for attorneys’ fees and costs are affirmed.
AFFIRMED
merit. Neither contention, however, changes the fact the Bankruptcy Set-
tlement resolved a claim that alleged Shearson’s own fault, thereby
requiring Shearson to allocate in order to receive indemnity under Vir-
ginia law.
Shearson also appeals the district court’s denial of its claim for indem-
nification under the federal securities laws and the denial of its motion
for attorneys’ fees and costs. These aspects of the appeal also lack merit.
Even if we assume that indemnity is available under the federal securities
laws, Shearson would not be entitled to indemnity because of its failure
to allocate damages between indemnifiable and non-indemnifiable
claims. And, because we find no error in the district court’s order deny-
ing Shearson’s motion for attorneys’ fees and costs, we affirm that order.
Finally, because we affirm the entry of judgment for the deputy receiver,
we need not address the merits of the cross-appeal.