F.D.I.C. v. Mijalis ( 1994 )

United States Court of Appeals,
Fifth Circuit.
No. 92-5123.
FEDERAL DEPOSIT INSURANCE CORPORATION, in its Corporate Capacity,
Plaintiff-Appellee, Cross-Appellant,
v.
Gus S. MIJALIS, et al., Defendants,
and
Gus S. Mijalis, et al., Defendants-Appellants, Cross-Appellees.
March 10, 1994.
Appeals from the United States District Court for the Western
District of Louisiana.
Before REYNALDO G. GARZA, KING and DeMOSS, Circuit Judges.
KING, Circuit Judge:
After a jury trial, the United States District Court for the
Western District of Louisiana entered judgment in favor of the
plaintiff, the Federal Deposit Insurance Corporation (FDIC), and
against Gus S. Mijalis, Alex S. Mijalis, John G. Cosse, John B.
Franklin, and J. Harper Cox, Jr. (the individual defendants), and
their directors' and officers' liability insurer, International
Insurance Company. We now consider the defendants' appeals and the
FDIC's cross-appeal.
I. BACKGROUND
A. FACTS
The stipulations contained in the pretrial order and the
evidence introduced at trial, viewed in the light most favorable to
the jury verdict, tended to show the following chain of events.
1
The Bank of Commerce (the Bank) was chartered as a Louisiana
state bank and opened for business in January 1975. Gus Mijalis
served as vice-chairman of the Bank's board of directors from the
Bank's opening until May 1980, when he was elected chairman of the
board. Gus Mijalis's brother, Alex Mijalis, and his cousin, John
Cosse, also served as directors of the Bank from at least 1981 to
1985. Together, these three men owned a controlling bloc of Bank
stock, eventually growing to over 657 of outstanding shares by
November 1982. J. Harper Cox, Jr., was Bank president from 1976 to
1986, except for a hiatus from June 1981 to July 1982, during which
he served as president of AMI, Inc. John Franklin served as a
vice-president and loan officer of the Bank from April 1982 to
October 1985.
International Insurance Company (International) issued two
director and officer liability policies (D & O policies) to the
Bank. International issued the first D & O policy (the 1983
policy) to the Bank on February 25, 1981, and it was to run until
February 21, 1984; the policy was later amended to expire on
January 1, 1984. Originally the 1983 policy's limit of liability
was $5 million for each policy year, but in September 1982
International agreed to double the limit to $10 million per policy
year. Bank president Cox represented to International that he was
aware of no facts that would give rise to any claim in excess of $5
million at the time. In December 1983, the Bank applied for a new
D & O policy from International, and International issued a new
policy for the period January 1, 1984, to January 1, 1985 (the 1984
2
policy). This policy reduced coverage to $5 million, and it
excluded from coverage several liabilities that were not excluded
under the 1983 policy. International declined to renew the 1984
policy after it expired.
The Bank experienced severe financial difficulties during the
1980s. As a federally insured financial institution, the Bank was
subject to federal regulation, and a federal examination report
noted that the Bank had a negative liquidity as of January 1981.
That year the FDIC designated the Bank as a "problem bank," a
distinction it shared with only one other bank in its entire 115-
bank district. In March 1981, the FDIC entered into a memorandum
of understanding with the Bank, establishing performance benchmarks
for the Bank intended to improve its liquidity difficulties and its
generally unsound financial condition. Matters did not improve,
however, and the Bank received a poor rating on its December 1982
examination by the FDIC. In June 1983, the FDIC issued a notice of
charges and a proposed cease and desist order, and the FDIC entered
the order against the Bank in October 1983.
The Bank's financial condition did not improve, and the FDIC
gave the Bank another poor rating in its December 1983 examination.
Indeed, between the entry of the memorandum of understanding in
March 1981 and June 1984, federal and state regulators advised the
Bank on sixteen separate occasions that corrective measures were
needed to improve the Bank's financial health. By January 1985,
the FDIC downgraded the Bank's financial condition to the poorest
rating possible. That year the FDIC issued a more stringent cease
3
and desist order against the Bank, and the FDIC also entered an
order prohibiting Gus Mijalis from ever acting as a director or
officer of a federally-insured bank.
Finally, on June 13, 1986, the Commissioner of the Louisiana
Office of Financial Institutions declared the Bank insolvent and
appointed the FDIC as receiver. The FDIC as receiver transferred
all of the Bank's claims thereby received to the FDIC in its
corporate capacity.
B. PROCEDURAL HISTORY
The FDIC brought suit in June 1989 in federal district court
against numerous Bank directors and officers and against their
liability insurers, International and Southern Underwriters, Inc.,
and the Bank's insurance broker, Morris, Temple & Trent, Inc.
Federal subject-matter jurisdiction was predicated on 28 U.S.C. §
1331 (federal question jurisdiction) and 28 U.S.C. § 1345 (actions
brought by the United States or its agencies). The insurance
companies were joined under Louisiana's direct action statute.
LA.REV.STAT.ANN. § 22:655 (West Supp.1993). Southern Underwriters
and Morris, Temple & Trent settled with the FDIC several months
prior to trial, and most of the officers and directors of the Bank
settled with the FDIC on the eve of trial, leaving as defendants
Gus and Alex Mijalis, John Cosse, J. Harper Cox, John Franklin, and
International. The FDIC's claims against the defendant directors
and officers included breach of fiduciary duty, breach of contract,
and negligence, and its claims were based largely on the approval
and funding of imprudent loans that ultimately caused substantial
4
losses to the Bank and the FDIC.
Jury trial commenced on November 5, 1991. On December 12,
1991, the jury returned a verdict in favor of the FDIC for the
entire amount of damages sought, some $28.5 million. The jury
further found that some $17.5 million of the total damages suffered
by the Bank were attributable to occurrences during the effective
period of the 1983 policy. The district court reserved most of the
insurance coverage issues for its own decision, and on June 30,
1992, the court ruled that losses suffered by the Bank traceable to
acts or omissions occurring during the years 1981-83 were covered
by the 1983 policy. The court also held that an exclusion in the
1984 policy precluded any coverage of losses stemming from
occurrences during that policy's lifetime. 800 F.Supp. 397. On
September 1, 1992, the district court entered judgment in favor of
the FDIC in the following amounts (excluding prejudgment and
postjudgment interest): (1) $20,977,918 against Gus and Alex
Mijalis, Cosse, Cox, and Franklin in solido, (2) $5,302,025 against
Gus and Alex Mijalis, Cosse, and Cox in solido, and (3) $2,180,931
against Gus and Alex Mijalis and Cosse in solido. The court also
adjudged International liable for $17,504,946 of the preceding
amounts, plus prejudgment and postjudgment interest.
The defendants' motions for new trial and for judgment as a
matter of law were denied. Appeal to this court followed.1
1
We granted leave to American Casualty Company of Reading,
Pa. (American Casualty), to file an amicus brief in support of
International's position with respect to the insurance coverage
issues presented in this case.
5
C. ISSUES
The issues presented for our consideration may be divided into
two general categories. The first category includes the individual
defendants' challenges to the merits of the verdict and judgment
holding them liable for $28.5 million. Five of the issues raised
by the individual defendants in this connection concern the
district court's jury instructions, and the sixth issue challenges
the district court's refusal to allow the defendants to introduce
evidence to show that the FDIC was the proximate cause of all or
part of the damages claimed. The FDIC argues in support of the
verdict and judgment against the individual directors.
The second category of issues concerns the district court's
rulings with respect to insurance coverage. International makes
several arguments that the district court erred in holding
International liable for $17.5 million of the total judgment. The
individual defendants and the FDIC defend this portion of the
judgment, and they additionally argue that the district court erred
in holding that the 1984 policy provided no coverage for losses
during its lifetime.
II. STANDARDS OF REVIEW
In Bender v. Brumley, 1 F.3d 271, 276-77 (5th Cir.1993), we
set forth a two-part test for challenges to jury instructions.
First, the challenger must demonstrate that the charge as a whole
creates "substantial and ineradicable doubt whether the jury has
been properly guided in its deliberations." Id. at 276 (citations
omitted). Second, even if the jury instructions were erroneous, we
6
will not reverse if we determine, based upon the entire record,
that the challenged instruction could not have affected the outcome
of the case. Id. at 276-77. If a party wishes to complain on
appeal of the district court's refusal to give a proffered
instruction, that party must show as a threshold matter that the
proposed instruction correctly stated the law. Treadaway v.
Societe Anonyme Louis-Dreyfus, 894 F.2d 161, 167 (5th Cir.1990).
In sum, "[g]reat latitude is shown the trial court regarding jury
instructions." FDIC v. Wheat, 970 F.2d 124, 130 (5th Cir.1992).
The individual defendants also complain of the district
court's exclusion of certain evidence. We will not reverse a
district court's evidentiary rulings unless they are erroneous and
substantial prejudice results. The burden of proving substantial
prejudice lies with the party asserting error. Smith v. Wal-Mart
Stores (No. 471), 891 F.2d 1177, 1180 (5th Cir.1990).
With respect to the insurance coverage issues, we note that
we review a district court's interpretation of an insurance policy
de novo. Harbor Ins. Co. v. Urban Constr. Co., 990 F.2d 195, 199
(5th Cir.1993). Of course, any factual findings made by the
district court are reviewed under the clearly erroneous standard.
Prudhomme v. Tenneco Oil Co., 955 F.2d 390, 392 (5th Cir.), cert.
denied, --- U.S. ----, 113 S.Ct. 84, 121 L.Ed.2d 48 (1992).
III. MERITS ISSUES
We turn our attention first to the issues raised by the
individual defendants challenging the judgment entered against them
by the district court. Most of their challenges concern the
7
district court's instructions to the jury. The individual
defendants also argue that the district court erred by refusing to
allow the defendants to introduce evidence in order to prove that
they did not cause all or part of the losses that accrued after the
Bank was closed.
A. JURY INSTRUCTIONS
1. Definition of "Gross Negligence"
The district court concluded that the appropriate legal
standard of care in this case was gross negligence, and the parties
have not challenged this conclusion as erroneous on this appeal.
As the court below observed, federal law provides for personal
liability on the part of directors and officers of insured
depository institutions for "gross negligence, including any
similar conduct or conduct that demonstrates a greater disregard of
a duty of care (than gross negligence) including intentional
tortious conduct, as such terms are defined and determined under
applicable State law." 12 U.S.C. § 1821(k). The defendants,
however, argue that the jury instructions given by the district
court misstated the definition of gross negligence under Louisiana
law, leading to a misunderstanding of the law by the jury and clear
prejudice to the defendants' rights. The FDIC responds that the
definition given by the district court was correct. We accord
substantial deference to the district court's decisions with
respect to jury instructions. See Bender, 1 F.3d at 276-77.
The individual defendants specifically complain of jury
instruction no. 19, which reads as follows:
8
Simple negligence alone is insufficient for a finding of
personal liability of the director and officer defendants.
Gross negligence is required.
Simple negligence is the failure to act as a reasonably
prudent person would act under the circumstances. Gross
negligence lies somewhere between simple negligence and
willful misconduct or fraud with intent to deceive.
The individual defendants contend that this instruction falls far
short of defining the degree of culpability encompassed by the
gross negligence standard.
The district court refused to give the defendants' proposed
jury instruction, over the defendants' written objections. The
proposed jury instruction reads as follows:
The first requirement is that the defendants were grossly
negligent in funding each of the sixteen (16) loans
particularly alleged.
In order to find that a director is liable, you must
determine that he has acted with gross negligence. Simple
negligence alone is insufficient for a finding of personal
liability of an officer or director of a bank. Gross
negligence is the want of even slight care and diligence. It
is the want of the diligence of even careless men are
accustomed [sic]. Gross negligence is the entire absence of
care, and it consists of other disregard of the dictates of
prudence amounting to complete neglect of the rights of
others. Gross negligence is the entire want of care which
would raise the belief that the act or omission complained of
was the result of conscious indifference to the right or
welfare of the bank. The plaintiffs [sic] must show that the
defendants were consciously, that is, knowingly, indifferent
to the obligations that they owed the bank. In other words,
the plaintiff must show that the defendants knew about the
peril of the decisions that they were making, that their acts
or omissions demonstrated that they did not care. Errors of
judgment in the business world do not necessarily indicate
gross misconduct by the management compensable in damages.
We focus first on the threshold issue of whether this prolix
proposed instruction accurately stated Louisiana law, which all
parties agree we must look to as the source of the appropriate
9
definition of gross negligence. The FDIC cites our decisions in
Louisiana World Exposition v. Federal Ins. Co., 858 F.2d 233 (5th
Cir.1988), reh'g denied, 864 F.2d 1147 (5th Cir.1989) [hereinafter
LWE ], in opposition to the defendants' definition and in support
of the district court's definition. In LWE we considered a host of
issues arising out of the bankruptcy of Louisiana World Exposition,
Inc., a Louisiana nonprofit corporation. Id. at 235. We
concluded, inter alia, that the nonprofit corporation could
maintain an action against its officers and directors under
Louisiana law for gross negligence, mismanagement, and breach of
fiduciary duty. Id. at 239. In the course of denying the
appellees' petition for rehearing, we further held that Louisiana
does not recognize a cause of action against principals of a
nonprofit corporation for simple negligence. Louisiana World
Exposition v. Federal Ins. Co., 864 F.2d 1147, 1152 (5th Cir.1989).
We note that the Louisiana legislature has, since the trial in the
instant case, passed a statute limiting personal liability of bank
directors and officers to their bank to cases of gross negligence.
LA.REV.STAT.ANN. § 6:291(B) (West Supp.1993) (effective July 2,
1992).
Our opinions in LWE, however, stop short of giving an actual
definition of the gross negligence standard of care. This is
hardly surprising because there is a paucity of Louisiana authority
on the subject of gross negligence; indeed, it has been observed
that gradations of non-intentional fault were almost unknown to
Louisiana jurisprudence until very recently. See Edwin H. Byrd,
10
III, Comment, Reflections on Willful, Wanton, Reckless, and Gross
Negligence, 48 LA.L.REV. 1383, 1385 & n. 9 (1988) ("Plaintiffs have
frequently alleged "gross negligence' in their complaints even
though the exclusive delictual remedy under Louisiana law has,
until recently, been based upon ordinary negligence."). The
closest we came in LWE to offering a definition came in our denial
of rehearing when we simply described the standard as lying
"somewhere between simple negligence and willful misconduct or
fraud with intent to deceive." LWE, 864 F.2d at 1150. The
district court relied on this description in formulating the
definition of gross negligence that it gave the jury in the instant
case.
The individual defendants first direct our attention to the
statutory definition of gross negligence that now applies to bank
directors and officers under LA.REV.STAT.ANN. § 6:291(B). According
to the statutory definition, gross negligence is "a reckless
disregard of, or a carelessness amounting to indifference to, the
best interests of the corporation or the shareholders thereof, and
involves a substantial deviation below the standard of care
expected to be maintained by a reasonably careful person under like
circumstances." LA.REV.STAT.ANN. § 6:2(8) (West Supp.1993)
(effective July 2, 1992). As noted, this statutory definition did
not become effective until after the conclusion of the trial in
this matter. Certainly it was not erroneous for the district court
to fail to use a definition not yet adopted by the state of
Louisiana as law. In any event, this definition was not a part of
11
the instruction tendered to the district court by the defendants.
The defendants also cite the case of State v. Vinzant, 200 La.
301, 7 So.2d 917, 922 (1942), for the following proposition: "
"Gross negligence is the want of even slight care and diligence.'
It is the "want of that diligence which even careless men are
accustomed to exercise.' " The FDIC counters that Vinzant involved
the interpretation of Louisiana's involuntary vehicular homicide
statute, which prohibited the operation of a motor vehicle in a
grossly negligent or grossly reckless manner, id., 7 So.2d at 920,
and it insists that this standard was inapposite to corporate
directors and officers, whose conduct has always been governed by
other Louisiana statutes. We note that a Louisiana intermediate
appellate court has favorably cited the Vinzant standard in the
civil context (in a medical malpractice case), although this case
was admittedly decided after the trial in the instant case.
Ambrose v. New Orleans Police Dep't Ambulance Serv., 627 So.2d 233,
243 (La.Ct.App.1993). Assuming that the defendants had tendered
the Vinzant definition alone as a jury instruction, the district
court might have erred had it rejected the instruction as
inapplicable to the corporate director context.
As it happens, however, the defendants did not tender an
instruction based on Vinzant or other Louisiana law alone.
Instead, the proposed instruction cobbles together numerous legal
standards from a variety of sources. The defendants incorporated
into the instruction not only the Vinzant definition, but also a
12
definition from an admiralty case from federal district court2 and
a case from this court interpreting Texas law.3 We find no support
for the defendant's assertion that Louisiana's gross negligence law
was the same as that of Texas, even prior to the statutory
definition recently enacted by the Louisiana legislature. Whatever
the flaw may have been in using as a jury instruction a description
of gross negligence when a definition was in order, the defendants
are effectively estopped from complaining because the definition
they tendered was itself infirmed. We cannot say that the district
court abused its substantial discretion in rejecting it.
2. Comparative Negligence
The individual defendants next contend that the district
court committed reversible error by denying their request for an
instruction on the law of comparative negligence. The FDIC makes
several responses to this argument, including that (1) the
defendants did not offer sufficient evidence that other parties
were partially responsible for the Bank's losses to warrant a
comparative negligence instruction, (2) federal law controls and
would permit the individual defendants only a pro tanto reduction
in liability even if they had proved that other parties were
partially liable for the losses, and (3) even if Louisiana law does
2
Hendry Corp. v. Aircraft Rescue Vessels, 113 F.Supp. 198,
201 (E.D.La.1953). It may be noted that the Hendry court in turn
relied on our opinion in Hollander v. Davis, 120 F.2d 131 (5th
Cir.1941), a diversity case controlled by Florida law.
3
City Nat'l Bank v. United States, 907 F.2d 536, 541 (5th
Cir.1990) (citing Burk Royalty Co. v. Walls, 616 S.W.2d 911, 920,
922 (Tex.1981)).
13
apply, it would not permit application of comparative negligence
principles in this case.
The individual defendants' argument is based on the following
facts. On November 4, 1991, the district court was apprised of the
fact that the FDIC had reached a settlement with seven persons who
apparently had served on the Bank's board of directors between 1981
and 1985. Those settling defendants were apparently dismissed from
the case, as the final judgment does not refer to them. The
individual defendants tendered the following proposed jury
instruction to the district court near the end of trial:
The gross damages should be reduced by any loss
attributable to any factor other than the gross negligence of
the directors. Further, the loss should be reduced by any
loss attributable to any of the alleged acts of gross
negligence of any defendants who approved these loans but
served on either of the loan committees and the board of
directors.
During this tenure, other individuals served on the board
of directors of the bank and the loan committees. If you
determine that these individuals were involved in the same
acts and omissions, then you will be required to determine
what percent of any of the losses involved in this lawsuit
should be allocated to these defendants.
The district court rejected this proposed instruction and did not
give the jury an interrogatory to permit it to assign a percentage
of fault to parties other than the individual defendants. The
court noted that there was no evidence before the jury regarding
any of the parties that settled before trial.
The facts of this case are strikingly similar to those
presented in FDIC v. Mmahat, 907 F.2d 546 (5th Cir.1990), cert.
denied, 499 U.S. 936, 111 S.Ct. 1387, 113 L.Ed.2d 444 (1991).
Mmahat involved a legal malpractice action by the FDIC against John
14
Mmahat, general counsel for a federally-chartered savings and loan
that went into receivership. Id. at 549. The FDIC sued Mmahat for
advising the savings and loan to make loans in violation of
regulations promulgated by the Federal Home Loan Bank Board. Id.As in the instant case, several officers and directors settled with
the FDIC before trial, but no jury interrogatory regarding their
proportionate fault was given. Id. at 550. Mmahat argued that the
Louisiana proportionate reduction rule should have applied to
reduce his liability by the percentage of fault attributed to
settling parties. Id. The FDIC argued, as it does in the instant
case, that we should apply a uniform federal common law rule to
determine the effect of the partial settlement, and it further
argued that we should adopt the pro tanto rule, which limits
nonsettling defendants to receiving a dollar-for-dollar credit for
any amount paid by settling defendants. Id. The Mmahat court
refused to decide the issue because there was no evidence of the
settling defendants' fault on which to predicate a comparative
negligence instruction, even assuming that use of the proportionate
reduction rule would have been appropriate. Id.The legal effect of a partial settlement in FDIC litigation of
this type has not been definitively resolved in any of the federal
courts of appeals. The Tenth Circuit has recognized that the
establishment of a special pro tanto rule for the FDIC would
present "some very difficult legal questions." FDIC v. Geldermann,
Inc., 975 F.2d 695, 699-700 (10th Cir.1992) (expressing no opinion
on the appropriate legal standard for calculating the setoff for a
15
related settlement). The district courts have debated the merits
of the proportionate reduction and the pro tanto rules in the
context of FDIC litigation, with mixed results. Compare FDIC v.
Deloitte & Touche, 834 F.Supp. 1155 (E.D.Ark.1993) (applying the
proportionate reduction rule) and Resolution Trust Corp. v.
Gallagher, 815 F.Supp. 1107 (N.D.Ill.1993) (same) with Resolution
Trust Corp. v. Platt, No. 92-CV-277-WDS (S.D.Ill. Aug. 24, 1993)
(unpublished opinion) (applying the pro tanto rule) and FSLIC v.
McGinnis, Juban, Bevan, Mullins & Patterson, P.C., 808 F.Supp. 1263(E.D.La.1992) (same).
We need not resolve these difficult issues because, as in
Mmahat, the individual defendants in the instant case would have
had the burden at trial of proving the settlors' share of fault
even under the proportionate reduction rule. Mmahat, 907 F.2d at
550. Just as in Mmahat, the court below found that there was
insufficient evidence in the record to permit a finding of
proportionate fault. It is well-established that a district court
should not instruct the jury on a proposition of law if there is no
competent evidence to which it may be applied. See Concise Oil &
Gas Partnership v. Louisiana Intrastate Gas Corp., 986 F.2d 1463,
1474 (5th Cir.1993); DMI, Inc. v. Deere & Co., 802 F.2d 421, 429
(Fed.Cir.1986). We agree with the FDIC that the individual
defendants did no more than introduce evidence to show that some of
the settling defendants sat on the Bank's board of directors and/or
loan committee at times when bad loans were made and elicit from an
FDIC expert witness the opinion that the Bank's board, generally
16
speaking, had been grossly negligent in its loan supervision. No
evidentiary basis existed upon which the jury could have rationally
apportioned liability among the settling and non-settling
defendants. See generally STEPHEN M. FLANAGAN & CHARLES R.P. KEATING,
FLETCHER CYCLOPEDIA OF THE LAW OF PRIVATE CORPORATIONS § 1087.1 (1986). We
therefore need not decide the proportionate reduction/pro tanto
issue.
Of course, the FDIC is not entitled to keep any double
recovery that might be occasioned by the partial settlement and the
judgment. As in Mmahat, if the money paid by the settling
defendants is attributable to any or all of the same loans for
which the nonsettling defendants were held liable, then the
nonsettling defendants should get a dollar-for-dollar credit for
the appropriate amount. See Mmahat, 907 F.2d at 550. We therefore
remand this issue to the district court to determine what portion
of the amount paid by the settlors is attributable to the bad loans
sued upon by the FDIC.
3. Mitigation of Damages
The defendants in this case tendered to the district court,
and the court refused to give, the following proposed instruction
regarding the FDIC's duty to mitigate damages:
A party claiming damages has a duty to mitigate or
minimize its damages as the result of an alleged wrongful act
on the part of another party by using reasonable diligence and
reasonable means under the circumstances in order to prevent
the aggravation of such damages and further loss to itself.
If you find that the FDIC failed to take reasonable measures
to seek out or take advantage of business opportunities to
minimize its losses you should reduce the amount of damages
you find appropriate by the amount of damages the FDIC could
have saved under the circumstances.
17
This proposed instruction was based on one given by the district
court in Mmahat. The Mmahat defendant complained of this
instruction on appeal, and we deferred to the district court's
broad discretion to formulate a charge. Mmahat, 907 F.2d at 552.
The individual defendants also cite FDIC v. Wheat in support
of their proposed jury instruction regarding the FDIC's duty to
mitigate damages. Wheat was a case in which the FDIC sued the
former director of an insolvent bank for negligence, breach of
fiduciary duty, and breach of contract. Wheat, 970 F.2d at 126.
Following a jury verdict in favor of the FDIC, the defendant
director appealed to our court, contending inter alia that the
district court had erred in failing to submit a jury instruction
regarding the FDIC's duty to mitigate damages. Id. at 132. We
noted that the FDIC had in fact mitigated to the full extent
"legally possible," and so held that no jury instruction was
required. Id. The defendants in the instant case argue that Wheat
and Mmahat stand for the proposition that the FDIC has a duty to
mitigate its damages like any other plaintiff.
The FDIC responds with a litany of cases holding that the FDIC
is not subject to the state law defense of mitigation of damages.
It appears that the Seventh Circuit is the only court of appeals to
have considered the issue, and that court held that the FDIC is not
subject to the mitigation of damages defense when it sues former
directors and officers in its corporate capacity to recover losses
sustained by an insolvent bank. FDIC v. Bierman, 2 F.3d 1424,
1438-41 (7th Cir.1993) (relying on the discretionary function
18
exception to the Federal Tort Claims Act and the lack of a duty to
the wrongdoers). The great majority of the district courts are in
accord with the conclusion reached by the Bierman court. See
Resolution Trust Corp. v. Fleischer, 835 F.Supp. 1318, 1321 n. 5
(D.Kan.1993) (collecting cases). District courts within our
circuit have come to different results. Compare Resolution Trust
Corp. v. Evans, 1993 WL 354796, at *4 (E.D.La. Sept. 3, 1993)
(unpublished opinion) (refusing to strike defendants' affirmative
defense of failure to mitigate damages) with FSLIC v. Shelton, 789
F.Supp. 1367, 1370 (M.D.La.1992) (holding that the FDIC owes no
duty to mitigate damages to insolvent institutions or to their
culpable directors).
We agree with the FDIC that our decisions in Mmahat and Wheat
do not preclude us from consideration of this issue. Neither the
Mmahat court nor the Wheat court appears to have addressed the
FDIC's argument that the mitigation of damages defense is
inapplicable to the FDIC in suits against officers and directors of
failed financial institutions. In Mmahat, only the defendant
raised any question about the jury instructions, and we simply
passed on the form of the instruction without considering whether
it should have been given at all. Mmahat, 907 F.2d at 552. It
also appears that this issue was not raised by the FDIC in Wheat;
our decision was limited to the conclusion that the FDIC did
mitigate "to the full extent legally possible." Wheat, 970 F.2d at
132.
Several rationales support the FDIC's position on this issue.
19
Many courts have held that public policy prohibits defendant
directors and officers from asserting the mitigation of damages
defense against the FDIC, reasoning that the risk of errors in
judgment by FDIC personnel should be borne by the directors and
officers who were wrongdoers in the first instance rather than by
the national insurance fund. Fleischer, 835 F.Supp. at 1322;
FSLIC v. Burdette, 718 F.Supp. 649, 663 (E.D.Tenn.1989). Courts
have also invalidated the mitigation of damages defense as against
the FDIC because the conduct of the FDIC "should not be subjected
to judicial second guessing," and because the FDIC owes no duty to
failed financial institutions or to their former directors and
officers. Fleischer, 835 F.Supp. at 1322. Still another approach
has been to view the FDIC's conduct in managing failed banks as
insulated from affirmative defenses such as mitigation of damages
by the discretionary function exception to the Federal Tort Claims
Act (FTCA). Id. at 1324.
In Bierman, the Seventh Circuit relied upon both the policy
considerations that favor liberating the FDIC from the duty to
mitigate damages and the discretionary function to the FTCA
rationale. Taking note of the Supreme Court's recent decision in
United States v. Gaubert, 499 U.S. 315, 326, 111 S.Ct. 1267, 1275,
113 L.Ed.2d 335 (1991) (holding that actions taken by the Federal
Home Loan Bank Board in supervising a savings and loan at the
day-to-day operational level could come within the discretionary
function exception to the FTCA), the Bierman court concluded that
exempting the FDIC from the affirmative defenses of contributory
20
negligence and mitigation of damages "is consonant with the purpose
of the discretionary function exception to the FTCA." Id. at 1441.
In sum, "the discretionary exception to the FTCA and the lack of a
duty to the wrongdoers ... prevent the assertion of affirmative
defenses against the FDIC." Id.
After careful consideration, we agree with the Seventh
Circuit's cogent analysis of the issue in Bierman. See id. at
1438-41. For the reasons stated in that case, we hold that the
FDIC is not subject to the affirmative defense of failure to
mitigate damages when it sues former directors and officers in its
corporate capacity to recover losses sustained by an insolvent
financial institution and covered by the national insurance fund.
The district court did not err in refusing to instruct the jury
regarding the FDIC's duty to mitigate damages.
4. Liability for Loans Funded Before 1981 But Renewed During or
After 1981
The district court refused to give the jury the following
instruction proposed by the defendants:
This lawsuit involves only events or omissions that
occurred between January 1, 1981, and December 31, 1984.
Therefore, you must not consider any event or omission which
caused the loss, such as the approval or the funding of a loan
or the renewal of a loan, which occurred before January 1,
1981, or after December 31, 1984, in determining damages. For
example, if a loan is funded in 1979, but renewed in 1982, you
will be asked to determine what amount of loss, if any, was
caused by the original approval of the loan at the time in
1979 and what amount of the loss, if any, was caused by the
renewal of the loan in 1982 or the placing of a loan in
another person's name. The defendants would be responsible
for only those losses caused by the renewal of the loan in
1982. The defendants would not be responsible for any loss
caused by the funding of a loan prior to 1981.
In determining whether there is a loss on the renewal of
21
a loan between January 1, 1981, and December 31, 1984, you
will be asked to determine whether the bank increased its loss
by not foreclosing on the property and filing suit against the
borrower at the time of the renewal between January 1, 1981,
and December 31, 1984. The defendants contend that these
workout loans did not increase the loss of the bank. The
defendants believe that the loss had already occurred on these
loans prior to 1981, and any event which occurred after 1981
did not increase the loss. The plaintiff contends that the
loss could have been reduced or eliminated if the bank had not
renewed certain loans between January 1, 1981, and December
31, 1984.
If you determine that the defendants were grossly
negligent by not filing suit and foreclosing on the property,
then you must determine how much of the loss, if any, is
allocated to the delay in collecting on the note for any loan
funded prior to 1981. The damages, if any, would be limited
solely to the delay in collecting on the note between January
1, 1981, and December 31, 1984, and any new extensions of
funds after January 1, 1981, but before December 31, 1984.
Some of the allegedly imprudent loans on which the FDIC sued the
defendants were actually funded by the Bank before January 1, 1981,
but later renewed or transferred to new borrowers. The individual
defendants argue that the FDIC's complaint, however, complains only
of acts and omissions between January 1, 1981, and June 13, 1986,
and that they were entitled to the above-quoted jury instruction to
prevent jury confusion.
The FDIC makes several responses to this argument. For one,
it argues that the defendants may not rely on the dates as stated
in the FDIC's complaint because the complaint was superseded by the
pretrial order, in which the FDIC's contentions encompassed conduct
prior to 1981. See Ash v. Wallenmeyer, 879 F.2d 272, 274 (7th
Cir.1989) ("The information [obtained in the discovery process] is
to be reflected in the pretrial order, which supersedes the
complaint."). The FDIC further contends that the jury clearly
22
found that all of the grossly negligent conduct for which it
awarded damages occurred during the years 1981 through 1984, so the
defendants' focus on conduct occurring before 1981 is irrelevant.
The FDIC also cites FDIC v. Robertson, 1989 WL 94833, at *5-6
(D.Kan.1989) (unpublished opinion), for the proposition that bank
directors may be held liable for imprudent extensions and renewals
of loans, as well as for imprudent loans themselves. The
defendants do not deny this as an abstract proposition of law, but
they argue that the jury in the instant case was given insufficient
guidance in its instructions to be able to separate damages caused
by imprudent loans made before 1981 from damages caused by
imprudent renewals granted after January 1, 1981.
We agree with the FDIC's argument that the jury
interrogatories were sufficiently clear so that the defendants were
not entitled to the proposed instruction. The jury interrogatories
asked the jury to assign a damages amount to each problem loan or
set of loans. Additionally, the jury was required to make factual
findings as to when the grossly negligent acts and omissions that
caused the damages occurred. The interrogatories required the jury
to find what portion of the damages attributable to each loan or
set of loans was traceable to grossly negligent acts and omissions
occurring before 1981, between 1981 and 1983, during 1984, and
after 1984. The jury found in every case that no damages were
traceable to acts or omissions occurring before 1981. We hold that
these interrogatories afforded sufficient guidance to the jury in
separating the funding of loans and the renewal of loans or the
23
transfer of loans to new borrowers. Because the interrogatories
gave the jury sufficient guidance, it was not reversible error for
the district court to refuse to give the proposed instruction.
Treadaway, 894 F.2d at 168.
We do not agree with the defendants' contention that our
holding will make bank directors automatically responsible for 1007
of the amount of any past credit transaction simply because they
opt to renew, extend or restructure a problem loan. The law simply
requires them to act with greater care than gross negligence when
they do renew problem loans, and these jury instructions
sufficiently allowed the jury to make the relevant factual
findings. The district court did not abuse its discretion in
refusing to instruct the jury as desired by the defendants on this
issue.
5. Calculation of Interest
Accrued interest accounts for some $12 million of the total
amount of damages awarded. The district court instructed the jury
that "the damages recoverable by the FDIC on account of an
imprudent loan would be the uncollected amount of the principal ...
plus accrued interest owing on or attributable to such loan at the
rate of interest that the borrower agreed to pay" (emphasis added).
The defendants argue that the district court erred in using
contractual interest rates rather than the government's actual cost
of funds. They cite testimony from the FDIC's damage expert at
trial in support of the proposition that the damage figure for
interest would be reduced by $3.5 million if the government's cost
24
of funds were used. The FDIC responds that the court correctly
instructed the jury with respect to the calculation of interest.
The parties do not adequately explain to this court how the
interest on the problem loans was factored into the verdict and
judgment in this case, so we have reviewed the pertinent parts of
the record ourselves. Each jury interrogatory asked the jury to
consider a single problem loan and to assign to that loan an
"amount of loss caused as a result of [the individual defendants']
gross negligence." The total amount of loss found by the jury, as
we have already noted, was roughly $28.5 million. This figure,
according to the FDIC's damages expert at trial, consisted of $17
million of outstanding principal when the Bank closed in June 1986,
$2 million of outstanding interest as of June 1986, plus interest
at the contractual rate computed over the next five and a half
years—that is, up to the time of trial, which ended in December
1991. The district court entered judgment in September 1992 for a
total of $28,460,874 against the individual defendants, plus an
additional $2,413,512.75 as prejudgment interest. Thus, the court
awarded the FDIC roughly 11.37 prejudgment interest for the period
from December 1991 to September 1992 on the damages found by the
jury.
The Financial Institutions Reform, Recovery, and Enforcement
Act of 1989 (FIRREA) provides that the FDIC shall be able to
recover "appropriate interest" as damages against liable directors
and officers of insured depository institutions. 12 U.S.C. §
1821(l ). Unfortunately, case law addressing the appropriate rate
25
of interest to be awarded is, to say the least, sparse.
For support, the defendants cite FDIC v. Gordinier, 783
F.Supp. 1181 (D.Minn.1992), rev'd on other grounds sub nom. FDIC v.
St. Paul Fire and Marine Ins. Co., 993 F.2d 155 (8th Cir.1993).
The court in Gordinier, without discussion, awarded prejudgment
interest at the note rate until the insolvent bank was closed and
"thereafter (if lower than the note rate) at 87 per annum for 1987
and 1988 and at 77 per annum for 1989 and thereafter." Id. at
1188. The source of the 77 and 87 rates is not clear, but the
court plainly decided that these rates should be a ceiling for
post-closure interest.
In opposition the FDIC relies on FDIC v. Burrell, 779 F.Supp.
998 (S.D.Iowa 1991). In that case, the defendant directors and
officers argued that the FDIC's claims against them were
unliquidated until the date the jury returned its verdict (and that
interest thus did not begin to run until that date under Iowa law).
Id. at 1001. The court held that "submission of the claim plus the
contract rate of interest did not make the amount claimed
unliquidated." Id. at 1002. The FDIC also cites FDIC v. Stanley,
770 F.Supp. 1281, 1315 (N.D.Ind.1991), aff'd sub nom. FDIC v.
Bierman, 2 F.3d 1424 (7th Cir.1993), in which the district court
awarded principal and interest (apparently at the contractual rate)
on loan losses up through the date of trial.
None of the cases cited by the parties articulates a legal
principle to explain the result reached, much less the source of
the underlying principle. More to the point, the defendants have
26
not directed our attention to any point in the proceedings below
when their argument was made to the district court, and we have
found none. The defendants advert only to a colloquy between
International's counsel and the district court during which counsel
argued that it was improper to ask the jury to calculate damages on
each loan as a lump sum of principal and interest; counsel argued
that the correct approach would be to ask the jury first what
portion of the principal the defendants were responsible for, and
then add the interest to that amount. This does not amount to an
argument to the district court that the government's cost of funds
should have been used as the interest rate instead of the contract
rate, nor do the defendants direct our attention to any place in
the record at which such an argument was made. Indeed, our review
of the defendants' proposed changes to the jury instructions shows
that no complaint was made about the jury instruction regarding
interest, nor was a proposed instruction stating the defendants'
view of the law proffered. As we have held, if a litigant desires
to preserve an argument for appeal, the litigant must press and not
merely intimate the argument during the proceedings before the
district court. If an argument is not raised to such a degree that
the district court has an opportunity to rule on it, we will not
address it on appeal. Butler Aviation Int'l, Inc. v. Whyte (In re
Fairchild Aircraft Corp.), 6 F.3d 1119, 1128 (5th Cir.1993).
B. EVIDENCE OF POST-CLOSING DAMAGES
The district court ruled that no evidence would be permitted
concerning the activities of the FDIC in its efforts to manage and
27
collect on loans that were owed to the Bank at the time it was
closed. The defendants point out that the FDIC's damage model
computed damages from each problem loan as the sum of the
outstanding principal and accrued interest on November 4, 1991 (the
day before trial), less any proceeds from the sale of collateral or
the value of unliquidated collateral on that same date. The
individual defendants now complain that they should have been
allowed to introduce evidence that the FDIC's conduct was the
proximate cause of some of the losses claimed by the FDIC. As an
example, the defendants refer us to the trial testimony of Jerry
Fowler, to whom one of the problem loans was made. The district
court ruled before Fowler began to testify that the defendants
could not ask Fowler whether he could have repaid the loan, or even
whether the FDIC had ever contacted him about repaying the loan.
The defendants contend that they should have been allowed to
introduce evidence of this type in order to show that their gross
negligence was not the proximate cause of the damages, particularly
in light of the district court's jury instruction no. 33:
The directors and officers claim that even if they
breached their duties in making or allowing the loans in this
case to be made, some of the damages sustained by the bank
were caused not by their breaches of duty but by certain
intervening causes. The law provides that a defendant is
relieved of liability for damages caused by intervening
events, but only if those events were so unforeseeable as to
break the chain of causation set in motion by the alleged acts
or omissions of gross negligence which occurred.
The FDIC argues that the defendants' argument regarding
evidence of events occurring after closure of the Bank is simply an
end-run around the rule that the FDIC has no duty to mitigate
28
damages. The FDIC draws support from cases such as Resolution
Trust Corp. v. Youngblood, 807 F.Supp. 765, 774 (N.D.Ga.1992), in
which the court struck the defendants' affirmative defenses of
comparative negligence and mitigation of damages. The Youngblood
court recognized that the defendants were entitled to challenge the
RTC's proof of the element of proximate cause, but it insisted that
"under the "no-duty' rule, the RTC's conduct is not on trial,
whether under the label of proximate cause or affirmative defense."
Id. at 773; see also FDIC v. Isham, 782 F.Supp. 524, 532
(D.Colo.1992) ("The defense of lack of causation is stricken to the
extent that defendants seek to put FDIC's conduct at issue.
However, defendants are free to contest that their negligence, if
any, did not proximately cause the damages FDIC claims."). In the
FDIC's view, the defendants were free to contend that their gross
negligence was not the proximate cause of the damages claimed, and
they did in fact introduce evidence to show that changes in the tax
laws, declines in collateral values, and the general deterioration
of the economy were intervening causes of the damages. The
defendants could also (and, the FDIC claims, did) challenge the
FDIC's evidence regarding the salvage value of unliquidated
collateral and thereby attack the damages figure recommended by the
FDIC. The jury, however, found to the contrary.
The FDIC's argument is persuasive. Because the FDIC is not
subject to the affirmative defense of mitigation of damages, the
defendants were also not entitled to attack the causation element
of the FDIC's case by showing that the FDIC's acts and omissions
29
caused the damages it sought to recover from the defendants. All
other avenues of proving that their gross negligence did not
proximately cause the losses remained open to them. The district
court did not abuse its discretion in excluding the evidence.
C. CONCLUSION
The judgment against the individual defendants is AFFIRMED,
and we REMAND only for determination of the appropriate credit for
amounts received by the FDIC in settlements with other parties.
IV. INSURANCE COVERAGE ISSUES
The court below awarded the FDIC $17,504,946, plus prejudgment
and postjudgment interest, to be paid by the individual defendants'
D & O insurer, International, based on the coverage provided under
the 1983 policy. International contends that the district court
erred in ruling that insurance coverage existed under that policy
for the damages stemming from claims during 1981-1983. The FDIC
and the individual defendants defend this ruling by the district
court, but they also contend that the district court erred in
holding that the damages stemming from occurrences in 1984 were not
covered by the 1984 policy.
The parties make numerous arguments regarding the existence
and extent of the insurance coverage. International contends,
inter alia, (1) that coverage does not exist because no "claim" was
made against the individual defendants during the policy periods,
(2) that even if a claim had been made against the individual
defendants during a policy period, the failure to give notice of
any claim to International until 1989 defeats coverage, and (3)
30
that the individual defendants did not give International notice of
any potential claims as required by the insurance policies in order
to invoke coverage. The FDIC, joined by the individual defendants,
argues, inter alia, (1) that the district court correctly held that
claims were made against the individual defendants during the
policy periods, (2) that the district court correctly held that the
D & O policies did not require the individual defendants to give
International notice of claims in order to invoke coverage, (3)
that, in the alternative, the individual defendants gave
International notice of potential claims as required by the
policies in order to invoke coverage, and (4) that the district
court erred in holding that coverage under the 1984 policy was
barred under the classified loan exclusion clause contained in that
policy.
A. ADDITIONAL BACKGROUND
1. Facts and Procedural History
The 1983 D & O policy issued by International contains the
following relevant provisions:
1. INSURING CLAUSE
If during the policy period any claim or claims are made
against the Insureds (as hereinafter defined) or any of them
for a Wrongful Act (as hereinafter defined) while acting in
their individual or collective capacities as Directors or
Officers, the Insurer will pay on behalf of the Insureds or
any of them, their Executors, Administrators, Assigns 957 of
all Loss (as hereinafter defined), which the Insureds or any
of them shall become legally obligated to pay....
. . . . .
4. DEFINITIONS
Definitions of terms used herein:
31
(a) The term "Insureds" shall mean all persons who were, now
are or shall be duly elected Directors or Officers of the
[Bank]....
(b) The term "Wrongful Act" shall mean any actual or alleged
error or misstatement or misleading statement or act or
omission or neglect or breach of duty by the Insureds
while acting in their individual or collective
capacities, or any matter not excluded by the terms and
conditions of this policy claimed against them solely by
reason of their being Directors or Officers of the
[Bank].
(c) The term "Loss" shall mean any amount which the Insureds
are legally obligated to pay for a claim or claims made
against them for Wrongful Acts, and shall include but not
be limited to damages, judgments, settlements and costs,
cost of investigation (excluding salaries of officers or
employees of the [Bank] ) and defense of legal actions,
claims or proceedings and appeals therefrom, cost of
attachment or similar bonds; providing always, however,
such subject of loss shall not include fines or penalties
imposed by law, or matters which may be deemed
uninsurable under the law pursuant to which this policy
shall be construed.
. . . . .
. . . . .
9. LOSS PROVISIONS
If during the policy period or extended discovery period:
(a) The [Bank] or the Insureds shall receive written or oral
notice from any party that it is the intention of such
party to hold the Insureds responsible for the results of
any specified Wrongful Act done or alleged to have been
done by the Insureds while acting in the capacity
aforementioned; or
(b) The [Bank] or the Insureds shall become aware of any
occurrence which may subsequently give rise to a claim
being made against the Insureds in respect of any such
alleged Wrongful Act;
and shall in either case during such period give written
notice as soon as practicable to the Insurer of the receipt of
such written or oral notice under Clause 9(a) or of such
occurrence under Clause 9(b), then any claim which may
subsequently be made against the Insureds arising out of such
alleged Wrongful Act shall, for the purposes of this policy,
32
be treated as a claim made during the policy year in which
such notice was given or if given during the extended
discovery period as a claim made during such extended
discovery period.
The [Bank] or the Insureds shall, as a condition precedent to
the Insureds' right to be indemnified under this policy, give
to the Insurer notice in writing as soon as practicable of any
claim made and shall give the Insurer such information and
cooperation as they may reasonably require and as shall be in
the Insureds' power.
. . . . .
. . . . .
13. DISCOVERY CLAUSE
If the Insurer shall cancel or refuse to renew this policy,
the Insureds shall have the right, upon payment of an
additional premium calculated at 107 of the three-year premium
hereunder, to an extension of the cover granted by this policy
in respect of any claim or claims which may be made against
the Insureds during the period of ninety (90) days after the
effective date of such cancellation or, in the event of such
refusal to renew, the date upon which the policy period ends,
but only in respect of any Wrongful Act committed before such
date. Such right hereunder must, however, be exercised by the
Insureds by notice in writing to the Insurer not later than
ten (10) days after the date referred to in the preceding
sentence. If such notice is not given, the Insureds shall not
at a later date be able to exercise such right.
The 1984 policy contains clauses identical to those quoted above.
The policies also contain certain exclusionary clauses. The
1983 policy was amended effective September 22, 1982, to increase
the policy limit to $10 million and to add the following clause
(referred to herein as the "classified loan exclusion"):
Also, it is hereby understood and agreed the insurer shall not
be liable to make any payment for loss in connection with any
claim made against the insureds/directors or officers for or
arising out of the granting of any loan which shall be deemed
classified by any regulatory body or authority.
Less then two months later, on November 16, 1982, International
issued a new endorsement to the 1983 policy whereby the
33
exclusionary clause quoted above was deleted in its entirety. This
clause reappeared in the 1984 policy and remained a part of that
policy from its inception on January 1, 1984. Another exclusionary
clause (referred to herein as the "regulatory exclusion") also
appears in the 1984 policy, and it provides as follows:
In consideration of the premium charged, it is further
understood and agreed that the insurer shall not incur any
obligation under the terms and conditions of this policy for,
or on account of, any claim:
1. arising out of, based upon or related to:
A. the insolvency of the [Bank]; or
B. financial impairment of the [Bank]; or
C. any action, ruling or intervention of any
federal, state or local governmental agency or
office;
2. made by, or on behalf of, any federal, state or local
governmental agency or office.
The insurance coverage issues were dealt with in the course of
the litigation as follows. International filed a motion for
summary judgment, arguing that no coverage was available under
either the 1983 or the 1984 policy. The district court denied the
motion before trial. After trial, the parties filed voluminous
briefs with the district court addressing the coverage issues, and
on June 30, 1992, the district court held that International was
liable on the 1983 policy for the damages caused by the individual
defendants' grossly negligent acts during the years 1981 through
1983. The court further held, however, that the classified loan
exclusion in the 1984 policy protected International from any
liability under that policy. This memorandum ruling is reported as
34
FDIC v. Mijalis, 800 F.Supp. 397 (W.D.La.1992).
2. Claims Made Insurance
Before beginning our analysis, we note that the policies
involved in this litigation are "claims made" rather than
"occurrence" policies. Under claims made policies, the mere fact
that an insured loss-causing event occurs during the policy period
is not sufficient to trigger insurance coverage of the loss. Such
policies also typically require the insured to give prompt notice
to the insurer of any claims asserted against the insured, as well
as of any occurrences that have caused or will potentially cause an
insured loss. As amicus points out, these policies are commonly
used as professional liability insurance because malpractice by a
professional such as a doctor or an architect may not lead to the
assertion of a claim until years after expiration of the actual
insurance policy. The notice requirements in claims made policies
allow the insurer to "close its books" on a policy at its
expiration and thus to "attain a level of predictability
unattainable under standard occurrence policies." Burns v.
International Ins. Co., 709 F.Supp. 187, 191 (N.D.Cal.1989), aff'd,
929 F.2d 1422 (9th Cir.1991). By increasing predictability and
reducing their potential exposure, insurers may be able to reduce
the policy cost to the insured, or so the theory goes. FDIC v. St.
Paul Fire and Marine Ins. Co., 993 F.2d 155, 158 (8th Cir.1993).
Thus, notice provisions are integral parts of claims made policies.
B. OF "CLAIMS," "OCCURRENCES," AND "NOTICE"
The FDIC and International engage in a spirited battle over
35
the existence and scope of insurance coverage for the liabilities
of the individual defendants. Before addressing the merits of
their arguments, we must trace the steps of the district court's
analysis of the policies. The district court concluded that
insurance coverage would be triggered under the 1983 and 1984
policies if either of two events occurred during the policy
periods: (1) a claim was made against an insured, or (2) notice of
a specified wrongful act or occurrence was given to the Bank or to
an insured. Mijalis, 800 F.Supp. at 400. The court also addressed
the proper application of the policies' notice provisions. In a
memorandum ruling before trial, the district court held that no
notice to International was required under the policy in the event
that actual "claims" were made against the insureds. In the
post-trial memorandum ruling cited above, the court interpreted
clause 9 of the policies to require written notice to International
of acts or occurrences amounting to potential claims; the court
further held, however, that this notice provision was unenforceable
against the FDIC under the Louisiana direct action statute because
International had not shown prejudice from the lack of notice. Id.The district court concluded that coverage existed because "claims"
had been made against the individual defendants during the policy
periods. See id. at 400-02.4 We consider first International's
arguments that no claims were made against the individual
4
The district court did not decide whether the second method
of establishing coverage—notice to the Bank or an insured of a
specified wrongful act or occurrence—was also satisfied in this
case.
36
defendants during the policy periods.
1. Claims
The first issue is whether the district court erred in
determining that claims had been made against the Bank during the
years 1981 through 1984, thus triggering insurance coverage under
the "insuring clauses." The policies, the court noted, did not
define the term "claim." Id. at 400. The court first held that
the word "claim," as used in the D & O policies, means "a demand on
the insured by a third party for the performance of some act which
the third party has a legal right to require." Id. (citing FDIC v.
Lensing, No. 89-0013 (W.D.La. March 20, 1990) (magistrate's
recommendation and report)). The district court held that the
regulatory directives and demands made on the Bank's directors and
officers by the FDIC during the policy periods satisfied the
policies' requirements that claims be made on the insureds during
the policy periods. Id. at 401-02. International contends that
the district court erred, and it cites several cases from around
the country as contrary authority.
"Claims made" insurance policies of the type involved in this
case are not new to this court's experience, and we have held that
the determination of whether a given demand is a "claim" within the
meaning of a claims made policy requires a fact-specific analysis
to be conducted on a case-by-case basis. MGIC Indem. Corp. v.
Central Bank, 838 F.2d 1382, 1388 (5th Cir.1988). Of course, a
claim is clearly made when an outside party files suit on a demand
based on an act or omission of an officer or director. Id. Other
37
communications to the insured may or may not rise to the level of
claims depending on their content. We have noted the view that the
expectations of the insured upon receiving or responding to a
communication or inquiry cannot be determinative of whether a claim
has been made because of the uncertainty such a rule would create.
Jensen v. Snellings, 841 F.2d 600, 616 (5th Cir.1988) (citing Hoyt
v. St. Paul Fire & Marine Ins. Co., 607 F.2d 864, 866 (9th
Cir.1979)).
The FDIC vigorously argues that its communications to the
individual defendants during the policy periods were claims within
the meaning of that term as used in the insurance policies.
Relying on the definition used by the district court, the FDIC
contends that the cease and desist order, the notice of charges,
and the other demands for corrective action it made on the Bank
during the policy periods constituted demands for the performance
of acts that the FDIC had the right to require of the Bank and its
directors.
International relies on our recent decision in FDIC v. Barham,
995 F.2d 600, 604 (5th Cir.1993), for the proposition that the term
"claim" as used in these D & O policies encompasses only "a demand
which necessarily results in a loss—i.e., a legal obligation to
pay—on behalf of the directors." Barham involved a third-party
claim by the directors of a failed bank against their D & O insurer
after they had been sued by the FDIC for authorizing imprudent
loans. Id. at 601. The insurer sought refuge in the D & O
policy's reporting and notice clause, contending that the directors
38
had not reported claims and wrongful acts to the insurer as
required. Id. at 603. In response, the directors argued that the
insurer had been given constructive notice of a claim because its
agent had discovered a "letter of agreement" between the bank and
the Office of the Comptroller of the Currency (OCC) during an
insurance risk survey. Id. at 604. The bank agreed in the letter
of agreement to adopt and implement policies and procedures to
prevent future legal and regulatory infractions. Id. The district
court granted summary judgment in favor of the insurer, holding
that no "claim" had been made on the directors, and we affirmed.
Id. at 601.
The Barham court rejected the argument that the letter of
agreement between the OCC and the insolvent bank constituted a
claim within the meaning of the D & O policy. Id. ("[A] demand
for regulatory compliance does not rise to the level of a claim, as
that term is used in the policy."). As in the instant case, the
term "claim" was not defined in the D & O policy, id. at 604 n. 10;
the court relied instead on the language of the policy's insuring
clause, which provided:
The [insurance] Company shall pay on behalf of each of the
Insured Persons all Loss, for which such Insured Person is not
indemnified by the Insured Organization, and which such
Insured Person becomes legally obligated to pay on account of
any claims(s) [sic] made against him, individually or
otherwise, during or after the Policy Period for a Wrongful
Act[.]
Id. at 602. The insured directors argued in Barham that the letter
of agreement between the OCC and the ultimately insolvent bank
constituted a claim that had been reported to the insurer. Id. at
39
604. The court disagreed: "[b]ecause the 1982 letter [of
agreement] makes no reference to a loss which [the bank] may
sustain as a result of its failure to comply with certain banking
regulations, we conclude that no claim was reported to [the
insurer] during the policy period." Id. at 605.
The FDIC attempts to distinguish Barham by arguing that the
Barham court's conclusion that the term "claim" was unambiguous,
id. at 604, should not apply to the instant D & O policies. Thus,
argues the FDIC, familiar rules of contract interpretation dictate
that we should interpret the policies in favor of coverage. Id. at
603; Bingham v. St. Paul Ins. Co., 503 So.2d 1043, 1045
(La.Ct.App.1987). International responds that there is no material
difference between the policy at issue in Barham and those it
issued to the Bank in this case, and that we must therefore use the
same definition of claim as that used by the Barham court.
We conclude that the instant policy language, although
different from that used in the policy in Barham, is no more
ambiguous than the language we construed in Barham. The term
"claim" is intimately connected with the term "loss" in the
insuring clause, and it appears as part of the definition of "loss"
as well. The policy provides that International will pay 957 of
"losses" suffered by the insureds, and that those losses are, quite
simply, amounts that the insureds become "legally obligated to pay
for a claim or claims made against them." It is clear that the
policy envisions "claims" as being closely related to legal
obligations to pay money, and that the Barham definition of claim
40
should apply to the instant case. See Resolution Trust Corp. v.
Miramon, 1993 WL 292833, at *5 (E.D.La. July 27, 1993) (unpublished
opinion) (applying the Barham definition of "claim" in the
interpretation of a D & O policy very similar to those issued by
International in the instant case).
The FDIC next seeks to distinguish Barham by arguing that the
communications and demands it made of the Bank during the policy
periods were materially different from the letter of agreement
involved in that case. The FDIC specifically relies on numerous
letters it sent to the Bank's board of directors advising the board
of the FDIC's concern and insisting that the Bank cease its unsafe
lending practices. International responds that the regulatory
demands made by the FDIC during the policy periods were not
substantially different from the one considered in Barham. Under
Barham, the appropriate inquiry is whether these communications
referred to demands that would necessarily result in losses to the
directors as a result of their failure to comply with the relevant
banking regulations. See Barham, 995 F.2d at 604; see also MGIC
Indem. Corp. v. Home State Sav. Ass'n, 797 F.2d 285, 288 (6th
Cir.1986) (interpreting a claims made policy to be "speaking not of
a claim that wrongdoing occurred, but a claim for some discrete
amount of money owed to the claimant on account of the alleged
wrongdoing"); FDIC v. Continental Casualty Co., 796 F.Supp. 1344,
1351-52 (D.Or.1991) (holding that a cease and desist order was not
a "claim" because "it fell short of holding the directors and
officers personally liable for the misconduct or seeking money
41
damages from them"); cf. California Union Ins. Co. v. American
Diversified Sav. Bank, 914 F.2d 1271, 1276 (9th Cir.1990) (stating
that notices from regulatory agencies do not assert claims unless
they threaten formal proceedings as a consequence of failure to
comply or propose to hold directors personally liable for the
noticed deficiencies), cert. denied, 498 U.S. 1088, 111 S.Ct. 966,
112 L.Ed.2d 1052 (1991).
The FDIC claims that some of its communications to the Bank's
board specifically advised the directors and officers of the Bank
of their potential liability. For instance, an FDIC examination
report dated December 3, 1982, advised the Bank's board that
"unsafe and unsound conditions may exist" that, unless addressed,
could impair the Bank's future viability, threaten the interests of
the Bank's depositors, and "pose a potential for disbursement of
funds by the insuring agency." A March 31, 1983, letter to the
Bank's board warned the board members that civil money penalties
would be considered if prompt good faith efforts were not made to
correct the Bank's violations of federal banking regulations. The
FDIC also cites its June 1983 notice of charges and administrative
hearing and the subsequent cease and desist order as conveying to
the Bank's directors the potential for liability.
Most of the documents relied upon by the FDIC can be easily
dismissed as falling outside the Barham definition of "claim."
They are the same sort of general demands for regulatory compliance
as the one before the Barham court. None of these documents
clearly refers to an insured loss that the Bank would or might
42
sustain if it did not abide by the FDIC's mandates. Even specific
formal demands for corrective action do not rise to the level of
"claims" unless coupled with indications that demands for payment
will be made. See Barham, 995 F.2d at 604.
There is, however, one arguable exception to this analysis:
the FDIC did warn the members of the Bank's board of directors by
letter dated March 31, 1983, that it was considering recommending
civil money penalties under Federal Reserve Regulation O, 12 C.F.R.
§ 215(b), (d) (regulating insider lending). The letter referred to
the December 1982 examination report to the Bank in which the
examiner noted,
The bank is in apparent violation of the provisions of Federal
Reserve Regulation O, as made applicable by the Federal
Deposit Insurance Act.... Management should formulate policy
which will ensure that the bank is operating within the
framework of all applicable laws and regulations. It should
also be noted that the Corporation has the power to impose
civil money penalties for such violations of $1,000 per day.
The March 31, 1983, follow-up letter advised the Bank's directors
that
[t]he violation [of Regulation O] are of serious concern and
would ordinarily warrant recommendation of civil money
penalties. Based on the information presently available,
however, further consideration of civil money penalties for
the violations will be held in abeyance provided the bank, in
good faith, initiates prompt efforts to correct the
violations.... Please advise when the violations have been
corrected and the method used to effect correction.... Should
you not act in good faith, recommendation of civil money
penalties will be reconsidered.
We proceed to analyze this communication in light of Barham.
In a broad sense, certainly, a threat to recommend civil money
penalties would appear to come within the definition of claim we
settled upon in Barham. By warning the board that such penalties
43
would be recommended if the Bank's regulatory violations were not
corrected, the letter arguably makes "a demand which necessarily
results in a loss—i.e., a legal obligation to pay—on behalf of the
directors." Id. at 604. Under the provisions of the Federal
Deposit Insurance Act then in effect, 12 U.S.C. § 1828(j)(3)(A)
(1982), either the Bank or its principals who participated in
violations of Regulation O could be assessed civil money penalties
of up to $1,000 per day. Of course, it could be argued that the
March 31, 1983, letter is not a demand for payment by the Bank or
the directors and does not even promise that such a demand will be
made in the future; by its terms, the letter is arguably nothing
more than a "demand for regulatory compliance"—albeit one backed
with threatened consequences.
We need not decide, however, whether the March 31, 1983,
letter satisfied the narrow definition of claim we settled upon in
Barham because the insurance policies at issue exclude from
definition of "Loss" any "fines or penalties imposed by law."
Thus, the threatened "civil money penalties" are clearly excluded
from coverage under the policies. See Vallier v. Oilfield Constr.
Co., 483 So.2d 212, 215-16 (La.Ct.App.), cert. denied, 486 So.2d
734 (La.1986) (holding that an exclusion of "fines or penalties
imposed on the insured ... for failure to comply with the
requirements of any workmen's compensation law" excluded coverage
of civil penalties and attorney's fees provided for under Louisiana
statute). It would be incongruous to hold that the threat of an
uninsured loss could nevertheless constitute a claim within the
44
meaning of that term as used in an insurance policy. In our
opinion in Central Bank, we held that a claim is indisputably made,
at the latest, at the time a party files suit on a demand based on
an act of a bank's directors or officers, which demand the bank has
denied. Central Bank, 838 F.2d at 1388. Significantly, we
continued,
This is so regardless of whether the party making the claim
names the director or officer as a party, as long as it is
clear to the bank that the claim is based upon an action by a
director or officer that falls within the terms of the
insurance contract.
Id. (emphasis added). Because the civil money penalties that the
FDIC threatened the Bank's board of directors with were not insured
losses under the 1983 policy, the March 31, 1983, letter in which
the FDIC threatened to recommend those penalties could not have
been a claim within the meaning of the policy.
We conclude that Barham is controlling and that no claims were
made on the Bank or its directors during the policy periods as was
required under the 1983 and 1984 policies. Because no claims were
made, we need not consider whether the district court correctly
interpreted the policies not to require the insured to give notice
to International of claims made as a condition precedent to
coverage.
2. Occurrences
The FDIC next argues in the alternative, as it has in
numerous recent cases around the country, that insurance coverage
was triggered under clause 9(b) of the policies because the
insureds gave written notice to International during the policy
45
periods of occurrences that might have given rise to claims being
made against the insureds. Specifically, the FDIC argues that the
Bank's renewal application submitted before the expiration of the
1983 policy disclosed the existence of the cease and desist order,
which the FDIC views as "an occurrence that subsequently gave rise
to the claims asserted" against the directors. The FDIC also
directs our attention to financial information provided to
International by the Bank during the 1984 policy period, such as a
listing of the Bank's classified loans. According to the FDIC,
these notices to International constituted notice of occurrences
"which may subsequently give rise to a claim being made against the
Insureds" within the meaning of clause 9(b) of the insurance
policies.
We must digress before discussing the merits of the FDIC's
arguments to deal with a point raised by amicus. International's
policies provide coverage of losses for wrongful acts or
occurrences that occur during policy periods and may give rise to
future claims (but do not give rise to actual claims during a
policy period) only if written notice of the occurrences is given
as soon as practicable. Although the district court appears not to
have relied on this "potential claims" coverage clause, it stated
gratuitously that the portion of the clause requiring notice of the
occurrences to International could not be enforced against the
FDIC, as a third party suing under the Louisiana direct action
statute, absent a showing of prejudice. As amicus points out, this
ruling would alter the nature of claims made insurance coverage by
46
creating coverage in instances when an insured knows of a potential
claim during the policy period and does not disclose this awareness
to his claims made insurer, at least in the direct-action setting.
The FDIC, for its part, appears to contend that amicus is
misreading the district court's opinion; in its original brief the
FDIC insists that the court's ruling "on notice does not extend to
the notice required for occurrences which may subsequently give
rise to claims." True to its word, the FDIC contends throughout
its numerous briefs that International did in fact receive notice
during the policy periods from the insureds of occurrences that
could potentially give rise to claims, apparently conceding that
mere "potential claims" could not be covered by the D & O policies
unless International had in fact received notice of those potential
claims.5 We will take the FDIC at its word and assume that notice
to International is a sine qua non of coverage of any potential
claims known to the individual defendants during the policy
periods. Although the Louisiana Supreme Court appears not to have
addressed the issue, Louisiana's intermediate courts of appeals
seem to agree with this position. See Bank of Louisiana v. Mmahat,
Duffy, Opotowsky & Walker, 608 So.2d 218 (La.Ct.App.1992), cert.
denied, 613 So.2d 994 (La.1993); Bank of the South v. New England
5
The FDIC does not always take this position. In FDIC v.
Caplan, 838 F.Supp. 1125, 1129 (W.D.La.1993), the FDIC pressed
the argument that, as a third party suing under the Louisiana
direct action statute, it could avoid the operation of notice
provisions in a claims made D & O policy. The court held that
the failure of the insureds to comply with the notice provisions
precluded the FDIC's right of action against the insurer. Id. at
1131.
47
Life Ins. Co., 601 So.2d 364 (La.Ct.App.1992).
Returning to the merits of this issue, we note that
International responds, backed with an impressive list of cases,
that the documents relied upon by the FDIC are not legally
sufficient to constitute notices of potential claims and that
non-specific communications merely disclosing that events have
occurred do not satisfy the requirement of notice of potential
claims. International relies not only on our recent opinion in
Barham but also on our even more recent opinion in McCullough v.
Fidelity & Deposit Co., 2 F.3d 110 (5th Cir.1993). International
also directs our attention to the cases relied upon in Barham and
McCullough, such as a pair of cases from the Eighth Circuit,
American Casualty Co. v. FDIC, 944 F.2d 455 (8th Cir.1991), and
FDIC v. St. Paul Fire and Marine Ins. Co., 993 F.2d 155 (8th
Cir.1993), as well as one from the Ninth Circuit, California Union
Ins. Co. v. American Diversified Sav. Bank, 914 F.2d 1271 (9th
Cir.1990), cert. denied, 498 U.S. 1088, 111 S.Ct. 966, 112 L.Ed.2d
1052 (1991). These courts have construed insurance policies such
as those at bar to require very specific notices from the insured
to the insurer to trigger "notice of potential claims" coverage.
We addressed this identical issue in the Barham case,
construing a clause requiring written notice of potential claims as
requiring directors "to give written notice of the specific acts
they considered to have claim potential." Barham, 995 F.2d at 605;
see also id. at 604 n. 9 ("Because notice of a claim or potential
claim defines coverage under a claims-made policy, ... the notice
48
provisions of such a policy should be strictly construed."). The
FDIC distinguishes Barham, arguing that the notice provision
involved in that case required more specific notice than the
instant policy. The policy in Barham specified that notice of
potential claims would be satisfied by written notice "of the
material facts or circumstances relating to such Wrongful Act as
facts or circumstances having the potential of giving rise to a
claim being made against" the insureds. Id. at 602 (emphasis
added). The FDIC argues that the language in clause 9(b) of the
International policies is slightly more general than this language,
and thus requires less specificity in the notice of potential
claims to trigger coverage.
McCullough also presented this issue, and that case involved
a notice clause requiring the insured to give notice of "any act,
error, or omission which may subsequently give rise to a claim
being made against the Directors and Officers ... for a specified
Wrongful Act." McCullough, 2 F.3d at 112. The bank in McCullough,
in conjunction with the policy renewal process, informed its D & O
insurer that the OCC had issued a cease and desist order to one of
its subsidiaries and that the bank was generally experiencing
increased loan losses and delinquencies. Id. at 111. We affirmed
summary judgment in favor of the insurer, holding that "[n]otice of
an institution's worsening financial condition is not notice of an
officer's or director's act, error, or omission." Id. at 113. We
went on to hold that the proper focus of the district court's
inquiry is whether the insured has objectively complied with such
49
a notice provision, and not whether the insurer has subjectively
drawn inferences that potential claims exist from the materials
submitted by the insured. Id. (emphasis added).
We relied on the Eighth Circuit's opinion in American Casualty
Co. v. FDIC, 944 F.2d 455 (8th Cir.1991), in both Barham and
McCullough. In American Casualty, a factually similar case, the
directors argued that coverage under one policy was triggered
because they gave their insurer adequate notice of potential claims
during the application process for the succeeding policy. Id. at
460. The weaknesses of the bank's loan portfolio were fully
revealed during the application process, and the insurer was
informed that the bank expected to lose over $400,000 during the
current year, that almost 2007 of the bank's capital was classified
as problem assets, and that the OCC had issued a cease and desist
order against the bank. Id. The Eighth Circuit concluded that
this was not sufficient notice to the insurer and that no coverage
existed. The court cited several facts as significant to its
decision, such as the generality of the information provided to the
insurer, the fact that it was mostly orally communicated, and the
repeated representations of the chairman of the board of directors
to the insurer that the bank was not in danger. Id.St. Paul Fire and Marine is to similar effect. On essentially
the same facts as American Casualty and as the instant case, the
court held that the notice given in a renewal application was
insufficient to give the insurer notice of potential claims. St.
Paul Fire and Marine, 993 F.2d at 158-60. The court specifically
50
noted that the renewal application indicated no "occurrences" under
the terms of the D & O policy, and that the bank actually responded
negatively to specific questions about occurrences in the renewal
application. Id. at 159. The bank also informed the insurer in
the renewal application about certain problem conditions, including
"extensions of credit which exceed the legal lending limit" and
"significant violations of laws and regulations," but at the same
time denied knowledge of any pending suits, claims, or occurrences
that might give rise to a claim. Id. at 156-57. The court held
that this information taken in toto was insufficiently specific and
did not alert the insurer that any claim could have been asserted.
Id. at 159. The court in California Union also rejected a claim
that generalized information provided an insurer with "constructive
notice" of potential claims. California Union, 914 F.2d at 1277-
78; see also American Casualty Co. v. Continisio, 819 F.Supp. 385,
398 (D.N.J.1993) (construing a notice provision "as imposing a duty
on the insured to give some kind of formal, written notification of
occurrences in order to evoke coverage"); Continental Casualty,
796 F.Supp. at 1353 ("[T]here is a substantial difference between
an insurer being on notice that an insured is a poor risk for
future insurance, and its having received the specific notice
required under [the terms of the D & O policy].").
Although subtle differences do distinguish International's
insurance policies from those involved in the above-mentioned
cases, we cannot conclude that the notice of potential claims
clause is materially different from those involved in Barham and
51
McCullough. International's policies required the individual
defendants to give International written notice as soon as
practicable "of any occurrence which may subsequently give rise to
a claim being made against the Insureds in respect of any ...
Wrongful Act" done or alleged to have been done by the insureds
while acting as directors or officers of the Bank. This is
sufficiently similar to the language we interpreted in McCullough
to warrant application of the full force of its holdings to the
instant facts. The question is whether the information supplied to
International by the insureds objectively gave "written notice of
specified wrongful acts [by the] officers and directors."
McCullough, 2 F.3d at 113. Subjective inferences drawn from
general information by the insurer's representatives are irrelevant
to the question of adequate notice. Id.
The FDIC argues at length that testimony at trial revealed
that International was aware of potential claims against the Bank's
directors through the financial information submitted by the Bank
during the renewal process. Under McCullough, however, this
evidence of International's subjective knowledge is not relevant.
Id. The FDIC also relies on International's actions at the time of
renewal as demonstrating International's anticipation that claims
would be made against the Bank's directors by the FDIC. The
"renewed" policy for 1984 halved the Bank's coverage, almost
tripled the previous premium, and included new exclusionary
clauses. Again, this does not prove that the financial information
conveyed to International by the Bank objectively rose to the level
52
of notice of specific wrongful acts. It reflects only that
International made a "reasonable business decision," American
Casualty, 944 F.2d at 459, when confronted with the Bank's
financial weakness. The FDIC's argument that the classified loan
list provided to International during the 1984 policy period
constituted notice of potential claims must fail for the same
reasons. The American Casualty court held that informing the
insurer of the classification of bank assets totalling almost 2007
of capital did not constitute sufficient notice of occurrences that
might give rise to claims. Id. at 460. International also points
out that the directors of the Bank represented to International on
more than one occasion that they knew of the existence of no claims
or potential claims against them, a factor which several of the
opinions cited above treat as significant.
The FDIC urges that we should remand to the district court for
a factual determination in the first instance of whether sufficient
notice of potential claims was given to International. Our review
of the record indicates that remand is unnecessary. We conclude
that International was not given notice during the policy periods
of occurrences that might give rise to future claims, and that
insurance coverage was therefore not triggered under the "loss
provisions" clause of the International policies.
C. REMAINING ISSUES
Having held that International is not liable on its 1983 and
1984 policies, we find that we need not reach the remaining issues
raised by the parties. The individual defendants contend that the
53
district court, for various reasons, should have reformed the 1984
policy to invalidate all of its terms that are inconsistent with
those of the 1983 policy. As we have seen, however, the 1984
policy provides no insurance coverage for the same reasons that the
1983 policy provides none, none of which implicate the exclusionary
clauses added to the 1984 policy. For the same reason we need not
consider the FDIC's argument that the district court erred in
holding that the classified loan exclusion in the 1984 policy
barred coverage of losses suffered or caused during 1984. Plainly
we need not reach International's and amicus's additional arguments
for reversal. Because the FDIC concedes that insurance coverage
existed under the "potential claims" clauses only if International
was given notice of those potential claims, we do not decide
whether the court below erred in stating that this notice provision
was void as against the FDIC unless International could show
prejudice resulting from the lack of notice.
V. CONCLUSION
For the foregoing reasons, we AFFIRM the judgment below
against Gus S. Mijalis, Alex S. Mijalis, John G. Cosse, John B.
Franklin, and J. Harper Cox, Jr., and we REMAND only for
determination of the appropriate credit for amounts received by the
FDIC in settlements with other parties. We REVERSE the judgment
against International Insurance Company and RENDER judgment in its
favor. Costs shall be borne by the FDIC and by Gus S. Mijalis,
Alex S. Mijalis, John G. Cosse, John B. Franklin, and J. Harper
Cox, Jr.
54
55