IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 95-50294
FEDERAL DEPOSIT INSURANCE CORPORATION, in its Corporate Capacity
Plaintiff - Appellant,
v.
CERTAIN UNDERWRITERS OF LLOYDS OF LONDON PURSUANT TO AND UNDER BANKERS BLANKET BOND POLICY NO. 834/FB8808216; ANGLO AMERICAN INSURANCE COMPANY, LIMITED; ASSICURIZIONI GENERALI AS PER H.S. WEAVERS AGENCIES LTD; BRITISH LAW INSURANCE COMPANY LTD; CAMPAGNIE EUROPEENE D'ASSURANCES INDUSTRIELLES S.A.; COPENHAGEN REINSURANCE CO., LTD
Defendants - Appellees _________________________________________________________________
Appeal from the United States District Court for the Western District of Texas (A-93-CA-489) _________________________________________________________________
March 28, 1996 Before KING, DAVIS, and BARKSDALE, Circuit Judges.
PER CURIAM:*
The Federal Deposit Insurance Corporation ("FDIC") appeals
the take nothing judgment rendered against it by the district
court in an action against certain underwriters of Lloyds of
* Pursuant to Local Rule 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in Local Rule 47.5.4. London (collectively "Underwriters") for breach of a fidelity
bond agreement. For the reasons assigned, we affirm.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. FACTS
The FDIC brought suit against Underwriters as assignee of a
claim under a financial institution bond issued by Underwriters
to Texas American Bancshares, Inc. ("TAB") and several of its
subsidiaries, including TAB-Austin, TAB-Ft. Worth, TAB-
Fredericksburg, and TAB-Temple. The bond at issue contains a
"Revised Fidelity Insuring Agreement" that limits insurance
coverage to "[l]oss resulting solely and directly from one or
more dishonest or fraudulent acts of an employee . . . ."
Two former employees of TAB-Austin, Donald R. Cockerham
("Cockerham") and Lester L. Duncan ("Duncan"), concealed their
financial interests in two real estate ventures to which TAB-
Austin and the other TAB subsidiaries lent funds. The
concealment of their interests constituted a violation of a
federal banking regulation known as Regulation O. 12 C.F.R. Part
215.
Each of the participating TAB subsidiaries made an
independent evaluation of the creditworthiness of the loan
principals. A former president of TAB-Ft. Worth testified at
trial that no effort was made to determine the parties for whom
the principal on the loan in which TAB-Ft. Worth participated was
2 acting as trustee, and that it was common to make loans without
such inquiries. However, representatives of the TAB subsidiaries
testified that they would not have extended the loans if they had
known of Cockerham's and Duncan's concealed financial interests.
Plummeting real estate prices prevented the principals from
developing or reselling the real estate purchased with the loan
proceeds, and the principals defaulted on the loans. All of the
loans were secured by the real estate, which was deeded on
foreclosure to TAB-Austin, individually, and as representative of
the other TAB subsidiaries.
On September 8, 1988, TAB sent written notice of a possible
loss to Underwriters. A Proof of Loss was submitted on May 5,
1989 in connection with the fraudulent loans. On July 20, the
Office of Comptroller of the Currency appointed the FDIC as
receiver for the TAB subsidiaries. When the Underwriters
declined to pay the claim, the FDIC commenced this action.
B. PROCEDURAL BACKGROUND
The FDIC brought suit against Underwriters for breach of
contract on August 17, 1993. The case was tried before a jury
from February 27 to March 2, 1995. The district court gave the
following jury instruction, as requested by Underwriters:
Lloyds of London contends that the dishonest or fraudulent acts of Cockerham and/or Duncan were not the sole and direct cause of loss and that the FDIC, therefore, is not entitled to recover on the Bond. The FDIC has the
3 burden of proof that the acts of Cockerham and/or Duncan were the sole and direct cause of the loss.
Sole cause means there is no other cause.
A loss is caused solely and directly from dishonest or fraudulent acts where the dishonest or fraudulent acts are the only cause of the loss. If an act is the sole cause, there can be no other cause. If the loss results from more than one cause, then no single cause is the sole cause.
A "but-for" test has no applicability where coverage is limited to losses caused solely by a particular act. Mere proof that a loss would not have occurred but for a certain act is not sufficient.
The FDIC had submitted written objections to the
Underwriters' proposed jury instructions prior to the charge of
the jury, arguing that "sole cause" means that there is no other
concurrent proximate cause.
The district court submitted the case to the jury on a
special verdict form. Based on the finding of the jury that the
misconduct of Cockerham and Duncan was not the sole cause of the
loss of the TAB banks, the district court entered judgment in
favor of Underwriters on March 16, 1995.
II. ANALYSIS
The FDIC contends that the jury instruction regarding sole
cause was erroneous because the jury should have been instructed
that "sole cause" means "sole proximate cause." We need not
reach the issue of the propriety of the jury instruction because
any error in the instruction "could not have affected the outcome
of the case," and was thus harmless. Bender v. Brumley, 1 F.3d
4 271, 276-77 (5th Cir. 1993) (internal quotations and citation
omitted).
The FDIC predicates its argument on the notion that, as a
matter of law, a bank's loss from a fraudulent loan occurs at the
time of the disbursement of funds rather than at the time of
default on the loan. Under such a legal conclusion, events that
occurred subsequent to disbursement of the loan funds, such as
decline in the real estate market, could not have been causes of
the loss because they occurred after the loss.
The FDIC thus reasons that the only possible causes that the
jury could have considered in reaching its conclusion that
employee dishonesty was not the sole cause of the loss of the TAB
banks were (1) employee dishonesty, and (2) the decisions of the
TAB subsidiaries to make the loans. The FDIC urges that the jury
could have concluded that (1) employee dishonesty was a proximate
cause of the loss and (2) the TAB subsidiaries' credit decisions
were causes of the loss, but not proximate causes of the loss.
If the jury reached this conclusion, then the outcome of the
trial would have been different if the definition of "sole cause"
proffered by the FDIC had been included in the jury instruction.
Under the FDIC's definition, employee dishonesty would have been
the "sole proximate cause" of the loss, and thus the "sole cause"
of the loss.
The FDIC's analysis is problematic because it is predicated
on a legal argument not advanced at trial: namely, that a bank's
5 loss in connection with a fraudulent loan occurs at the time of
disbursement of the loan funds rather than at the time of
default.
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IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 95-50294
FEDERAL DEPOSIT INSURANCE CORPORATION, in its Corporate Capacity
Plaintiff - Appellant,
v.
CERTAIN UNDERWRITERS OF LLOYDS OF LONDON PURSUANT TO AND UNDER BANKERS BLANKET BOND POLICY NO. 834/FB8808216; ANGLO AMERICAN INSURANCE COMPANY, LIMITED; ASSICURIZIONI GENERALI AS PER H.S. WEAVERS AGENCIES LTD; BRITISH LAW INSURANCE COMPANY LTD; CAMPAGNIE EUROPEENE D'ASSURANCES INDUSTRIELLES S.A.; COPENHAGEN REINSURANCE CO., LTD
Defendants - Appellees _________________________________________________________________
Appeal from the United States District Court for the Western District of Texas (A-93-CA-489) _________________________________________________________________
March 28, 1996 Before KING, DAVIS, and BARKSDALE, Circuit Judges.
PER CURIAM:*
The Federal Deposit Insurance Corporation ("FDIC") appeals
the take nothing judgment rendered against it by the district
court in an action against certain underwriters of Lloyds of
* Pursuant to Local Rule 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in Local Rule 47.5.4. London (collectively "Underwriters") for breach of a fidelity
bond agreement. For the reasons assigned, we affirm.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. FACTS
The FDIC brought suit against Underwriters as assignee of a
claim under a financial institution bond issued by Underwriters
to Texas American Bancshares, Inc. ("TAB") and several of its
subsidiaries, including TAB-Austin, TAB-Ft. Worth, TAB-
Fredericksburg, and TAB-Temple. The bond at issue contains a
"Revised Fidelity Insuring Agreement" that limits insurance
coverage to "[l]oss resulting solely and directly from one or
more dishonest or fraudulent acts of an employee . . . ."
Two former employees of TAB-Austin, Donald R. Cockerham
("Cockerham") and Lester L. Duncan ("Duncan"), concealed their
financial interests in two real estate ventures to which TAB-
Austin and the other TAB subsidiaries lent funds. The
concealment of their interests constituted a violation of a
federal banking regulation known as Regulation O. 12 C.F.R. Part
215.
Each of the participating TAB subsidiaries made an
independent evaluation of the creditworthiness of the loan
principals. A former president of TAB-Ft. Worth testified at
trial that no effort was made to determine the parties for whom
the principal on the loan in which TAB-Ft. Worth participated was
2 acting as trustee, and that it was common to make loans without
such inquiries. However, representatives of the TAB subsidiaries
testified that they would not have extended the loans if they had
known of Cockerham's and Duncan's concealed financial interests.
Plummeting real estate prices prevented the principals from
developing or reselling the real estate purchased with the loan
proceeds, and the principals defaulted on the loans. All of the
loans were secured by the real estate, which was deeded on
foreclosure to TAB-Austin, individually, and as representative of
the other TAB subsidiaries.
On September 8, 1988, TAB sent written notice of a possible
loss to Underwriters. A Proof of Loss was submitted on May 5,
1989 in connection with the fraudulent loans. On July 20, the
Office of Comptroller of the Currency appointed the FDIC as
receiver for the TAB subsidiaries. When the Underwriters
declined to pay the claim, the FDIC commenced this action.
B. PROCEDURAL BACKGROUND
The FDIC brought suit against Underwriters for breach of
contract on August 17, 1993. The case was tried before a jury
from February 27 to March 2, 1995. The district court gave the
following jury instruction, as requested by Underwriters:
Lloyds of London contends that the dishonest or fraudulent acts of Cockerham and/or Duncan were not the sole and direct cause of loss and that the FDIC, therefore, is not entitled to recover on the Bond. The FDIC has the
3 burden of proof that the acts of Cockerham and/or Duncan were the sole and direct cause of the loss.
Sole cause means there is no other cause.
A loss is caused solely and directly from dishonest or fraudulent acts where the dishonest or fraudulent acts are the only cause of the loss. If an act is the sole cause, there can be no other cause. If the loss results from more than one cause, then no single cause is the sole cause.
A "but-for" test has no applicability where coverage is limited to losses caused solely by a particular act. Mere proof that a loss would not have occurred but for a certain act is not sufficient.
The FDIC had submitted written objections to the
Underwriters' proposed jury instructions prior to the charge of
the jury, arguing that "sole cause" means that there is no other
concurrent proximate cause.
The district court submitted the case to the jury on a
special verdict form. Based on the finding of the jury that the
misconduct of Cockerham and Duncan was not the sole cause of the
loss of the TAB banks, the district court entered judgment in
favor of Underwriters on March 16, 1995.
II. ANALYSIS
The FDIC contends that the jury instruction regarding sole
cause was erroneous because the jury should have been instructed
that "sole cause" means "sole proximate cause." We need not
reach the issue of the propriety of the jury instruction because
any error in the instruction "could not have affected the outcome
of the case," and was thus harmless. Bender v. Brumley, 1 F.3d
4 271, 276-77 (5th Cir. 1993) (internal quotations and citation
omitted).
The FDIC predicates its argument on the notion that, as a
matter of law, a bank's loss from a fraudulent loan occurs at the
time of the disbursement of funds rather than at the time of
default on the loan. Under such a legal conclusion, events that
occurred subsequent to disbursement of the loan funds, such as
decline in the real estate market, could not have been causes of
the loss because they occurred after the loss.
The FDIC thus reasons that the only possible causes that the
jury could have considered in reaching its conclusion that
employee dishonesty was not the sole cause of the loss of the TAB
banks were (1) employee dishonesty, and (2) the decisions of the
TAB subsidiaries to make the loans. The FDIC urges that the jury
could have concluded that (1) employee dishonesty was a proximate
cause of the loss and (2) the TAB subsidiaries' credit decisions
were causes of the loss, but not proximate causes of the loss.
If the jury reached this conclusion, then the outcome of the
trial would have been different if the definition of "sole cause"
proffered by the FDIC had been included in the jury instruction.
Under the FDIC's definition, employee dishonesty would have been
the "sole proximate cause" of the loss, and thus the "sole cause"
of the loss.
The FDIC's analysis is problematic because it is predicated
on a legal argument not advanced at trial: namely, that a bank's
5 loss in connection with a fraudulent loan occurs at the time of
disbursement of the loan funds rather than at the time of
default. The FDIC made no request for a jury instruction that
loss in connection with the loans at issue in the case occurred
at the time that the loan funds were disbursed.1 Additionally,
neither the FDIC's proposed jury instruction on sole cause nor
its objection to Underwriters' proposed instruction on sole cause
contained any analysis or citation of legal authority relating to
the timing of the loss. The FDIC merely argued in closing that
the loss occurred at the time of disbursement. Thus, the FDIC
consented to the jury's consideration of other factors, such as
decline in the real estate market, as potential causes of the
loss.
Because the FDIC did not request that the district court
instruct the jury that, as a matter of law, loss occurs at the
time of loan funding, it has not preserved this argument for
appeal. This court will not consider on appeal matters not
presented to the trial court. Quenzer v. United States (In re
Quenzer), 19 F.3d 163, 165 (5th Cir. 1993). The FDIC is
essentially asking this court to view the jury instruction in
1 In its written objections to Underwriters' proposed jury instructions, the FDIC advanced the argument that loss occurs at the time of loan disbursement and cited supporting authority in an objection to a requested jury instruction that the FDIC, as assignee, was limited in its recovery to losses suffered by the assignors of the contract claim. However, no legal argument concerning the timing of loss was ever advanced by the FDIC in connection with jury instructions relating to causation.
6 this case through a legal framework not advanced at trial, and we
decline to do so.
At oral argument before this court, counsel for the FDIC
conceded that the FDIC's appeal would be unmeritorious in the
absence of a recognition by this court that loss resulting from a
fraudulent loan occurs at the time that loan funds are
disbursed.2 Logically implicit in this concession is a
concession that, if the loss on the fraudulent loans occurred at
the time of default, then decline in the real estate market was a
proximate cause of the loss. This is the only conclusion that
would necessarily render any error in the jury instruction on
sole cause harmless, and thus render the FDIC's appeal
unmeritorious. Employee dishonesty could not be the sole
proximate cause of the loan loss, as required by the fidelity
bond, if decline in the real estate market was a proximate cause
of the loss. Accordingly, the FDIC has conceded that the jury
would have reached the same result with the FDIC's requested
2 The following exchange took place between the court and counsel for the FDIC during oral argument:
THE COURT: That is why it is that it is so important to your cause that you establish that the loss occurred at the date that the loan was funded.
COUNSEL: That's right, your honor.
THE COURT: Without that . . . you don't have an argument.
COUNSEL: We really don't, judge, and I will concede that. We have to show that the loss occurred at funding.
7 instruction on the meaning of "sole cause" that it did with the
instruction given at trial.
III. CONCLUSION
Because of the FDIC's failure to preserve the question of
whether a loss relating to a fraudulent loan occurs at the time
of the disbursement of the funds and because of its concession
that this issue is dispositive of its appeal, we AFFIRM.