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Federal Deposit Insurance Corp. v. New Hampshire Insurance Co.

filed: December 30, 1991.


Appeal from the United States District Court for the Central District of California. D.C. No. CV-88-0513-AHS. Alicemarie H. Stotler, District Judge, Presiding.

Before: J. Clifford Wallace, Chief Judge, Alfred T. Goodwin and Arthur L. Alarcon, Circuit Judges. Opinion by Judge Alarcon.

Author: Alarcon

ALARCON, Circuit Judge:

The Federal Deposit Insurance Corporation (FDIC),*fn1 as the successor to the Federal Savings and Loan Insurance Corporation (FSLIC), appeals from the final judgment entered as a result of the order granting summary judgment in favor of New Hampshire Insurance Company (New Hampshire). FSLIC brought this action in its corporate capacity as the Receiver of Ramona Savings and Loan Association (Ramona), to recover losses sustained by Ramona as the result of dishonest or fraudulent acts committed by John L. Molinaro, Ramona's former president, director, and sole shareholder.

New Hampshire issued a fidelity bond in favor of Ramona. The fidelity provisions of the bond, set forth in Section A, provide that it covers "loss resulting directly from dishonest or fraudulent acts of an Employee committed alone or in collusion with others." The terms "loss" and "Employee" are explained in separate sections under the general heading "Conditions and Limitations." The definition of an employee, set forth under "Definitions" in Section 1 of the "Conditions and Limitations," includes an officer of the institution.

Section 2 of the "Conditions and Limitations" is entitled "Exclusions." This section begins with the words: "This bond does not cover:" Thereafter, Section 2 expressly excludes, inter alia, coverage for monetary losses resulting from forgery or alteration, loss of customers' property in safe deposit boxes, and loss resulting from the use of credit or charge cards.

Section 4, under the heading "Discovery," provides as follows:

This bond applies to losses discovered by the Insured during the bond period. Discovery occurs when the insured becomes aware of facts which would cause a reasonable person to assume that a loss covered by the bond has been or will be incurred, even though the exact amount or details of loss may not be then known.

Notice to the insured of an actual or potential claim by a third party which alleges that the insured is liable under circumstances which if true would create a loss under this bond constitutes such discovery.

The district court granted summary judgment in favor of New Hampshire on alternate grounds. First, it concluded that, under the terms of the fidelity agreement, the insured had the burden of proving that it discovered losses during the period of time covered by the bond and failed to do so. Second, the district court ruled that even if the insured had met its burden of proving that its employee's dishonesty was discovered during the life of the agreement, recovery is barred because this action was filed more than two years following the expiration of coverage in violation of the 24-month limitation period set forth in Section 5.

We must decide a series of questions:

One. Was Molinaro an "employee" under the terms of the bond?

Two. Under the terms of the agreement, is discovery of an employee's dishonesty a limitation on coverage, or is it an exclusion from the scope of coverage?

Three. Assuming discovery of loss is a limitation on coverage, did the insured meet its burden of proving that there is a genuine issue of material fact regarding whether the insured discovered its employee's dishonesty before the policy was terminated?

Four. Assuming that discovery was made by the insured within the period of time covered by the policy, is recovery barred because this action was filed beyond the 24-month limitation period set forth in the agreement?

Five. Is the six-year period for filing a contract action set forth in 12 U.S.C. § 1821(d)(14)(A)(i) retroactively applicable to this agreement?

We reverse because we conclude (1) that FSLIC met its burden of presenting evidence sufficient to demonstrate that there is a material issue of fact in dispute regarding whether an employee's dishonesty was discovered within the period covered by the bond, and (2) that the six-year statute of limitations applies to this matter. Because of our holding that this action is not barred by the 24-month limitation provision of the agreement on the filing of an action, we do not reach FDIC's contention that the California doctrine of equitable tolling is applicable under these facts.



Because this action was filed by FSLIC in its corporate capacity, the district court had original jurisdiction over it and it is "deemed to arise under the laws of the United States." 12 U.S.C. § 1730(k)(1)(B) (repealed 1989); 12 U.S.C.A. § 1819(b)(1); 28 U.S.C.A. § 1345. See Taylor Trust v. Security Trust Fed. Sav. & Loan Assoc., 844 F.2d 337, 342 (6th Cir. 1988) ("FSLIC has special status under federal substantive common law applicable under 12 U.S.C. § 1730(k)(1)"); FSLIC v. Murray, 853 F.2d 1251, 1254 (5th Cir. 1988) (federal common law applies to FSLIC). Thus, federal law is applicable to the issues raised in this case. Dewey v. Lutz, 930 F.2d 597, 598 (8th Cir. 1991) ("Under the . . . [FIRREA] suits to which the FDIC is party are generally deemed to arise under the laws of the United States and, as such, should be litigated in federal court.") See also FDIC v. Bank of Am. Nat'l Trust & Sav. Assoc., 701 F.2d 831, 834 (9th Cir.) ("Where, as here, the FDIC is proceeding in its corporate capacity, federal law applies."), cert. denied, 464 U.S. 935, 78 L. Ed. 2d 310, 104 S. Ct. 343 (1983).

The parties have not referred us to any federal decision or statute that sets forth the rule of decision that must be applied in interpreting the terms of a fidelity bond that limits recovery to losses discovered during the period of time prescribed in the agreement. Accordingly, "we 'are free to apply the traditional common law technique of decision and draw upon all the sources of the common law in cases such as the present.' " Id. at 834 (quoting FDIC v. Meo, 505 F.2d 790, 793 n.4 (9th Cir. 1974)). In fashioning the federal rule of decision we must apply in this case, we may adopt state law if it does not conflict with federal policies. United States v. Pastos, 781 F.2d 747, 751 (9th Cir. 1986).

In Kennewick Irrigation Dist. v. United States, 880 F.2d 1018 (9th Cir. 1989), we set forth the general principles of federal law that control the interpretation of a contract when the United States is a party to the agreement. Id. at 1032. We summarized these rules of construction in Kennewick as follows:

One. "A written contract must be read as a whole and every part interpreted with reference to the whole." Id. (quoting Shakey's, Inc. v. Covalt, 704 F.2d 426, 434, 218 U.S.P.Q. (BNA) 16 (9th Cir. 1983)).

Two. "Preference must be given to reasonable interpretations as opposed to those that are unreasonable, or that would make the contract illusory." Id. (quoting, Shakey's, 704 F.2d at 434)).

Three. "The fact that the parties dispute a contract's meaning does not establish that the contract is ambiguous." Id. (quoting International Union of Bricklayers & Allied Craftsmen Local No. 20 v. ...

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