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Federal Deposit Insurance Corp. v. Kansas Bankers Surety Co.

United States District Court, D. Colorado

May 21, 2015

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver of New Frontier Bank, Greeley, Colorado, Plaintiff,


WILLIAM J. MARTÍNEZ, District Judge.

The Federal Deposit Insurance Corporation ("FDIC"), is the receiver for a failed bank, New Frontier Bank of Greeley, Colorado ("Bank"). (ECF No. 1 ¶¶ 5-6.) The FDIC sues Kansas Bankers Surety Company ("KBS") for KBS's failure to honor the Bank's (and subsequently, the FDIC's) claim under the Bank's Financial Institution Crime Bond ("Bond"). ( See generally ECF No. 1.)

KBS now moves for summary judgment. (ECF Nos. 80, 81.) For the reasons explained below, the Court concludes that the Bank's opportunity to submit a proof of loss for its Bond claim expired when the FDIC took over. Because the Bank did not submit a complete proof of loss by that time, the FDIC's claim under the Bond fails. Summary judgment is therefore granted in KBS's favor.[1]


Summary judgment is warranted under Federal Rule of Civil Procedure 56 "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-50 (1986). A fact is "material" if, under the relevant substantive law, it is essential to proper disposition of the claim. Wright v. Abbott Labs., Inc., 259 F.3d 1226, 1231-32 (10th Cir. 2001). An issue is "genuine" if the evidence is such that it might lead a reasonable trier of fact to return a verdict for the nonmoving party. Allen v. Muskogee, 119 F.3d 837, 839 (10th Cir. 1997).

In analyzing a motion for summary judgment, a court must view the evidence and all reasonable inferences therefrom in the light most favorable to the nonmoving party. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)). In addition, the Court must resolve factual ambiguities against the moving party, thus favoring the right to a trial. See Houston v. Nat'l Gen. Ins. Co., 817 F.2d 83, 85 (10th Cir. 1987).

When, as here, "the moving party does not bear the ultimate burden of persuasion at trial, it may satisfy its burden on a motion for summary judgment by identifying a lack of evidence for the nonmovant on an essential element of the nonmovant's claim." Bausman v. Interstate Brands Corp., 252 F.3d 1111, 1115 (10th Cir. 2001) (internal quotation marks omitted). If the movant meets this burden, the burden shifts to the nonmovant "to go beyond the pleadings and set forth specific facts that would be admissible in evidence in the event of trial from which a rational trier of fact could find for the nonmovant." Adler, 144 F.3d at 671 (internal quotation marks omitted).


The factual record in this case has been developed in significant detail. The following summary suffices for purposes of this order, and is undisputed unless otherwise noted.

A. Greg Bell, Johnson Dairy, and the Cow Lease Arrangements

This lawsuit centers around the actions of non-party Greg Bell, who worked as a loan officer for the Bank from 2001 to 2009. (Movant's Statement of Material Facts ("Defendant's Facts") (ECF No. 80 at 4-24) ¶ 4.) Bell had an extensive relationship with one of the Bank's largest borrowers, Johnson Dairy. (Statement of Disputed Additional Facts ("Plaintiff's Facts") (ECF No. 86 at 17-40) ¶ 161.) Johnson Dairy was aggressively expanding its business through Bank financing, but reached the Bank's legal lending limit by the summer of 2003. (Id. ¶ 162.) Johnson Dairy nonetheless needed more money, in particular to buy cows to fill a newly constructed milk barn. (Defendant's Facts ¶¶ 11-12.)

Bell and Johnson Dairy then agreed on a plan that was either a legal way of continuing to help Johnson Dairy grow its business (according to KBS) or an illegal method of circumventing the Bank's lending limits (according to the FDIC). (Defendant's Facts ¶ 14; Plaintiff's Facts ¶¶ 162-64.) Under this plan, over the next several years, Bell arranged for the Bank to loan money to Bell's friends, girlfriend, and parents. (Defendant's Facts ¶¶ 61-62, 65-66, 72-104.) These individuals (sometimes acting together in partnerships) would use the loan proceeds to buy cows, and would then lease those cows to Johnson Dairy for more than the carrying cost of the loans. (Id. ) Thus, although the Bank had not loaned new money to Johnson Dairy, the Bank's fortunes still depended on Johnson Dairy's financial performance, i.e., ability to make the lease payments.

Johnson Dairy continued to expand its operations, and in 2007, completed the largest dairy barn in the world. (Id. ¶ 22.) At that point, nearly 9, 000 of Johnson Dairy's 10, 000 cows were leased from Bell's friends and family. (Id. ¶ 23.) In September 2008, however, milk prices fell by more than 50% and feed prices rose "dramatically." (Id. ¶ 41.) Johnson Dairy could not afford to milk its cows and filed for bankruptcy protection on January 9, 2009. (Id. ¶¶ 43-44.)

The same day, Johnson Dairy's attorney sent a letter to the Bank, accusing the Bank of a "course of wrongful and improper conduct, " including "requiring... cattle-lease agreements as a prerequisite to financing." (ECF No. 80-39 at 3-4.) "[B]e assured, " the letter went on, "that in any litigation between the parties, evidence of the Bank's misconduct will be discovered." (Id. at 4.)

B. The Bank's Initial Communications With KBS

The Bank is party to the Bond, a "financial institution crime bond" underwritten by KBS. (ECF No. 1-1 at 2.) "Insuring Agreement A" of the Bond covers "[l]oss [to the Bank] resulting directly from dishonest or fraudulent acts committed by an Employee with the Active and Conscious Purpose to cause the [Bank] to sustain such loss." (Id. at 2.) Normally, the Bond requires the Bank to give KBS notice of a loss "[a]t the earliest practicable moment, not to exceed 30 days, after discovery of loss." (Id. at 13.) Then, "[w]ithin 6 months after such discovery, " the Bank must "furnish to [KBS] proof of loss, duly sworn to, with full particulars and complete documentation." (Id. )

Perhaps cognizant of these deadlines in light of the threatening letter from Johnson Dairy's attorney, the Bank's attorney faxed a letter to KBS on February 4, 2009, stating that "we are notifying you of a potential claim. Enclosed is a copy of a letter dated January 9, 2009 from [Johnson Dairy's attorney]." (ECF No. 80-39.) KBS responded by letter dated that same day. (ECF No. 80-40.) KBS's response summarized its understanding of the Bank's letter and the accusations in Johnson Dairy's letter. (Id. at 1.) KBS also stated, "Please let us know promptly if the bank has any reason to believe that any of the allegations in the letter are accurate or if the bank, or its officers, directors, or employees have any reason to believe that Wrongful Acts or Wrongful Lending Acts have been committed." (Id. )

C. The Adversary Proceeding

On February 25, 2009, Johnson Dairy filed an Adversary Proceeding against Bell, the Bank, and various others. (ECF No. 80-16.) As against the Bank, Johnson Dairy essentially alleged that the Bank's loans and Bell's cow lease arrangements were coercive and meant to enrich the Bank unduly at Johnson Dairy's expense, in violation of the Bank's alleged fiduciary duty. (Id. ¶¶ 77-79.) Johnson Dairy also asserted various other forms of illegality connected to other transactions not at issue here. ( See, e.g., id. ¶¶ 73, 121.) The next day, the Bank's general counsel, Robert Wiest, forwarded a copy of the Adversary Proceeding complaint to KBS, accompanied by a three-line letter generically requesting coverage under the Bond. (ECF No. 80-41.)

D. KBS's Choice Not to Defend the Bank

On March 24, 2009, Wiest once again send a copy of the Adversary Proceeding complaint to KBS, this time accompanied by a four-paragraph letter. (ECF No. 80-43.) As relevant here, Wiest's letter states as follows:

Claimants [Johnson Dairy and its principal] have numerous unpaid loans from the Bank for their dairy business. Their Complaint alleges that Bell, acting in concert with other defendants, committed various dishonest and fraudulent acts that caused Claimants to become insolvent, forcing them to seek bankruptcy protection. They further allege that Bell and other individuals who allegedly committed such unlawful acts received improper financial benefits, all at the expense of Claimants. The relief sought by Claimants includes full discharge of all indebtedness to the Bank and an unspecified amount of damages. A copy of the Complaint is enclosed.

(Id. at 1.) Wiest's letter to KBS continued,

The Bank does not admit any wrongdoing alleged in the Complaint. Nonetheless, if Claimants were to prevail in their claims, the discharged loans and other losses sustained by the Bank would constitute Collectible losses under Insuring Agreement A of the [Bond]. Accordingly, the Bank requests that [KBS] provide a defense in accordance with General Agreement (F).

(Id. )

The Bond's General Agreement F, invoked by Wiest, provides that the Bank

shall notify [KBS] at the earliest practicable moment, not to exceed 30 days after notice thereof, of any legal proceeding brought to determine the [Bank's] liability for any loss, claim or damage, which, if established, ...

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