W Holding Company, Inc. v. AIG Insurance Company - Puerto ( 2014 )


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  •           United States Court of Appeals
    For the First Circuit
    No. 12-2008
    W HOLDING COMPANY, INC.; FRANK STIPES-GARCÍA; JUAN C. FRONTERA-
    GARCÍA; HÉCTOR DEL RÍO-TORRES; WILLIAM M. VIDAL-CARVAJAL; CÉSAR
    RUIZ; PEDRO R. DOMÍNGUEZ-ZAYAS,
    Plaintiffs, Appellees,
    LUÍS BARTOLOMÉ RIVERA CUEBAS, as Trustee of the Socio Cultural
    Conservation Trust,
    Plaintiff,
    v.
    AIG INSURANCE COMPANY — PUERTO RICO,
    Defendant, Appellant.
    MARLENE CRUZ-CABALLERO; CONJUGAL PARTNERSHIP FRONTERA-CRUZ;
    LILLIAM DÍAZ-CABASSA; CONJUGAL PARTNERSHIP RÍO-DÍAZ; GLADYS
    BARLETTA-SEGARRA; CONJUGAL PARTNERSHIP VIDAL-BARLETTA; HANNALORE
    SCHMIDT-MICHELS; CONJUGAL PARTNERSHIP RUIZ-SCHMIDT; SONIA
    SOTOMAYOR-VICENTY; CONJUGAL PARTNERSHIP DOMÍNGUEZ-SOTOMAYOR; JOSÉ
    M. BIAGGI-LANDRÓN; JANE DOE; CONJUGAL PARTNERSHIP BIAGGI-DOE;
    MIGUEL A. VÁZQUEZ-SEIJO; SHARON MCDOWELL-NIXON; CINDY M. COSTAS
    SANTIAGO; CONJUGAL PARTNERSHIP VÁZQUEZ-MCDOWELL,
    Defendants, Appellees.
    RICARDO CORTINA-CRUZ; CONJUGAL PARTNERSHIP CORTINA-ALDEBOL;
    ELIZABETH ALDEBOL DE CORTINA; JULIA FUENTES DEL COLLADO; MARIO A.
    RAMÍREZ-MATOS; CORNELIUS TAMBOER; OLGA MORALES-PÉREZ; CONJUGAL
    PARTNERSHIP TAMBOER-MORALES; JANE DOE, as Trustee for the
    Domínquez Sotomayor Family Trust; JOHN DOE, as Trustee for the
    Domínguez Sotomayor Family Trust; CARLOS GONZÁLEZ ALONSO; XL
    SPECIALTY INSURANCE COMPANY; LIBERTY MUTUAL INSURANCE COMPANY;
    ACE INSURANCE COMPANY,
    Defendants.
    APPEAL FROM THE UNITED STATES DISTRICT COURT
    FOR THE DISTRICT OF PUERTO RICO
    [Hon. Gustavo A. Gelpí, U.S. District Judge]
    Before
    Thompson, Baldock,* and Lipez,
    Circuit Judges.
    Melissa A. Murphy-Petros, with whom James K. Thurston and
    Wilson Elser Moskowitz Edelman & Dicker LLP, and Luis N. Saldaña,
    Fernando Sabater-Clavell, and Carvajal & Vélez-Rivé, P.S.C. were on
    brief, for appellant.
    Andrés Rivero, with whom Alan H. Rolnick, Charles E. Whorton,
    M. Paula Aguila, and Rivero Mestre LLP were on brief, for
    appellees.
    Colleen J. Boles, Assistant General Counsel, Lawrence H.
    Richmond, Senior Counsel, and Jaclyn C. Taner, Federal Deposit
    Insurance Corporation, and John A. Gibbons, Andrew M. Reidy,
    Catherine J. Serafin, and Dickstein Shapiro LLP, on brief for
    amicus curiae Federal Deposit Insurance Corporation in support of
    appellees.
    March 31, 2014
    *
    Of the Tenth Circuit, sitting by designation.
    THOMPSON, Circuit Judge.
    PREFACE
    In today's case (more procedurally complicated than
    substantively complex), a district judge issued an order requiring
    Chartis Insurance Company to advance defense costs to former
    directors and officers of Westernbank of Puerto Rico, who find
    themselves in the cross-hairs of the Federal Deposit Insurance
    Corporation ("FDIC," for easy reading).1       Chartis appeals.   And
    after confirming our jurisdiction, we affirm.
    HOW THE CASE GOT HERE
    Westernbank's run as one of Puerto Rico's leading banks
    came to an end in the late 2000s when local regulators ordered it
    closed and appointed a federal regulator — the FDIC — receiver.
    Jumping in with gusto, the FDIC investigated what had gone on
    there.   And it did not like what it found.    Certain bank directors
    and officers had breached their "fiduciary duty" by jeopardizing
    the bank's financial soundness, the FDIC claimed in a letter sent
    to (among others) the directors and officers and their insurer,
    Chartis.   Concluding that these breaches had caused more than $367
    million in losses to the bank, the FDIC demanded that the directors
    and officers pay that amount.
    1
    Chartis is now known as AIG Insurance Company. But we will
    continue to refer to Chartis throughout this opinion, just like the
    parties do in their briefs. Also, anyone interested in knowing the
    directors' and officers' names should check out our case caption.
    -3-
    Without    missing   a   beat,   the   directors    and   officers
    notified Chartis of the FDIC's multimillion-dollar claim.                   And,
    naturally,     they    asked   Chartis   to    confirm   coverage      under   a
    directors' and officers' liability-insurance policy issued by
    Chartis to Westernbank's owner, W Holding Company, Inc.                Known in
    the insurance world as a "D&O" policy, this particular policy
    declares (in capital letters) that Chartis "must advance defense
    costs, excess of the applicable retention, pursuant to the terms
    herein prior to the final disposition of a claim."               The policy's
    advancement provision (emphasis ours) repeats further on that
    Chartis "shall advance, excess of any applicable retention amount,
    covered Defense Costs." "Defense Costs" include "reasonable and
    necessary fees, costs and expenses consented to by the Insurer."
    The policy says, too, that Chartis shall pay for certain "Loss[es]
    of an Organization arising from a Claim made against an Insured
    Person for any Wrongful Act of such Insured Person."               "Loss[es]"
    include defense costs. "Organization" includes the "Named Entity,"
    which is W Holding, plus its "Subsidiar[ies]," which include
    Westernbank.      And    "Insured     Person[s]"    include     directors   and
    officers.
    Chartis denied coverage five months later, relying (most
    pertinently) on the policy's "insured versus insured" exclusion.
    A standard proviso in D&O policies, this exclusion says that
    Chartis
    -4-
    shall not be liable to make any payment for
    Loss in connection with any Claim made against
    an Insured . . . which is brought by, on
    behalf of or in the right of, an Organization
    or any Insured Person other than an Employee
    of an Organization, in any respect and whether
    or not collusive.
    "Claim," the policy adds, includes "a written demand" for money.
    "Insured" means "Insured Person" or "Organization."    And, again,
    the directors and officers come within the policy's definition of
    "Insured Person[s]," while W Holding and Westernbank fall within
    the policy's definition of "Organization."       Also, the policy
    neither mentions the FDIC nor bars coverage for suits by FDIC-type
    regulators like some policies do.2
    Convinced that the FDIC, "[a]s receiver," had stepped
    squarely into Westernbank's "shoes," Chartis also wrote that any
    claims that the FDIC had "against the directors and officers of
    Westernbank are 'on behalf of' or 'in the right of' Westernbank."
    That triggered the insured-versus-insured exclusion, the FDIC
    added, which meant no coverage.   The directors and officers were
    2
    The policy does discuss claims brought by "governmental
    regulators" in a "Securities Claims Exclusion" — but (broadly
    speaking) only in the context of claims arising from "the purchase
    or sale, or offer or solicitation of an offer to purchase or
    sell[,] any security of the Organization." Contrastingly, Chartis
    apparently sells a "Broad Form" (which the judge judicially
    noticed) that expressly excludes coverage for claims "brought by or
    on behalf of . . . any State or Federal regulatory or
    administrative agency . . . in its capacity as receiver,
    conservator, liquidator, securities holder or assignee of" the
    bank's "depositors or creditors." Again, that exclusion is not
    part of this policy.
    -5-
    not willing to take this lying down, however.              Together with W
    Holding, they sued Chartis in Puerto Rico superior court, seeking
    a declaratory judgment of coverage and saying that "coverage
    includes all costs and expenses . . . incurred" in defending
    against the FDIC.     They also alleged that the FDIC had asserted a
    claim   against    them   on   behalf   of   third-party    creditors   and
    depositors. Eventually, the FDIC got involved in this suit, filing
    a complaint in intervention.      That complaint accused the directors
    and officers of violating their fiduciary duties to Westernbank,
    causing over $176 million in damages to the bank.            The complaint
    also stressed that the FDIC had "succeeded to all of the rights and
    assets of Westernbank, including its rights and claims against its
    former officers and directors, and its rights, interests and claims
    in and to the policies against Chartis under" Puerto Rico's direct-
    action statute.      See 26 L.P.R.A. § 2003 (declaring that "[a]ny
    individual sustaining damages and losses" may sue an insurance
    company directly without joining the named insured, provided the
    suit is pursued in Puerto Rico).
    The FDIC then promptly removed the entire case to federal
    court. See 12 U.S.C. § 1819(b)(2)(B). It amended its complaint to
    bring more directors and officers (as well as their spouses and
    conjugal partners) into the case and to add cross claims against
    them, too.    This pleading sounded a familiar theme:        that the FDIC
    had sued in its capacity as Westernbank's receiver and that the
    -6-
    directors    and   officers   had   breached    their    fiduciary    duties,
    resulting in the bank's loss of over $176 million.              But the FDIC
    also estimated there that the bank's closing could result in the
    federal deposit-insurance fund's losing over $4 billion.
    Chartis fired back with a motion to dismiss all claims
    brought against it by the directors and officers and by the FDIC.
    See Fed. R. Civ. P. 12(b)(6).        What matters for our purposes is
    that Chartis asserted again that because the FDIC was pursuing the
    directors    and   officers   "on   behalf     of   or   in   the   right   of"
    Westernbank, there is no coverage under the insured-versus-insured
    exclusion and so their coverage claim should be jettisoned.                 The
    directors and officers opposed the dismissal motion, arguing (at
    the risk of oversimplification) that a clear "majority of courts"
    refuse to stretch the insured-versus-insured exclusion "to include
    the FDIC."
    Believing that there is at least a "remote possibility"
    of coverage, the directors and officers also moved the judge to
    order Chartis to advance their defense costs.3                "This is not a
    preliminary injunction motion," they wrote in support of their
    motion.     But they were quick to note that (a) they would be
    irreparably harmed if their motion failed, because many of them are
    3
    Helpfully, the parties agree that Puerto Rico's "remote
    possibility" standard applies here. And we accept that concession.
    See, e.g., Manganella v. Evanston Ins. Co., 
    702 F.3d 68
    , 72 (1st
    Cir. 2012); Kali Seafood, Inc. v. Howe Corp., 
    887 F.2d 7
    , 8 (1st
    Cir. 1989).
    -7-
    "elderly," "unemployed," "retired," and "living on fixed incomes,"
    and so cannot shoulder the defense costs; that (b) Chartis's duty
    to advance defense costs to them is plain as day; and that (c) the
    public's   interest     in    making     sure      that    insurers        keep      their
    commitments and that insureds get what they paid for cannot be
    questioned.      Undaunted,     Chartis      opposed           the   cost-advancement
    motion,    insisting    that    the     insured-versus-insured                 exclusion
    controls   and   bars   coverage.        And       no    coverage,       the    argument
    continued, means no obligation to advance defense costs — because
    costs tied to an excluded claim are not "covered Defense Costs."
    The FDIC chimed in, moving without opposition for leave
    to file a second amended complaint in intervention, see Fed. R.
    Civ. P. 15(a) — a motion the judge granted.                    As best we can tell,
    the big difference between the first and second amended complaints
    is the latter's saying that the FDIC, as receiver,
    succeeded to all rights, claims, titles,
    powers, privileges, and assets of Westernbank
    and   its   stockholders,   members,   account
    holders, depositors, officers, or directors of
    Westernbank with respect to the institution
    and the assets of the institution, including
    the right to bring this action against the
    former officers and directors of Westernbank.
    As   support     for    its    claim,        the        FDIC     cited     12        U.S.C.
    § 1821(d)(2)(A)(i).     That provision — one of many in the Financial
    Institutions     Reform,     Recovery,    and       Enforcement          Act    of    1989
    -8-
    ("FIRREA," for now on)4 — says that the FDIC "shall, as . . .
    receiver, and by operation of law, succeed to . . . all rights,
    titles,    powers,    and   privileges     of     the   insured    depository
    institution,    and   of    any   stockholder,     member,   accountholder,
    depositor, officer, or director of such institution with respect to
    the institution and the assets of the institution."
    Not surprisingly, the directors and officers and Chartis
    responded by filing separate motions to dismiss the FDIC's second
    amended complaint.      See Fed. R. Civ. P. 12(b)(6).             Among other
    arguments, the directors and officers claimed that they had not
    acted in a grossly negligent fashion.           Chartis, on the other hand,
    raised the same insured-versus-insured argument as before.               Also
    not surprisingly, the FDIC opposed the dismissal motions.                 And
    responding to Chartis's insured-versus-insured theory, the FDIC
    said that "overwhelming case authority" establishes that this
    exclusion does "not apply to entities like the FDIC."
    Taking up the cost-advancement matter first, the judge
    granted the directors and officers' motion in an electronic docket
    entry that said:
    ORDER GRANTING . . . Motion for Miscellaneous
    Relief (advance defense costs).       PR law
    requires insurers to advance defense costs if
    there is even a remote possibility that a
    claim ultimately will be covered. This ruling
    is without prejudice of Chartis eventually
    being entitled to repayment.
    4
    See Pub. L. No. 101-73, 103 Stat. 183 (1989).
    -9-
    The judge denied Chartis's motion to reconsider that order, too.
    And he then denied all motions to dismiss the FDIC's second amended
    complaint. As for Chartis's all-encompassing dismissal motion (the
    only one that matters somewhat here, because it touched on the
    insured-versus-insured issue), the judge said that the insured-
    versus-insured exclusion barred the FDIC from suing on behalf of
    Westernbank's     members,   officers,   and   directors,   plus   also
    Westernbank's shareholders (consisting only of W Holding, a party
    to the case).    But because the FDIC also sued on behalf of account
    holders, depositors, and the drawn-down FDIC-insurance fund, the
    judge concluded that the FDIC's claims fell outside the insured-
    versus-insured exclusion.5
    The parties' frenetic motion practice continued, however.
    Here is one example.     The directors and officers later moved for
    sanctions against Chartis, citing Rule 44.1 of the Puerto Rico
    Rules of Civil Procedure — a rule that authorizes the "payment of
    a sum for attorneys' fees" if "any party or its lawyer has acted
    obstinately or frivolously."     In their view, Chartis's no-remote-
    possibility-of-coverage position was nothing short of obstinate or
    frivolous.      Essentially crying "gotcha," they spotlighted the
    position Chartis took in a substantially similar case, Bradford v.
    Gibraltar Nat'l Ins. Co., No. CV2010-1145 (Ark. Cir. Ct. 13th Div.
    5
    At oral argument Chartis's lawyer conceded that the reasons
    the judge gave for denying the dismissal motion help explain why he
    granted the cost-advancement motion.
    -10-
    an. 18, 2012).     There, Chartis had no problem advancing defense
    costs to directors of a defunct company, despite an insured-versus-
    insured exclusion.         What Chartis did in Bradford, they added,
    "amounts to an admission" that the FDIC's claims are "covered" and
    that the exclusion does not apply. And they sought attorneys' fees
    from Chartis as a penalty for its litigating the cost-advancement
    question here.     Chartis responded that its insured-versus-insured
    argument in the current case constitutes a reasoned position based
    on a "novel" issue that is "reasonably debatable."            Chartis also
    claimed that the exclusion in Bradford looks nothing like the one
    at issue here.      So, Chartis reasoned, no court could find its
    actions sanctionable.        But the judge noted that there are cases
    (nothing binding) going both ways on whether the insured-versus-
    insured exclusion applies to situations like ours.                And because
    some caselaw points to coverage, the judge found that Chartis's no-
    remote-possibility-of-coverage notion represented the height of
    obstinacy.     Consequently, he granted the directors and officers'
    sanctions motion, awarding them the costs that they incurred in
    fighting for the advancement.
    Which brings us at last to Chartis's appeal of the cost-
    advancement    order   —   an   appeal   that   pivots   around    two   basic
    questions:     Do we have jurisdiction to hear the parties?           And, if
    so, did the judge bungle the cost-advancement ruling?               We answer
    -11-
    "yes" to the first question and "no" to the second, for the reasons
    we now explain.
    OUR TAKE ON THE CASE
    (1)
    Appealability
    The directors and officers think we have no authority
    over this matter because, they say, the cost-advancement edict is
    not an appealable order, given that there is no final judgment
    disposing of all claims against all parties.     Like Chartis, we
    think the opposite is true.
    Normally, only final judgments are appealable.         See
    Morales Feliciano v. Rullán, 
    303 F.3d 1
    , 6 (1st Cir. 2002) (citing
    28 U.S.C. § 1291).      An exception exists, however, for orders
    granting injunctions.     See 28 U.S.C. § 1292(a)(1).6     And the
    judge's cost-advancement order certainly seems to fit the bill.
    For sure, the judge did not label his ruling an "injunction" —
    perhaps because the directors and officers said that they were not
    6
    The following excerpt from § 1292(a)(1) should be enough to
    give the reader a flavor of that provision:
    (a) . . . [T]he courts of appeals shall have jurisdiction
    of appeals from:
    (1) Interlocutory orders of the district courts
    . . ., or of the judges thereof, granting,
    continuing, modifying, refusing or dissolving
    injunctions, or refusing to dissolve or modify
    injunctions except where a direct review may be had
    in the Supreme Court[.]
    -12-
    asking for one.7      But an order's character does not depend on what
    the judge calls it — no, its "nature" depends on "its operative
    terms and effects," we recently said.           See Fryzel v. Mortg. Elec.
    Registration Sys., Inc., 
    719 F.3d 40
    , 43 (1st Cir. 2013) (Souter,
    J.).       With this in mind, and knowing what makes an injunction an
    injunction, we see that the order here is aimed at a particular
    party (Chartis), is enforceable by contempt, and provides some of
    the relief (costs) that the directors and officers seek in the
    case.       Given these characteristics, the edict is an injunction,
    see, e.g., 
    id. (citing Bogosian
    v. Woloohojian Realty Corp., 
    923 F.2d 898
    , 901, 903-04 (1st Cir. 1991) (Breyer, J.)) — a mandatory
    preliminary injunction, actually, because it "disturb[s], rather
    than       preserve[s],   the   status   quo"   by   requiring   defense-cost
    advancements, see United Steelworkers of Am., AFL-CIO v. Textron,
    Inc., 
    836 F.2d 6
    , 8 (1st Cir. 1987) (Breyer, J.).            And that means
    7
    Do not forget, though, how their cost-advancement motion
    played up the "irreparable and increasing" financial "harm" they
    face in defending themselves against the FDIC.            Many are
    unemployed, elderly, and on fixed incomes, or so they wrote. And
    "[i]t is uncertain," they added ominously, "how" they can come up
    with the cash to fend off the FDIC "if Chartis is not ordered to
    advance the cost of their defense."       Also, they alleged that
    Chartis had a clear duty to pay (subject to recoupment if the judge
    later found no coverage). They alleged, too, that the public had
    an interest in ensuring insurers honor their contractual
    obligations and that insureds get the benefit of the insurance they
    purchased. These are things an injunction seeker would stress, as
    we will soon see. See, e.g., Braintree Labs., Inc. v. Citigroup
    Global Mkts., Inc., 
    622 F.3d 36
    , 40 (1st Cir. 2010).
    -13-
    the order is immediately appealable regardless of finality.                See,
    e.g., 
    Fryzel, 719 F.3d at 43
    ; 
    Bogosian, 923 F.2d at 901
    , 903-04.
    So, in other words, we have jurisdiction. To the merits,
    then.
    (2)
    The Merits
    Both    sides   bombard    us     with   arguments.      But   before
    entering the fray, we pause to highlight some important legal
    principles.
    (a)
    Injunction Basics
    Whether a mandatory preliminary injunction should issue
    typically depends on the exigencies of the situation, taking into
    account four familiar factors:         the moving party's likelihood of
    success on the merits, the possibility of irreparable harm absent
    an injunction, the balance of equities, and the impact (if any) of
    the injunction on the public interest. See, e.g., Braintree Labs.,
    
    Inc., 622 F.3d at 40-41
    .         These factors are not all weighted
    equally, however.      See, e.g., Ross Simons of Warwick, Inc. v.
    Baccarat, Inc., 
    102 F.3d 12
    , 16 (1st Cir. 1996).                Truth be told,
    "[l]ikelihood    of   success   is   the    main   bearing   wall"    of   this
    "framework."     Id.; accord Corporate Techs., Inc. v. Harnett, 
    731 F.3d 6
    , 10 (1st Cir. 2013).      When it comes to the merits, Chartis
    stakes everything on persuading us that the directors and officers
    are not likely to succeed on their coverage claim and so should not
    -14-
    get cost advancements. Given this development, we need not concern
    ourselves with the other elements of the four-part test.       See,
    e.g., Corporate Techs., 
    Inc., 731 F.3d at 10-13
    (taking a similar
    tack in a similar situation); Ross-Simons of Warwick, 
    Inc., 102 F.3d at 16
    (ditto).
    As for our standard of review, the Federal Reporter is
    chock full of cases saying how we scan preliminary-injunction
    decisions for "abuse of discretion."        See, e.g., Diálogo    v.
    Santiago-Bauzá, 
    425 F.3d 1
    , 3 (1st Cir. 2005); Langlois v. Abington
    Housing Auth., 
    207 F.3d 43
    , 47 (1st Cir. 2000); Ocean Spray
    Cranberries, Inc. v. Pepsico, Inc., 
    160 F.3d 58
    , 61 & n.1 (1st Cir.
    1998).    But the standard depends on the issue under review,
    obviously.    See, e.g., 
    Diálogo, 425 F.3d at 3
    ; 
    Langlois, 207 F.3d at 47
    ; Ocean Spray Cranberries, 
    Inc., 160 F.3d at 61
    n.1.        For
    example, within this rubric, we review questions of fact for clear
    error, issues of law de novo, and judgment calls with deference.
    See, e.g., 
    Diálogo, 425 F.3d at 3
    ; 
    Langlois, 207 F.3d at 47
    ; Ocean
    Spray Cranberries, 
    Inc., 160 F.3d at 61
    n.1.     Of course, as the
    appealing party, Chartis bears the burden of showing reversible
    error.   See, e.g., Ross-Simons of Warwick, 
    Inc., 102 F.3d at 16
    ;
    Gately v. Massachusetts, 
    2 F.3d 1221
    , 1225 (1st Cir. 1993).
    -15-
    (b)
    Cost-Advancement Basics
    Puerto Rico law holds that an insurance company must
    advance defense costs if a complaint against an insured alleges
    claims that create even a "remote possibility" of coverage.     See
    Cuadrado Rodríguez v. Fernández Rodríguez, No. KLCE200601588, 
    2007 WL 1577940
    , at *5 (TCA Mar. 30, 2007) (certified translation
    provided by the parties).8   Think about that for a second.   Not an
    "actuality" of coverage.     Not even a "probability" of coverage.
    No, a mere "possibility" of coverage will do — regardless of how
    "remote" it may be.    A pretty low standard, indeed.    On top of
    that, courts must read the complaint's allegations "liberal[ly]"
    when doing a remote-possibility check. See Triple-S Mgmt. Corp. v.
    Am. Int'l Ins. Co. of P.R., Nos. KLAN0900022, KLCE0900025, 
    2009 WL 2419937
    , at *13 (TCA May 19, 2009) (certified translation provided
    by the parties); see also Cuadrado Rodríguez, 
    2007 WL 1577940
    , at
    *6.   And the allegations need not be "perfect," either, to trigger
    the insurer's duty to advance defense costs.    Cuadrado Rodríguez,
    
    2007 WL 1577940
    , at *6.       Also, any doubt about an insurer's
    advancement obligation "must be resolved in the insured's favor."
    See Pagán Caraballo v. Silva Delgado, 
    22 P.R. Offic. Trans. 96
    , 103
    (P.R. 1988); see also Cuadrado Rodríguez, 
    2007 WL 1577940
    , at *6.
    8
    Cuadrado Rodríguez is a duty-to-advance case. But the court
    looked to duty-to-defend cases, too, in resolving the advancement
    issue.   See 
    id. (discussing Fernández
    v. Royal Indem. Co., 87
    D.P.R. 859, 863 (1963)).
    -16-
    Seemingly what animates these rules "is that the purpose of
    insurance policies is to provide protection for the insured."                       See
    Triple-S    Mgmt.      Corp.,      
    2009 WL 2419937
    ,    at    *12    (emphasis     in
    original); see also Cuadrado Rodríguez, 
    2007 WL 1577940
    , at *5.
    (c)
    Applying These Basics
    Looking at the cost-advancement issue through the prism
    of preliminary-injunction principles makes an already insured-
    friendly situation under Puerto Rico law friendlier still. At this
    stage,    you   see,       the   directors     and    officers   need    not   show   a
    "certainty"     of     a    "remote    possibility"      of   coverage.        On   the
    contrary, only a "likelihood" of a "remote possibility" of coverage
    is required.     Cf. generally Narragansett Indian Tribe v. Guilbert,
    
    934 F.2d 4
    , 6 (1st Cir. 1991) (talking in terms of "probability of
    success" (emphasis added)).
    Chartis pins its reversal hopes on the strength of the
    following six-step argument (which is basically a reprise of its
    position in the district court).                     Step one:    The policy only
    obliges Chartis to advance the costs of defending against "covered"
    claims.    Step two:        The policy's insured-versus-insured exclusion
    blocks coverage for claims "brought . . . on behalf of or in the
    right of" Westernbank.            Step three:    There would be no coverage if
    Westernbank had sued its directors and officers like the FDIC has,
    because that scenario would activate the insured-verus-insured
    exclusion.      Step four:        Having slipped into Westernbank's shoes as
    -17-
    its receiver, the FDIC must be suing the directors and officers "on
    behalf of or in the right of" Westernbank.         Step six:   Add this all
    up and there is no remote possibility of a covered claim and thus
    no duty to advance defense costs.
    Chartis's theory has a certain appeal, at least at first
    glance.    But it is not persuasive, for the simplest of reasons:        It
    gives lip service — and no more — to the words "remote possibility"
    in the pertinent phrase "remote possibility of coverage."            And it
    ignores that the procedural posture of the case only requires a
    mere likelihood of a remote possibility of coverage to jump-start
    the cost-advancement duty.       Viewed in the proper light, the flaws
    in Chartis's thesis stand out in bold relief.
    Let's   zero   in   on   step   four   of   Chartis's   six-step
    argument:    that the FDIC is only suing on behalf of or in the right
    of Westernbank — that it simply donned the bank's wingtips, if you
    will.     Quoting from the FDIC's second amended complaint, Chartis
    writes that the FDIC alleges that it, "as Receiver of Westernbank,"
    seeks millions in "damages caused by the gross negligence" of the
    bank's former directors and officers.         But remember, the FDIC did
    more than allege that it had succeeded to Westernbank's rights. It
    also alleged that it had succeeded to the rights of Westernbank's
    depositors and account holders — rights that included the right to
    "bring this action."       And it alleged, too, that it was suing to
    recover money the FDIC-insurance fund had shelled out after the
    -18-
    bank had shut down.   Eyeing that pleading liberally, see Triple-S
    Mgmt. Corp., 
    2009 WL 2419937
    , at *13, while knowing also that
    pleading perfection is not required, see Cuadrado Rodríguez, 
    2007 WL 1577940
    , at *6, we think that these allegations make it likely
    possible — even if only remotely so — that the FDIC is suing on
    these non-insureds' behalf.
    Relatedly, Chartis argues — a unique argument, to say the
    least — that what role the FDIC has assumed is set when it makes
    its first claim.   And, Chartis writes, the FDIC did not say in its
    demand letter to the directors and officers that it is pursuing
    claims on behalf of or in the interest of Westernbank's depositors
    and account holders or the FDIC's run-down insurance fund.     But
    Chartis cites no cases holding that the FDIC must disclose its
    representative capacities and interests in any demand dispatch.
    Ultimately, nothing Chartis advances on this front shows there is
    no likelihood of even the remotest possibility that the FDIC sued
    on behalf of non-insureds.    Enough said on that.
    Ever persistent, both sides continue battling over the
    remote-possibility-of-coverage question, citing a corps of cases to
    support their competing positions on the effect an insured-versus-
    insured exclusion has in circumstances like the present.      None
    binds us, however — on that everyone agrees.
    Chartis, for example, musters decisions involving the
    FDIC and bank directors and officers where, it says, courts did
    -19-
    apply        the   insured-versus-insured   exclusion.9   The   courts'
    rationale, Chartis tells us, is that the FDIC stands in the failed
    bank's stead, so that any FDIC-asserted claim is a claim on behalf
    of the bank, meaning the fought-over exclusion holds sway.
    Wait a minute, our directors and officers respond, in
    those cases — unlike this one — the FDIC either did not sue any
    bank directors or officers or chose not to assert any claims on
    behalf of non-insureds.         And going on the offensive, they then
    march out cases that, they say, hold the insured-versus-insured
    exclusion inapplicable when the FDIC (acting as a defunct bank's
    receiver) sues as a creditor itself, on behalf of other creditors,
    or as a subrogee to the rights of the depositors.10       A big part of
    9
    See St. Paul Mercury Ins. Co. v. Miller, No. 12-CV-0225,
    
    2013 WL 4482520
    (N.D. Ga. Aug. 19, 2013); Hyde v. Fid. & Deposit
    Co. of Md., 
    23 F. Supp. 2d 630
    (D. Md. 1998); Mt. Hawley Ins. Co.
    v. FSLIC, 
    695 F. Supp. 469
    (C.D. Cal. 1987); Evanston Ins. Co. v.
    FDIC, No. 88-CV-407, 
    1988 U.S. Dist. LEXIS 16263
    (C.D. Cal. 1988).
    A quick word about St. Paul Mercury Insurance Co. Chartis gave us
    that case by way of a post-briefing motion for leave to cite
    supplemental authority. The directors and officers countered with
    a motion to strike. An order of the court construed the motion to
    supplement as a Rule 28(j) letter and the motion to strike as a
    response. See Fed. R. App. P. 28(j). Yet even so construed, that
    response still asks that we strike Chartis's filing. We deny that
    request.
    10
    See, e.g., Progressive Cas. Ins. Co. v. FDIC, 
    926 F. Supp. 2d
    1337 (N.D. Ga. 2013); Am. Cas. Co. of Reading, Pa. v. FDIC, 
    791 F. Supp. 276
    (W.D. Okla. 1992); FDIC v. Zaborac, 
    773 F. Supp. 137
    (C.D. Ill. 1991), aff'd on other grounds sub nom. FDIC v. Am. Cas.
    Co. of Reading, Pa., 
    998 F.2d 404
    (7th Cir. 1993); FDIC v. Am. Cas.
    Co. of Reading, Pa., 
    814 F. Supp. 1021
    (D. Wyo. 1991); Am. Cas. Co.
    of Reading, Pa. v. Baker, 
    758 F. Supp. 1340
    (C.D. Cal. 1991), aff'd
    on other grounds, 
    22 F.3d 880
    (9th Cir. 1994); Fid. & Deposit Co.
    of Md. v. Zandstra, 
    756 F. Supp. 429
    (N.D. Cal. 1990); Branning v.
    -20-
    what drove those decisions, they write, is that the FDIC can do
    much more than jump into a failed bank's boots, because the FIRREA
    invests the FDIC with great power, giving it not only all the
    rights and privileges of the departed bank but also those of its
    depositors, creditors, and account holders (among others), too.
    Not to be outdone, Chartis snipes at the directors and
    officers' cases.    Some are too "conclusory" to be helpful, Chartis
    proclaims.     Others, it adds, involve policies containing insured-
    versus-insured exclusions significantly different from the one
    here.
    What we have is a classic battle of dueling caselaw. But
    such a state of affairs hurts Chartis.          With no controlling
    authority on whether an insured-versus-insured exclusion applies to
    the FDIC in a situation like ours; with non-binding cases pointing
    in different directions; and with our obligation to resolve any
    doubts in the insured's favor, see Pagán Caraballo, 22 P.R. Offic.
    Trans. at 103 — Chartis's suggestion that there is zero likelihood
    of a remote possibility of coverage falls flat.    Keep in mind (and
    we cannot stress this enough): likelihood — not certainty — is the
    name of the game, and possibility — not actuality or probability —
    suffices, no matter how remote that possibility is.         And that
    CNA Ins. Cos., 
    721 F. Supp. 1180
    (W.D. Wash. 1989); Am. Cas. Co. of
    Reading, Pa. v. FSLIC, 
    704 F. Supp. 898
    (E.D. Ark. 1989); Am. Cas.
    Co. of Reading, Pa. v. FDIC, 
    713 F. Supp. 311
    (N.D. Iowa 1988);
    FDIC v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa., 
    630 F. Supp. 1149
    (W.D. La. 1986).
    -21-
    standard is met here.          So the judge's cost-advancement edict
    stands.    But we add — lest anyone be confused — that having lost
    the likelihood-of-success skirmish, Chartis may still "win" the
    coverage    "war   at   a   succeeding   trial   on   the   merits."   See
    Narragansett Indian 
    Tribe, 934 F.2d at 6
    ; see also Univ. of Texas
    v. Camenisch, 
    451 U.S. 390
    , 394 (1981) (cautioning that one should
    not "equate[] 'likelihood of success' with 'success'").
    FINAL WORDS
    For the reasons cast above, we affirm the challenged
    order.     Also, we award the directors and officers their costs on
    appeal.    See Fed. R. App. P. 39(a)(2).
    So Ordered.
    -22-
    

Document Info

Docket Number: 12-2008

Judges: Thompson, Baldock, Lipez

Filed Date: 3/31/2014

Precedential Status: Precedential

Modified Date: 11/5/2024

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