Cincinnati Insurance v. Dynamic Development Group, LLC , 154 F. App'x 378 ( 2005 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 04-2311
THE CINCINNATI INSURANCE COMPANY; THE
CINCINNATI CASUALTY COMPANY; THE CINCINNATI
INDEMNITY COMPANY,
Plaintiffs - Appellees,
versus
DYNAMIC DEVELOPMENT GROUP, LLC,
Defendant - Appellant,
and
BRANCH BANKING & TRUST COMPANY OF SOUTH
CAROLINA; BETTY HARBIN LITTLE; WILLIAM MASSEY
& ASSOCIATES, a/k/a William Massey &
Associates, Incorporated; WILLIAM H. MASSEY;
LANNEAU WILLIAM LAMBERT, JR.,
Defendants.
Appeal from the United States District Court for the Middle
District of North Carolina, at Greensboro. James A. Beaty, Jr.,
District Judge. (CA-00-280; CA-00-281; CA-00-282; CA-00-283)
Argued: September 21, 2005 Decided: November 17, 2005
Before LUTTIG, Circuit Judge, HAMILTON, Senior Circuit Judge, and
James C. DEVER, III, United States District Judge for the Eastern
District of North Carolina, sitting by designation.
Affirmed by unpublished per curiam opinion.
ARGUED: Henry Pickett Wall, Sr., BRUNER, POWELL, ROBBINS, WALL &
MULLINS, L.L.C., Columbia, South Carolina, for Appellant. Andrew
Albert Vanore, III, BROWN, CRUMP, VANORE & TIERNEY, Raleigh, North
Carolina, for Appellees. ON BRIEF: E. Wade Mullins, III, BRUNER,
POWELL, ROBBINS, WALL & MULLINS, L.L.C., Columbia, South Carolina,
for Appellant. Thomas E. Crafton, Gene F. Zipperle, Jr., ALBER
CRAFTON, P.S.C., Louisville, Kentucky, for Appellees.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
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PER CURIAM:
The present litigation arose from a large-scale construction
project in which performance and payment bonds and a dual obligee
rider, issued in connection with the loan for the project, were
allegedly fraudulently created. The appellant, Dynamic Development
Group, LLC (DDG) seeks a new trial on the basis of alleged errors
in the jury instructions and verdict form. We affirm.
I.
A. Factual Background.1
On September 10, 1990, the Cincinnati Insurance Company, the
Cincinnati Casualty Company, and the Cincinnati Indemnity Company
(collectively Cincinnati) entered into an agency agreement (the
Agency Agreement) with Massey & Associates (the Massey Agency), an
independent insurance agency, and its president, William H. Massey
(Massey), wherein it was agreed that the Massey Agency and Massey
would act as sales agents for Cincinnati. Some years later, on
August 25, 1995, Massey was given a Letter of Authority for use
with Power of Attorney from Cincinnati. This document, for the
first time, conferred authority on Massey to execute surety bonds
on behalf of Cincinnati. The Letter of Authority was sent to the
1
Our statement of the facts is largely verbatim from the
district court’s published opinion in this case denying DDG’s
motion for a new trial. The Cincinnati Ins. Co. v. Dynamic Dev.
Group, LLC, 336 F. Supp. 2d 552, 557-58 (M.D.N.C. Sept. 17, 2004).
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Massey Agency along with a “bond kit” containing, among other
things, an embossed Cincinnati seal, bond forms, Cincinnati wafer
seals, and powers of attorney (POAs) naming Massey, and others in
his agency, as Cincinnati attorneys-in-fact for the purpose of
executing authorized Cincinnati surety bonds if the bonds fell
within the 1.6 million dollar authority expressly set forth in the
POAs. Massey and the authorized employees of the Massey Agency
were not authorized to use the POAs for the purpose of executing
Cincinnati contract bonds, including performance and payment bonds
such as the ones at issue in this case, unless and until they
received prior written approval from Cincinnati.
On October 4, 1996, Cincinnati terminated the Agency Agreement
by letter and thereby revoked Massey and the Massey Agency’s
ability to execute any new bonds on behalf of Cincinnati. On
October 7, 1996, Daniel McCurdy, Senior Vice President and Bond
Manager for Cincinnati, wrote Massey directing him to destroy all
Cincinnati POAs previously provided to him and the Massey Agency.
Cincinnati also directed Massey to return all other materials used
to execute bonds, including the Cincinnati bond forms, the embossed
seal, and the wafer seals. Two days later, Massey, on behalf of
the Massey Agency, signed a limited agency agreement (the Limited
Agency Agreement) acknowledging that the Agency Agreement had been
terminated as of October 4, 1996, and that the Massey Agency would
act as a limited agent for Cincinnati only for the purpose of
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servicing policies which were issued prior to the October 4, 1996
termination date. During the time span relevant to this action,
Cincinnati never informed the general public nor the North Carolina
Department of Insurance of the termination of the Agency Agreement
and the creation of the Limited Agency Agreement.
A few months later, on January 15, 1997, Cincinnati’s Bond
Department received a memorandum from Massey stating that he had
destroyed all Cincinnati POAs in accordance with Daniel McCurdy’s
letter of October 7, 1996. Nevertheless, sometime after the
termination of the Agency Agreement, Cincinnati instructed a field
representative to go to the Massey Agency to physically retrieve
the “bond kit” supplies. The field representative reported back to
Cincinnati headquarters that he was reluctant to pick up the
materials for fear of his personal safety given that Massey’s wife
kept a gun in her purse and harbored resentment against Cincinnati.
Thus, there remained some concern at Cincinnati that Massey still
had bond materials, but Cincinnati took no additional action to
retrieve them.
In January 1999, DDG entered into a construction contract with
Centech Building Corporation (Centech) in the amount of 2.6 million
dollars for the construction of a Sleep Inn Motel at Interstate 77
and Highway 150 in Iredell County, North Carolina (the Sleep Inn
Project). DDG obtained its construction financing for the Sleep
Inn Project through Branch Banking & Trust.
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In the past, Centech had obtained most of its insurance and
bond needs through the Massey Agency. During the duration of the
business relationship between the Massey Agency and Centech, the
Massey Agency had written performance and payment bonds through
Travelers Insurance Company, Amwest Surety, and other commercial
sureties, but never through Cincinnati. At the time of the Sleep
Inn Project, Centech was having financial problems and,
consequently, its primary surety at the time, Travelers Insurance
Company, refused to bond Centech for the project. The Massey
Agency was particularly motivated to provide the bonds that Centech
needed for the Sleep Inn Project because Centech owed the Massey
Agency 30,000 dollars in back premiums for such things as workers’
compensation and general liability coverage. To prevent Centech
from losing the Sleep Inn Project while the Massey Agency attempted
to obtain legitimate bonds from Amwest Surety, Massey decided to
manufacture through Cincinnati a fraudulent payment bond, a
fraudulent labor and performance bond, and a fraudulent dual
obligee rider to make it appear that Centech had met the
requirements of the building contract with DDG. Each of these fake
bonds listed DDG as obligee.
According to Massey, when he manufactured the fake bonds, he
copied a previously executed Cincinnati performance bond and a
previously executed labor and material payment bond. Massey
modified the bond by whiting-out the blanks on the old bond, and
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then inserting the necessary information on a photocopied form. As
for the dual obligee rider, Massey indicated that he did not have
a standard dual-obligee-rider form because those forms had not been
included in his original “bond kit” from Cincinnati; therefore, he
used a Cincinnati indemnity-type performance bond provided to him,
and manually typed “Dual Obligee Rider” at the top left of the bond
form. Massey’s manufactured bonds lacked an original agent’s
signature, did not have the proper embossed seal or wafer seal, and
did not have a power of attorney attached.
Not long after construction started on the Sleep Inn Project,
Centech was unable to keep up with the project schedule.
Accordingly, subcontractors and vendors began requesting
information regarding the bonds in order to file payment claims.
According to Cincinnati, only when it began to receive payment
claims from some of these subcontractors and/or vendors did it
begin to suspect something was amiss. Cincinnati then searched its
files but could not find any record of issuing bonds for the Sleep
Inn Project or Centech. Further investigation revealed that Massey
had issued fraudulent Cincinnati bonds for approximately 9 million
dollars, including the 2.6 million dollars worth issued in
connection with the Sleep Inn Project.
B. Relevant Procedural History.
On March 21, 2000, Cincinnati filed the present declaratory
judgment action in the United States District Court, Middle
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District of North Carolina, against DDG and others. Cincinnati
based federal subject matter jurisdiction on diversity
jurisdiction. 28 U.S.C. § 1332. In its action, Cincinnati sought
a declaration that it had no liability to DDG on the fake bonds and
that they were void ab initio. DDG asserted four counterclaims
against Cincinnati: (1) violation of the North Carolina Unfair and
Deceptive Trade Practices Act; (2) common law bad faith; (3)
negligently misrepresenting that Massey and the Massey Agency
possessed authority to issue the bonds at issue; and (4)
enforcement of the performance bond.
The district court subsequently disposed of numerous claims
and parties in the case, including granting summary judgment in
favor of Cincinnati with respect to DDG’s counterclaims against it
for violation of the North Carolina Unfair and Deceptive Trade
Practices Act and common law bad faith. Cincinnati Ins. Co. v.
Centech Building Corp., 286 F. Supp. 2d 669 (M.D.N.C. Oct. 2,
2003). However, the district court denied summary judgment in
favor of Cincinnati with respect to Cincinnati’s claim that the
bonds at issue be declared invalid. The district court reasoned
that “there [were] genuine issues of material fact as to whether
[Cincinnati] negligently enabled Massey, either by failing to
adequately retrieve his indicia of authority and/or by failing to
inform third parties that his agency status was limited, to act
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with apparent authority when he issued the fraudulent bonds
. . . .” Cincinnati Ins. Co., 286 F. Supp. 2d at 693.
Cincinnati’s claim of bond invalidity and DDG’s counterclaims
for negligent misrepresentation and enforcement of the performance
bond proceeded to a jury trial on October 6, 2003. After DDG
rested its proof, it moved to amend its third counterclaim to
conform to the evidence. First, DDG’s motion to amend sought to
change the heading of the third counterclaim from “Negligent
Misrepresentation” to “Negligence and Negligent Misrepresentation.”
Second, DDG’s motion sought to add allegations that Cincinnati was
negligent in allowing Massey to retain certain indicia of authority
provided to him by Cincinnati, and/or in failing to notify the
public and North Carolina’s Department of Insurance that Massey was
no longer an active and authorized agent of Cincinnati. During
argument on its motion to amend before the district court, DDG
explained:
[W]e have made allegations of negligence. We have made
allegations that put them on notice that that is what we
are alleging, that is that they were obligated to
exercise reasonable and ordinary care in terminating the
agency relationship. That is our allegation. What we
have said in our pleading is, that -- we have called that
in our pleading negligent misrepresentation, but what the
pleading really says and amounts to is, saying that they
were negligent in the manner that they went about
terminating this relationship.
What this amendment does, as you’ll see, is simply
elaborates on that and states in essence, specifies the
negligence in that [Cincinnati] left Mr. Massey in
possession of the bond kit, bond forms, powers of
attorney, other indicia of authority.
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(J.A. 289).
Further clarifying its position, DDG stated:
I think that there are two interrelated issues here, and
I think we can go to the jury on two alternate theories
of recovery, one being a contractual basis of recovery,
that is that they had apparent authority, Mr. Massey had
apparent authority to bind Cincinnati Insurance Company
to liability under the bond, that would be a contractual
case of apparent authority.
The other aspect of apparent authority would be a
negligent aspect of apparent authority, that is, the
principal is liable for the acts its agent committed
within the scope of its apparent authority in tort, not
saying that the bond is valid necessarily, but that they
acted negligently . . . .
(J.A. at 295) (emphasis added).
When the district court asked DDG whether it was indicating
that apparent authority is only part of the breach of contract
notion, DDG’s counsel responded as follows:
In essence, I think -- I think it’s all tied together,
Your Honor, and the cases -- certain aspects of the cases
of apparent authority hone in on these negligence issues
and certain of them hone in on these just issues of
apparent authority.
I agree with Mr. Vanore [Counsel for Cincinnati] that the
whole concept of negligence is tied in with apparent
authority.
(J.A. at 296) (emphasis added).
The district court granted DDG’s motion to amend and then
immediately engaged Cincinnati and DDG in a discussion regarding
what issues should go to the jury. DDG informed the district
court:
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I think, Your Honor, our view is, that it would be
possible for the jury to conclude that we agree with
Cincinnati that these bonds are no good, these are
fraudulent bonds, we’re not going to enforce the bonds,
and they could agree on that in any number of ways and
they could come to the conclusion that they were just a
fraud, but they could also find that even if the bonds
were no good, that nonetheless, Cincinnati’s conduct in
the termination of this agent was negligent in failing to
do these things that we’ve pled.
(J.A. 298).
The district court immediately responded:
I don’t disagree with that, and I almost question
whether or not the issue on the bond validity question to
the jury could be whether or not the bonds were issued
fraudulently, and I think the jury, based upon the
evidence, would have to answer that question yes, but
then you get to the negligence aspect of it second, there
still could be liability based upon negligence as tied in
with apparent authority.
(J.A. 298) (emphasis added).
DDG responded:
That’s exactly where [we are], Your Honor. . .
. That’s the way we perceive the case.
(J.A. at 298-99) (emphasis added).
Consistent with DDG’s perception of the case as expressed
during argument on its motion to amend and during the charging
conference, the district court instructed the jury that Cincinnati
had brought a claim against DDG alleging that the bonds at issue
were fraudulent, while DDG counterclaimed that Cincinnati “was
negligent in allowing William Massey, or his agency, to hold
himself out as having apparent authority to issue the bonds
involved in this case.” (J.A. 356). The district court then
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instructed the jury that its verdict would take the form of answers
to three questions:
First, were the bonds fraudulently issued? There is
a space for you to answer yes or no, and I’ll give you
further instructions specifically on that question in a
moment.
Question number two: Was William Massey authorized
under the doctrine of apparent authority to issue the
bonds for Cincinnati; with a place for you to answer yes
or no.
Question number three, what amount of damages, if
any, is Defendant Dynamic Development Group entitled to
recover from the Plaintiff Cincinnati?
(J.A. 357).
Of relevance to the issues on appeal, the district court next
instructed the jury that the relationship between Massey and
Cincinnati, based upon the evidence in the case, is referred to as
an agency relationship. The district court then defined an agency
relationship as a relationship where one person, the agent, is
empowered to take action on behalf of another person, the
principal. The district court also instructed the jury that “[t]he
authority to have an agent to act with respect to a particular
matter may either be actual or it may be apparent.” (J.A. 360).
The district court then defined the concept of actual authority for
the jury as follows:
a situation where the principal has actually authorized
the agent to act on the principal’s behalf with respect
to a particular matter. Actual authority may be granted
by the principal by word of mouth or by writing or it may
be implied by conduct of the principal amounting to
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consent or acquiescence or by the nature of the work that
the principal has entrusted to the agent.
(J.A. 360). The district court then instructed the jury that no
evidence had been presented in the case that Massey possessed
actual authority to issue the bonds in connection with the Sleep
Inn Project.
The district court next contrasted the concept of apparent
authority:
Apparent authority, on the other hand, is the
authority in which the principal has held the agent out
as possessing or which the principal has negligently
permitted the agent to hold himself out as possessing.
If a principal acts or conducts his business either
intentional or through negligence or failed to disapprove
of the agent’s acts or course of actions so as to lead
the public to believe the agent possesses the authority
to act, then the principal will be bound by the agent’s
acts within the scope of this apparent authority.
(J.A. 361) (emphasis added).
The district court then went on to give the jury standard
instructions explaining the concept of negligence. Notably, the
district court also gave the jury what amounted to a contributory
negligence instruction by instructing that the scope of an agent’s
apparent authority will be governed by what authority the third
person, here DDG, in the exercise of reasonable business prudence
was justified in believing that the principal conferred upon its
agent.
In wrapping up the bulk of its instructions on negligence, the
district court instructed the jury:
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So I finally instruct you on this issue that if
[DDG] has proven by the greater weight of the evidence
that Cincinnati negligently performed or negligently
permitted William Massey to hold himself out as
possessing authority, which included the authority to
issue the bonds in this case on behalf of Cincinnati, and
if you find [DDG] has shown by the greater weight of the
evidence that [DDG] reasonably relied upon this
appearance of authority in accepting and relying on the
bonds, then it would be your duty to answer [the second
question] in favor of [DDG].
On the other hand, if [DDG] has failed to prove such
apparent authority, or its reasonable reliance thereon or
if after considering all of the evidence you are unable
to say what the truth is, then it would be your duty to
answer [the second question] no in favor of [Cincinnati].
(J.A. 364).
Consistent with the district court’s instructions, the verdict
sheet submitted to the jury asked the jury to answer the following
three questions.
1. Were the bonds fraudulently issued? YES NO
2. Was William Massey authorized under the doctrine of
apparent authority to issue the bonds for
Cincinnati? YES NO
3. What amount of damages, if any, is defendant
Dynamic Development Group entitled to recover from
plaintiff Cincinnati? _________________
(J.A. 408). Notably, DDG’s only objection to this verdict form
prior to it being submitted to the jury went to question 2.
Instead of the just quoted version of question 2 actually submitted
to the jury, DDG had proposed that question 2 read: “Was
Cincinnati negligent in allowing Massey to hold himself out with
the apparent authority to act for Cincinnati?” (J.A. 341).
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Following its deliberations, the jury returned a verdict in
favor of Cincinnati, finding that the bonds were fraudulently
issued and that Massey did not have apparent authority to issue the
bonds. On October 16, 2003, the district court entered judgment
upon the jury’s verdict.
On October 22, 2003, DDG filed a motion for a new trial
pursuant to Federal Rule of Civil Procedure 59 or, in the
alternative, for judgment as a matter of law. DDG based the new
trial portion of its post-trial motion on the following three
arguments: (1) the district court’s jury instructions and verdict
form failed to put a simple negligence claim before the jury
separate and apart from its negligence claim intertwined with the
doctrine of apparent authority; (2) the district court failed to
instruct the jury that when one of two persons must suffer from the
fraud of another, the party who first reposed a confidence, or by
his negligent conduct made it possible for the loss to occur, must
bear the loss; and (3) the district court failed to instruct the
jury on the portions of the North Carolina insurance statutes
requiring insurance companies to “report, investigate and control
the activities of corrupt agents.” (J.A. 415).
The district court denied DDG’s post-trial motion in toto.
Cincinnati Ins. Co., 336 F. Supp. 2d at 565. This timely appeal
followed in which DDG repeats each of its three arguments in
support of its motion for a new trial.
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II.
DDG’s overarching argument on appeal is that it deserves a new
trial because the district court’s jury instructions and verdict
form failed to put a simple negligence claim before the jury
separate and apart from its negligence claim intertwined with the
doctrine of apparent authority. According to DDG, its simple
negligence claim rests upon its theory that Cincinnati “negligently
supervised or terminated its agent Massey.” (DDG’s Br. at 17).
DDG goes on to assert that its motion to amend its third
counterclaim served to clarify its intent to allege such a
negligence claim separate and apart from a negligence claim based
upon or intertwined with the doctrine of apparent authority. DDG
also represents to us that it repeatedly asked the district court
to submit a separate verdict question to the jury on whether or not
Cincinnati had negligently supervised or terminated its agency
relationship with Massey, but that the district court refused to do
so.
Cincinnati’s opposition on appeal mirrors the district court’s
reasoning below in rejecting this same argument made by DDG in
support of its motion for a new trial. The record in this case is
crystal clear that DDG’s separate negligence theory, wholly
unrelated to the doctrine of apparent authority, was created by DDG
out of whole cloth after the jury rendered its verdict. Cincinnati
Ins. Co., 336 F. Supp. 2d at 562-63. For example, in DDG’s motion
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to amend its third counterclaim to conform to the evidence, the
restated allegations all referred to indicia of authority; an
apparent authority concept. Further, in DDG’s arguments before the
district court regarding the jury instructions, DDG admitted that
the issue of negligence as pled by it was intertwined with the
doctrine of apparent authority. Finally, in the proposed verdict
form that DDG submitted to the district court for consideration,
DDG only requested a specific question on negligence in the context
of the doctrine of apparent authority.
We wholeheartedly agree with Cincinnati that the district
court correctly ruled that DDG is not entitled to a new trial in
order to put a simple negligence claim before the jury separate and
apart from the doctrine of apparent authority.
It is settled in this jurisdiction that the formulation
of issues and the form of interrogatories is committed to
the sound discretion of the trial judge. In considering
the adequacy of the verdict form, we consider several
factors, including whether the interrogatories adequately
presented the contested issues to the jury when read as
a whole and in conjunction with the general charge,
whether submission of the issues to the jury was fair,
and whether the ultimate questions of fact were clearly
submitted to the jury.
Klein v. Sears Roebuck & Co., 773 F.2d 1421, 1426 (4th Cir. 1985)
(citations omitted).
The short of the long is that the record below in no manner
supports DDG’s assertion on appeal that it alleged and pursued a
simple negligence claim separate and apart from its negligence
claim based upon the doctrine of apparent authority. As the
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district court correctly observed in its published opinion denying
DDG’s motion for a new trial, from the time of DDG’s motion to
amend its third counterclaim to conform to the evidence until the
case went to the jury, DDG repeatedly and consistently took the
position before the district court that its negligence claim was
intertwined with the doctrine of apparent authority. Cincinnati
Ins. Co., 336 F. Supp. 2d at 562. At no time did DDG ever inform
the district court that it sought to pursue a theory of negligence
separate and apart from the doctrine of apparent authority.
In conclusion, we hold, based upon the reasoning of the
district court, id. at 561-63, that the jury instructions and
verdict form in this case adequately presented all contested issues
to the jury when read as a whole and in conjunction with the
district court’s jury instructions.2 Accordingly, we affirm.
AFFIRMED
2
As previously noted, DDG also makes the same two remaining
arguments pertaining to jury instructions that it made below in
support of its motion for a new trial. We reject such arguments on
the reasoning of the district court as well. Cincinnati Ins. Co.,
336 F. Supp. 2d at 563-565.
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