National Union v. Cargill ( 2023 )

United States Court of Appeals
For the Eighth Circuit
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No. 21-3141
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National Union Fire Insurance Company of Pittsburgh
Plaintiff - Appellant
v.
Cargill, Inc.
Defendant - Appellee
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Appeal from United States District Court
for the District of Minnesota
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Submitted: October 20, 2022
Filed: March 7, 2023
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Before KELLY, WOLLMAN, and KOBES, Circuit Judges.
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KELLY, Circuit Judge.
National Union Fire Insurance Co. of Pittsburgh (National Union) filed suit to
obtain a declaration that it owed no payment to Cargill, Inc. under the employee theft
clause of the insurance policy held by Cargill. Cargill counterclaimed for breach of
contract. The district court 1 granted judgment on the pleadings for Cargill, ruling
that Cargill had suffered a covered loss resulting directly from an employee’s theft.
National Union appeals, and we affirm.
I.
Cargill purchased a commercial crime insurance policy through National
Union. As is relevant here, the policy covered “employee theft.”
Diane Backis was a Cargill employee for several decades at a grain facility
Cargill operated in Albany, New York. The facility stored grain that Cargill, as part
of its grain-sales business, purchased in the Midwest and transported to Albany by
railcar. Backis worked at the Albany facility as a “Merchant/Admin Leader.” Her
responsibilities included negotiating sales contracts with local Albany grain
customers, 2 entering sales into the accounting system, communicating with Cargill
on what grain was needed to fulfill the sales commitments, and handling all accounts
and invoices for these transactions. Given Backis’s experience, she understood
Cargill’s financial systems and had control over the Albany facility’s financial
records.
Around 2008, Backis began a fraudulent scheme, at least in part to embezzle
money from Cargill. She misrepresented to Cargill the price at which she could sell
grain for in the Albany market; directly communicated these inflated prices to
Cargill and entered false sales contracts into Cargill’s accounting system; and
manipulated the receivable balances, customer payments, and inventory records to
reflect these sales. Believing that the grain would be sold at the inflated price, Cargill
shipped additional grain to Albany. Backis then sold the grain at prices below those
1
The Honorable Wilhelmina M. Wright, United States District Judge for the
District of Minnesota.
2
Specifically, the two types of grain that Backis handled were corn and
sorghum. We use “grain” as a shorthand for corn and sorghum in this opinion.
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reflected in Cargill’s accounting system. Although Cargill had checks in place,
including audit procedures and internal controls, Backis knew how to circumvent
them. Cargill did not discover Backis’s scheme until February 2016.
Upon discovering Backis’s scheme, Cargill notified law enforcement. Cargill
also sent a “notification of a claim” letter to National Union in April 2016, as
required by its insurance policy, alerting National Union that law enforcement was
investigating a “potential fraud/embezzlement” by one of its employees. Law
enforcement monitored Backis for several months and arrested her in June 2016.
Cargill fired Backis immediately thereafter. By then, Backis had diverted about $3
million from Cargill into her personal bank accounts. Backis later pleaded guilty,
admitting in her plea agreement that she had embezzled over $3 million from Cargill
and that the intended amount of loss was at least $25 million.
In August 2016, Cargill invoked a provision of its insurance policy (the
investigative settlement clause) that allowed the insured and insurer to jointly
appoint an investigator to “investigate the facts and determine the quantum of loss”
being claimed. The investigative settlement clause stated that the report issued by
the investigator “will be definitive as respects the facts and the quantum of loss.”
National Union and Cargill hired BDO Advisory to conduct the investigation into
Cargill’s claim for the loss caused by Backis’s scheme.
BDO Advisory investigated Cargill’s claim for two-and-a-half years. While
drafting its report, BDO Advisory invited comment and input from both parties.
BDO Advisory issued its final report (the Report) on May 28, 2019.
The Report made findings about Backis’s “scheme . . . selling [grain] below
Cargill’s cost and manipulating Cargill’s financial records to conceal her actions.”
It found that Backis’s misrepresentations induced Cargill into shipping grain to
Albany “under the pretense[] that [it] would be sold at a significantly higher price.”
Backis was successful in her scheme because she “controlled the pricing and
recordkeeping elements of the sale” of grain. The Report concluded that had it not
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been for Backis’s misrepresentations, Cargill would have sent “minimal” grain to
Albany. This conclusion was supported by the fact that after Backis was fired, new
sales of grain in Albany “declined significantly”—indeed, by “approximately
90%”—and Cargill exited the Albany grain market altogether in 2018.
The Report calculated that “Cargill incurred losses of $32,115,192 as a result
of Ms. Backis misrepresenting the price of corn and sorghum” to Cargill. The
roughly $32 million figure did not include any lost profits, and the amount consisted
primarily of the freight costs Cargill paid to ship grain to Albany. The amount of
loss also included the $3 million that Backis had diverted to her personal bank
accounts.
After BDO Advisory submitted its finalized Report to the parties, National
Union notified Cargill of its position that the insurance policy covered only the $3
million that Backis embezzled and not the remaining $29 million of the total loss
tabulated by the Report. National Union then filed suit to obtain a declaration in its
favor, and Cargill counterclaimed for breach of contract. National Union filed an
answer to the counterclaim, in which it reserved the “right to assert any and all”
affirmative defenses. Cargill moved for judgment on the pleadings, which the
district court granted after concluding that the entire $32 million calculated by the
Report was covered by the insurance policy.3 National Union appeals, arguing that
there are factual disputes precluding judgment on the pleadings and that Backis’s
conduct did not fall within the policy’s employee theft clause. It also contends that
the April 2016 claim notification letter sent by Cargill did not constitute a formal
request for payment sufficient to trigger prejudgment interest.
3
National Union contends that the district court impermissibly relied on
Backis’s plea agreement, in which she agreed that the intended loss for sentencing
purposes was at least $25 million, when assessing the amount of loss covered by the
insurance policy. Although the district court did mention Backis’s plea agreement
in its order, it explicitly relied on the amount of loss “definitively” calculated by the
Report.
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II.
We review de novo a judgment on the pleadings under Federal Rule of Civil
Procedure 12(c), applying the same standard that we use to address a motion to
dismiss under Rule 12(b)(6). Ashley Cnty. v. Pfizer, Inc., 552 F.3d 659, 665 (8th
Cir. 2009). “Judgment on the pleadings is appropriate only when there is no dispute
as to any material facts and the moving party is entitled to judgment as a matter of
law.” Id. (quoting Wishnatsky v. Rovner, 433 F.3d 608, 610 (8th Cir. 2006)). We
“accept as true all facts pled by the non-moving party and grant all reasonable
inferences from the pleadings in favor of the non-moving party.” Potthoff v. Morin,
245 F.3d 710, 715 (8th Cir. 2001). Here, the parties do not dispute that the factual
findings in the Report are incorporated into the pleadings. See Williams v. Emps.
Mut. Cas. Co., 845 F.3d 891, 903 (8th Cir. 2017) (“[C]ourts may consider matters
incorporated by reference or integral to the claim.” (cleaned up)).
A.
National Union first argues that several material facts are in “dispute” such
that judgment on the pleadings was improper. See Ashley Cnty., 552 F.3d at 665(disputes as to material facts preclude judgment on the pleadings). But many of the
purportedly disputed facts it cites—including that Cargill would have sent the grain
to Albany regardless of Backis’s misrepresentations, that Cargill discovered its
losses earlier than it said it did, and that Cargill knew of prior bad acts by Backis
such that Cargill’s claim was excluded from coverage—are contradicted by the
findings of the Report, which National Union acknowledges are definitive and
binding.4 Similarly, many of National Union’s allegedly disputed facts are not facts
at all: whether Backis’s conduct was a “theft,” “stealing,” or “taking,” for instance,
4
National Union also raises arguments invoking different provisions of the
insurance policy, but we view them as challenging the Report’s definitive factual
findings from a different angle. As such, these arguments are precluded by the
Report.
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is a legal question, not a factual dispute. See infra. National Union cannot defeat
judgment on the pleadings by recasting legal disputes as factual ones.
National Union also points to several “discoverable” facts that it believes are
material to the outcome of its case. However, mere speculation that certain facts
might be established through discovery—when those facts are not alleged or
reasonably inferable from the pleadings—will not save National Union from
judgment on the pleadings. See Ashley Cnty., 552 F.3d at 663 n.3 (“These
allegations were not included in the complaint, by which we are constrained in
reviewing this dismissal on the pleadings.”). The absence of any such allegations
here defeats National Union’s request to proceed to discovery.5 See Mickelson v.
Cnty. of Ramsey, 823 F.3d 918, 923 (8th Cir. 2016) (“To survive a motion for
judgment on the pleadings, a complaint must contain sufficient factual matter,
accepted as true, to state a claim to relief that is plausible on its face.” (cleaned up)).
Likewise, we are not persuaded by National Union’s argument that disputed
factual issues remain simply because it “reserve[d] [the] right to assert any and all
other defenses” in its answer. Even after construing the pleadings in National
Union’s favor, they contain insufficient factual allegations to support the “other
defenses” National Union suggests on appeal. Its generic reservation of the right to
assert affirmative defenses does not save its suit from judgment on the pleadings.
See Mick v. Raines, 883 F.3d 1075, 1079 (8th Cir. 2018) (“Threadbare recitals . . .
supported by mere conclusory statements are not sufficient to survive a motion to
dismiss.” (cleaned up)).
The district court did not err by concluding there were no disputes as to any
material facts that precluded granting Cargill’s Rule 12(c) motion.
5
Further, we are not convinced that the facts National Union seeks to discover
are actually material. For instance, it seeks discovery to understand Backis’s motive
for making misrepresentations to Cargill, but it fails to articulate how evidence of
Backis’s intentions would alter our interpretation of the insurance policy.
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B.
National Union next challenges the district court’s legal conclusion that
Backis’s conduct fell within the terms of the insurance policy such that it covers
Cargill’s $29 million loss in freight costs.6 In this diversity case, Minnesota law
governs our analysis of the insurance policy’s terms. Jerry’s Enters., Inc. v. U.S.
Specialty Ins. Co., 845 F.3d 883, 887 (8th Cir. 2017). We are bound by the decisions
of the Minnesota Supreme Court, and if that court has not spoken on a particular
issue, we “may consider relevant state precedent, analogous decisions, considered
dicta, and any other reliable data.” C.S. McCrossan Inc. v. Fed. Ins. Co., 932 F.3d
1142, 1145 (8th Cir. 2019) (cleaned up) (quoting Integrity Floorcovering, Inc. v.
Broan-Nutone, LLC, 521 F.3d 914, 917 (8th Cir. 2008)).
Under Minnesota law, an insurance policy must be interpreted under “the
general rules of contract law, giving terms their plain and ordinary meaning to honor
the intent of the parties.” Econ. Premier Assur. Co. v. W. Nat’l Mut. Ins. Co., 839
N.W.2d 749, 752 (Minn. Ct. App. 2013); see also Midwest Fam. Mut. Ins. Co. v.
Wolters, 831 N.W.2d 628, 636 (Minn. 2013). The burden of proving coverage rests
with the insured party. Eng’g & Constr. Innovations, Inc. v. L.H. Bolduc Co., 825
N.W.2d 695, 705 (Minn. 2013).
Cargill’s insurance policy provided coverage for employee “theft,” which was
defined in the policy as “the unlawful taking of property to the deprivation of the
Insured.” Additionally, the insured’s loss must have resulted “directly from”
employee theft to be covered by the policy.
“Taking” is not defined in the policy, but both parties rely on the same
definition: “[t]he act of seizing an article, with or without removing it, but with an
implicit transfer of possession or control.” Taking, Black’s Law Dictionary (11th
6
National Union does not dispute that the $3 million Backis diverted into her
personal bank accounts is covered by the insurance policy.
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ed. 2019). Raising several arguments about how Backis’s control over the grain
sales was not a “taking” of the grain, National Union contends that her fraudulent
conduct did not amount to a theft. 7 We disagree. Backis took implicit control over
the grain such that her conduct constituted an unlawful taking. She exercised her
authority to direct the transfer and sale of the grain. See Sherwin-Williams Co. v.
Beazley Ins. Co., No. 18-02964, 2020 WL 4226866, at *4 (D. Minn. July 23, 2020)
(concluding that a reasonable jury could find that an employee’s control over its
employer’s invoice approvals amounted to employee theft). She also lied to Cargill
and manipulated its financial records to induce the company to ship its grain to
Albany. See Cumulus Invs., LLC v. Hiscox, Inc., 520 F. Supp. 3d 1141, 1151 (D.
Minn. 2021) (concluding that employees’ lies, falsification of documents, and
manipulation of financial data constituted an “unlawful taking” of the investors’
money). It is true that Backis never physically seized the grain, but a “taking”
includes the “implicit transfer” of control, and National Union concedes that under
this definition, a physical seizure was not necessary. As found by the Report, Backis
“controlled the pricing and recordkeeping elements of the sale” of the grain, and if
not for Backis’s misrepresentations, Cargill would have sent only a minimal amount
of grain to Albany. This exercise of control amounted to an unlawful taking under
the insurance policy.8
7
National Union also points out that the Report stated that “the corn and
sorghum was not stolen or damaged,” suggesting the Report found that Backis’s
actions did not constitute theft. But the Report did not interpret the terms of the
insurance policy or make any coverage determinations. We read the Report as
simply finding that Backis did not physically take the grain itself.
8
National Union also asserts that Cargill’s loss fell outside the scope of
coverage because Backis’s scheme benefitted the recipients of the freight costs paid
by Cargill rather than her directly. That the recipients of the freight payments
benefitted may mean that Backis caused injury to Cargill that was disproportionate
to the benefits she received, but the insurance policy covers Cargill’s loss, not
Backis’s gain.
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National Union also argues that Cargill’s loss of $29 million in freight costs
did not result “directly from” Backis’s conduct. The insurance policy does not
define what constitutes a loss resulting “directly from” theft. Again, both parties
rely on Black’s Law Dictionary, which defines “directly” as “[i]n a straightforward
manner,” “[i]n a straight line or course,” or “[i]mmediately.”
The Report definitively concluded that Cargill would not have paid
approximately $29 million in freight costs if not for Backis’s scheme, and it found
no other intervening cause that could account for that loss. And once Cargill fired
Backis, shipments to Albany were largely discontinued, and Cargill soon exited the
Albany market entirely. National Union asserts that Cargill’s decision to ship the
grain was an intervening step that broke the causal chain. But Backis’s scheme was
designed to induce Cargill into making that very decision, and the scheme’s success
in achieving its goal did not disrupt the causal link.9 Therefore, Backis’s conduct,
which undisputedly induced Cargill to ship grain to Albany, directly caused Cargill’s
$29 million loss. See Avon State Bank v. BancInsure, Inc., 787 F.3d 952, 958 (8th
Cir. 2015) (“The loss to [the employer] from [an employee]’s fraudulent conduct is
a direct loss because [the employee] acted fraudulently to benefit himself by
protecting his interest and did so through acts which would necessarily make [the
employer] liable to third parties . . . .”).
Cargill has shown that Backis’s conduct constituted an employee theft under
the insurance policy and that Cargill’s loss directly resulted from Backis’s theft. The
district court properly granted Cargill’s motion for judgment on the pleadings.
9
None of the cases cited by National Union support its claim that Cargill’s
losses were not a “direct” result of Backis’s conduct. E.g., Direct Mortg. Corp. v.
Nat’l Union Fire Ins. Co. of Pittsburg, 625 F. Supp. 2d 1171, 1177-78 (D. Utah 2008)
(addressing losses sustained first by third parties, which were then passed onto the
insured).
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III.
Finally, National Union contends that the district court erred by calculating
prejudgment interest beginning on the date Cargill sent its notice letter to National
Union. According to National Union, the district court should have instead used the
date the Report was finalized because the Report contained the amount of loss
calculated by BDO Advisory. Prejudgment interest is governed by state law,
Schwan’s Sales Enters., Inc. v. SIG Pack, Inc., 476 F.3d 594, 595 (8th Cir. 2007),
and we review de novo interpretations of state laws such as Minnesota’s
prejudgment interest statute. Marvin Lumber & Cedar Co. v. PPG Indus., Inc., 401
F.3d 901, 917 (8th Cir. 2005).
Minnesota’s prejudgment interest statute provides that an insured who
prevails on a claim against an insurer based on the insurer’s failure to make payments
is entitled to recover interest on money due under the policy “calculated from the
date the request for payment of those benefits was made to the insurer.” Minn. Stat.
§ 60A.0811, subd. 2(a). Prejudgment interest serves not only to compensate for loss
of use of the money due under the policy but also “to promote settlements.” Arcadia
Dev. Corp. v. Cnty. of Hennepin, 528 N.W.2d 857, 861 (Minn. 1995); see also
Owatonna Clinic-Mayo Health Sys. v. Med. Protective Co. of Fort Wayne, Ind., 714
F. Supp. 2d. 966, 971 (D. Minn. 2010). Awarding interest from the date the insured
requests payment “creates an incentive for a commercial insurer to resolve insurance
coverage disputes quickly.” Owatonna Clinic-Mayo Health, 714 F. Supp. 2d at 971.
The district court determined that Cargill’s April 2016 letter was a “request
for payment” that triggered the prejudgment interest clock. Cargill’s letter twice
stated that it was a “formal notification” of Cargill’s claim under the insurance
policy. The letter explained to National Union that a Cargill employee was being
investigated by law enforcement for “potential fraud/embezzlement” and apologized
for being “short on specifics” given the nature of the “ongoing criminal
investigation.” It concluded by saying that Cargill would “provide additional details
on the matter” as soon as possible.
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This letter was sufficient to alert National Union that Cargill was seeking
insurance coverage. Although the letter did not contain a specific monetary amount
requested, Minnesota’s prejudgment interest statute contains no requirement that the
amount of loss be included in an insured’s request for payment in order to begin the
interest clock. See Minn. Stat. § 60A.0811, subd. 2(a); Amplatz v. Country Mut.
Ins. Co., No. 12-1758, 2015 WL 1729518, at *2 (D. Minn. Apr. 15, 2015) (rejecting
insurer’s argument that prejudgment interest statute was not triggered until the
insured submitted repair cost estimates). Further, in August 2016, a few months
after sending the letter, Cargill invoked the investigative settlement clause of the
policy. National Union worked with Cargill to hire an investigator to assess Cargill’s
claim. National Union’s response and participation in the investigative settlement
process thus indicates that it understood in 2016 that Cargill was making a claim
under the policy—not two-and-a-half years later when the investigation ended and
the Report was issued. We conclude that the date of Cargill’s notice letter was the
appropriate date to begin calculating prejudgment interest.
IV.
For the foregoing reasons, we affirm the judgment of the district court.
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