Grant Thornton, LLP v. Federal Deposit Insurance

UNPUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 10-1306

GRANT THORNTON, LLP,

Plaintiff - Appellant,

v.

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver of the
First National Bank of Keystone,

Defendant – Appellee,

and

OFFICE OF THE COMPTROLLER OF THE CURRENCY; GARY ELLIS,

Parties-in-Interest,

v.

UNITED BANK, INCORPORATED, formerly United National Bank;
KUTAK ROCK, LLP,

Movants.

No. 10-1379

GRANT THORNTON, LLP,

Plaintiff – Appellee,

v.
FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver of the
First National Bank of Keystone,

Defendant – Appellant,

and

OFFICE OF THE COMPTROLLER OF THE CURRENCY; GARY ELLIS,

Parties-in-Interest,

v.

UNITED BANK, INCORPORATED, formerly United National Bank;
KUTAK ROCK, LLP,

Movants.

Appeals from the United States District Court for the Southern
District of West Virginia, at Bluefield. David A. Faber, Senior
District Judge. (1:00-cv-00655-DAF; 1:03-cv-02129-DAF)

Argued: March 22, 2011 Decided: June 17, 2011

Before TRAXLER, Chief Judge, and MOTZ and AGEE, Circuit Judges.

Affirmed in part and reversed and remanded in part by
unpublished opinion. Judge Agee wrote the opinion, in which
Chief Judge Traxler and Judge Motz concurred.

ARGUED: Stanley Julius Parzen, MAYER BROWN, LLP, Chicago,
Illinois, for Appellant/Cross-Appellee. Jaclyn Chait Taner,
FEDERAL DEPOSIT INSURANCE CORPORATION, Arlington, Virginia, for
Appellee/Cross-Appellant. ON BRIEF: John H. Tinney, THE TINNEY
LAW FIRM PLLC, Charleston, West Virginia; Mark W. Ryan, Miriam
R. Nemetz, MAYER BROWN LLP, Washington, D.C., for
Appellant/Cross-Appellee. David Mullin, John M. Brown, Clint R.
Latham, MULLIN HOARD & BROWN, LLP, Amarillo, Texas; Colleen J.
Boles, Assistant General Counsel, Lawrence H. Richmond, Senior
Counsel, Minodora D. Vancea, FEDERAL DEPOSIT INSURANCE
CORPORATION, Arlington, Virginia, for Appellee/Cross-Appellant.

2
Unpublished opinions are not binding precedent in this circuit.

3
AGEE, Circuit Judge:

The Federal Deposit Insurance Corporation (“FDIC”), acting

as receiver for the First National Bank of Keystone (“Keystone”

or “the Bank”), sued Grant Thornton, LLP (“Grant Thornton”), a

national accounting firm, for professional malpractice.

Alleging that Grant Thornton negligently performed an audit of

Keystone, 1 the FDIC sought to recover damages from the accounting

firm after the FDIC closed Keystone as insolvent. After a

lengthy bench trial, the district court awarded judgment in the

FDIC’s favor in the initial amount of $25,080,777, which was

reduced by a settlement credit to $23,737,026.43.

On appeal, Grant Thornton does not challenge the district

court’s finding that it was negligent in the conduct of the

Keystone audit. Instead, Grant Thornton assigns error to the

district court’s finding that its negligence was the proximate

cause of certain of Keystone’s losses. Grant Thornton also

challenges the district court’s refusal to allow some defenses

and claims, which required imputing the actions of the Bank’s

management to the FDIC. Finally, Grant Thornton claims the

1
The FDIC’s claims were first asserted below as
counterclaims in Grant Thornton v. FDIC, No. 1:00-0655, and in a
complaint in intervention in Gariety v. Grant Thornton, LLP, No.
2:99-0992. The district court subsequently severed the FDIC’s
claims against Grant Thornton from the other claims in Gariety,
assigned a new case number (No. 1:03-2129), and consolidated
them for trial with the FDIC’s claims in No. 1:00-0655.

4
court erred in calculating a settlement credit based on the

FDIC’s earlier settlement of various claims against Kutak Rock,

LLP (“Kutak”), the Bank’s outside legal counsel. The FDIC has

filed a cross-appeal, challenging the district court’s denial of

an award of prejudgment interest.

As explained in more detail below, we affirm the judgment

of the district court as to all issues except the district

court’s calculation of the settlement credit. As to that issue,

we reverse and remand for further proceedings.

We underscore, however, that the results in this case are

driven by its unique facts, particularly the context of heavy

regulatory oversight, known to Grant Thornton, as the sole

reason for its engagement. Accordingly, it should be well

understood we do not announce any new rule of auditor liability

and none should be implied.

I.

A. Factual Background

In Ellis v. Grant Thornton LLP, 530 F.3d 280 (4th Cir.

2008), a prior appeal with different parties, we described

Keystone’s background and how it came to engage Grant Thornton:

Prior to 1992, Keystone was a small community
bank providing banking services to clients located
primarily in McDowell County, West Virginia. Before
its collapse, Keystone was a national banking

5
association within the Federal Reserve System, the
deposits of which were insured by the FDIC.

In 1992, Keystone began to engage in an
investment strategy that involved the securitization
of high risk mortgage loans. . . . Keystone would
acquire Federal Housing Authority or high loan to
value real estate mortgage loans from around the
United States, pool a group of these loans, and sell
interests in the pool through underwriters to
investors. The pooled loans were serviced by third-
party loan servicers, including companies like Advanta
and Compu-Link. Keystone retained residual interests
(residuals) in each loan securitization [but the
residuals] would receive payments only after all
expenses were paid and all investors in each
securitization pool were paid. Thus, Keystone stood to
profit from a securitization only after everyone else
was paid in full. The residuals were assigned a value
that was carried on the books of Keystone as an asset.
Over time, the residual valuations came to represent a
significant portion of Keystone's book value.

From 1993 until 1998, when the last loan
securitization was completed, the size and frequency
of these transactions expanded from about $33 million
to approximately $565 million for the last one in
September 1998. All told, Keystone acquired and
securitized over 120,000 loans with a total value in
excess of $2.6 billion.

[T]he securitization program proved highly
unprofitable. Due to the risky nature of many of the
underlying mortgage loans, the failure rate was
excessive. As a result, the residual interests
retained by Keystone proved highly speculative and, in
actuality, they did not perform well.

Keystone's valuation of the residuals was greater
than their market value. [Some members of Keystone’s
management] and others concealed the failure of the
securitizations by falsifying Keystone's books. Bogus
entries and documents hid the true financial condition
of Keystone from the bank's directors, shareholders,
depositors, and federal regulators.

6
 Keystone's irregular bank records drew the
attention of the [Office of the Comptroller of the
Currency (“OCC”)], which began an investigation into
Keystone's banking activities. This investigation
revealed major errors in Keystone's accounting records
that financially jeopardized Keystone. In May 1998,
the OCC required Keystone to enter into an agreement
obligating Keystone to take specific steps to improve
its regulatory posture and financial condition. This
agreement required Keystone to, among other things,
retain a nationally recognized independent accounting
firm “to perform an audit of the Bank's mortgage
banking operations and determine the appropriateness
of the Bank's accounting for purchased loans and all
securitizations.” In August 1998, Keystone retained
Grant Thornton as its outside auditor.

Ellis, 530 F.3d at 283-84 (internal citation omitted). 2

B. Grant Thornton’s Audit of Keystone

Since Grant Thornton does not challenge the district

court’s finding that it was negligent in performing the Keystone

audit, it is not necessary to fully discuss all the negligent

acts found by the court. We simply note the record fully

supports the numerous factual findings by the district court

regarding Grant Thornton’s negligence.

In particular, the district court concluded two employees

of Grant Thornton with primary responsibility for Keystone’s

audit, Stan Quay and Susan Buenger, committed various violations

of the Generally Accepted Auditing Standards (“GAAS”). See also

2
The general factual background set forth in Ellis and
repeated herein tracks to a large degree the district court’s
findings of fact in this case.

7
Grant Thornton, LLP v. Office of the Comptroller of the

Currency, 514 F.3d 1328, 1340-41 (D.C. Cir. 2008) (Henderson,

J., concurring) (discussing facts of instant case and describing

Quay and Buenger’s conduct as “strikingly incompetent”).

A crucial error was Buenger’s failure to obtain written

confirmation of a purported oral representation from Advanta,

one of Keystone’s loan servicers, that a substantial number of

mortgages were properly documented on Keystone’s books of

account. Buenger testified that she had a telephone

conversation with Patricia Ramirez, who worked for Advanta, in

which Ramirez told Buenger that she had located a pool of

mortgages owned by Keystone worth approximately $236 million.

But an e-mail from Ramirez minutes later, as well as an earlier

written confirmation, showed that the loans were not owned by

Keystone, but by “Investor Number 406,” identified as “United

National Bank,” a separate banking entity. (J.A. at 1151.)

While the district court expressly concluded that the oral

statements Buenger attributed to Ramirez were not in fact made,

it held that even if they had been, Buenger had an obligation

under GAAS to obtain all “significant” confirmations of

financial data in writing. Since the $236 million mortgage

portfolio at issue constituted about one-fourth of the Bank’s

claimed assets, it was clearly significant. Yet Buenger did not

utilize the written statements from Advanta and instead chose to

8
rely on the alleged oral misrepresentation, despite the fact

that it conflicted with the written evidence and doing so was

contrary to GAAS accounting procedure. Similarly, “Quay violated

GAAS by failing to supervise or participate in the evaluation of

the Advanta confirmation responses.” (J.A. at 798.)

Because of this and other negligent acts, Buenger and Quay

failed to find numerous problems with the Bank’s financial

statements. Instead, Grant Thornton issued a clean audit

opinion on April 19, 1999, stating that the audit had been

conducted “in accordance with generally accepted auditing

standards” and that the Bank’s financial statements were “free

of material misstatement[s].” (J.A. at 1155.) In point of fact,

however, those financial statements overstated Keystone’s assets

by $515 million, making the Bank grossly insolvent. During an

annual examination of Keystone a few months later, in August

1999, the OCC discovered the discrepancies and closed the Bank

on September 1, 1999, appointing the FDIC as receiver.

Of particular importance, the district court concluded that

“[i]f Grant Thornton had exercised due professional care in

connection with its audit, the fraud would have been discovered”

and that “[i]f Grant Thornton had disclosed to Keystone’s board

or the OCC the fact that Keystone was carrying over $400 million

in loans on its books that were not owned by Keystone, the Bank

would have been closed by April 21, 1999.” (J.A. at 800.) The

9
court thus concluded that Grant Thornton’s negligence

proximately caused damages in the amount of Keystone’s net

operating expenses from April 21, 1999, two days after the audit

report was released, until September 1, 1999, when the Bank was

closed.

In the context of the analysis of each argument raised on

appeal, we discuss pertinent findings of fact that place each

issue in perspective. Grant Thornton and the FDIC have timely

filed their respective appeal and cross-appeal. We have

jurisdiction pursuant to 28 U.S.C. § 1291.

II. Proximate Causation

Grant Thornton makes three challenges to the district

court’s finding that its negligence proximately caused the

Bank’s post-audit operating losses. First, it argues that the

district court applied the incorrect legal standard. Second, it

contends that the district court’s finding of proximate cause

was clearly erroneous. Third, it argues that the district court

erred in refusing to consider that actions and knowledge of

Keystone’s management subsequent to Grant Thornton’s audit were

a superseding and intervening cause that cut off any of Grant

Thornton’s liability for post-audit damages.

We employ a “mixed standard of review” when judgment

results from a bench trial. Universal Furniture Int’l, Inc. v.

10
Collezione Europa USA, Inc., 618 F.3d 417, 427 (4th Cir. 2010)

(citation and quotation marks omitted). Specifically, we review

the district court’s legal rulings de novo. Id.; see also

Murray v. United States, 215 F.3d 460, 463 (4th Cir. 2000)

(legal conclusions regarding the correct standard of proof for

proximate cause are reviewed de novo). We review the district

court’s factual determinations for clear error. Universal

Furniture Int’l, Inc., 618 F.3d at 427. Under clear error

review, this Court must affirm factual findings if they are

“plausible in light of the [entire] record,” “even though

convinced that had it been sitting as the trier of fact, it

would have weighed the evidence differently.” Walton v.

Johnson, 440 F.3d 160, 173 (4th Cir. 2006).

A. Legal Standard for Proximate Cause

We find no merit in the contention that the district court

failed to apply the proper legal standard for proximate cause.

As the district court concluded and the parties agree, West

Virginia law governs the common law claims of the FDIC here.

See O’Melveny & Myers v. Fed. Deposit Ins. Corp., 512 U.S. 79,

89 (1994) (“[w]hat sort of tort liability to impose on lawyers

and accountants in general, and on lawyers and accountants who

provide services to federally insured financial institutions in

particular” did not warrant the “judicial creation of a federal

11
rule of decision . . . .”). State law thus governs the claims

here. See Resolution Trust Corp. v. Everhart, 37 F.3d 151, 154-

55 (4th Cir. 1994) (relying on O’Melveny to hold that whether a

federal receiver timely filed a claim against the former

directors and officers of a failed financial institution was an

issue controlled by state law).

West Virginia law defines a proximate cause of an injury as

one “which, in natural and continuous sequence, produces

foreseeable injury and without which the injury would not have

occurred.” Hudnall v. Mate Creek Trucking, Inc., 490 S.E.2d 56,

61 (W. Va. 1997). Thus, the test requires both (1) “foreseeable

injury”; and (2) but-for causation. Id.

Grant Thornton contends that the district court relied

solely on its negligence as a but-for cause of the damages

awarded, but failed to consider whether the resulting injury to

the Bank was in fact foreseeable. The record plainly rebuts

this contention as the district court applied the Hudnall two-

part test, and addressed at length the issue of foreseeability

in a separate sub-heading under causation in its written opinion

of March 14, 2007. The district court did not err in its

application of the legal standard for proximate cause.

12
 B. Finding of Proximate Cause

The district court found that it was foreseeable to a

“reasonably prudent auditor” that an auditor’s negligent failure

to discover a Bank’s true losses and actual insolvency could

result in a continuation of those losses. (J.A. at 839.)

Grant Thornton’s negligence in failing to discover the
fraud at Keystone allowed that fraud to continue, and
the losses the FDIC seeks to recover are the
foreseeable result of that ongoing fraudulent scheme.
As Grant Thornton’s expert conceded, it is certainly
foreseeable from the standpoint of a reasonably
prudent auditor that the failure to discover fraud
will result in the continuation of the fraud.

(J.A. at 840.)

Consequently, the district court found that the Bank’s

post-audit net operating loss (operating expenses offset by

operating income) for the period from April 21, 1999 (2 business

days after the release of the audit) until September 1, 1999

(when Keystone was involuntarily closed by the OCC) were

proximately caused by Grant Thornton’s negligence. Grant

Thornton contends, however, that the Bank’s losses were not

proximately caused by the audit, but were the result of the

Bank’s longstanding “unprofitable securitizations and the

imbalance between the Bank’s income and its interest

obligations.” (Opening Br. for Grant Thornton at 24.) Because

the specific facts of this case distinguish it from the typical

13
case in which an audit is undertaken, we agree with the district

court.

We find it particularly significant in this case that Grant

Thornton was hired to perform the audit, not in the ordinary

course, but at the insistence of federal regulators who were

closely watching Keystone. And Grant Thornton was well aware

that factor was the reason behind its engagement. As the

district court explained: “The unique position that Keystone

was in at the time period in question - - with federal

regulators carefully watching the Bank’s actions and waiting for

assurances from the outside auditor that the Bank’s financial

statements were accurate - - distinguish this case from any of

the other cases relied upon by the parties . . . .” (J.A. at

843.)

A number of factual findings by the district court support

its ultimate finding of proximate causation based on

foreseeability. For example, there was evidence that:

(1) OCC told Grant Thornton in December 1998 that
Keystone had overstated its assets by about $90
million in three earlier quarterly reports;

(2) by January 1999, both Buenger and Quay testified
that the OCC informed them there was a “distinct
possibility” that the bank would fail if the problems
and weaknesses were not satisfactorily addressed and
resolved, which Buenger interpreted as a “high
probability” of failure (J.A. at 993-99);

14
 (3) Buenger admitted that, prior to the audit report
being issued, Grant Thornton had characterized the
audit as a “highest maximum risk” audit, its highest
risk category (J.A. at 998); this risk category
required certain additional steps and tests be
conducted, some of which Buenger and Quay simply
failed to perform; and

(4) both Buenger and Quay “testified that their ‘fraud
antenna’ were up as high as they could get.” (J.A. at
770.)

These facts, among others, made it reasonably foreseeable to any

prudent auditor that a failure to perform the audit with due

care could result in the continued operation of a Bank that was

in fact woefully insolvent and hemorrhaging losses.

Additionally, as pointed out by the district court, the

damages awarded were all natural and foreseeable losses as a

result of Keystone’s continued operations. Although Grant

Thornton challenges, for example, the payment of interest on

deposits received before the audit began, it is because of their

recurring nature in the ordinary course of commerce that such

expenses were particularly foreseeable. (See J.A. at 845 (“It

was highly foreseeable that Keystone would continue to pay

interest expense on deposits, dividends, legal fees, consulting

fees, salaries, and other routine operating expenses.”).)

Again, we see no clear error in that finding.

Grant Thornton argues that affirming the finding of

proximate cause in the case at bar “effectively makes the

auditor an insurer for a bank’s future financial performance if

15
it fails to recognize that the bank should close” and “would

impose arbitrary and potentially breathtaking liability on

auditors.” (Opening Br. for Grant Thornton at 19.) It also

argues that affirmance will expose “auditors and others who

serve federally-insured institutions to potentially limitless

liability that is unbounded by ordinary principles of proximate

causation and proportionate fault” and will “discourage prudent

service providers from future dealings with federally-insured

institutions—particularly those most in need of audit services.”

(Id. at 18.)

Again, we disagree based on the particular and unique facts

of this case, primarily the specific context in which this audit

occurred. Given this context, we conclude that the district

court did not clearly err in finding both that the damages from

the continued operation of the Bank would not have occurred but

for Grant Thornton’s negligence and that they were a foreseeable

result of Grant Thornton’s negligence. Cf. Hudnall, 490 S.E.2d

at 61.

Grant Thornton’s dire predictions of unlimited liability

for auditors of insolvent banks also ignores the temporal scope

of the district court’s damage determination here. (Cf. Opening

Br. for Grant Thornton at 27 (referring to “crushing” and

“breathtaking” liability).) Notably, the district court did not

conclude that continued operating expenses for an unlimited

16
period of time would have been foreseeable. Rather, the damages

period here was for a reasonable — and foreseeable — period. 3 In

particular, the district court concluded that, had the audit

been performed properly instead of negligently, federal

regulators would have closed the Bank two days after an accurate

audit report had issued, or by April 21, 1999. The court

limited the damages to those incurred during the period between

this date and September 1, 1999, when the Bank actually closed.

Cf. Thabault v. Chait, 541 F.3d 512, 519-20 (3d Cir. 2008)

(upholding jury verdict of almost $120 million as proximately

caused by auditors’ negligent failure to discover insolvency of

insurance company where the damages represented the net cost of

continuing operations from the date of the audit to the date of

liquidation, a period of more than nineteen months).

We thus conclude that the district court’s finding of

proximate cause was not in error as its determination was

supported by the evidence before it and consistent with West

Virginia law.

3
At oral argument, the FDIC acknowledged that Grant
Thornton’s liability would not have extended indefinitely, but
instead could have been naturally limited by any subsequent
audit required to be conducted by federal regulators at regular
intervals.

17
 C. Intervening and Superseding Cause

Grant Thornton’s final challenge to the district court’s

finding of proximate cause is that the actions of the Bank’s

management, post audit, constituted a superseding and

intervening cause that extinguished Grant Thornton’s liability

for damages. Grant Thornton points to evidence that Keystone’s

executives were aware that the Bank was insolvent, but continued

to recklessly operate Keystone and to hide its true financial

condition. For example, Bank executives convinced the OCC

examiners to allow the Bank to send confirmation requests to

Advanta and Compu-Link, rather than the OCC sending those

directly. The Bank’s management reworded the confirmation

letters to its loan servicers so as to request information on

loans owned not just by Keystone but also by United National

Bank. Management then attempted to intercept the responses to

assure the artifice was not detected.

West Virginia’s Supreme Court of Appeals (“WVSCA”) has

explained the defense of an intervening cause as follows:

The function of an intervening cause is that of
severing the causal connection between the original
improper action and the damages. Our law recognizes
that an intervening cause, in order to relieve a
person charged with negligence in connection with an
injury, must be a negligent act, or omission, which
constitutes a new effective cause and operates
independently of any other act, making it and it only,
the proximate cause of the injury.

18
Sydenstricker v. Mohan, 618 S.E.2d 561, 568 (W. Va. 2005)

(internal citations, quotation marks and brackets omitted).

The district court’s order contains a section titled

“Intervening and Superseding Cause” in which it discusses the

actions and knowledge of Keystone’s management after the audit.

(J.A. at 849-873.) However, the district court analyzes the

issue in terms of imputation and did not directly address the

precise argument raised by Grant Thornton, which is that the

actions of management need not be imputed to the FDIC to be a

“superseding cause,” 4 but instead that the actions of a non-party

may give rise to such a cause. (Opening Br. for Grant Thornton

at 36 (citing Sydenstricker, 618 S.E.2d at 568 (the defense of

intervening cause can be established based on evidence that

shows “the negligence of another party or a nonparty”)).)

We agree with the district court’s implicit holding that

the continued effort of the Bank’s management post audit to

conceal Keystone’s insolvency was not an intervening and

superseding cause under West Virginia law. See Ross v. Commc’ns

Satellite Corp., 759 F.2d 355, 363 (4th Cir. 1985) (“An

appellate court has power to determine independently whether

summary judgment may be upheld on an alternative ground where

4
The question of whether the district court correctly held
that the actions of Keystone’s management could not be imputed
to the FDIC is addressed in detail infra at Section III.

19
the basis chosen by the district court proves erroneous.”),

overruled on other grounds by Price Waterhouse v. Hopkins, 490

U.S. 228 (1989).

Our review of the West Virginia caselaw reveals the WVSCA

would not find the post-audit acts of Keystone’s management a

superseding or intervening cause. For example, in Yourtee v.

Hubbard, 474 S.E.2d 613 (W. Va. 1996), the plaintiff’s decedent

was killed while riding as a passenger in a stolen car, and the

owner of the car was being sued because he had negligently left

the car unattended with the keys in the car. Id. at 615. The

WVSCA upheld the trial court’s finding that the theft of the car

by plaintiff’s decedent and his friends and their subsequent

acts (which included driving at high rates of speeds in excess

of ninety miles per hour, losing control of the vehicle, and

running it into a brick wall) constituted an intervening cause

that broke the chain of causation and relieved the car owner of

liability. Id. at 615, 620-21.

Similarly, in Harbaugh v. Coffinbarger, 543 S.E.2d 338,

345-47 (W. Va. 2000), a decedent’s decision to play Russian

roulette was an intervening cause rendering it the only

proximate cause of the injury even though defendant had

negligently supplied the loaded gun. Federal courts applying

West Virginia law have reached similar results. See, e.g.,

Ashworth v. Albers Med., Inc., 410 F. Supp. 2d 471, 479-81

20
(S.D.W. Va. 2005) (concluding that a drug manufacturer was not

liable for injuries caused by alleged criminal acts of third

parties who introduced counterfeit versions of the

manufacturer’s drug into the stream of commerce).

In the foregoing cases, the two acts of negligence are

unconnected and unrelated; the one could not be reasonably

foreseen to be the result of the other. These cases reflect a

superseding or intervening cause because the event in question

was significantly independent from the initial negligence such

that the separate acts of negligence had only a tangential

relation to each other. By contrast, in the case at bar, the

continued fraudulent conduct by the Bank’s management was not

unforeseeable nor did it “operate independently” of the

established fact of Grant Thornton’s negligent audit. Cf.

Sydenstricker, 618 S.E.2d at 568.

As noted in discussing proximate cause, we find it

particularly significant that Grant Thornton was hired by

Keystone — as a requirement of the Bank’s agreement with the OCC

— in order to evaluate the Bank’s financial condition and that

Grant Thornton knew regulators and management would rely on a

clean audit report to allow the Bank to continue to operate.

Thus, Bank’s management’s use of the defective audit report to

continue to engage in fraudulent conduct and to stave off

regulators was facilitated by Grant Thornton’s negligence.

21
Indeed, but for the negligent audit report, the management

conduct posited by Grant Thornton could not have happened. In

this sense, the post-audit actions by Bank’s management are not

a “new effective cause” and did not “operate[] independently” of

Grant Thornton’s negligence and thus do not constitute a

superseding cause of the Bank’s damages. See Sydenstricker, 618

S.E.2d at 568; see also Wehner v. Weinstein, 444 S.E.2d 27, 32-

33 (W. Va. 1994).

We thus find no error in the district court’s determination

that Grant Thornton’s liability for its negligence was not

absolved by a later intervening and superseding cause.

III. Imputation

Grant Thornton next contends that the district court erred

by prohibiting it from offering certain claims or defenses,

specifically (1) comparative/contributory negligence; (2) in

pari delicto; and (3) "similar doctrines." (Opening Br. for

Grant Thornton at 20.) Relying in large part on the decision of

the WVSCA in Cordial v. Ernst & Young, 483 S.E.2d 248 (W. Va.

1996), the district court held that Grant Thornton was barred

from asserting these or similar claims or defenses that involved

the imputation of the knowledge or actions of Keystone’s

management to the FDIC. Consequently, the court granted the

FDIC’s motion to dismiss the affirmative defenses asserted by

22
Grant Thornton, and dismissed related counts of Grant Thornton’s

third party complaint. We review de novo a district court’s

decision to strike a defendant’s affirmative defenses or dismiss

a defendant’s counterclaims. Cf. Murray v. United States, 215

F.3d 460, 463 (4th Cir. 2000) (conclusions of law are reviewed

de novo).

As an initial matter, we note that state law controls what

defenses are available against the FDIC when the agency is

acting as the receiver of a failed financial institution. See

supra at Section II.A (citing O’Melveny & Myers, 512 U.S. at 89;

and Resolution Trust Corp., 37 F.3d at 154-55). Accordingly,

the FDIC simply “‘steps into the shoes’ of the failed” financial

institution and is then subject to whatever defenses state law

provides. O’Melveny, 512 U.S. at 86-87 (citation omitted).

Accordingly, West Virginia law governs the issue of whether the

knowledge or conduct of the Bank’s management can be imputed to

the FDIC here.

Although the parties have not cited to any West Virginia

cases directly addressing whether the actions of a bank’s

management can be imputed to the FDIC as receiver, two WVSCA

decisions offer guidance in predicting how that court would rule

on this issue. Because those cases point to seemingly

conflicting conclusions, we examine them in some detail.

23
 The first case, Wheeling Dollar Sav. & Trust Co. v.

Hoffman, 35 S.E.2d 84 (W. Va. 1945), involved an insurance

company and a loan association, both of which had been placed in

receivership. See id. at 86. The insurance-company receiver

sued the loan-association receiver. As a defense, the loan-

association receiver asserted fraud and the doctrine of unclean

hands, predicated on facts showing that (1) the insurance

company and loan association were run by the same secretary-

treasurer, id. at 87, and (2) “the whole system of accounts

between the[] corporations and the official reports made on

their behalf seem[ed] to be permeated with deliberate fraud.”

Id. at 88.

Because the two company’s accounts were “created and

preserved by the common manager,” the WVSCA held that the whole

system of fraudulent accounts was “chargeable to the officers

and directors of each [company], either through actual knowledge

or the gross ignorance or neglect of their official duties, and,

hence, to the corporations themselves.” Id. The WVSCA further

held that the knowledge and/or negligence of the corporations

was chargeable to their receivers, as “[t]he rights of the

respective receivers rise no higher than those of the

corporations which they represent.” Id. Accordingly, the WVSCA

applied the doctrine of unclean hands and based on the “high

probability of fraud in the whole subject of th[e] litigation

24
. . . refuse[d] [to] consider[] . . . the plaintiff’s bill.”

Id. at 89.

Wheeling Dollar thus favors Grant Thornton’s position in

the present case. It is not, however, the WVSCA’s most recent

holding regarding the defenses available against a government

entity serving as the receiver of a failed financial

institution.

In Cordial v. Ernst & Young, 483 S.E.2d 248 (W. Va. 1996),

the accounting firm Ernst & Young was hired by both Blue Cross

and Blue Shield (“BCBS”) and the West Virginia Commissioner of

Insurance (“the Commissioner”) to perform external audits of

BCBS’s accounts. See id. at 251-52. The Commissioner later

placed BCBS into receivership, see id. at 255, and filed suit

against Ernst & Young alleging various causes of action

including negligence, breach of fiduciary duty, breach of

contract, and fraud. Id.

Citing Wheeling Dollar, Ernst & Young argued that the

Commissioner acting as receiver could “assert only those claims

that [BCBS] could itself have brought.” Id. at 256 & 257 n.9.

For several reasons, the WVSCA disagreed. First, the court

cited a prior case in which it recognized the Commissioner

acting as “‘[r]eceiver is a government official charged with

authority to protect not only the shareholders of the

corporation, but also policyholders, creditors and the public.’”

25
Id. at 257 (quoting Clark v. Milam, 452 S.E. 2d 714, 720 (W. Va.

1994)). In other words, “[r]ather than being deemed to solely

represent the interests of the corporation, the Insurance

Commissioner as [r]eceiver represents a broad array of

interests, including those of the public.” Id. (quotation and

emphasis omitted).

Second, the WVSCA relied on the reasoning of the United

States District Court for the Northern District of Illinois in a

federal case involving a suit brought by a financial institution

receiver “against accountants for an improper audit.” Id.

(citing Resolution Trust Corp. v. KPMG Peat Marwick, 845 F.

Supp. 621 (N.D. Ill. 1994)). The WVSCA agreed with the Illinois

district court that “‘[p]ublic policy concerns mandate a finding

that the duty of FDIC to collect on assets of a failed

institution runs to the public and not to the former officers

and directors of the failed institution,’” and that “‘it is the

public which is the intended beneficiary of FSLIC, just as it is

the public which is the beneficiary of the common law duty

imposed upon officers and directors to manage properly the

institutions entrusted to their case.’” Id. (quoting KPMG Peat

Marwick, 845 F. Supp. at 623) (additional citations omitted).

Third, the WVSCA cited West Virginia’s “comprehensive

scheme of insurance regulation” as evidence of a “broad public

interest in the sound administration of insurance firms.” Id.

26
The Commissioner, as receiver, thus “carr[ies] out a duty that

runs to the public in pursuing the claims of policyholders,

creditors, shareholders or the public.” Id. (internal quotation

marks omitted). Accordingly, the Commissioner “acts as the

representative of interested parties, such as the defunct

insurer, its policyholders, creditors, shareholders, and other

affected members of the public” and “has standing . . . to bring

an action . . . to vindicate the rights of such interested

parties.” Id.

Critically, at the end of this discussion, the WVSCA

inserted a footnote addressing Ernst & Young’s claim under

Wheeling Dollar that “[t]he rights of the respective receivers

rise no higher than those of the corporations which they

represent.” Id. at 257 n.9 (quotation marks omitted). This

contention formed part of Ernst & Young’s greater argument that

because BCBS’s “managers indisputably knew what its financial

condition was, . . . they could not bring a valid claim against

E&Y for failure to disclose such.” Id.

The Cordial Court rejected this proposition on two grounds.

First, the court explained “that Wheeling Dollar was decided

prior to the adoption” of West Virginia’s comprehensive

insurance regulatory scheme. Id. “Consequently, [the case was

not] relevant to the issues at bar.” Id. “Moreover,” the court

explained, “since [the] Commissioner, acting as receiver, is

27
vindicating the rights of the public, including the Blue Cross

creditors, policyholders, providers, members, and subscribers,

[there was] no merit in this contention.” Id. (emphasis added).

Footnote 9 of the Cordial opinion thus indicates that the

WVSCA would not limit the Commissioner, as receiver, only to the

rights of the represented corporation because he also serves to

“vindicat[e] the rights of the public.” Id. It also suggests

that Wheeling Dollar is no longer good law, at least in the

context of government receiverships. Furthermore, in

formulating the controlling public policy involved, the WVSCA

heavily relied on — and favorably referred to — KPMG Peat

Marwick, which applied similar logic to the FDIC in a suit

against auditors. We see no principled difference between the

Commissioner’s role as receiver in Cordial and that of the FDIC

in the case at bar. We therefore find no error in the district

court’s decision not to allow Grant Thornton’s affirmative

defenses of in pari delicto, comparative negligence, or other

defenses or claims that relied on imputation of the Bank’s

management to the FDIC.

IV. Settlement Credit

Based on the FDIC’s settlement of its claims against Kutak,

the district court awarded a percentage of the settlement amount

as a settlement credit to Grant Thornton. On appeal, Grant

28
Thornton posits two challenges to the calculation of the

credit. First, Grant Thornton contends it was entitled to a $22

million setoff based on a computation in the Kutak proceeding.

In the alternative, Grant Thornton argues that the district

court improperly calculated the settlement credit by basing it

only on amounts actually received by the FDIC, and instead

should have based the credit on the face value of the Kutak

settlement. We address each argument in turn after some

additional factual background.

Before trial, Grant Thornton sought leave to file a

contribution claim against the Bank’s outside counsel, Kutak.

The district court held that the FDIC’s settlement with Kutak

over Kutak’s liability in Keystone’s failure extinguished Grant

Thornton’s contribution claim. However, the court noted that

Grant Thornton might be entitled to a settlement credit to be

resolved in a later proceeding. After trial, the district court

delayed entry of judgment against Grant Thornton and held a

hearing to determine the amount of any settlement credit.

As described by the district court, the Kutak settlement

agreement provided that Kutak’s primary insurer, Executive Risk

Indemnity, Inc., would immediately pay the FDIC the remaining

policy limits of $8 million. Kutak also signed a $4 million

promissory note bearing 3% interest, to be paid in installments.

The settlement agreement further provided that Kutak and the

29
FDIC would cooperate in pursuing a $10 million claim on Kutak’s

excess insurance policy with Reliance Insurance Company, which

was in receivership. If the FDIC received less than $8 million

from Reliance, then Kutak would make up a portion of the

shortfall according to a formula set forth in a second

promissory note. The maximum amount that Kutak would be

required to pay under this second promissory note was

$2,750,000.

Before the district court, Grant Thornton argued it was

entitled to a credit of $22 million, the full face amount of the

Kutak settlement agreement ($8 million plus $4 million plus $10

million) because: (1) Kutak was jointly responsible for the

operating losses for which Grant Thornton had been held liable

and (2) the settlement agreement did not allocate the proceeds

among joint and alleged non-joint claims. The FDIC took the

initial position that Grant Thornton was due no settlement

credit because the FDIC had planned to sue Kutak only for

damages associated with Keystone’s securitizations, a matter for

which Grant Thornton was not liable. The FDIC later admitted

that there was some overlap between the damages against Kutak

and against Grant Thornton, but argued that, if a settlement

credit was due, the amount should be based on the amount

actually recovered from Kutak, rather than the full face value

of the agreed settlement amount.

30
 The district court ruled that: (1) Kutak was responsible

for $292,899,625 in damages to the FDIC, including the

$25,080,777 of post-audit net operating losses for which it was

jointly liable with Grant Thornton; and (2) in determining the

credit due Grant Thornton, the FDIC/Kutak settlement should be

allocated proportionally by dividing the $292,899,685 amount by

the $25,080,777 figure, yielding a 8.563% settlement credit

ratio. Put differently, the district court ruled that the

overlapping damages — the indivisible loss — accounted for only

8.563% of the total damages caused by Kutak.

Using this formula, the district court then calculated the

settlement credit based upon the funds actually received by the

FDIC from Kutak. These funds included what the FDIC was

“guaranteed” to receive from the primary insurer and Kutak’s

promissory notes (a total calculated at $15,692,521), rather

than the higher stipulated settlement amount of $22 million.

The settlement credit was thus determined to be $1,343,750.57

(8.563% of $15,692,521). The district court also held that

Grant Thornton should receive an additional credit equal to

8.563% of any additional future payments made by Kutak to the

FDIC under the settlement agreement.

31
 A.

Grant Thornton first contends that West Virginia law

requires a setoff equal to the full face amount in the

settlement agreement between FDIC and Kutak, $22 million. The

accounting firm argues that West Virginia law and Section 4 of

the Uniform Contribution Among Tortfeasors Act (“UCATA”), which

Grant Thornton contends has been adopted by court decision in

West Virginia, require it. 5 Further, Grant Thornton makes

several policy arguments as to why West Virginia’s rules

governing partial settlements in multi-party cases “can be

meaningfully applied only if the allocation is included in the

settlement agreement.” (Opening Br. for Grant Thornton at 47.)

Lastly, Grant Thornton argues that hearings on “allocation” of

damages, such as occurred here, encourage protracted legal

5
Section 4 of UCATA provides:

When a release or a covenant not to sue or not to
enforce judgment is given in good faith to one of two
or more persons liable in tort for the same injury .
. . [i]t does not discharge any of the other
tortfeasors from liability for the injury . . . .; but
it reduces the claim against the others to the extent
of any amount stipulated by the release or the
covenant, or in the amount of the consideration paid
for it, whichever is the greater.

Bd. of Educ. of McDowell Cnty. v. Zando, Martin & Milstead,
Inc., 390 S.E.2d 796, 803 n.6 (W. Va. 1990) (“Zando”) (quoting
12 U.L.A. at 98 (1975)) (emphasis added). As described by the
WVSCA in Zando, this results in a “pro tanto, or dollar-for-
dollar, credit for partial settlements against any verdict
ultimately rendered for the plaintiff.” Id. at 805.

32
proceedings and are inherently unfair, since the settling party

is not involved in the proceedings and the non-settling party is

not in as good a position to contest the plaintiff’s claims

against the settling party. Grant Thornton thus argues that

where a settlement (like that between the FDIC and Kutak) covers

both joint and non-joint liabilities and does not allocate among

joint and non-joint claims, “the nonsettling party is entitled

to a credit equaling the entire settlement amount.” (Opening

Br. for Grant Thornton at 49 (quoting Cohen v. Arthur Andersen

LLP, 106 S.W.3d 304, 310 (Tex. Ct. App. 2003)).)

We agree with the district court that the determination of

setoff is a complex question and that Grant Thornton’s simple

solution of deducting the $22 million face settlement amount

from the verdict against it, while “appealing for its simplicity

of application,” is “simple, neat, and wrong.” (J.A. at 958.)

Under West Virginia law, the threshold question of whether

or not Grant Thornton is entitled to any settlement credit is

based on whether the loss is a single, indivisible loss. See

Biro v. Fairmont Gen. Hosp., Inc., 400 S.E.2d 893, 896 (W. Va.

1990) (“In order to permit a verdict reduction reflecting a

prior settlement, Zando held that there must be a ‘single

indivisible loss arising from the actions of multiple parties

who have contributed to the loss.’”) (citation omitted). Where

there is an indivisible injury, then a setoff is appropriate.

33
See id. at 896. But if there are divisible injuries causing

loss, then no setoff will be allowed. Cf. id. at 897

(concluding that an injury from negligently performed surgery

was divisible from injuries from a fall in the hospital while

recovering from that surgery and thus no offset was warranted).

But in the case at bar we have a partial overlap of the

damages contemplated in the FDIC’s settlement agreement with

Kutak and the damages found to have been caused by Grant

Thornton. That is, the total damages sought against Kutak by

the FDIC included the full $25 million of the Bank’s post-audit

net operating loss for which Grant Thornton was also found

responsible. Thus, that overlapping portion of the damages

related to the operating loss is indivisible, and a setoff is

appropriate. Zando, 390 S.E.2d at 809 (“a single indivisible

loss arising from the actions of multiple parties” entitles the

nonsettling defendant to a reduction).

We agree with the district court, however, that “the FDIC’s

claims against Kutak for the $25 million in damages for which

Grant Thornton has been found liable are divisible” from the

FDIC’s claim for damages against Kutak for the remaining losses

to the Bank because “one person [Kutak] caused all of the

damages and another person [Grant Thornton] caused only part of

the damages.” (J.A. at 955.) See Restatement (Third) of Torts

§ 26 cmt. f (2000) (“[d]ivisible damages can occur . . . when

34
one person caused all of the damages and another person caused

only part of the damages.”). Simply giving Grant Thornton a

credit equal to the $22 million FDIC settlement with Kutak

requires an assumption that the entire amount of the Kutak

settlement was meant to pay for net operating expenses after

April 21, 1999, an assumption not supported by the record or

logic. Indeed, as found by the district court, Kutak’s

involvement was for a much longer period of time than Grant

Thornton and resulted in damages not attributable to Grant

Thornton at all (such as damages incurred as a result of the

failed securitization programs). While the FDIC and Kutak did

not allocate specific damages in the settlement agreement, to

give Grant Thornton the full $22 million credit would not be in

accord with the principles set out by the WVSCA in Zando,

governing verdict credits for nonsettling defendants. 6

6
In making the allocation determination, the district court
emphasized that it was attempting to adhere to the principle
expressed in Zando that “a plaintiff is entitled to one, but
only one, complete satisfaction for his injury.” 390 S.E.2d at
803. The court also discussed favorably the Supreme Court of
Virginia’s decision in Tazewell Oil Co., Inc. v. United Va.
Bank, 413 S.E.2d 611 (Va. 1992), in which a plaintiff sued three
banks for various acts of creditor misconduct resulting in
various harms to the plaintiff. Id. at 617. After settling
with two banks, plaintiff obtained a jury verdict against the
third bank, and the trial court allowed a credit against the
verdict for the full amount of the settlements. Id. The Supreme
Court of Virginia reversed, remanding for an allocation among
the multiple injuries and instructing that “the court must look
at the injury or damage covered by the release and, if more than
(Continued)
35
 In short, we find no error in the district court’s approach

in allocating the damages between Kutak and Grant Thornton or in

its conclusion that only a portion of those damages overlapped

and were indivisible. Accordingly, we affirm the district

court’s decision that Grant Thornton is not entitled to a full

$22 million reduction, but only to a portion of that amount. As

to the amount of damages attributed by the district court to

Kutak, (i.e., its arrival at the $292 million figure and the

resulting 8.563% calculation), those findings are reviewed only

for clear error. We cannot say based on the record before this

Court that these findings were “clearly erroneous.”

B.

Grant Thornton alternatively contends that the district

court separately erred in basing the settlement credit on the

amounts actually recovered by the FDIC, rather than on the

stipulated amount in the settlement agreement. Put differently,

Grant Thornton argues that even if the 8.563% credit ratio is

correct, the amount of the credit should have been 8.563% of $22

million (the full amount of the stipulated agreement), rather

than 8.563% of $15,692,521 (the amount the district court

a single injury, allocate, if possible, the appropriate amount
of compensation for each injury.” Id. at 622.

36
described as money the FDIC had received to date “plus

additional guaranteed recovery” (J.A. at 971)).

Neither party has pointed to a case from West Virginia

where the agreed settlement amount and the amount actually paid

or recovered from that settlement differed, and it does not

appear that the issue has been directly addressed by any West

Virginia published decision. In Hardin v. New York Central

Railroad Co, 116 S.E.2d 697 (W. Va. 1960), the WVSCA stated the

rule as: “[I]f one joint tort-feasor makes a settlement with

the plaintiff the amount of the settlement, if presented

properly during the trial or after the trial, should be deducted

either by the jury or by a court.” Id. at 701 (emphasis added).

This language supports Grant Thornton’s position that it is the

amount of the agreed settlement that governs. However, there is

somewhat contradictory language in Tennant v. Craig, 195 S.E.2d

727 (W. Va. 1973), which instructs that “[w]here a payment is

made, and release obtained, by one joint tort-feasor, other

joint tort-feasors shall be given credit for the amount of such

payment in the satisfaction of the wrong.” Id. at 730 (emphasis

added); see also Savage v. Booth, 468 S.E.2d 318, 323 (W. Va.

1996) (citing Zando for the proposition that the non-settling

joint tortfeasor is “entitled to receive credit for the

settlement amount paid”).

37
 Because there was no discrepancy between the face value of

the settlement and the amount of the settlement payment in

Zando, Tennant, or Hardin, we are left as a federal court

seeking to apply state law to forecast how the WVSCA would

determine the issue. See Ellis, 530 F.3d at 287 (in case

governed by state law, if the state’s highest court “has spoken

neither directly nor indirectly on the particular issue before

us, we are called upon to predict how that court would rule if

presented with the issue”) (citation omitted).

We conclude that the best indication of how the WVSCA would

resolve this issue is set forth in Zando by virtue of the

approval of both UCATA Section 4 and citation to Tommy’s Elbow

Room, Inc. v. Kavorkian, 754 P.2d 243 (Alaska 1988). See Zando,

390 S.E.2d at 805 (West Virginia’s “practice with regard to

verdict reduction basically comports with Section 4 of the

UCATA”).

Based on the WVSCA’s statement that its practice “basically

comports” with UCATA Section 4, id., we predict that court would

adopt the language of the uniform act, including that the

settlement credit to the nonsettling defendant is the amount

“stipulated by the release or the covenant, or . . . the amount

of the consideration paid for it, whichever is the greater.”

Cf. 12 U.LA. at 98 (1975), quoted in Zando, 390 S.E.2d at 803.

This conclusion is bolstered by the WVSCA’s statement in Zando

38
after discussing UCATA Section 4 “to have the verdict reduced by

the amount of any good faith settlements previously made with

the plaintiff by other jointly liable parties.” Id. at 806.

The plain language of UCATA Section 4 directs that the

settlement credit should be based on the amount stipulated by

the release with the settling defendant, if that is greater than

the amount paid. Applying that provision here, the setoff

should have been calculated based on the face amount of the

settlement, $22 million.

Similarly, Tommy’s Elbow Room interpreted the same

language, which had been adopted by statute in Alaska. 754 P.2d

at 244-45 (citing Alaska Stat. § 09.16.040(1)). Indeed, the

issue in Tommy’s Elbow Room was whether a nonsettling

defendant’s liability should be reduced by the face amount

stipulated in the settlement agreement or by the amount paid.

Id. The Alaska Supreme Court concluded that the proper amount

for the setoff was the (likely) higher settlement amount, rather

than the amount actually recovered in settlement. Id. at 246-

47.

The district court here noted that other jurisdictions had

criticized that rule, as adopted in Tommy’s Elbow Room, and

concluded that the WVSCA would not follow it, either. However,

we find Zando’s favorable reference both to Tommy’s Elbow Room

and to UCATA § 4 to be the better indicators of how the WVSCA

39
would rule. Accordingly, we predict that the WVSCA would apply

the plain language of UCATA Section 4, just as the Tommy’s Elbow

Room court did, and would base the setoff amount here on the

face value of the settlement. 7 Thus, the proper settlement

credit here should be 8.563% of $22 million, or $1,883,860.

Thus, the final judgment against Grant Thornton, adjusted for

the proper settlement credit, should have been $23,196,917

($25,087,777 minus $1,883,860), not $23,737,026.43.

V. Prejudgment Interest

The district court denied the FDIC’s request for an award

of prejudgment interest on the judgment amount owed by Grant

Thornton. It first examined the federal statute, 12 U.S.C.

§ 1821(l), which authorizes the award of interest in a bank

receivership proceeding:

In any proceeding related to any claim against an
insured depository institution’s director, officer,
employee, agent, attorney, accountant, appraiser, or

7
We understand the criticism of this rule, which may make
it more difficult for a plaintiff to obtain a complete
satisfaction. However, the same competing policy issues would
have been evident to the WVSCA when it discussed UCATA § 4 in
Zando. We further note, as did the Tommy’s Elbow Room court,
that any time a plaintiff settles a claim, the plaintiff assumes
the risk that some amount of the settlement will not be
recoverable. 754 P.2d at 245. The fact that it ultimately is
not recoverable and that the non-recovery works to the detriment
of the plaintiff, is the result of the plaintiff’s own bargain
in agreeing to the settlement amount and its terms of payment.

40
 any other party employed by or providing services to
an insured depository institution, recoverable damages
determined to result from the improvident or otherwise
improper use or investment of any insured depository
institution’s assets shall include principal losses
and appropriate interest.

12 U.S.C. § 1821(l) (emphasis added). 8 The district court

concluded that the award of prejudgment interest was not

appropriate because, under applicable West Virginia law, W. Va.

Code § 56-6-31, “the court does not believe that the damages the

FDIC seeks to recover are ‘special or liquidated damages’”

warranting prejudgment interest. (J.A. at 886.) The FDIC

contends in its cross-appeal that this determination was error. 9

The FDIC essentially argues that the statutory language

“recoverable damages . . . shall include principal losses and

appropriate interest” means that prejudgment interest must be

awarded in all cases; it is never discretionary. Conversely,

Grant Thornton argues that the district court correctly

8
The district court did not address the question under
§ 1821(l) of whether the damages at issue here resulted from an
“improvident or otherwise improper use of . . . [Keystone’s]
assets.” Instead, the court assumed, without deciding, that
this condition was satisfied. In light of our conclusion that
the district court properly concluded that prejudgment interest
was inappropriate in the case at bar, we too assume, without
deciding, the damages satisfy this condition.
9
The parties appear to agree that the district court’s
decision as to whether to award prejudgment interest is reviewed
for abuse of discretion. (See Principal Br. for FDIC at 64;
Response/Reply Br. for Grant Thornton at 48-49 (citing Moore
Bros. Co. v. Brown & Root, Inc., 207 F.3d 717, 727 (4th Cir.
2000)).)

41
interpreted § 1821(l) to mean that “if prejudgment interest is

available under West Virginia law in a case of this nature, the

court may award prejudgment interest.” (Cf. J.A. at 884.)

There is a dearth of case law applying this statute, and

none of the cases that reference the provision expressly address

the arguments raised by the parties here. See, e.g., Fed.

Deposit Ins. Corp. v. Mijalis, 15 F.3d 1314, 1326-27 (5th Cir.

1994) (in case where the parties disputed only the rate of

interest, court seemingly interpreted “appropriate interest” as

meaning the “appropriate rate of interest,” but declined to

address the propriety of the interest awarded because defendants

did not properly preserve the issue); Fed. Deposit Ins. Corp. v.

UMIC, Inc., 136 F.3d 1375, 1385 (10th Cir. 1998) (prejudgment

interest could not be awarded under this section because the

conduct upon which the judgment was based occurred before the

enactment of Section 1821(l)). Likewise, we have not found any

cases specifically discussing whether similarly-worded

provisions require the award of prejudgment interest in all

cases or simply allow it in appropriate cases. See, e.g., 12

U.S.C. § 1787(i) (“recoverable damages . . . shall include

principal losses and appropriate interest”); 12 U.S.C. § 4617(h)

(same); 12 U.S.C. § 5390(g) (same).

In construing the statute, we must give the words therein

their ordinary meaning. United States v. Abdelshafi, 592 F.3d

42
602, 607 (4th Cir. 2010) (statutory interpretation requires that

the court “strive to implement congressional intent by examining

the plain language of the statute” and to give a statute its

“plain meaning,” which in turn is “determined by reference to

its words’ . . . ‘ordinary, contemporary, [and] common

meaning’”) (citations omitted).

As an initial matter, we note that nothing in § 1821(l)

refers to prejudgment interest, but simply to “appropriate

interest.” The FDIC argues that to interpret “interest” as

referring only to post-judgment interest would render the

language superfluous, since there is already a statute providing

for the award of post-judgment interest to all successful

plaintiffs in civil cases, 28 U.S.C. § 1961(a)). On this basis,

we conclude that the reference to “appropriate interest” in

§ 1821(l) may include both postjudgment and prejudgment

interest. See Comeau v. Rupp, 810 F. Supp. 1172, 1180-81 (D.

Kan. 1992).

However, the mere fact that “appropriate interest” could

include both prejudgment and post-judgment interest, does not

lead to the conclusion that the statute mandates prejudgment

interest must always be awarded. See id. at 1180

(“Notwithstanding the authority to award prejudgment interest

under [the Financial Institutions Reform, Recovery, and

Enforcement Act of 1989, Pub. L. No. 101-73, 103 Stat. 183,

43
(“FIRREA”)],” the court will still have to decide “the

appropriateness of such an award.”).

Unsurprisingly, the parties offer competing interpretations

for this dilemma, but both essentially add language to the

statute in doing so. The FDIC’s interpretation of “appropriate

interest” is “an appropriate rate of interest” or “an

appropriate amount of interest.” Grant Thornton’s

interpretation is that “appropriate interest” means “interest,

if appropriate” or “interest, in an appropriate case” or

“interest, if otherwise appropriate.” We conclude that Grant

Thornton has the better argument and its interpretation is the

most harmonious with a natural reading of the statute. See 62

Cases, More or Less, Each Containing Six Jars of Jam v. United

States, 340 U.S. 593, 596 (1951) (“[O]ur problem is to construe

what Congress has written. After all, Congress expresses its

purpose by words. It is for us to ascertain—neither to add nor

to subtract, neither to delete nor to distort.”).

First, the common dictionary definition of “appropriate”

more easily comports with Grant Thornton’s interpretation. Most

often, “appropriate” means “specially suitable: fit, [or]

proper.” Webster’s Third New Int’l Dictionary 106 (1961). We

could easily substitute those definitional words for

“appropriate” and the statute would continue to mean what Grant

Thornton and the district court interpreted it to mean. That

44
is, “damages shall include ‘specially suitable’ interest” or

“‘fitting’ interest” or “‘proper’ interest.” By contrast, to

interpret “appropriate” as specifically referring only to the

rate or amount of interest would require additional words with a

different substantive meaning being written into the statute.

Second, the FDIC hinges its argument primarily on the fact

that the statute contains the word “shall,” a mandatory and not

permissive term. (See Principal Br. for FDIC at 62 (citing

United States v. Monsanto, 491 U.S. 600, 607 (1989)).) But

while Congress used the language “shall,” it also included the

word “appropriate” for a purpose. Nothing in the statute

suggests that “appropriate” refers to a rate or amount of

interest. Indeed, other statutes providing that interest shall

be an element of damages do not include the limitation

“appropriate.” See, e.g., 28 U.S.C. § 1961(a) (stating that

postjudgment interest “shall be allowed on money judgment in a

civil case recovered in a district court” and specifying in

detail how interest is to be calculated); 7 U.S.C. § 2564 (in

infringement of plant variety protection, the court “shall award

damages adequate to compensate for the infringement but in no

event less than a reasonable royalty for the use made of the

variety by the infringer, together with interest and costs as

fixed by the court”).

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 Notably, moreover, a statutory review makes clear that

Congress knows how to specify rates of interest or to refer to

certain factors in setting interest when it chooses to do so.

See, e.g., 42 U.S.C. § 9607(a)(4) (setting forth damages in

CERCLA cases and explaining what damages the interest applies

to, the dates of accrual and referring to specific rates of

interest); 15 U.S.C. § 15 (in antitrust actions, instructing

“[t]he court may award . . . simple interest on actual damages,”

describing prejudgment interest period, and allowing such an

award “if the court finds that the award of such interest for

such period is just in the circumstances”). In those statutes,

Congress did not simply say that an “appropriate” rate should be

used, but instead gave specific particulars about the rate, the

time period for interest, and/or or how to calculate it. In

contrast, no such directions appear in § 1821(l).

For these reasons, we find the word “appropriate” is best

read as a limitation as to when prejudgment interest should be

provided, not as a reference to any particular “rate” or amount

of interest nor that its award is mandated in all cases. Thus,

we conclude that the award of prejudgment interest under §

1821(l) is discretionary, i.e., that it need only be awarded if

appropriate.

The FDIC next contends that, even if we adopt Grant

Thornton’s interpretation of the statute, the district court

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nonetheless abused its discretion in denying interest because it

looked solely to West Virginia law to determine whether interest

was appropriate in this case. For support, the FDIC cites to

United States v. Dollar Rent A Car Systems, Inc., 712 F.2d 938

(4th Cir. 1983) (“Dollar”).

The FDIC’s reliance on Dollar is misplaced. In Dollar,

this Court concluded that the district court abused its

discretion when it awarded prejudgment interest and considered

itself bound by the lower rate established by state law. Id. at

941. This was an abuse of discretion because federal law, not

state law, governed that case and federal law in fact granted

discretion to award a higher rate. Id. Dollar does not stand

for the general proposition, as cited by the FDIC, that a

district court abuses its discretion when it analyzes whether

interest is warranted under state law.

The district court’s analysis here suggests that it

interpreted the language as meaning that it would award interest

if appropriate under West Virginia law. Although the court’s

opinion does not explicitly state that it was constrained by

West Virginia law, it analyzed the issue under West Virginia law

and concluded as follows:

Even assuming that the FDIC is entitled to
prejudgment interest under FIRREA, the court does not
believe that the damages the FDIC seeks to recover are
“special or liquidated damages” within the meaning of
W. Va. Code § 56-6-31. Accordingly, the FDIC’s

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 request for an award of prejudgment interest is
denied.

(J.A. at 886; see also id. at 885-86 (concluding that the

damages here were neither special nor liquidated damages).)

The district court’s reference to state law here was not an

abuse of discretion. Particularly in view of our earlier

discussion of O’Melveny & Myers, where the Supreme Court held

the FDIC in FIRREA cases was to “work out its claims under state

law,” 512 U.S. at 87, the district court correctly looked to the

applicable state law in order to determine whether prejudgment

interest was “appropriate” in this case. See United States v.

Am. Mfrs. Mut. Cas. Co., 901 F.2d 370, 372-73 (4th Cir. 1990)

(in the absence of “explicit standards for the allowance of pre-

judgment interest,” federal statutes are “treated as

incorporating the applicable state law on [the] issue”);

Quesinberry v. Life Ins. Co. of N. Am., 987 F.2d 1017, 1030 (4th

Cir. 1993) (“absent a statutory mandate the award of pre-

judgment interest is discretionary with the trial court”).

Moreover, we find no abuse of discretion in the district

court’s determination that prejudgment interest here was not

warranted. Although the court ultimately arrived at a damages

award, until it did so, it was impossible for Grant Thornton to

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know how much it owed. 10 See Lockard v. City of Salem, 43 S.E.2d

239, 243 (W. Va. 1947) (“interest is denied when the demand is

unliquidated for the reason that the person liable does not know

what sum he owed and therefore cannot be in default for not

paying.”) (citation and quotation marks omitted); Bond v. City

of Huntington, 276 S.E.2d 539, 550 (W. Va. 1981) (prejudgment

interest applies where case involves “only pecuniary losses that

are subject to reasonable calculation that exist at the time of

the trial”).

Similarly, under federal law, courts may deny prejudgment

interest where “a legitimate controversy existed” regarding the

amounts ultimately deemed to be owed. Moore Bros., 207 F.3d at

727. Instead, the court must “weigh the equities in a

particular case to determine whether an award of prejudgment

interest is appropriate.” Id.

In short, we find no error in the district court’s denial

of prejudgment interest.

10
In addition to numerous disagreements at trial regarding
a proper measure of damages, here a special separate hearing was
held after the trial to determine the Kutak setoff amount, if
any. Until that hearing was held and the district court issued
its ruling, Grant Thornton could not know what amount it owed.

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 VI. Conclusion

For the foregoing reasons, we affirm the district court’s

judgment in all respects except the amount of the settlement

credit. As to that issue, we reverse and remand for further

proceedings consistent with this opinion.

AFFIRMED IN PART AND
REVERSED AND REMANDED IN PART

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