Federal Deposit Insurance Corporation v. First American Title Insurance Company

Case: 13-15058 Date Filed: 04/28/2015 Page: 1 of 27

[DO NOT PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT
________________________

No. 13-15058
________________________

D.C. Docket No. 9:12-cv-80533-DMM

FEDERAL DEPOSIT INSURANCE CORPORATION,

Plaintiff–Appellee,

versus

FIRST AMERICAN TITLE INSURANCE COMPANY,

Defendant–Appellant.

________________________

Appeal from the United States District Court
for the Southern District of Florida
________________________

(April 28, 2015)
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Before ED CARNES, Chief Judge, RESTANI, ∗ Judge, and MERRYDAY, **
District Judge.

PER CURIAM:

Amid the surge of bank failures during the notorious financial turbulence of

2008–2009, the Federal Deposit Insurance Company, serving as receiver, acquired

scores of failed banks. Through a standard “Purchase and Assumption

Agreement,” the FDIC promptly sold to a successor bank a failed bank’s working

assets (for example, cash, securities, loans, real estate, furnishings, and equipment)

and liabilities (for example, customer deposits and loans from the Federal Reserve

Bank). But the purchase agreement reserves to the FDIC an array of rights to sue

(for example, the right to sue an officer, director, shareholder, attorney, accountant,

or “any other Person”) for an actionable event that occurred before the bank failed.

In other words, the successor bank bought from the FDIC the opportunities and

credit risks of banking, which is the bank’s primary business, but not the

exigencies of the failed bank’s litigation, which is not the bank’s primary business.

In this action, the FDIC sues a title insurer for a loss attributable to a

mortgage fraud perpetrated against the failed bank, which served as the lender in

two real estate closings that occurred before the bank’s failure. The title insurer’s

∗
Honorable Jane A. Restani, United States Court of International Trade Judge, sitting by
designation.
**
Honorable Steven D. Merryday, United States District Judge for the Middle District of Florida,
sitting by designation.

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principal claim is that the purchase agreement conveys to the successor bank —

rather than reserves to the FDIC — the right to sue for the loss. After a bench trial,

the district court in a detailed and careful opinion (1) correctly construed the

purchase agreement to reserve to the FDIC the right to sue the title insurer and

(2) correctly resolved the title insurer’s remaining defenses.

1. Background

In 2007, Nathaniel Ray agreed to acquire — under false pretenses — two

loans, each secured by a mortgage, to purchase two residential condominium units.

Acting for the sellers of the units, Craig Turturo, whose testimony the district court

explicitly found “not credible,” agreed to provide the money for Ray’s down

payments. Craig Turturo enlisted Frank Turturo Jr., his brother, to appraise the

units; Craig Turturo’s father, Frank Turturo Sr., invited his client U.S. Mortgage

Bankers to serve as the broker. Working for U.S. Mortgage Bankers was

Christopher Albert, who is the son of Kamel and Elizabeth Albert (the sellers of

one unit) and the brother of Brian Albert (the seller of the other unit).

U.S. Mortgage Bankers introduced BankUnited, F.S.B., (Old Bank) to Ray,

who in his applications for the loans materially exaggerated his income. Unaware

of Ray’s falsification, Old Bank accepted the application and extended the two

loans to Ray. First American Title Insurance Company insured the title to each

unit.

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As an independent sales representative for Property Transfer Services, Inc.,

Frank Turturo Sr. recommended to First American that Property Transfer serve as

the closing agent. Accepting Frank Turturo Sr.’s recommendation, First American

designated Property Transfer as the closing agent and issued two “closing

protection letters,” by which First American agreed to reimburse Old Bank for any

“actual loss” “arising out of” any prospective “failure” or “dishonesty” by Property

Transfer in serving as the closing agent. Old Bank specifically instructed Property

Transfer to ensure during each of the two closings that Ray use only his money for

the down payment.

Although Property Transfer certified that Ray paid each down payment with

only his money, Ray provided no money for the down payment at either closing,

each of which Property Transfer nonetheless completed. After the closings,

Masterhost, Inc. — an entity with no discernible connection to Ray — wired

money to Property Transfer for each down payment. Masterhost was owned by

Christopher Albert (the son of the sellers of one unit and the brother of the seller of

the other unit). On the day of each closing, Craig Turturo presented to Ray the key

to each unit. Six months later, Ray defaulted on each loan.

During the financial turmoil of 2009, the Office of Thrift Supervision of the

United States Department of the Treasury closed Old Bank and established the

Federal Deposit Insurance Corporation as Old Bank’s receiver. In May 2009,

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employing the FDIC’s typical “Purchase and Assumption Agreement,” the FDIC

conveyed the bulk of Old Bank’s assets to BankUnited (New Bank). Entitled

“Purchase of Assets,” Article III of the purchase agreement states in Section 3.1:

Assets Purchased by Assuming Bank. With the exception of
certain assets expressly excluded in Sections 3.5 and 3.6, the
Assuming Bank hereby purchases from the Receiver, and the
Receiver hereby sells, assigns, transfers, conveys, and delivers
to the Assuming Bank, all right, title, and interest of the
Receiver in and to all of the assets (real, personal and mixed,
wherever located and however acquired) of the Failed Bank
whether or not reflected on the books of the Failed Bank as of
Bank Closing.

Section 3.5 exempts from the FDIC’s sale to New Bank several categories of

assets:

Assets Not Purchased by Assuming Bank. The Assuming Bank
does not purchase, acquire or assume, or (except as otherwise
expressly provided in this Agreement) obtain an option to
purchase, acquire or assume under this Agreement:

(a) . . .

(b) any interest, right, action, claim, or judgment against
(i) any officer, director, employee, accountant, attorney,
or any other Person employed or retained by the Failed
Bank or any Subsidiary of the Failed Bank on or prior
to Bank Closing arising out of any act or omission of
such Person in such capacity, (ii) any underwriter of
financial institution bonds, banker’s blanket bonds or
any other insurance policy of the Failed Bank, (iii) any
shareholder or holding company of the Failed Bank, or
(iv) any other Person whose action or inaction may be
related to any loss (exclusive of any loss resulting from
such Person’s failure to pay on a Loan made by the
Failed Bank) incurred by the Failed Bank; provided,

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that for the purposes hereof, the acts, omissions or other
events giving rise to any such claim shall have occurred
on or before Bank Closing, regardless of when any such
claim is discovered and regardless of whether any such
claim is made with respect to a financial institution
bond, banker’s blanket bond, or any other insurance
policy of the Failed Bank in force as of Bank
Closing . . . .

Before failing, Old Bank began a foreclosure action against each of Ray’s

two units. After gaining clear title to each unit, New Bank sold each unit. For one

unit, the principal balance was $278,904.90, the unpaid interest was $38,917.70,

and the other unpaid expenses were $19,589.80. New Bank received $71,361.74

from the sale. For the other unit, the principal balance was $278,904.90, the

unpaid interest was $25,468.15, and the other unpaid expenses were $3,774.31.

New Bank received $72,762.29 from the sale.

In March 2012, the FDIC served Property Transfer an administrative

subpoena for documents pertinent to the closing of each of Old Bank’s loans to

Ray. In April 2012, Property Transfer sent responsive documents to the FDIC.

Eight days after receiving the documents, the FDIC submitted to First American a

written notice of the FDIC’s claims under the closing protection letters. In May

2012, the FDIC sued First American under the closing protection letters for breach

of contract (Counts V and VIII) to recover the “actual loss” that “arose out of”

Property Transfer’s “failure” and “dishonesty.” Also, the FDIC sued Property

Transfer for breach of contract (Counts I and V), for breach of fiduciary duty

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(Counts II and VI), and for negligent misrepresentation (Counts III and VII).

Property Transfer settled; First American did not.

After a bench trial of the FDIC’s claims against First American, the district

court entered judgment for the FDIC and against First American on each count

alleging breach of contract. On appeal, First American presents four issues:

1. Whether the district court erred in concluding that the
FDIC could assert breach-of-contract claims against First
American based on the closing protection letters that once
belonged to BankUnited, F.S.B., (Old Bank) when the FDIC, as
Old Bank’s receiver, sold all of Old Bank’s assets — including
the closing protection letters — to Bank United, N.A., (New
Bank).

2. Whether the district court erred in construing the closing
protection letter notice provision — expressly requiring notice
to First American within 90 days of discovery of a “loss” — to
require notice only after discovery that the loss might support a
closing protection letter claim, and in allowing the FDIC to
recover despite sending notice more than two years after its
actual loss.

3. Whether the FDIC proved at trial that its actual loss arose
from the conduct of the title agent when, as a result of the
closings, Old Bank received first-priority liens on both
properties, successfully foreclosed on both properties, and
could have sought a deficiency judgment against the borrower.

4. Whether the district court erred in awarding more than
$500,000 in damages by accepting a calculation methodology
based on losses incurred by a third party without regard to the
loss actually incurred by the FDIC, and by improperly applying
Florida’s collateral source rule to ignore the FDIC’s insurance
recovery.

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2. Standard of review

To the extent that First American challenges a finding of fact by the district

court, review is for clear error. Jones v. United Space Alliance, L.L.C., 494 F.3d

1306, 1309 (11th Cir. 2007). To the extent that First American challenges a

finding of law by the district court, review is de novo. Jones, 494 F.3d at 1309.

When calculating damages, the district court interpreted the meaning of “actual

loss” in the closing protection letters. Because the interpretation is an issue of law,

review of the district court’s calculation of damages is de novo. Golden Door

Jewelry Creations, Inc. v. Lloyds Underwriters Non-Marine Ass’n, 117 F.3d

1328, 1339 (11th Cir. 1997).

First American challenges the district court’s interpretation of the purchase

agreement, through which the FDIC sold Old Bank’s assets to New Bank. The

district court found the purchase agreement unambiguous and assessed the

agreement’s “plain meaning.” Similarly, First American advocates a “plain and

unambiguous reading” of the purchase agreement. A district court’s interpretation

of an unambiguous contract presents a question of law, and review is de novo.

United Ben. Life Ins. Co. v. U.S. Life Ins. Co., 36 F.3d 1063, 1065 (11th Cir. 1994).

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3. Right to assert a breach-of-contract claim

First American argues that, because the FDIC sold Old Bank’s assets,

including the closing protection letters, to New Bank and because the FDIC no

longer “owns” the closing protection letters, the district court erred in concluding

that the FDIC could assert a breach-of-contract claim against First American under

the closing protection letters. Interpretation of the purchase agreement, by which

the FDIC sold Old Bank’s assets to New Bank, determines whether the FDIC sold

or retained the right to assert a breach-of-contract claim against First American

under the closing protection letters.

In the first sentence of Section 3.1 of the purchase agreement, the FDIC

“sells, assigns, transfers, conveys, and delivers” to New Bank “all right . . . in and

to all of the assets.” However, Section 3.1 expressly excludes from the

conveyance the assets specified in Sections 3.5 and 3.6.1 Schedule 3.2 of the

purchase agreement defines as an asset all “Loans,” and Article I defines “Loans”

as “all . . . claims . . . arising under or based upon Credit Documents.” Article I

defines “Credit Documents” as “the agreements, instruments, certificates or other

documents at any time evidencing or otherwise relating to, governing or executed

in connection with or as security for, a Loan.” Because the closing protection

letters “relate to” and “were executed in connection with” the two loans that Old

1
Neither a party nor the district court finds Section 3.6 pertinent to this action.

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Bank extended to Ray, the closing protection letters are “Credit Documents.”

Therefore, a claim “arising under or based upon” a closing protection letter is a

“Loan.”

The FDIC sold to New Bank the right to assert a claim “arising under or

based upon” the closing protection letters, unless the right is expressly retained by

Section 3.5 of the purchase agreement. The pertinent sections of the purchase

agreement are Sections 3.5(b)(i), (b)(ii), and (b)(iv). Section 3.5(b) is not

constructed with reference to the reservation of claims and rights arising from

specified assets; Section 3.5(b) is constructed with reference to the reservation of

claims and rights against certain specified parties. Section 3.5(b)(i) states:

The Assuming Bank does not purchase . . . (b) any interest,
right, action, claim, or judgment against (i) any officer, director,
employee, accountant, attorney, or any other Person employed
or retained by the Failed Bank or any Subsidiary of the Failed
Bank on or prior to Bank Closing arising out of any act or
omission of such Person in such capacity . . . .

Section 3.5(b)(i) exempts from the sale of assets a right or a claim against any

“Person employed or retained” by Old Bank. Webster’s Third New International

Dictionary 743 (1993) defines “employ” as “to use or engage the services of” (as

in “to employ the services of a gardener”). Also, Webster’s at 1938 defines

“retain” as “to keep in pay or in one’s service” (as in “to retain the services of a

gardener”). In other words, Section 3.5(b)(i) broadly exempts from the sale of

assets a claim against a person who was paid by Old Bank and who rendered to

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Old Bank a service that resulted in a right or claim. This understanding of

Section 3.5(b)(i) comports comfortably with the list of named “Persons” — any

“officer, director, employee, accountant, attorney, or any other Person” — a list

that encompasses persons both corporate and non-corporate, both employee and

independent contractor, both titled and untitled, and both professional and non-

professional. Use of the encompassing phrase “any other Person” belies any

suggested narrowness in the clause and confirms that the rendering of a service that

can result in a claim, not the mode of the person’s compensation or the nature of

the person’s duty, is the attribute common to those on the list in Section 3.5(b)(i).

First American falls within the broad scope of Section 3.5(b)(i).

The next provision in the purchase agreement is Section 3.5(b)(ii), which

states:

The Assuming Bank does not purchase . . . (b) any interest,
right, action, claim, or judgment against . . . (ii) any underwriter
of financial institution bonds, banker’s blanket bonds or any
other insurance policy of the Failed Bank . . . .

Section 3.5(b)(ii) exempts from the sale of assets a right or claim against “any

underwriter of . . . [an] insurance policy of” Old Bank. Because First American is

an underwriter of Old Bank’s title insurance, Section 3.5(b)(ii) exempts from the

sale of assets — and reserves to the FDIC — a right against First American.

Further, the FDIC retained the right to assert a breach-of-contract claim against

First American under either a title insurance policy or a closing protection letter

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because a title insurer, by definition, can issue either a title insurance policy or a

closing protection letter or both. (Section 627.786, Florida Statutes, explicitly

allows a title insurer to issue a closing protection letter.) By reserving to the FDIC

the right to assert a claim against First American, Section 3.5(b)(ii) reserves a

claim under either the title insurance policies or the closing protection letters or

both.

Section 3.5(b)(iv) 2 states:

The Assuming Bank does not purchase . . . (b) any interest,
right, action, claim, or judgment against . . . (iv) any other
Person whose action or inaction may be related to any loss
(exclusive of any loss resulting from such Person’s failure to
pay on a Loan made by the Failed Bank) incurred by the Failed
Bank . . . .

Section 3.5(b)(iv) exempts from the sale of assets a right or claim against “any

other Person whose action or inaction may be related to any loss . . . incurred by”

Old Bank or its assigns. First American is a “Person” as defined in Article I of the

purchase agreement. By issuing the closing protection letters, First American

agreed to reimburse Old Bank or its assigns for “actual loss” “arising out of”

Property Transfer’s “failure” or “dishonesty.” Both First American’s “action” in

issuing the closing protection letters and First American’s “inaction” in not

reimbursing the FDIC are “related to” the loss “incurred by” the FDIC. Even if

2
In the “Opinion and Order,” the district court inadvertently mislabels Section 3.5(b)(iv) as
“Section 3.5(b)(iii).”

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Sections 3.5(b)(i) and (b)(ii) were inapplicable, Section 3.5(b)(iv), a contractual

“catch-all,” exempts from the sale the right to assert a claim against First

American.

First American argues that under this construction of Sections 3.5(b)(i),

(b)(ii), and (b)(iv) the FDIC retains both title insurance policies and closing

protection letters, the retention of which is contrary to the parties’ stipulation that

the FDIC sold the title insurance policies to New Bank. But First American

fundamentally misreads the agreement.

Section 3.1 accomplishes the agreed sale by identifying the assets sold,

including the claims sold. Also, Section 3.1 expressly and unconditionally defers

to Section 3.5 by selling assets “[w]ith the exception of certain assets expressly

excluded in Sections 3.5 and 3.6.” Finally, Section 3.5 reserves claims to the FDIC

by identifying certain persons against whom the FDIC retained “any interest, right,

action, claim, or judgment,” provided that the events “giving rise to” the “interest,

right, action, claim, or judgment” occurred before Old Bank failed. In other words,

Section 3.5 carves out of Section 3.1 claims against identified persons arising from

a temporally limited set of events and, as a result, all claims are sold except those

claims. Under the express terms of the purchase agreement, the claim, or the right

to sue, is a legal interest distinct from the document under which the right arises.

Thus, some claims arising from a title insurance policy are sold and some are not,

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depending on whether the person against whom the claim is asserted is an

identified person and on whether the claim arose from events that occurred before

Old Bank failed. The fact that the FDIC sold Old Bank’s title insurance policies to

New Bank under Section 3.1 has no bearing on whether the FDIC retained certain

title insurance policy claims against certain persons identified in Section 3.5.

In sum, the purchase agreement reserves to the FDIC the right to assert a

breach-of-contract claim against First American under a closing protection letter.

Under Section 3.5(b) of that agreement, the FDIC retains certain claims against

certain specified parties, and First American is one of those parties. We need not

determine whether the closing protection letters themselves were expressly

reserved to the FDIC because, under the terms of the purchase agreement, the right

to sue was reserved. That is all that matters. 3

Finally, in arguing on appeal that New Bank, not the FDIC, is the proper

plaintiff, First American objects:

The end result could well be double liability for an opposing
party. After all, what is to stop New Bank from bringing its
own [closing-protection-letter] claims against First American
on these same [closing protection letters]? New Bank could
simply contend that the Purchase Agreement did convey the
[closing protection letters], and First American could do
nothing to challenge it, forcing First American to indemnify
two different parties for the same loss.

3
For the same reasons, we need not determine whether a closing protection letter is severable
from, or “tethered to” (as First American claims), a title insurance policy.

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First American’s objection to the prospect of “double liability” serves to focus

helpfully on a reliable and convenient remedy for First American’s perceived

dilemma. Rule 19(a)(1), Federal Rules of Civil Procedure, states:

(a) Persons Required to Be Joined if Feasible.

(1) Required Party. A person who is subject to service of
process and whose joinder will not deprive the court
of subject-matter jurisdiction must be joined as a party
if:

(A) . . .

(B) that person claims an interest relating to the
subject of the action and is so situated that
disposing of the action in the person’s absence
may:

(i) . . .

(ii) leave an existing party subject to a
substantial risk of incurring double,
multiple, or otherwise inconsistent
obligations because of the interest.

If during the pleading stage of this action First American had sought relief

under Rule 19(a) and had alleged that New Bank claimed an interest in the “subject

of the action,” New Bank would have been required to appear as a party and either

confirm or deny the alleged interest. If New Bank had confirmed the alleged

interest, New Bank would have remained a party, and the district court would have

determined the validity of New Bank’s alleged interest. If New Bank had denied

or disclaimed the alleged interest, New Bank would have no claim. In either

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instance, the real party in interest is determined, and First American is safe from

the threat of double liability.

Rule 19(a) anticipates the need, at the instance of a party in doubt, to

determine the proper plaintiff with clarity and finality. (Of course, a counterclaim

that joins New Bank and seeks a declaratory judgment effects the same, simple,

salutary result for First American.) First American chose to forbear the Rule 19(a)

remedy, chose to preserve and persist in the claim that the FDIC is the wrong

plaintiff, and chose to preserve and persist in the argument about the risk of double

liability. After choosing to forbear the readily available remedy, First American

cannot complain about New Bank’s absence.

4. Timely notice

Although the closing protection letters require First American to reimburse

Old Bank or its assigns for “actual loss” “arising out of” Property Transfer’s

“failure” and “dishonesty,” the closing protection letters exonerate First American

from liability “unless notice of loss in writing is received by [First American]

within ninety (90) days from the date of discovery of such loss.” First American

argues that the district court erred in construing this notice provision to permit

notice within ninety days after the FDIC’s discovery of facts that reveal a claim

against First American under the closing protection letters.

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The notice provision in the closing protection letters conforms precisely to

Rule 69O-186.010, Florida Administrative Code. FDIC v. Stewart Title Guaranty

Co., No. 4:12-cv-10062-JLK, 2013 WL 1891307, at *4 (S.D. Fla. May 6, 2013)

(King, J.), persuasively explains:

A plain reading of the [rule] might be that the only discovery an
insured need make before the 90 day clock starts is that a
financial loss occurred. However, such an interpretation would
disregard the need for the knowledge that such loss could
potentially be a covered loss. It would be absurd, for example,
to interpret the [closing protection letter] to require the insured
to send notice of claim every time it lost money on a mortgage
transaction. Like any insurance policy, the Florida [closing
protection letter] includes coverage guidelines for what is, and
by implication, is not, a covered loss.

Until the discovery of facts that reveal a claim, the insured cannot confirm

that a loss is a “covered” loss under a closing protection letter. Therefore, the

closing protection letters require the FDIC to provide written notice within ninety

days of discovering facts that reveal a claim. FDIC v. Attorneys’ Title Ins. Fund,

Inc., No. 1:12-cv-23599-PAS, 2014 WL 4384270, at *5 (S.D. Fla. Sept. 3, 2014)

(Seitz, J.) (“The phrase ‘the date of discovery of such loss’ includes not only the

date of discovery of actual loss, but also when the indemnitee has knowledge of

specific acts giving rise to a claim covered by the [closing protection letter].”);

Stewart Title, 2013 WL 1891307, at *6 (“Therefore, the Court simply needs to

determine whether the date at which discovery of both actual loss and the facts

giving rise to potential coverage had taken place was within 90 days of the FDIC’s

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January 10, 2012 claim letter.”); FDIC v. Attorneys’ Title Ins. Fund, Inc., No. 1:10-

cv-21197-PCH, Doc. 164 at 11 (S.D. Fla. May 17, 2011) (Huck, J.) (“So long as

the FDIC or its predecessor IndyMac had knowledge of specific acts that may

trigger [closing-protection-letter] coverage . . . , it ‘discovered’ an actual loss

within the meaning of the [closing protection letter].”).

First American argues that, even if the district court correctly interpreted the

closing protection letters, the FDIC failed to prove that First American received

notice within ninety days after the FDIC’s discovering facts that revealed a claim

under the closing protection letters. However, the district court found, “Before

obtaining [the documents provided by Property Transfer in response to the FDIC’s

administrative subpoena], the FDIC could not have discovered that the wire

transfer did not come from Mr. Ray, but had come from Masterhost, and the other

information regarding the mortgage fraud scheme.”

Sean Newbold, the FDIC’s Rule 30(b)(6) witness, reviewed the Old Bank

documents and reviewed responsive documents from Property Transfer. First

American’s argument ignores the decisive distinction between, on one hand,

Newbold’s admitted lack of first-hand knowledge of the history reported in the

pertinent documents and, on the other hand, Newbold’s first-hand knowledge of

the contents of the documents, that is, his first-hand knowledge of the disclosures

the documents contain. Newbold’s testimony establishes the latter, not the former.

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In other words, Newbold lacks first-hand knowledge of events at the closing of

Ray’s unit purchases, but Newbold knows first-hand what Old Bank’s and

Property Transfer’s documents report about events at the closing.

Based on his first-hand examination of the pertinent documents, Newbold

determined that only Property Transfer’s documents, not Old Bank’s documents,

contain a report of facts that reveal a claim under the closing protection letters.

Therefore, Newbold testified that, until the FDIC received Property Transfer’s

documents, the FDIC lacked knowledge of facts that reveal a claim.

The district court correctly determined from Newbold’s testimony, from the

distinct alacrity with which the FDIC notified First American of a claim after

receiving the subpoenaed documents, and from evidence of the other attendant

circumstances that the FDIC proved that First American received notice within

ninety days after discovering facts that revealed a claim under the closing

protection letters.

In effect, First American’s argument is no more than the familiar but futile

demand for “proof of a negative,” a demand that is famously impossible to satisfy.

The FDIC proved the source of information that alerted the FDIC to the claim

against First American. Because the FDIC need not prove the negation of every

other possible source of information about the claim, First American must

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controvert the FDIC by proving an earlier source of information, a proof First

American failed to deliver.

5. Causation

First American argues (1) that “as a result of the closings, Old Bank received

first-priority liens on both properties, successfully foreclosed on both properties,

and could have sought a deficiency judgment against the borrower” and, therefore,

(2) that the FDIC failed to prove at trial that the FDIC’s loss “arose from” the

conduct of the title agent. The Supreme Court of Florida has defined “arising out

of” in accord with its “plain meaning”:

The term “arising out of” is broader in meaning than the term
“caused by” and means “originating from,” “having its origin
in,” “growing out of,” “flowing from,” “incident to” or “having
a connection with.” As we implied in [Race v. Nationwide
Mutual Fire Insurance Co., 542 So. 2d 347, 351 (Fla. 1989)],
this requires more than a mere coincidence between the conduct
(or, in this case, the product) and the injury. It requires some
causal connection, or relationship. But it does not require
proximate cause.

Taurus Holdings, Inc. v. U.S. Fid. & Guar. Co., 913 So. 2d 528, 539–40

(Fla. 2005) (citations omitted).

Several district courts have interpreted “arise out of” in Rule 69O-186.010 to

require only a “causal connection” or a “minimal causal relationship.” See

Attorney’s Title, 2014 WL 4384270, at *5 (“[A Florida closing protection letter]

merely require[s] that [an actual] loss ‘arise out of’ the agent’s misconduct, which

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in Florida is only a ‘causal connection’ but not proximate cause.”); Brinker v.

Chicago Title Ins. Co., No. 8:10-cv-1199-T-27AEP, 2012 WL 1081211, at *10

(M.D. Fla. Feb. 9, 2012) (Porcelli, M.J.) (“[A Florida] closing protection letter

clearly provides that [the closing agent]’s alleged fraud or dishonesty must have

had at least a minimal causal relationship to the Plaintiffs’ loss in order for

Plaintiffs to recover under the indemnity contract.”), adopted by, 2012 WL

1081182 (M.D. Fla. Mar. 30, 2012) (Whittemore, J.).

Property Transfer’s “failure” and “dishonesty” undoubtedly bore at least a

“minimal causal relationship” to Old Bank’s “actual loss.” Although Property

Transfer certified that Ray’s down payment was his money, Property Transfer

accepted the down payment from Masterhost, an entity with no discernible

connection to Ray. (In fact, Masterhost was owned by Christopher Albert, the son

of the sellers of one unit and the brother of the seller of the other unit.) As a result

of Property Transfer’s “failure” to follow Old Bank’s closing instructions, that is,

as a result of Property Transfer’s “failure” and “dishonesty,” Old Bank funded two

loans to an unqualified “straw buyer” who had no financial investment in the units

and who in his applications for the loans materially exaggerated his income.

Although Old Bank received a first-priority lien on each unit, Old Bank

lacked the bargained-for benefit of an honest, diligent closing agent and a borrower

both invested in the units and motivated to repay the loans. Also, although Old

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Bank successfully foreclosed on each unit and could have elected to pursue

deficiency judgments against Ray, an elective, alternative remedy serves to affect,

at most, only the measure of damages, not to prove the lack of a minimal causal

relation between a corrupt closing and a lender’s consequent loss. Undoubtedly,

Old Bank’s “actual loss” has at least a “minimal causal relation” to Property

Transfer’s “failure” and “dishonesty.”

6. Damages

Finally, First American argues that in awarding more than $500,000 in

damages the district court erred (1) “by accepting a calculation methodology based

on losses incurred by a third party without regard to the loss actually incurred by

the FDIC” and (2) “by improperly applying Florida’s collateral source rule to

ignore the FDIC’s insurance recovery.”

A. Loss incurred

The district court calculated the “actual loss” as “the outstanding loan

balance less the sales proceeds of the collateral property.” First American argues

that, because New Bank collected the sales proceeds of the collateral property, this

calculation fails to distinguish the FDIC’s loss from New Bank’s loss. First

American argues that the accurate calculation of damages is the loan balance less

the book value that New Bank paid the FDIC for each loan. First American argues

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that, because the FDIC cannot establish the book value for each loan, the district

court should have denied recovery.

As the district court stated, “Under the reasonable certainty rule, recovery is

denied only if the FDIC fails to establish damages to a reasonable degree of

certainty.” See Nebula Glass Int’l, Inc. v. Reichhold, Inc., 454 F.3d 1203, 1212

(11th Cir. 2006) (“Under the certainty rule, . . . recovery is denied where the fact of

damages and the extent of damages cannot be established within a reasonable

degree of certainty.”). Acknowledging the circumstances of a failing bank, the

district court correctly reasoned that achieving “reasonable certainty” does not

require a calculation of the book value of each loan:

The FDIC’s main responsibility when it becomes the receiver
of a failing bank is to determine a cost-effective and efficient
method of dealing with the bank’s assets and liabilities. As
receiver, the FDIC attempts to ensure service continuity and
that panicked depositors do not withdraw their funds from the
bank. In the midst of a bank closing, to require the FDIC to
provide a calculation of the book value of each loan in a failing
bank’s portfolio as of the date of the transfer for fear that the
FDIC would later discover a mortgage fraud scheme, or some
other claim, would be impractical.

Rather than calculating each loan’s book value, the FDIC establishes with

reasonable certainty each loan’s principal balance, each loan’s unpaid expenses,

and each unit’s sale price, information from which the FDIC can calculate the total

loss to the FDIC.

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Further, the FDIC need not distinguish the FDIC’s loss from New Bank’s

loss. Absent contrary evidence, a reasonable deduction from the attendant

circumstances is that the purchase agreement, which excludes from the sale of

assets the right to assert a claim under the closing protection letters, concomitantly

excludes from the purchase price any anticipated amount that First American might

pay based on the FDIC’s claims under the closing protection letters.

The district court correctly concluded that the “actual loss” is “the

outstanding loan balance less the sales proceeds of the collateral property” —

$265,550.72 for one unit and $235,421.07 for the other unit.

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B. Insurance recovery

First American argues that, based on “a misapplication of Florida’s collateral

source rule,” which — First American asserts — applies only to a tort action, not

to a contract action, the district court failed to account for the FDIC’s insurance

benefits. However, the collateral source rule “appl[ies] . . . to causes of action in

contract, as well as to actions in tort.” Citizens Prop. Ins. Corp. v. Hamilton,

43 So. 3d 746, 751 (Fla. 1st DCA 2010) (Kahn, J.). Because the collateral source

rule “prohibit[s] both the introduction of evidence of collateral insurance benefits

received[] and the setoff of any collateral source benefits from the damage award,”

Citizens Prop., 43 So. 3d at 751, the district court correctly held that “the FDIC’s

damages shall not be offset by the insurance benefits.”

7. Standing

In response to First American’s defense that under the purchase agreement

the FDIC no longer “owns” the closing protection letters, the FDIC argues that

First American enjoys no “standing” to contest the contracting parties’

interpretation of the purchase agreement. The district court agreed that, because

First American was a stranger to the purchase agreement between the FDIC and

New Bank, First American lacked “standing” to contest the contracting parties’

interpretation of the purchase agreement. The district court characterized the

perceived defect in First American’s defense as “lack of standing” because of

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Interface Kanner, LLC v. JPMorgan Chase Bank, N.A., 704 F.3d 927 (11th Cir.

2013), which holds that, if a plaintiff is not an intended third-party beneficiary of a

contract, the plaintiff lacks “standing” to sue under the contract and that,

consequently, the district court lacks subject matter jurisdiction.

But First American advances an interpretation of the purchase agreement not

as a plaintiff in pursuit of a claim but as a defendant in defense against a claim. A

defendant’s putative lack of “standing” to assert a defense presents no bar to a

district court’s exercising subject matter jurisdiction. Therefore, whether First

American can assert a defense under the purchase agreement is not an issue of

“standing” in the same sense that the term “standing” is used in resolving a

challenge to the plaintiff’s “standing” to maintain a claim. And the presence or

absence of a defense is not a matter with a jurisdictional consequence. 4

4
In Excel Willowbrook, L.L.C. v. JP Morgan Chase Bank, N.A., 758 F.3d 592, 603–04 (5th Cir.
2014), Judge Clement observes:

The FDIC argues that the Landlords lack standing because they cannot, as
a non-third-party beneficiary to the contract, show that the properties were
transferred to Chase. The Landlords have no such issue. To demonstrate
standing, the Landlords need to show (1) “an injury in fact — an invasion
of a legally protected interest which is (a) concrete and particularized, and
(b) actual or imminent, not conjectural or hypothetical,” (2) “a causal
connection between the injury and the conduct complained of,” and
(3) that it is “likely, as opposed to merely speculative, that the injury will
be redressed by a favorable decision.” Lujan v. Defenders of Wildlife,
504 U.S. 555, 560–61, 112 S. Ct. 2130, 119 L.Ed.2d 351 (1992) (internal
citations and quotation marks omitted). The Landlords make that
showing. They claim to have (1) suffered an injury (loss of rents), that
was (2) causally connected to Chase’s conduct (not paying rents that were
due), and (3) could be redressed by an award of unpaid rents.

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CONCLUSION

The judgment of the district court is AFFIRMED.

Similarly, in Interface Kanner, the assignment of a lease from WaMu to the FDIC to JPMorgan
directly caused the landlord to lose rental income, and a money judgment against either the FDIC
or JPMorgan would redress the loss.

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