[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
JAN 30, 2009
No. 08-10749 THOMAS K. KAHN
________________________ CLERK
D. C. Docket No. 06-00695-CV-1-WSD
AMERICAN GENERAL LIFE INSURANCE COMPANY,
Plaintiff-Counter-
Defendant-Appellee
Cross-Appellant,
versus
SCHOENTHAL FAMILY, LLC,
LIBERTY ONE FUNDING TRUST,
Defendants-Counter-
Claimants-Appellants
Cross-Appellees.
________________________
Appeals from the United States District Court
for the Northern District of Georgia
_________________________
(January 30, 2009)
Before BIRCH and PRYOR, Circuit Judges, and STROM,* District Judge.
PRYOR, Circuit Judge:
This appeal concerns whether a statute of Georgia, Ga. Code Ann. § 33-24-
7(b), allows an insurer to rescind a life insurance policy because the deceased
insured misrepresented his net worth and annual income in his application for the
policy. Samuel Schoenthal misrepresented in his application for a policy of
$7,000,000 that his net worth was $10,700,000 and his annual income was over
$150,000; Schoenthal’s net worth, in fact, was $160,000 and his annual income
was $7,200. The district court ruled, as a matter of law, that American General
Life Insurance Company was permitted to rescind the policy because Schoenthal’s
misrepresentations were material, see Ga. Code Ann. § 33-24-7(b)(2), and
American General had not waived its right to rescind the policy. Schoenthal’s
beneficiaries, Schoenthal Family, LLC, and Liberty One Funding Trust, appeal the
summary judgment in favor of American General and the decisions to exclude the
testimony of their expert witness and admit the testimony of the expert witness of
American General. We conclude that the district court did not abuse its discretion
when it admitted one expert witness’s testimony and excluded the other expert
witness’s testimony, and we conclude that the district court correctly ruled that
*
Honorable Lyle E. Strom, United States District Judge for the District of Nebraska, sitting by
designation.
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American General was entitled to rescind Schoenthal’s policy under subsection 33-
24-7(b)(2). We affirm the summary judgment in favor of American General and
dismiss the cross-appeal filed by American General.
I. BACKGROUND
Samuel Schoenthal applied for a policy of life insurance from American
General in conjunction with his participation in the Liberty Premium Finance
Program. As the district court explained, the program involved a “maze of related
entities” and was “a complicated insurance investment mechanism for which
[Schoenthal] technically did not qualify, and in which he ultimately retained very
little financial interest in the policy that nominally was intended to insure his life.”
The various entities that comprised the program worked together to finance a high-
value life insurance policy that Schoenthal would have been otherwise unable to
afford. In exchange, the entities reserved for themselves the vast majority of the
expected payout of the policy.
In February 2004, Marc Dovi Faivish, an agent of HK Ventures, Inc.,
learned that Schoenthal wanted to apply for life insurance. HK Ventures was an
insurance broker that represented individuals who applied for life insurance
coverage. Amy Holmwood was the president of HK Ventures, and Nathan Chopp
was also an agent of HK Ventures. As part of the application, Faivish asked
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Schoenthal about his financial condition. Faivish discussed with Schoenthal the
information contained in the application and witnessed Schoenthal sign the
application.
The contract between HK Ventures and American General stated that HK
Ventures was an “independent contractor.” HK Ventures submitted to American
General a request for a quote for a life insurance policy of $10,000,000 for
Schoenthal. After it received this request, American General initiated its
underwriting process, which included a telephone interview conducted by an
inspector. During the interview, Schoenthal stated that his net worth was
$10,700,000 and his annual income was $150,000. American General obtained an
inspection report regarding Schoenthal, and its underwriters reviewed and recorded
the information in the report.
On September 7, 2004, Schoenthal submitted a written application for
insurance to American General. The application, signed by Schoenthal,
represented that his net worth was $10,700,000 and his annual income was
“[$]150,000+.” The application named Schoenthal Family, LLC, as the owner of
the policy, the payor of the premium, and the beneficiary.
Scott Graham, an underwriter for American General, reviewed the
application and recommended that American General approve the application.
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American General approved the application and issued policy no. U10018932L in
the amount of $7,000,000. The policy identified Schoenthal as the insured and
Schoenthal Family, LLC, as the beneficiary and owner. After the policy was
issued, it was immediately assigned to Liberty One Funding Trust.
The day after he submitted his application, Schoenthal executed an
acknowledgment form that stated that he had read the requirements for
participation in the program. The requirements of the program included that the
potential insured’s “personal net worth is at least $5 million.” Schoenthal also
executed a document entitled “Insured’s Consent,” in which he again represented
that he had “a net worth in excess of US $5,000,000,” and a “Liberty Premium
Finance Program Financial Statement Form,” in which Schoenthal stated that his
net worth was $10,700,000.
After Schoenthal died in July 2005, at the age of eighty-two, American
General conducted a contestable claim investigation. The investigation revealed
that Schoenthal’s net worth was $160,000 and his annual income was
approximately $7,200. The chief corporate underwriter at American General, Kent
Major, reviewed Schoenthal’s misrepresentations for materiality. Major concluded
that “[b]ased upon the income and net worth figures developed in our
investigation, we would have declined to issue the $7 million of coverage applied
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for.”
On March 24, 2006, American General denied the claim on Schoenthal’s
policy, filed its complaint in the district court to rescind the policy, and moved for
permission to interplead the premiums it had received under the policy. The
district court granted the motion to interplead. The beneficiaries of the policy,
Schoenthal Family, LLC, and Liberty One Funding Trust, filed an answer and
counterclaim. The beneficiaries contended that American General breached its
obligation to pay death benefits, demanded a trial by jury, and denied that the
proposed interpleaded funds constituted the full amount owed by American
General.
On February 15, 2007, the district court granted a request by American
General to extend the discovery deadline. The district court again extended the
discovery deadline on March 22, 2007, to allow the parties time to complete
necessary depositions. The discovery period was scheduled to end on July 2, 2007.
On May 16, 2007, American General designated Dr. Harold Skipper and
Robert DiLisio as expert witnesses and informed the beneficiaries that Skipper was
available for deposition on June 12, 13, or 14. The beneficiaries notified American
General on June 6, 2007, that its designations were untimely under Local Rule
26.2(C) because the beneficiaries had insufficient time to depose the expert
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witnesses designated by American General and designate expert witnesses of their
own. The beneficiaries did not notify the district court of the issue and instead
suggested to American General that the parties “discuss scheduling in an effort to
avoid motion practice on this issue.” The beneficiaries deposed Skipper on June
29, 2007, and designated their expert witness, Gregory G. Wimmer, on July 2,
2007, the final day of the discovery period.
The district court granted the motion of the beneficiaries for leave to amend
their answer and counterclaim, and the beneficiaries added a claim of bad faith.
American General moved for summary judgment and to exclude Wimmer’s
testimony. The beneficiaries moved to exclude Skipper’s testimony. On
September 25, 2007, American General tendered a refund of premiums of
$570,331.40 in the district court.
The district court admitted Skipper’s testimony because the court concluded
that Skipper was qualified to testify and his testimony was not unreliable or
contradictory. The district court excluded Wimmer’s testimony because the
beneficiaries did not offer sufficient justification for their failure to designate
Wimmer in a timely manner, and the district court alternatively stated that
Wimmer’s testimony would not create a genuine issue of material fact. The district
court granted summary judgment in favor of American General.
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II. STANDARDS OF REVIEW
Two standards of review govern this appeal. We review de novo a summary
judgment. Commodity Futures Trading Comm’n v. Mass Media Mktg., Inc., 297
F.3d 1321, 1324 (11th Cir. 2002). We review for abuse of discretion decisions
about the admission of expert testimony. United States v. Frazier, 387 F.3d 1244,
1258 (11th Cir. 2004).
III. DISCUSSION
Our discussion is divided in four parts. First, we address the decisions of the
district court about the testimonies of expert witnesses. Second, we address
whether American General had a right to rescind the policy under Georgia law.
Third, we address whether American General waived its right to rescind the policy
and whether there is a genuine issue of fact about whether American General was
estopped from rescinding the policy or denied the claim in bad faith. Fourth, we
explain why the cross-appeal of American General must be dismissed for lack of
jurisdiction.
A. The District Court Did Not Abuse Its Discretion When It Admitted One Expert
Witness’s Testimony and Excluded Another Expert Witness’s Testimony.
The beneficiaries present two arguments that the district court granted
summary judgment based on a flawed record. First, the beneficiaries contend that
the expert testimony of Harold Skipper should have been excluded. Second, the
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beneficiaries argue that the testimony of Gregory Wimmer should not have been
excluded.
1. The District Court Did Not Abuse Its Discretion by Admitting Skipper’s
Testimony.
The beneficiaries argue that the district court abused its discretion when it
admitted Skipper’s expert testimony regarding “general insurance industry
financial underwriting standards and risk management issues” because Skipper was
unqualified and his testimony was unreliable and contradictory. We disagree.
Based on the record before it, the district court did not abuse its discretion when it
concluded that Skipper’s lengthy experience qualified him to testify and that
Skipper’s testimony was reliable.
Federal Rule of Evidence 702 provides the standard for admission of expert
testimony:
If scientific, technical, or other specialized knowledge will assist the
trier of fact to understand the evidence or to determine a fact in issue,
a witness qualified as an expert by knowledge, skill, experience,
training, or education, may testify thereto in the form of an opinion or
otherwise, if (1) the testimony is based upon sufficient facts or data,
(2) the testimony is the product of reliable principles and methods,
and (3) the witness has applied the principles and methods reliably to
the facts of the case.
Fed. R. Evid. 702. Under Rule 702, a district court must determine that proffered
expert testimony is both reliable and relevant. Daubert v. Merrill Dow Pharm.,
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Inc., 509 U.S. 579, 589–92, 113 S. Ct. 2786, 2794–96 (1993).
The beneficiaries argue that Skipper’s testimony is unreliable because
“[e]xperience alone . . . can never form the basis for expert testimony,” but this
argument fails. Standards of scientific reliability, such as testability and peer
review, do not apply to all forms of expert testimony. Kumho Tire Co. v.
Carmichael, 526 U.S. 137, 151, 119 S. Ct. 1167, 1175–76 (1999). For
nonscientific expert testimony, “the trial judge must have considerable leeway in
deciding in a particular case how to go about determining whether particular expert
testimony is reliable.” Id. at 152, 119 S. Ct. at 1176. A district court may decide
that nonscientific expert testimony is reliable based “upon personal knowledge or
experience.” Id. at 150, 119 S. Ct. at 1175.
The district court did not abuse its discretion when it determined that
Skipper’s education and experience qualified him to testify as an expert about
insurance industry standards. Skipper had ample knowledge and experience about
that subject. Skipper obtained masters and doctoral degrees in risk management
and insurance from the University of Pennsylvania; taught classes in risk
management and insurance, including underwriting in general and financial
underwriting in particular, at Georgia State University from 1976 until 2005;
coauthored a leading college-level textbook on life insurance that included chapters
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on financial underwriting; and served as a paid consultant to various life insurance
companies regarding the issuance of multi-million dollar life insurance polices.
The district court also did not abuse its discretion when it ruled that
Skipper’s testimony was not contradictory. Skipper testified that insurers “are free
to use their own judgments as to the amounts of insurance to approve for issuance,
even if the amounts are greater than those indicated by guidelines,” but that no
insurer would issue a $7,000,000 policy for estate planning purposes to a man
whose net worth was less than $200,000. We agree with the district court that
these statements are complementary “when taken in the context of Skipper’s
explanation of the artful nature of financial underwriting, and the logical and
economic rationale that underlies it.”
2. The District Court Did Not Abuse Its Discretion by Excluding Wimmer’s
Testimony.
The beneficiaries argue that the district court abused its discretion when it
excluded Wimmer’s testimony for three reasons. First, the beneficiaries argue that
the timing of Wimmer’s designation was substantially justified. Second, the
beneficiaries argue that the untimely designation of Wimmer did not prejudice
American General. Third, the beneficiaries argue that the district court refused to
consider any remedy other than exclusion.
We need not consider these arguments. The district court provided an
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alternative ground for its ruling that the beneficiaries have not even addressed.
Wimmer’s testimony, if admitted, would not create a genuine question of material
fact about the materiality of Schoenthal’s misrepresentations.
As we explain in the next section, the test for materiality under subsection
33-24-7(b)(2) is the objective standard of conduct of a prudent insurer, but the
beneficiaries fail to explain how Wimmer’s testimony would create a genuine
question of material fact about that issue. Wimmer never offered an opinion that a
prudent insurer would have issued the policy had Schoenthal’s true financial
condition been disclosed. In his expert report, Wimmer evaluated only the actual
conduct of American General when it approved the Schoenthal policy, and he
faulted the conduct of American General. In his deposition testimony about a
hypothetical prudent insurer, Wimmer was, at best, equivocal. He stated, “I can’t
sit here and testify, under every conceivable condition of financing insurance”
whether a prudent insurer would have issued the policy had Schoenthal’s true
financial condition been disclosed. The district court did not abuse its discretion
when it excluded Wimmer’s testimony.
B. American General Was Entitled To Rescind the Policy.
The beneficiaries argue that the district court erred when it granted summary
judgment in favor of American General for three reasons. First, the beneficiaries
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argue that determining the materiality of Schoenthal’s misrepresentations required
that the district court consider the actual conduct of American General when it
approved the Schoenthal policy. Second, the beneficiaries argue that genuine
questions of material fact exist about the materiality of Schoenthal’s
misrepresentations. Third, the beneficiaries argue that the policy issued by
American General requires for rescission actual reliance by the insurer on a
material misrepresentation by the insured.
These arguments fail. The first argument fails because the test for
materiality under subsection 33-24-7(b)(2) is the objective standard of conduct of a
prudent insurer, not a subjective standard about the actual conduct of American
General. The second argument fails because the record establishes that
Schoenthal’s misrepresentations were objectively material. The third argument
fails because subsection 33-24-7(b)(2) establishes an independent basis for
rescission that is not limited by the language of the policy of American General.
1. The Standard for Materiality Under Subsection 33-24-7(b)(2) Is Objective.
Subsection 33-24-7(b)(2) provides that misrepresentations in an insurance
application shall not prevent a recovery under the policy unless the
misrepresentations are “[m]aterial either to the acceptance of the risk or to the
hazard assumed by the insurer.” Ga. Code Ann. § 33-24-7(b)(2). The
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beneficiaries argue that determining the materiality of Schoenthal’s
misrepresentations required that the district court consider the actual conduct of
American General. We disagree.
The courts of Georgia have held that a material misrepresentation under
subsection 33-24-7(b)(2) is “‘one that would influence a prudent insurer in
determining whether or not to accept the risk, or in fixing a different amount of
premium in the event of such acceptance.’” Lively v. S. Heritage Ins. Co., 256 Ga.
App. 195, 196, 568 S.E.2d 98, 100 (Ct. App. 2002) (quoting Jackson Nat. Life Ins.
Co. v. Snead, 231 Ga. App. 406, 410, 499 S.E.2d 173, 176 (Ct. App. 1998)); see
also Haugseth v. Cotton States Mut. Ins. Co., 192 Ga. App. 853, 854, 386 S.E.2d
725, 726 (Ct. App. 1989). We have recognized that this standard is objective.
“Rather than inquire into what a particular insurer would have done had it known
of the insured’s misrepresentation . . . Georgia courts employ a reasonableness test,
an objective standard of conduct against which to measure the effect of the
insured’s false declarations.” Woods v. Indep. Fire Ins. Co., 749 F.2d 1493, 1497
(11th Cir. 1985). The district court applied the correct standard.
2. Schoenthal’s Misrepresentations Were Objectively Material.
The beneficiaries argue, alternatively, that under the objective standard of a
prudent insurer, genuine questions of material fact exist about the materiality of
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Schoenthal’s misrepresentations, but this argument fails. The uncontroverted
evidence establishes that Schoenthal’s misrepresentations were material. “The
issue of materiality is ordinarily a question for the jury, unless the evidence
excludes every reasonable inference except that it was material, in which case it
becomes a question of law for the court.” Lively, 256 Ga. App. at 196, 568 S.E.2d
at 100.
The district court considered two kinds of evidence when it determined the
materiality of Schoenthal’s misrepresentations, and both establish that a prudent
insurer would not have issued the policy had Schoenthal’s true financial condition
been disclosed. First, the district court considered the Swiss Re Underwriting
Guidelines. The guidelines are used by numerous insurers and the beneficiaries
described the guidelines as a model of reasonable insurance practices. Under the
guidelines, Schoenthal’s net worth did not warrant insurance for estate planning
purposes. Second, the district court considered the uncontroverted testimony of the
expert witness of American General, Skipper, that no reasonable insurance
company would have issued the policy if Schoenthal’s true financial condition had
been known. The district court correctly concluded that Schoenthal’s
misrepresentations were objectively material.
3. Subsection 33-24-7(b)(2) Provides an Independent Basis for Rescission that Is
Not Limited by the Language of Schoenthal’s Statement as a Proposed Insured.
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The beneficiaries argue that the policy issued by American General required
actual reliance on a material misrepresentation by Schoenthal as a basis for
rescission, but we disagree. Schoenthal’s application contained a “Statement by
the Proposed Insured,” which provided, in relevant part, “I understand that any
misrepresentation contained in this application and relied on by the Company may
be used to reduce or deny a claim or void the policy if: (1) it is within its
contestable period; and (2) such misrepresentation materially affects the
acceptance of the risk.” (emphasis added). Similar statements of insureds have not
been held to limit the right of an insurer to seek rescission under the law of
Georgia. See T.J. Blake Trucking, Inc. v. Alea London, Ltd., 284 Ga. App. 384,
384–86, 643 S.E.2d 762, 762–63 (Ct. App. 2007). Express waivers by insurers,
not permissive statements by an insured, have been found to limit the right of an
insurer to seek rescission. See Hauser v. Life Gen. Sec. Ins. Co., 56 F.3d 1330
(11th Cir. 1995); Executive Risk Indem., Inc. v. AFC Enter., Inc., 510 F. Supp. 2d
1308, 1324–26 (N.D. Ga. 2007); Walker v. United Serv. Auto. Ass’n, 205 Ga.
App. 693, 423 S.E.2d 299 (Ct. App. 1992).
C. American General Did Not Waive Its Right To Rescind the Policy, Is Not
Estopped From Rescinding the Policy, and Did Not Deny the Claim in Bad Faith.
The beneficiaries raise three remaining arguments. They contend that
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American General waived its right to rescind the policy, is barred by estoppel from
rescinding the policy, and denied the claim in bad faith. These arguments fail.
The beneficiaries argue that American General waived its right to rescind the
policy because it waited to refund the premium paid under the policy until
September 25, 2007, eighteen months after American General received permission
from the district court to interplead the premium. We disagree. Immediate tender
of the premium was not required by the law of Georgia and the actions of
American General were never inconsistent with an intent to rescind the policy.
Under the law of Georgia, a party who alleges fraudulent inducement to
enter a contract must elect one of two remedies: “(1) affirm the contract and sue for
damages from the fraud or breach; or (2) promptly rescind the contract and sue in
tort for fraud.” Megel v. Donaldson, 288 Ga. App. 510, 515, 654 S.E.2d 656, 661
(Ct. App. 2007) (internal quotation marks omitted). If a party takes any action
inconsistent with repudiation of the contract, the party waives the right to rescind
the contract. Liberty v. Storage Trust Prop., L.P., 267 Ga. App. 905, 910, 600
S.E.2d 841, 846 (Ct. App. 2004). Failure to return a premium is a factor to
consider in determining whether the right to rescind has been waived, Lively, 256
Ga. App. at 197, 568 S.E.2d at 101, but immediate tender of the premium is not
required as a prerequisite to rescission. A party who seeks rescission must
17
“restore, or offer to restore, the consideration received, as a condition precedent to
bringing the action.” Nexus Servs., Inc. v. Manning Tronics, Inc., 201 Ga. App.
255, 410 S.E.2d 810, 811 (Ct. App. 1991) (internal quotation marks and emphasis
omitted) (emphasis added).
The district court correctly concluded that American General did not waive
its right to rescind. Although American General did not tender the refund of
premiums until eighteen months after it received permission from the district court
to do so, the complaint filed by American General included a count for permission
to interplead. The district court correctly ruled that this request for permission to
interplead was an offer to restore the consideration received. The beneficiaries fail
to identify any evidence that the actions of American General were ever
inconsistent with an intent to rescind the policy.
The beneficiaries argue that a genuine issue of fact remains about whether
American General was estopped from rescinding the policy. Insurance companies
are estopped from denying liability based on the fraud, misconduct, or negligence
of an agent of the company. O’Kelly v. Southland Life Ins. Co., 167 Ga. App. 455,
457, 305 S.E.2d 873, 875 (Ct. App. 1983). The beneficiaries argue that American
General negligently issued the policy based on the misconduct of agents
Holmwood, Faivish, and Chopp.
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This argument fails for two reasons. First, because Holmwood was the
president of HK Ventures, an independent insurance agency, and Faivish and
Chopp were employees of HK Ventures, all three were agents of Schoenthal, not
American General, and their misconduct is not attributable to American General.
See Se. Express Sys. v. S. Guar. Ins. Co. of Ga., 224 Ga. App. 697, 700, 482
S.E.2d 433, 435 (Ct. App. 1997). Second, even if Holmwood, Faivish, and Chopp
were agents of American General, the beneficiaries present no evidence that
Holmwood, Faivish, or Chopp committed misconduct that would support a defense
of estoppel. Although insurers are “estopped to assert the falsity of answers to
questions contained in an application for insurance or the policy itself, where such
false answers are inserted by the insurer’s agent to whom the [applicant] for
insurance gave correct answers or information,” Stillson v. Prudential Ins. Co. of
Am., 202 Ga. 79, 82, 42 S.E.2d 121, 124 (1947), the beneficiaries failed to present
evidence “that anyone other than [Schoenthal] provided the financial
misrepresentations.”
The beneficiaries also argue that a genuine issue of fact remains about
whether American General denied the claim in bad faith, but Schoenthal’s
objectively material misrepresentations in his application constituted a reasonable
ground for American General to contest the claim. Although determinations of bad
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faith are ordinarily reserved for the jury, Stegall v. Guardian Life Ins. Co. of Am.,
171 Ga. App. 576, 577, 320 S.E.2d 575, 576 (Ct. App. 1984), bad faith claims fail
as a matter of law if the insurer has “any reasonable ground to contest the claim.”
Grange Mut. Cas. Co. v. Law, 223 Ga. App. 748, 750, 479 S.E.2d 357, 359 (Ct.
App. 1996).
D. American General Lacks Standing To Cross-Appeal.
Because we conclude that American General was entitled to summary
judgment under subsection 33-24-7(b)(2), we do not address the alternative
arguments that American General was entitled to summary judgment under
subsections 33-24-7(b)(1) and 33-24-7(b)(3), and we dismiss the cross-appeal by
American General for lack of jurisdiction. American General does not have
standing to cross-appeal a summary judgment in its favor even though the district
court rejected arguments of American General about alternative grounds for that
summary judgment. See Agripost, Inc. v. Miami-Dade County, 195 F.3d 1225,
1230 (11th Cir. 1999); Kapp v. Nat’l Football League, 586 F.2d 644, 649–50 (9th
Cir. 1978); 15A Charles Alan Wright et al., Federal Practice and Procedure § 3902
(2d ed. 1992). “Ordinarily, only a party aggrieved by a judgment or order of a
district court may exercise the statutory right to appeal therefrom.” Deposit Guar.
Nat’l Bank, Jackson, Miss. v. Roper, 445 U.S. 326, 333, 100 S. Ct. 1166, 1171
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(1980). “A party who receives all that he has sought generally is not aggrieved by
the judgment affording the relief and cannot appeal from it.” Id. In its defense of a
summary judgment, an appellee is entitled to raise alternative arguments that were
rejected by the district court, because we may affirm on any ground supported by
the record, Welding Servs., Inc. v. Forman, 509 F.3d 1351, 1356 (11th Cir. 2007),
but an appellee is not entitled to cross-appeal a judgment in his favor.
IV. CONCLUSION
The summary judgment in favor of American General is
AFFIRMED.
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