UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 95-20265
_____________________
NEW PROCESS STEEL CORPORATION,
Plaintiff-Appellant,
versus
SEABOARD SURETY COMPANY,
Defendant-Appellee.
________________________________________________
Appeal from the United States District Court
for the Southern District of Texas
(CA-H-92-0912)
________________________________________________
July 26, 1996
Before POLITZ, Chief Judge, JONES and BARKSDALE, Circuit Judges.
PER CURIAM:*
In this Texas diversity action concerning a commercial crime
insurance policy, the primary issue is the standard for when the
insured, New Process Steel Corporation, “had knowledge” of its
employee’s dishonest acts. New Process challenges the jury
interrogatory pertaining to this issue and the entry of judgment in
favor of Seaboard Surety Company based on the unclear verdict
resulting from the jury’s interrogatory answers; Seaboard
challenges the sufficiency of the evidence that the employee acted
with the requisite manifest intent to cause New Process to sustain
*
Pursuant to Local Rule 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in Local Rule
47.5.4.
a loss and to obtain a financial benefit for several New Process
customers. We VACATE and REMAND.
I.
Under the Seaboard $500,000 policy, New Process was insured
for “dishonest acts committed by an ‘employee’, ... with the
manifest intent to ... (1) [c]ause [New Process] to sustain loss;
and also (2) [o]btain financial benefit ... for ... (a) [t]he
‘employee’ ... or (b) [a]ny person or organization intended by the
‘employee’ to receive that benefit.” Of key importance to this
case, the insurance was canceled as to that employee “[i]mmediately
upon discovery by [New Process] ... of any dishonest act committed
by” him; and, toward that end, New Process was required to “notify
[Seaboard] as soon as possible” after it “discover[ed] a loss or a
situation that may result in loss”. Except as to the employee
reported for dishonest acts, the policy otherwise remained in
effect.
New Process claims that, unknown to it, its employee, Watts,
engaged in dishonest acts, to include manipulation of accounts
receivable and payment records, for at least three years; and that
it did not discover his dishonest acts until January 1991. Then,
it promptly notified Seaboard.
After its timely claim was denied, New Process filed this
action in Texas state court for, inter alia, breach of contract.
Following removal by Seaboard, the district court granted it
partial summary judgment on the contract claim, concluding that
Watts did not act with the requisite manifest intent. Seaboard was
2
later granted summary judgment on the remaining claims. Our court
affirmed as to all but the contract claim, holding that, for it, a
material fact issue existed as to manifest intent. New Process
Steel Corp. v. Seaboard Surety Co., No. 93-2648 (5th Cir. May 4,
1994) (unpublished).
Following remand, a three-day jury trial was held. Seaboard’s
first five proposed jury interrogatories were adopted almost
verbatim; New Process objected only to the fifth. The first asked
whether Watts acted with manifest intent to cause a loss to New
Process under the policy; the second, later omitted by agreement of
the parties due to lack of evidence, whether Watts acted with
manifest intent to obtain financial benefit for himself; and the
third, whether he so acted to obtain a financial benefit for four
identified customers. In the fourth, the jury was to state the
loss New Process sustained as to each of those customers.
As noted, New Process objected to number five, which asked
whether it “had knowledge that Mr. Watts was manipulating the
account receivable records”, and, if so, when. (Emphasis added.)
Its objection had two bases: first, that the interrogatory
presented an incorrect standard for “had knowledge”; and, second,
that the interrogatory did not ask the jury to determine the amount
of loss as at the date it found that the insurance was canceled as
to Watts due to New Process’ knowledge of his dishonest acts, if it
found a date earlier than that claimed by New Process (January
1991). The district court overruled the objection.
3
The jury found that Watts committed dishonest acts with the
requisite manifest intent to cause New Process a loss and to obtain
a financial benefit for four customers, causing a loss of $653,503.
But, in response to interrogatory five, the jury found that, as at
June 30, 1989, New Process had knowledge of the accounts receivable
manipulations; this date is approximately 19 months earlier than
the discovery date claimed by New Process.
The district court was left to enter judgment on this unclear
verdict, which, in sum, found that Watts caused a covered loss, but
that the insurance as to him canceled far earlier than the date
claimed by New Process. Among other things, the loss amount had
not been apportioned for that earlier date. Both parties moved for
judgment.
After a hearing, the court noted that the policy required New
Process to give notice “as soon as possible” upon “discover[ing] a
loss or a situation that may result in loss”; and that, although
the jury found that New Process discovered in June 1989 a situation
that might result in a loss, the requisite notice was not given
until January 1991. The court ruled that compliance with the
prompt notice provision was a condition precedent and, accordingly,
entered judgment for Seaboard. (Seaboard does not urge this as an
alternative basis for affirmance. Instead, it asserts that the
court found that New Process did not sustain a loss prior to June
30, 1989. But, although the court did state that both parties
agreed that discovery by New Process of misconduct would result in
immediate cancellation of the insurance and that, as a result, its
4
recovery would be its loss as at the discovery date, it did not
rule that all of the loss occurred after that date. To the
contrary, while the court noted that Seaboard urged that all of the
loss found by the jury occurred after June 30, 1989, the court
encouraged Seaboard to attempt to calculate an amount of loss as at
that date, which could form the basis for settlement negotiations.)
New Process’ subsequent motions for judgment as a matter of law and
attorney’s fees were denied.
II.
We address whether interrogatory five constituted reversible
error; whether the jury’s findings on manifest intent to cause a
loss and to benefit a third party were supported by sufficient
evidence; and whether, if remand is required, all issues must be
retried. No authority need be cited for the requirement that, in
this diversity action, we apply Texas substantive law.
A.
As noted, New Process objected to interrogatory five on two
bases: incorrect standard for “had knowledge”; and failure of
Seaboard to propose an alternative discovery date and apportionment
of loss if New Process “had knowledge” earlier than January 1991.
These two points form the linchpin to this appeal; we review them
de novo. Vero Group v. ISS-Int’l Serv. Sys., 971 F.2d 1178, 1181
(5th Cir. 1992). New Process also claims for the first time on
appeal that the interrogatory improperly stated what constituted
dishonest acts; we review this belated third challenge only for
plain error, as discussed infra.
5
Concerning the two challenges at hand that were also preserved
at trial, “[r]eversal is ... appropriate whenever the charge ‘as a
whole, leaves us with substantial and ineradicable doubt whether
the jury has been properly guided in its deliberations.’” Bender
v. Brumley, 1 F.3d 271, 276 (5th Cir. 1993) (citations omitted).
On the other hand, “[e]ven though error may have occurred, ‘we will
not reverse if we find, based upon the record, that the challenged
instruction could not have affected the outcome of the case.’” Id.
In making that call, “[t]he Supreme Court has advised that ‘if one
cannot say with fair assurance, after pondering all that happened
without stripping the erroneous action from the whole, that the
judgment was not substantially swayed by the error, it is
impossible to conclude that [New Process’] substantial rights were
not affected.’” Id. at 279 (quoting Kotteakos v. United States, 328
U.S. 750, 765 (1946)).
1.
A critical issue is when New Process discovered Watts’
dishonest acts; unfortunately, the policy does not define
“discovery”. That term and “had knowledge” were used
interchangeably by the district court, and New Process challenges
the interrogatory’s three definitions for “had knowledge”. It,
with the jury’s answers, provided:
The burden of proof is on Seaboard with
respect to this special interrogatory.
The term "had knowledge" means [first,]
that New Process Steel had acquired knowledge
of facts from which one might reasonably have
concluded that Mr. Watts was committing
dishonest acts or [second,] that New Process
6
Steel had knowledge sufficient to alert a
reasonably prudent person that dishonest acts
were being committed by Mr. Watts or [third,]
that New Process Steel had reasonable cause or
opportunity to know that there had been
dishonest acts committed by Mr. Watts.
Do you find by a preponderance of the
evidence that any of New Process Steel's
officers or directors had knowledge that Mr.
Watts was manipulating the account receivable
records of New Process Steel? Yes X No .
If your answer is "yes," state the date that
New Process Steel or any of New Process
Steel's officers or directors had knowledge of
Mr. Watts' actions. 6/30/89 .
As noted, this interrogatory was adopted verbatim as submitted by
Seaboard, which cited supporting authorities.
a.
For the first definition of “had knowledge” -- “had acquired
knowledge of facts from which one might reasonably have concluded
that Mr. Watts was committing dishonest acts” -- Seaboard cited to
the district court City State Bank in Wellington v. United States
Fidelity & Guar. Co., 778 F.2d 1103, 1108 (5th Cir. 1985). This
definition is part of a sentence from Wellington that, when read
alone, seems to state the standard in Texas for knowledge of
dishonest acts: “Texas law ... requires only that [the insured] had
knowledge of facts from which he could have reasonably inferred
that [the employee] had acted dishonestly.” Id. at 1108.
This quote, however, is from the second part of a sentence
stating that the language simply paraphrases a statement from
Fidelity & Casualty Co. v. Central Bank, 672 S.W.2d 641 (Tex. App.-
-Houston 1984, writ ref'd n.r.e.). Following this quoted language,
7
Wellington explains that this paraphrase is misleading with regard
to the proper standard for knowledge:
These statements, when read alone, might lead
to the concern that the district court
required [the insured] to act on mere
suspicion. However, when the opinion is read
as a whole, it appears that the district
court, consistent with Central Bank of
Houston, noted the facts in evidence and drew
conclusions regarding [the insured’s]
knowledge based on the evidence and the
court's observance of the witnesses.
Wellington, 778 F.2d at 1108.
Wellington was a bench trial in which the court found that the
insured had actual knowledge of the employee’s dishonest acts, and
the analysis turned on this actual knowledge. In Wellington, the
bank president, Long, engaged in “draft kiting” by signing the name
of a principal stockholder, director, and officer of the bank,
Diamond, on promissory notes in a scheme to funnel money to a
business for which both persons were directors. Id. at 1104-06.
The court concluded that the bank’s coverage canceled due to
Diamond’s knowledge of Long’s dishonest acts. Id. at 1106-07. In
that regard, the district court concluded: “Crucial to the
resolution of this case, however, is whether Diamond knew that Long
was sending money to [their company] from [the bank] over Diamond’s
signature. The answer can only be yes.” Id. at 1108. It
concluded further: “If Diamond did not know, it is only because he
deliberately closed his eyes, an act sufficient to charge him with
knowledge.” Id. at 1107.
8
In denying the bank’s motion for a new trial, the Wellington
district court, paraphrasing the Texas appellate court opinion in
Central Bank, stated: “‘Texas law ... requires only that Diamond
had knowledge of facts from which he could have reasonably inferred
that Long had acted dishonestly.’” Id. at 1108. In Central Bank,
the bank knew that its employee did not disclose to it his interest
in a company and was a member of the bank committee that approved
loans to it. 672 S.W.2d at 644. At issue was “whether [the
employee's] involvement with the approval of the loans to [the
borrower company], while not disclosing his trading partnership
with [that company] constitutes a dishonest act under the meaning
... of the bond”. Id. at 644-45. The Texas court concluded that,
from the bank's knowledge of the facts underlying the employee's
conduct, it “could reasonably infer that [the employee] had acted
dishonestly in connection with the ... loans”. Id. at 645.
Our court held in Wellington that “the district court adopted
a legal standard fully consistent with the jurisprudence in this
area”, 778 F.2d at 1109 (emphasis added), in that, as quoted above,
it “drew conclusions regarding Diamond’s knowledge based on the
evidence and the court’s observance of the witnesses.” Id. at
1108. In that regard, our court cautioned that “the cases indicate
that the insured cannot be required to act on ‘mere suspicion’ and
that the insured’s subjective knowledge should at least be
considered.” Id. at 1108. This is consistent with the much
earlier holding by the Supreme Court of the United States that, for
such policies, notice is not required unless the insured “had
9
knowledge -- not simply suspicion -- of the existence of such facts
as would justify a careful and prudent man in charging another with
fraud or dishonesty.” American Sur. Co. v. Pauly, 170 U.S. 133,
147 (1898).
When it objected to the interrogatory, New Process quoted a
standard for “had knowledge” from another opinion by our court,
which relied upon Pauly:
The well-established rule is that the Insured
under a blanket employee's fidelity bond is
not bound to give notice “until he [has]
acquired knowledge of some specific fraudulent
or dishonest act which might involve the
[Insurer] in liability for the misconduct.”
Notice is not required when the obligee merely
suspects or has reason to suspect the
wrongdoing.
FDIC v. Aetna Casualty & Sur. Co., 426 F.2d 729, 739 (5th Cir.
1970) (emphasis added) (citing Pauly, 170 U.S. at 147).
Accordingly, we conclude that the first definition of “had
knowledge” only partially stated Texas law; it was inadequate
because, contrary to Wellington, Aetna, and Pauly, it did not make
clear that New Process was not required to act when it “merely
suspect[ed] or ha[d] reason to suspect the wrongdoing.” Aetna, 426
F.2d at 739.
b.
For the second definition of “had knowledge” -- “that New
Process ... had knowledge sufficient to alert a reasonably prudent
person that dishonest acts were being committed” (emphasis added)
-- Seaboard cited to the district court Hidden Splendor Mining Co.
v. Gen. Ins. Co., 370 F.2d 515 (10th Cir. 1966). But, this
10
definition tracks only a finding by the trial court in Hidden
Splendor. Id. at 518.
For its standard, the Tenth Circuit, citing Pauly among other
cases, stated: “The test of when one has ‘discovered’ a fraudulent
act is not in dispute -- ... [the insured] was not required to
report merely suspicious conduct, but rather only knowledge which
would justify a careful and prudent man in charging another with
fraud or dishonesty”. Id. at 517 (citations omitted). In agreeing
with the trial court, the Tenth Circuit did conclude that the
evidence was “entirely sufficient to alert a reasonably prudent
person that a fraud had been committed”; but, it first “agree[d]
with the trial court that [the insured] either knew or had reason
to believe that [the employee] had committed a fraud”. Id. at 519.
This second definition, like the first, is incomplete. It
takes out of context a conclusion based on specific evidence.
Without other qualifying language, as discussed above, it is
misleading.
c.
For the third definition of “had knowledge” -- “that New
Process Steel had reasonable cause or opportunity to know that
there had been dishonest acts committed by Mr. Watts” -- Seaboard
cited to the district court City Loan & Sav. Co. v. Employers’
Liability Assurance Corp., Ltd., 249 F.Supp. 633, 657 (N.D. Ohio,
1964). As noted, the interrogatory is taken verbatim from
Seaboard’s submission; but in its brief here, Seaboard does not
even cite its source in district court for this “opportunity to
11
know” standard. Instead, it maintains that, “when taken in
context, the phrase ‘opportunity to know’ means that [New Process]
had knowledge of facts from which it could reasonably infer that
Mr. Watts had committed dishonest acts but failed to reasonably
inquire based on that knowledge”. Alternatively, it urges that, if
we find the inclusion of the “opportunity to know” phrase to be
less than a “model of perfection”, it is but a “minor imperfection
in a charge that is on the whole correct.”
As shown earlier, this definition is not supported by Texas
law. Moreover, its inclusion may have caused the jury to find that
New Process “had knowledge” of Watts’ dishonest acts merely because
it had reason to suspect them. But, as discussed,“[n]otice is not
required when the [insured] merely suspects or has reason to
suspect the wrongdoing.” Aetna, 426 F.2d at 739; see Wellington,
778 F.2d at 1108. As Wellington cautions, “the insured cannot be
required to act on ‘mere suspicion’”. 778 F.2d at 1108. “In
determining when an insured is required to give notice, this Court
has noted the well-established rule ... that the Insured ... is not
bound to give notice until he [has] acquired knowledge of some
specific fraudulent or dishonest act.” Id. at 1107 (internal
quotation marks omitted) (quoting Aetna, 426 F.2d at 739).
In sum, we conclude that the definition for “had knowledge”
constituted reversible error. Therefore, that part of the judgment
based on the interrogatory must be vacated and the case remanded,
as hereinafter discussed.
12
2.
For its second objection to the interrogatory, New Process
urged that it was insufficient (1) because it asked the jury to
specify a date on which New Process “had knowledge”, but did not
require it to apportion loss as at that date; and (2) because
Seaboard failed to introduce evidence to allow the jury to make
such an apportionment. In overruling the objection for the record,
after it had already instructed the jury, the court acknowledged
that this “might have muddied the water”. We conclude that the
interrogatory constituted reversible error for these reasons as
well.
Because the jury found a date (June 30, 1989) other than that
claimed by New Process (January 1991), the loss apportionment
conundrum forecast by New Process was created. Along that line, at
the hearing on entry of judgment, the court stated:
In view of the fact that this case is
undoubtedly going to go back to the Fifth
Circuit for another couple of hundred thousand
dollars in attorney’s fees and costs, maybe
the sensible thing is for us to admit to each
other that you all led me into error in the
way you asked me to submit this to the jury.
We agree that the interrogatory submitted by Seaboard had that
effect.
The parties dispute who had the burden of proving both the
date of cancellation due to discovery of Watts’ dishonest acts and
the loss as at that date. New Process points out that effective
September 1, 1991, art. 21.58 of the Texas Insurance Code was
amended to provide as follows:
13
In any suit to recover under a contract of
insurance, the insurer has the burden of proof
as to any avoidance or affirmative defense
that must be affirmatively pleaded under the
Texas Rules of Civil Procedure. Any language
of exclusion in the policy and any exception
to coverage claimed by the insurer constitutes
an avoidance or an affirmative defense.
TEX. INS. CODE art. 21.58(b) (Vernon’s Supp. 1995).
While “both before and after the amendment, proof that the
loss occurred within the policy period is a precondition to
coverage and, thus, the insured’s responsibility”, the insurer has
the burden “of proving the applicability of policy exclusions.”
New Hampshire Ins. Co. v. Martech USA, Inc., 993 F.2d 1195, 1199
(5th Cir. 1993) (emphasis omitted); Love of God Holiness Temple
Church v. Union Standard Ins. Co., 860 S.W.2d 179, 181 (Tex. App.--
Texarkana 1993, reh’g denied). New Process met its loss-within-
policy-period burden, as reflected by the jury’s answers to
interrogatories one, three, and four. And, the jury found a loss
of $653,503 as a result of Watts’ “dishonest actions”.
As stated in interrogatory five, submitted by Seaboard,
Seaboard had the burden of proving that the insurance as to Watts
canceled (New Process “had knowledge”) earlier than the January
1991 date claimed by New Process. But, although its own
interrogatory conceded that it had this burden, Seaboard maintains
now that New Process had the burden of proving the apportionment of
loss necessitated by the jury finding an earlier discovery date
than that claimed by New Process. The cancellation clause is,
however, an exception or exclusion for which Seaboard bears the
pleading and proof burden -- upon discovery of a dishonest act by
14
an employee, the policy remains in effect with the exception that
the dishonest employee is no longer covered.
As stated here by New Process, if it had the burden of
disproving Seaboard’s defense as to coverage for Watts ending
earlier than the date claimed by New Process, the result would be
untenable: “New Process would have been required to prove the daily
amounts of its losses and submit interrogatories and evidence for
over 730 days, one for each of the days in 1989 and 1990 on which
the jury could have found that New Process had” knowledge of Watts’
dishonest acts. In sum, Texas law is consistent with the logical
conclusion that Seaboard had the burden to assert and prove a
cancellation date as to Watts earlier than that claimed by New
Process and to prove the loss as at that earlier date.
3.
Finally, New Process asserts, as noted, for the first time on
appeal, that the interrogatory also constituted reversible error
because it asked only whether New Process had knowledge that Watts
was “manipulating the account receivable records”, not whether it
had knowledge that he had committed dishonest acts. For starters,
the interrogatory must be read as a whole, and must also be read in
conjunction with interrogatory one, which, inter alia, tracks the
policy language and states that “dishonest acts” by the employee
are covered, and with interrogatory three.
More important for our purposes, New Process did not object at
trial on this basis. Therefore, under FED. R. CIV. P. 51, we review
only for plain error, Highlands Ins. Co. v. Nat’l Union Fire Ins.
15
Co., 27 F.3d 1027, 1032 (5th Cir. 1994), cert. denied, 115 S. Ct.
903 (1995), and, obviously, find none. On the other hand, this is,
of course, a matter to consider in framing the jury instructions
and interrogatories on remand.
B.
As an alternative basis for the judgment, Seaboard contends
that, for jury interrogatories one, three, and four, there was
insufficient evidence to support the findings that Watts acted with
the requisite manifest intent to cause New Process a loss and to
benefit a third party. At the close of the evidence, Seaboard
raised this issue in its FED. R. CIV. P. 50(a) motion for judgment
as a matter of law. But, after judgment was entered, it did not
renew its sufficiency challenge under Rule 50(b).
The Rule 50(a) motion preserves that challenge; but, because
Seaboard did not move under Rule 50(b), it is entitled only to a
new trial if its alternative challenge is successful. Satcher v.
Honda Motor Co., 52 F.3d 1311, 1315 (5th Cir. 1995), cert. denied,
116 S. Ct. 705 (1996); Zervas v. Faulkner, 861 F.2d 823, 832 n.9
(5th Cir. 1988); Smith v. Trans-World Drilling Co., 772 F.2d 157,
160, 162-63 n.8 (5th Cir. 1985). In reviewing the evidence, we
apply the well known standard -- Seaboard is entitled to relief “if
the facts and inferences point so strongly in [its] favor that
reasonable [jurors] could not arrive at a contrary verdict.”
Trans-World Drilling, 772 F.2d at 160 (citing Boeing Co. v.
Shipman, 411 F.2d 365, 374 (5th Cir. 1969)(en banc)).
16
1.
Interrogatory one, submitted by Seaboard and unobjected to,
provided the following standard for determining whether Watts acted
with manifest intent to cause a loss:
To determine whether Mr. Watts acted with
the manifest intent to cause a loss to New
Process Steel, the inquiry is not solely into
Mr. Watts’ subjective motive or purpose. The
Jury is also allowed to rely upon inferences
from tangible manifestations of behavior. The
Jury should analyze the range of evidentiary
circumstances, including the relationship
between the customers and Mr. Watts, Mr.
Watt[s’] knowledge of the likelihood that the
customer would or would not pay their debts,
and all of the other surrounding circumstances
bearing on Mr. Watts’ purpose. If an employee
fraudulently extends credit with reckless
disregard for a substantial risk of loss to
the company, a jury may infer from that and
surrounding circumstances that he intended to
cause a loss.
It is beyond question that Watts’ actions (making unauthorized
shipments of steel, manipulating the records to cover it up,
secreting insufficient funds checks, etc.) were dishonest. Watts’
videotaped deposition, shown to the jury, indicates clearly that he
understood New Process’ credit rules and their importance, but
intentionally disobeyed them to perpetuate his dishonest acts and
hide them from New Process. Testimony by two New Process employees
reflects that Watts hid his actions, and Seaboard’s expert stated
that Watts admitted hiding his account manipulations. New Process’
expert on credit management testified that a credit manager, such
as Watts, would know not to extend additional credit and ship more
product to a company if New Process was not being paid and did not
17
obtain additional security, because this may increase the loss and
result in a slim likelihood of recovery.
It was reasonable for the jury to determine that Watts’
extensions of credit were fraudulent and were in reckless disregard
of a substantial risk of loss to New Process. Even though Watts
claimed that he did not intend to cause any loss to New Process, it
was reasonable for the jury to discredit this assertion and to
infer from the evidence that Watts intended to do so.
2.
Similarly, interrogatory three, submitted by Seaboard and
unobjected to, provided the following standard for determining
whether Watts acted with the manifest intent to benefit third
parties:
To determine whether Mr. Watts committed
dishonest acts with the manifest intent to
obtain a financial benefit for [the four
specified customers], the inquiry is not
solely into Mr. Watts’ subjective motive or
purpose. The Jury is also allowed to rely
upon inferences from tangible manifestations
of behavior. The Jury should analyze the
range of evidentiary circumstances, and all of
the other surrounding circumstances bearing on
Mr. Watts’ purpose.
Watts admitted that he had concerns about whether one of the
customers, to which he continually shipped steel despite receiving
no payment, would fail to survive as a going entity if he stopped;
and that, to a certain extent, he was financing that customer’s
continuing operation. His intent to benefit a third party is
obvious from his admitted account manipulations to hide shipments
of steel which would not have been authorized for the specified
18
four customers. The evidence is sufficient to support finding a
manifest intent to benefit third parties.
3.
Furthermore, sufficient evidence supports the jury’s answer to
interrogatory four, which was also submitted by Seaboard and
unobjected to, concerning the amount of loss as to each of the four
customers. New Process introduced evidence that the total amount
of steel lost to the four customers was worth $751,154; and that,
excluding a 13% profit, 87% of that figure ($653,503.98) was its
cost for the product. The jury found a loss of $653,503, which
comports with the above described calculus.
C.
Although this case must be remanded because of interrogatory
five, we need not remand for a new trial on all issues. “It is
well settled that a new trial on part of the issues is properly
resorted to if ‘it clearly appears that the issue to be retried is
so distinct and separate from the others that a trial of it alone
may be without injustice.’” Westbrook v. Gen. Tire & Rubber Co.,
754 F.2d 1233, 1242 (5th Cir. 1985) (citing Gasoline Products Co.
v. Champlin Refining Co., 283 U.S. 494, 500 (1931), and Lucas v.
American Mfg. Co., 630 F.2d 291, 294 (5th Cir. 1980)). As
discussed, the jury found properly that Watts acted with the
requisite manifest intent to cause New Process to sustain loss for
the benefit of third parties in the amount of $653,503. These
coverage and total loss issues are clearly separable from the two
issues of when New Process discovered (had knowledge of) Watts’
19
dishonest acts and the loss as at that date. Accordingly, “the
interests of justice are best served by ... remanding the cause
solely for a trial as to” the latter two issues. Parker v.
Wideman, 380 F.2d 433, 437 (5th Cir. 1967).
Furthermore, despite the above discussed objections by New
Process, Seaboard declined to cure the defects in interrogatory
five, which it submitted. Seaboard is not entitled to subject New
Process to a costly retrial on all the issues after New Process has
obtained favorable responses from the jury on each interrogatory
except number five, to which it objected. It is “contrary to any
concept of judicial economy to provide [Seaboard] a second bite of
the apple when any responsibility for confusing the jury must fall
at [its] own door.” Smallwood v. Pearl Brewing Co., 489 F.2d 579,
602 n.30 (5th Cir. 1974).
For both of these reasons, we remand for a new trial only (1)
as to the date New Process discovered (had knowledge of) Watts’
dishonest acts; and (2), if that date is earlier than the January
1991 date claimed by New Process, for an apportionment as at that
earlier date of the $653,503 total loss. The district court may
find it appropriate to bifurcate the trial, so that the jury finds
first whether New Process had knowledge of Watts’ dishonest acts
before the January 1991 date; and, if it did, then apportions the
total loss.
III.
For the foregoing reasons, the judgment is VACATED and this
action is REMANDED (1) for a new trial only (a) as to when New
20
Process had knowledge of dishonest acts, and (b), if it had such
knowledge prior to the 1991 date claimed by it, its loss out of a
total $653,503 as at that earlier date; and (2) for the court to
take such other ancillary action as may be appropriate, including
the award of attorney’s fees.
VACATED and REMANDED
21