FILED
United States Court of Appeals
Tenth Circuit
November 1, 2016
PUBLISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
FEDERAL DEPOSIT INSURANCE
CORPORATION, as Receiver of New
Frontier Bank, Greeley, Colorado,
Plaintiff - Appellant,
v. No. 15-1390
KANSAS BANKERS SURETY
COMPANY,
Defendant - Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
(D.C. No. 1:13-CV-02344-WJM-MJW)
Joseph Brooks, Counsel (Colleen J. Boles, Assistant General Counsel, and Kathryn R.
Norcross, Senior Counsel of Federal Deposit Insurance Corporation, with him on the
briefs), Arlington, Virginia, for Plaintiff - Appellant.
John R. Mann (Heather K. Kelly, with him on the brief) of Gordon & Rees, L.L.P,
Denver, Colorado, for Defendant - Appellee.
Before KELLY, McKAY, and McHUGH, Circuit Judges.
KELLY, Circuit Judge.
Plaintiff-Appellant Federal Deposit Insurance Corporation (FDIC) sought to
recover on a financial institution crime bond and appeals from the district court’s grant of
summary judgment in favor of Defendant-Appellee Kansas Bankers Surety Co. (KBS),
FDIC v. Kansas Banker Surety Co., 105 F. Supp. 3d 1234 (D. Colo. 2015), and its
subsequent denial of reconsideration, FDIC v. Kansas Bankers Surety Co., No. 13-cv-
2344-WJM-MJW, 2015 WL 4882496 (D. Colo. Aug. 17, 2015). The district court held
that the underlying bank, the New Frontier Bank of Greeley, Colorado, (Bank) had failed
to submit a timely and complete proof of loss, thereby barring FDIC’s recovery on the
bond. We have jurisdiction under 28 U.S.C. § 1291, and we affirm.
Background
In January 2009, one of the Bank’s clients, Johnson Dairy and its principal, filed
for bankruptcy. In February 2009, an attorney for the Bank provided KBS with notice of
a potential claim arising out of that relationship. Specifically, the Bank’s attorney
furnished a letter in which Johnson Dairy complained of various improprieties in
connection with the Bank lending $50 million to Johnson Dairy, including requiring
cattle-lease agreements, breaching loan agreements, and not funding Johnson Dairy’s
working capital arrangements. 2 Aplt. App. 240–43. The FDIC maintains that Johnson
Dairy, in concert with one of the Bank’s loan officers participated in an unlawful scheme
to circumvent the Bank’s lending limits; ultimately, the loan officer would plead guilty
and was sentenced to thirty months’ imprisonment. The same day that the Bank provided
KBS notice of the claim, KBS sent a reply letter, asking the Bank to inform KBS
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promptly if the Bank had reason to believe the allegations were accurate or that wrongful
acts had occurred.
Thereafter, Johnson Dairy filed an adversary proceeding against the Bank, its loan
officer, and others, alleging that the Bank’s loans and the conduct of its loan officer were
coercive and intended to benefit the Bank at Johnson Dairy’s expense. The Bank’s
general counsel then forwarded a copy of the complaint to KBS and requested coverage
under the bond.
On March 30, 2009, KBS elected not to defend the Bank, thereby triggering a
provision within General Agreement F of the bond that extended the Bank’s normal
deadline to submit a complete proof of loss from six months from discovery to six months
from settlement or the entry of judgment in the adversary proceeding. As the Bank’s
position grew increasingly precarious, on April 2, 2009, KBS encouraged the Bank to
meet the proof-of-loss requirements before takeover by any receiver. In so doing, KBS
referred to Condition 14 of the bond, which provides, in pertinent part:
This bond terminates as an entirety upon occurrence of any of
the following:
....
(c) immediately upon the taking over of the Insured by a
receiver or other liquidator or by State or Federal officials . . .
....
After termination or cancellation, no . . . Federal official . . .
acting in the capacity of . . . receiver . . . shall have or exercise
any right to make any claim against [KBS], unless a Proof of
Loss, duly sworn to, with full particulars and complete
documentation has been received by [KBS] prior to the
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termination or cancellation of this bond.
1 Aplt. App. 52. On April 10, 2009, the Colorado State Banking Commissioner closed
the Bank and appointed the FDIC as receiver. The FDIC then settled the adversary
proceeding, though it did not recover the entire amount the Bank had loaned to Johnson
Dairy. The FDIC sought the difference between the amount recovered and the full
amount as a “loss” under the bond. KBS, however, refused to pay the difference, stating
that it had not received a proof of loss before the FDIC’s appointment as receiver. The
FDIC then filed suit against KBS.
The district court held that Condition 14 controlled over General Agreement F;
thus, the Bank needed to submit a proof of loss, duly sworn, with full particulars and
complete documentation prior to takeover by the FDIC. The district court found that the
Bank had failed to comply with these requirements and further held that its interpretation
of Condition 14 did not violate public policy.
Discussion
On appeal, the FDIC raises three main contentions. First, the FDIC argues that the
district court erred in holding that Condition 14 controlled over General Agreement F,
because Condition 14 is ambiguous and contains non-standard fidelity bond language that
should be construed against the drafter, KBS, in favor of coverage. Aplt. Br. at 3, 29–38.
Second, even if Condition 14 controls, the FDIC contends that Colorado law only
requires “substantial compliance” with proof-of-loss requirements and that the Bank,
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indeed, substantially complied with such requirements. Id. at 3–4, 38–44. Third, the
FDIC argues that the district court’s interpretation of Condition 14 violates public policy.
Id. at 4, 44–50. The FDIC’s arguments pertaining to non-standard fidelity bond language
and substantial compliance are forfeited, and the FDIC’s argument regarding public
policy is without merit.
A. Non-Standard Language and Substantial Compliance
The parties dispute whether the FDIC raised its arguments regarding non-standard
bond language requiring a different outcome and substantial compliance with the proof-
of-loss provision before the district court. Compare Aplt. Reply Br. at 5–12, 20–21, with
Aplee. Br. at 20–21, 36–38. Because failure to raise an argument before the district court
typically results in forfeiture of that argument on appeal, see, e.g., United States v. Jarvis,
499 F.3d 1196, 1201 (10th Cir. 2007), we must first address whether the FDIC raised its
arguments below.
For several reasons, the FDIC argues that it has not forfeited its first argument.
Specifically, the FDIC states that it raised this issue in its opposition to KBS’s motion for
summary judgment, Aplt. Br. at 6, and argued generally that ambiguous provisions must
be construed against the drafter. Aplt. Reply Br. at 6–7. The FDIC further argues that
because KBS argued in favor of an exception to the general rule, the burden fell on KBS
to establish that the language of the bond was standard. Id. at 7 (citing Metro Fed. Credit
Union v. Fed. Ins. Co., 607 F. Supp. 2d 870, 874 n.1 (N.D. Ill. 2009)). The FDIC also
states that KBS’s lack of assistance in resolving the bond language issue militates against
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forfeiture. Id. at 10. Alternatively, even if the argument was not preserved, the FDIC
argues that exception to the general rule of forfeiture applies, namely that arguments
involving a pure matter of law for which the proper resolution is certain should still be
heard, and also contends that it has satisfied the plain-error standard to avoid forfeiture.
Id. at 9–11.
Our review of the record leads us to conclude that the FDIC has forfeited its
argument regarding non-standard language. As the district court stated in its order
denying reconsideration, the FDIC never previously presented the court with the
argument that the proof-of-loss provision was ambiguous. FDIC, 2015 WL 4882496, at
*3, *4 n.4. Because the FDIC’s argument regarding non-standard language hinges on a
determination that the proof-of-loss provision is ambiguous, see Aplt. Br. at 29–34, it
follows that this argument is new on appeal. Simply put, the FDIC did not argue below
that the bond contained non-standard or unique language that was unilaterally added by
KBS. On appeal, the FDIC refers us to its brief in opposition to KBS’s motion for
summary judgment, in which the FDIC argued that any ambiguity in the language of
Condition 14 should be resolved in its favor. Id. at 34; Aplt. Reply Br. at 5–6 & n.11.
But this is a far cry from arguing that one provision of the bond contains unique, non-
standard language and therefore should be construed in favor of coverage. Indeed,
nowhere in its opposition to summary judgment, or even in its motion for reconsideration,
did the FDIC cite the principal cases upon which it now relies, namely First National
Bank of Manitowoc v. Cincinnati Insurance Co., 485 F.3d 971 (7th Cir. 2007), and Metro
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Federal Credit Union, 607 F. Supp. 2d at 874 n.1.
The FDIC’s references (on appeal) to the district court’s order granting summary
judgment, see Aplt. Br. at 6 & n.12, 29–32, 34 & n.116; Aplt. Reply Br. at 6 n.11, further
demonstrate that the district court was never fairly presented with this issue. There is
simply no discussion of “unique” or “non-standard” language. Moreover, although the
district court provided a general discussion about the construction of ambiguous
provisions, it is clear from the district court’s discussion of Condition 14 vs. General
Agreement F that the court did not arrive at the proper interpretation of the bond based on
ambiguity. See FDIC, 105 F. Supp. 3d at 1243–45; see also FDIC, 2015 WL 4882496, at
*3 n.2 (explaining that the court did not find that Condition 14 was ambiguous). The
excerpts of the district court decision the FDIC now relies upon, when viewed in context,
simply do not show that the district court ruled on the issue the FDIC now raises.
The FDIC’s argument that KBS had the burden of establishing whether the bond
contained standard or non-standard bond language will not excuse its forfeiture. To the
extent Metro Federal Credit Union suggests that a party advocating for an exception to
the general rule of construing language against the drafter bears the burden of
differentiating between standard and non-standard bond language under Illinois law (and
we are not so sure it does), see 607 F. Supp. 2d at 874 n.1, we are not bound by a decision
of the Northern District of Illinois, nor do we find it persuasive. Absent clear authority
from this circuit or the Colorado courts, KBS was not required to demonstrate that the
bond contains only standard language, otherwise all language would be construed against
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it. As the district court noted, KBS argued in favor of the exception to the general rule of
construing ambiguous provisions against the drafter in its motion for summary judgment,
and the FDIC raised counter-arguments in response. FDIC, 2015 WL 4882496, at *4 n.4.
Thus, the FDIC had ample opportunity to present its non-standard language argument
then, as it directly pertains to KBS’s argument, but the FDIC failed to do so.
We are not persuaded by the FDIC’s argument that this court should nevertheless
hear its argument because it is a question of law and the proper resolution of the issue is
certain. See Singleton v. Wulff, 428 U.S. 106, 121 (1976); United States v. Gould, 672
F.3d 930, 938 (10th Cir. 2012). Neither factor here is met. The FDIC’s argument is that
“ambiguities must be construed to provide coverage . . . where, as here, an insurer adds
unique language to a standard bond form.” Aplt. Br. at 29. This is not a pure issue of
law, because whether KBS unilaterally added unique language to the bond is a question
of fact, and one that was not presented to the district court. See FDIC, 105 F. Supp. 3d at
1241–42 (characterizing the bond as “a heavily negotiated agreement between
sophisticated parties”). While the FDIC did assert in its motion for reconsideration that
Condition 14 was not negotiated between the parties, see 1 Aplt. App. 130 & n.4, the
argument was made too late, and the district court was well within its discretion not to
address it. See FDIC, 2015 WL 4882496, at *4 & n.4; see also Van Skiver v. United
States, 952 F.2d 1241, 1243 (10th Cir. 1991). Additionally, the proper resolution of the
issue is not certain. Neither the Supreme Court, nor this court, nor the Colorado courts
have addressed whether non-standard bond language must be construed against the
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drafter. The FDIC’s reliance on non-binding authority from the Seventh Circuit and the
Northern District of Illinois, see Aplt. Reply Br. at 10 & n.21 (citing First Nat’l Bank of
Manitowoc, 485 F.3d at 977, 979 n.8; Metro Fed. Credit Union, 607 F. Supp. 2d at 874
n.1), cannot overcome this hurdle. And while Hoang v. Assurance Co. of America, 149
P.3d 798, 802 (Colo. 2007), does indicate that Colorado courts will construe in favor of
coverage an ambiguity in a homeowner’s insurance policy offered on a take-it-or-leave-it
basis, it is not clear that the Colorado courts would extend this holding to banks, nor is it
clear that the provisions at issue here were imposed on a “take-it-or-leave-it” basis, as
discussed above.
This same analysis demonstrates why the FDIC’s plain-error argument also fails.
Generally, a forfeited argument will serve as the basis for reversal in a civil matter only if
the district court’s judgment was plainly erroneous. Richison v. Ernest Grp., Inc., 634
F.3d 1123, 1128 (10th Cir. 2011). In civil cases, the burden of establishing plain error
lies with the appellant and is “‘nearly insurmountable.’” Somerlott v. Cherokee Nation
Distribs., Inc., 686 F.3d 1144, 1151 (10th Cir. 2012) (quoting Phillips v. Hillcrest Med.
Ctr., 244 F.3d 790, 802 (10th Cir. 2001)). “To show plain error, a party must establish
the presence of (1) error, (2) that is plain, which (3) affects substantial rights, and which
(4) seriously affects the fairness, integrity or public reputation of judicial proceedings.”
Richison, 634 F. 3d at 1128; see also United States v. Olano, 507 U.S. 725, 732–37
(1993) (discussing the plain-error standard for appellate review in a criminal case). To be
plain, the error must be clear or obvious under current, well-settled law of either the
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Supreme Court or this court. United States v. DeChristopher, 695 F.3d 1082, 1091 (10th
Cir. 2012). Assuming it is not too late to argue for plain error in a reply brief, see Aplt.
Reply Br. at 11, we do not find that the FDIC has met its burden to show an error that is
clear or obvious under current, well-settled law issued by the Supreme Court or this court,
or that the district court’s decision is clearly erroneous under Colorado law.
As to its substantial compliance argument, the FDIC provides three bases for
contending that it raised the argument before the district court. First, the FDIC argues
that it raised the issue in its opposition to KBS’s motion for summary judgment. Aplt. Br.
at 7. The FDIC asserts that it argued that proof-of-loss requirements must be “construed
reasonably,” and that “the substantial compliance standard and the reasonable
construction rule are two sides of the same coin.” Aplt. Reply Br. at 21. Second, the
FDIC argues that it raised the issue in its motion for reconsideration. Aplt. Br. at 7. The
FDIC relies on the district court’s order denying the FDIC’s motion for reconsideration,
in which the district court noted that the FDIC used the phrase “substantially complied” in
its briefing. See Aplt. Reply Br. at 20 (quoting FDIC, 2015 WL 4882496, at *3).
According to the FDIC, this demonstrates that the district court understood the FDIC to
have made its substantial compliance argument. Id. Third, the FDIC asserts that its
argument should not be forfeited because the substantial compliance issue involves a pure
matter of law for which the proper resolution is certain. Id. at 21. The FDIC’s
contentions, however, are without merit.
Our review of the FDIC’s opposition to KBS’s motion for summary judgment
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reveals that the FDIC did not raise its “substantial compliance” argument. The FDIC’s
citations to the record pertain to other arguments regarding the timeliness of the Bank’s
claim, not substantial compliance. See Aplt. Br. at 7 n.13 & n.15 (citing 2 Aplt. App.
306–10). Indeed, the phrases “substantial compliance” and “substantially complied” do
not appear in the FDIC’s opposition to summary judgment, nor do the principal cases
upon which the FDIC now relies, namely Hartford Fire Insurance Co. v. Smith, 3 Colo.
422 (Colo. 1877) and Wells Fargo Business Credit v. American Bank of Commerce, 780
F.2d 871 (10th Cir. 1985). While the FDIC did argue that proof-of-loss requirements
should be construed reasonably, see 2 Aplt. App. 313–14, this is distinct from arguing
that only substantial compliance is required under Colorado law. The district court was
never fairly presented with this issue. Further, it does not follow that a reasonable
construction of proof-of-loss requirements obviates the need for full compliance, or that
strict compliance is inherently unreasonable.
An examination of the record also demonstrates that the FDIC did not preserve its
substantial compliance argument in its motion for reconsideration. The citations that the
FDIC provides, again, pertain to other arguments, such as its contention that Condition 14
is ambiguous and the Bank’s compliance with the provision is an issue of fact. See Aplt.
Br. at 7 & n.14 (citing 1 Aplt. App. 125–29). Although the district court noted that the
FDIC argued in passing “the Bank’s proof of loss not only substantially complied, but
also strictly complied under any fair and reasonable construction,” the district court
characterized the argument as one that the bond granted too much discretion to KBS.
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FDIC, 2015 WL 4882496, at *3. The record confirms that the FDIC did not raise any
discussion about substantial compliance until its reply brief in its motion for
reconsideration. See 1 Aplt. App. 151. Even if this brief reference is sufficient to
preserve the argument for appeal, the argument was raised too late. See M.D. Mark, Inc.
v. Kerr-McGee Corp., 565 F.3d 753, 768 n.7 (10th Cir. 2009).
The FDIC also has not demonstrated that its substantial compliance argument is a
pure matter of law for which the proper resolution is certain. The FDIC asserts that
Colorado law is clear that only substantial compliance is required. Aplt. Reply Br. at 21
(citing Hartford Fire Ins. Co., 3 Colo. at 425). Although the Colorado Supreme Court
stated in an 1877 decision that “there must be a substantial compliance with the terms of
the policy in furnishing the preliminary proofs before the assured are entitled to any
indemnity in case of loss” in a dispute arising from loss from a fire, Hartford Fire Ins.
Co., 3 Colo. at 425, more recent authority from the Colorado courts suggests that strict
compliance with a contractual provision is required if time is of the essence. See, e.g.,
Hopkins v. Underwood, 247 P.2d 1000, 1002 (Colo. 1952) (“Where time is the essence of
a contract, it means that the provision in the contract which fixes the time of performance
is to be regarded as a vital term of the contract . . . .”); Sports Premiums, Inc. v.
Kaemmer, 595 P.2d 696, 699 (Colo. App. 1979); see also Ranta Constr., Inc. v.
Anderson, 190 P.3d 835, 841 (Colo. App. 2008) (indicating that where time is of the
essence in a contract, one party’s failure to timely perform discharges the other party of
the duty to perform). While we are mindful of our decision in Wells Fargo Business
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Credit, 780 F.2d at 871, in which we determined that substantial compliance with notice
and proof-of-loss requirements of an insurance policy was sufficient under New Mexico
law, in a prior case between FDIC and KBS we held that “where time is of the essence
substantial compliance with a specific time requirement is insufficient.” FDIC v. Kansas
Bankers Sur. Co., 963 F.2d 289, 294 (10th Cir. 1992) (applying Oklahoma law). In that
case, we considered a provision that is analogous to Condition 14 at issue here, and
concluded that the provision explicitly demonstrated that the parties intended to make
time of the essence. Id. at 292, 294. The FDIC fails to distinguish this precedent in either
of its briefs. While we need not decide the issue, its resolution is not obvious.
B. Public Policy
The FDIC did, however, raise its public policy argument below. To support its
argument on appeal that the district court’s interpretation of Condition 14 violates public
policy, the FDIC turns to the Financial Institutions Reform, Recovery, and Enforcement
Act of 1989 (FIRREA), which provides, in pertinent part, that when the FDIC is
appointed as the receiver of a failed bank, it “succeed[s] to — all rights, titles, powers,
and privileges of the insured depository institution . . . with respect to the institution and
the assets of the institution.” 12 U.S.C. § 1821(d)(2)(A)(i); see also Aplt. Br. at 45. This
statutory provision indicates that the FDIC “steps into the shoes” of the failed bank and
inherits the rights of the bank prior to receivership. O’Melveny & Myers v. FDIC, 512
U.S. 79, 86 (1994).
In light of this, the FDIC argues that it succeeded to all rights the Bank possessed
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under the bond at the time of the Bank’s failure. This includes the right to pursue the
Bank’s coverage claim against KBS, because the Bank would have had the right to
enforce the coverage claim after termination of the bond had it not failed. Aplt. Br. at
45–47. The FDIC relies on FDIC v. St. Paul Companies, 634 F. Supp. 2d 1213 (D. Colo.
2008), where the court determined that the termination of a bond resulting from takeover
by the FDIC did not terminate liability because the insured bank need only have
discovered the loss prior to the takeover for the right to enforce the coverage claim to
vest. Aplt. Br. at 47–50. Accordingly, the FDIC contends that it similarly possesses the
right to pursue the Bank’s coverage claim because the Bank discovered the loss prior to
takeover by the FDIC and would have been able to submit the proof of loss after the
pending third-party action against the Bank was resolved. Id. at 7, 47–50. Therefore, the
FDIC argues, denying the FDIC the ability to enforce coverage runs counter to public
policy because it restricts the exercise of the Bank’s rights by the FDIC. Id.
The FDIC’s arguments fail for two reasons. First, both federal and Colorado law
expressly permit provisions like Condition 14 to limit the otherwise broad powers of
receivers like the FDIC. See 12 U.S.C. § 1821(e)(13)(A);1 Colo. Rev. Stat. § 11-103-
1
“The conservator or receiver may enforce any contract, other than a director’s or
officer’s liability insurance contract or a depository institution bond, entered into by the
depository institution notwithstanding any provision of the contract providing for
termination, default, acceleration, or exercise of rights upon, or solely by reason of,
insolvency or the appointment of or the exercise of rights or powers by a conservator or
receiver.” 12 U.S.C. § 1821(e)(13)(A).
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601(4)(a)(II).2 Second, while the FDIC now stands in the shoes of the Bank, the FDIC
has no right to enforce a coverage claim against KBS that the Bank did not have. As the
district court correctly found, a proof of loss, duly sworn, with full particulars and
complete documentation was a condition precedent to coverage pursuant to Condition 14,
and such proof was never furnished to KBS prior to the FDIC’s takeover. FDIC, 105 F.
Supp. 3d at 1243–45. Because coverage never vested before the FDIC took over, the
Bank, and consequently the FDIC, never acquired the right to enforce the bond.
Further, the FDIC’s reliance on FDIC v. St. Paul Companies, 634 F. Supp. 2d at
1213, is unavailing. There, a proof of loss was not a condition precedent to coverage.
This court has emphasized the difference between bonds that contain express language
making strict compliance with notice requirements a condition precedent to recovery and
those that do not. See FDIC v. Oldenburg, 34 F.3d 1529, 1546 (10th Cir. 1994). It
follows that there is also a distinction between bonds that contain express language
making a proof of loss a condition precedent to coverage and those that do not. Because
Condition 14 of the bond at issue here made proof of loss a condition precedent to
2
“The general assembly hereby finds, determines, and declares that the following
is enforceable and in conformity with the public policy of this state . . . : Any fidelity
bond, financial institution bond, or depository institution bond in effect or issued on or
after April 30, 1993, that provides for termination of such bond upon the taking over of
the bank by a receiver or other liquidator or by state or federal officials.” Colo. Rev. Stat.
§ 11-103-601(4)(a)(II).
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recovery, and the bond in St. Paul Companies, 634 F. Supp. 2d at 1219, did not, the
district court’s decision in St. Paul Companies is inapposite.
AFFIRMED.
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