Fed. Deposit Ins. Corp. v. Certain Underwriters at Lloyd's of London

45 F.4th 1301

FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver for Omni National Bank, Plaintiff-Appellant,

v.CERTAIN UNDERWRITERS AT LLOYD'S OF LONDON, Defendant-Appellee.

No. 20-13604

United States Court of Appeals, Eleventh Circuit.

Filed: August 19, 2022

Michelle Ognibene, Federal Deposit Insurance Corporation, Appellate Litigation - Legal Division, Arlington, VA, Mark A. Black, FDIC Legal Division, Jacksonville, FL, Patrice Russell Walker, Parker Hudson Rainer & Dobbs, LLP, Atlanta, GA, for Plaintiff-Appellant.

Daniel McNeel Lane, Jr., Norton Rose Fulbright US, LLP, San Antonio, TX, Joshua P. Gunnemann, Attorney, Councill Gunnemann & Chally, LLC, Atlanta, GA, for Defendant-Appellee.

Before Rosenbaum, Tjoflat, Circuit Judges, and Steele,^* District Judge.

Tjoflat, Circuit Judge:

This appeal requires us to decide when a plaintiff must demand prejudgment interest to be timely under Georgia law. In a prior case, a federal district court decided in a declaratory judgment action that an insurance policy issued by Certain Underwriters at Lloyd's, London ("Underwriters") covered certain negligent actions undertaken by the former directors and officers of Omni National Bank ("Omni") during the 2008 banking crisis. Following this declaration, the Federal Deposit Insurance Corporation ("FDIC"), acting in Omni's name as Omni's receiver, demanded payment and prejudgment interest from Underwriters under the insurance policy for a stipulated judgment previously entered against three of Omni's former directors and officers for $10 million, the limit of Underwriters’ insurance policy. Underwriters paid the $10 million once the Supreme Court denied certiorari for its appeal from the declaratory judgment but refused to pay prejudgment interest, causing the FDIC to institute this action.

The District Court ruled that the FDIC's demand for prejudgment interest was untimely under Georgia law because the FDIC made its demand after the declaratory judgment was entered and liability determined. On appeal, the FDIC argues that demands for prejudgment interest are timely under Georgia law so long as they are made before the entry of a coercive final judgment, which declaratory judgments are not. We agree and, accordingly, reverse the District Court.

I.

In 2007, the United States Office of the Comptroller of the Currency ("OCC") began investigating the low-income real estate loan practices of Omni, which were found to violate both internal policies and federal regulations.¹ After this investigation began, Omni secured a policy with a $10 million liability limit from Underwriters to cover its directors and officers for wrongful conduct occurring between June 9, 2008, and June 9, 2009. During that period, Omni began foreclosing on many of the low-income properties that had been subject to its bad loan practices. However, instead of selling these low-income properties to recoup its losses, Omni began investing money to renovate them, even after receiving a CAMELS5 rating from the OCC in September 2008.² The OCC declared Omni insolvent on March 27, 2009, and appointed the FDIC as Omni's receiver. As Omni's receiver, the FDIC was tasked with marshalling Omni's assets, including any claims it had against its former directors and officers for negligence. Pursuant to this obligation, the FDIC sued Omni's former directors and officers for negligence on March 16, 2012. In December 2013, Omni's former CEO Stephen Klein settled with the FDIC under the following terms: (1) a $10 million stipulated judgment would be entered against Klein; (2) the FDIC would only seek to recover the stipulated judgment against Klein through the Underwriters insurance policy; and (3) Klein would assign his rights under the Underwriters insurance policy to the FDIC. In May 2015, two more of Omni's former directors and officers, Benjamin Cohen and Constance Perrine, also entered into a settlement agreement with the FDIC under the same terms.

Meanwhile, on May 18, 2012, Underwriters initiated its own lawsuit against the FDIC and Omni's former directors and officers³ seeking a declaration that Underwriters’ 2008–2009 insurance policy did not cover the negligence of Omni's former directors and officers during the policy period.⁴ In response, Klein filed four counterclaims against Underwriters. Counts I and II of Klein's counterclaims sought declarations that Underwriters’ policy covered the directors’ and officers’ wrongful acts alleged in the lawsuit. Count III sought damages for Underwriters’ breach of contract in failing to pay for his legal fees and expenses under the insurance policy. Count IV sought a declaration that Underwriters acted in bad faith by denying coverage to Klein. Klein also filed a separate lawsuit against Underwriters alleging the same four claims. Klein did not make a demand for prejudgment interest in either his counterclaims or his separate lawsuit. As part of his settlement with the FDIC in December 2013, Klein voluntarily dismissed his counterclaims and separate lawsuit against Underwriters.

Ultimately, the district court in Underwriters’ suit issued a declaration that the insurance policy covered the negligence of Omni's former directors and officers to the tune of the policy limits: $10 million. Underwriters appealed the district court's judgment and we affirmed. Certain Underwriters at Lloyd's of London v. FDIC , 723 F. App'x 764 (11th Cir. 2018). Underwriters petitioned the Supreme Court for certiorari, which the Court denied in May 2018. Certain Underwriters at Lloyd's of London v. FDIC , ––– U.S. ––––, 138 S. Ct. 2584, 201 L.Ed.2d 296 (2018).

Just before the Supreme Court denied certiorari, the FDIC sent a demand letter to Underwriters on April 2, 2018, demanding Underwriters pay the FDIC $10 million for the stipulated judgment and $3,004,287.67 in prejudgment interest under Georgia law. The FDIC concedes that this was the first time a demand for prejudgment interest was made against Underwriters. In a reply letter on April 11, Underwriters disputed that it owed prejudgment interest because neither the FDIC nor any former director or officer demanded prejudgment interest before the entry of final judgment in the declaratory judgment lawsuit. However, it conceded that it would pay the principal if the Supreme Court denied certiorari. In July 2018, after certiorari was denied, Underwriters paid the principal of $10 million and roughly $115,000 of postjudgment interest at the federal rate but refused to pay prejudgment interest at the Georgia law rate.

In response, the FDIC sued Underwriters on July 9, 2019, in the Northern District of Georgia to collect prejudgment interest. On March 13, 2020, the parties filed cross-motions for summary judgment. On August 24, 2020, the District Court granted Underwriters’ motion for summary judgment and denied the FDIC's motion for summary judgment. The Court held that the FDIC's request for prejudgment interest in April 2018 was untimely because Georgia law requires a demand for interest "before the entry of a final judgment as to the principal amount due." The Court also held that the declaratory judgment issued in October 2016 in the second lawsuit was a "final judgment as to the principal amount due" for purposes of Georgia law. In so doing, the Court rejected the FDIC's argument that the declaratory action only resolved Underwriters’ liability to pay under its insurance policy. The FDIC timely appealed the Court's judgment on September 22, 2020.

II.

On summary judgment, we review the lower court's decision de novo .

Tana v. Dantanna's , 611 F.3d 767, 772 (11th Cir. 2010). We view all the evidence and draw all reasonable inferences in favor of the non-moving party. Id. A grant of summary judgment is proper where there is "no genuine issue as to any material fact and ... the movant is entitled to summary judgment as a matter of law." Fed. R. Civ. P. 56(a).

When deciding state law claims, we apply state law to substantive legal issues. See Ungaro-Benages v. Dresdner Bank AG , 379 F.3d 1227, 1232 (11th Cir. 2004) ; 28 U.S.C. § 1652. Both the availability and amount of prejudgment interest is a substantive issue under the Erie doctrine. AIG Baker Sterling Heights, LLC v. Am. Multi-Cinema, Inc. , 508 F.3d 995, 1001 (11th Cir. 2007). In determining the meaning of state law, we defer to the state supreme court's interpretation of its own law. LaFrere v. Quezada , 582 F.3d 1260, 1263–64 (11th Cir. 2009). If the state supreme court has not issued an opinion, we defer to the state's intermediate appellate courts "absent some persuasive indication that the state's highest court would decide the issue otherwise." People's Gas Sys. v. Posen Constr., Inc. , 931 F.3d 1337, 1339 (11th Cir. 2019).

III.

Georgia law provides for prejudgment interest on certain demands for debts or claims to money where the amount owed is sufficiently certain, i.e., liquidated. O.C.G.A. §§ 7–4–15, 7–4–16. Georgia law states,

All liquidated demands, where by agreement or otherwise the sum to be paid is fixed or certain, bear interest from the time the party shall become liable and bound to pay them; if payable on demand, they shall bear interest from the time of the demand.

O.C.G.A. § 7–4–15. This law compensates the creditor for the delay in receiving monetary damages when a debtor delays payment of a liquidated claim.⁵ Crown Series, LLC v. Holiday Hospitality Franchising, LLC , 357 Ga.App. 523, 851 S.E.2d 150, 158 (2020). "Prejudgment interest is not premised on bad faith but rather on the principle that when a debt is owed and demand for the funds is made, interest accrues from the time entitlement attached." Int'l Indemnity Co. v. Terrell , 178 Ga.App. 570, 344 S.E.2d 239, 242 (1986). In other words, Georgia's policy is that defendants litigate at their own risk if liquidated claims are involved.

To recoup prejudgment interest, claimants must: (1) make a demand for prejudgment interest; (2) on a liquidated claim; (3) before the entry of a...