FDIC v. RLI Insurance Company

In the
United States Court of Appeals
For the Seventh Circuit
____________________ȱ
No.ȱ14Ȭ2736ȱ
FEDERALȱ DEPOSITȱ I NSURANCEȱ C ORPORATION,ȱ asȱ receiverȱ forȱ
P ARKȱNATIONALȱBANK ,ȱ
PlaintiffȬAppellee,ȱ
v.ȱ
RLIȱINSURANCEȱC OMPANY,ȱ
DefendantȬAppellant.ȱ
____________________ȱ
AppealȱfromȱtheȱUnitedȱStatesȱDistrictȱCourtȱforȱtheȱ
NorthernȱDistrictȱofȱIllinois,ȱEasternȱDivision.ȱ
No.ȱ12ȱCȱ3790ȱ—ȱMiltonȱI.ȱShadur,ȱJudge.ȱ
____________________ȱ
A RGUEDȱJ ANUARYȱ23,ȱ2015ȱ—ȱD ECIDEDȱA PRILȱ30,ȱ2015ȱ
____________________ȱ
BeforeȱWOOD,ȱChiefȱJudge,ȱandȱKANNEȱandȱT INDER ,ȱCircuitȱ
Judges.ȱ
WOOD,ȱ Chiefȱ Judge.ȱ Inȱ 2001,ȱ representativesȱ fromȱ theȱ
Moodyȱ Bibleȱ Instituteȱ ofȱ Chicagoȱ andȱ aȱ companyȱ calledȱ
Sysixȱ Financialȱ signedȱ aȱ masterȱ leaseȱ agreement.ȱ Theȱ docuȬ
mentȱ laidȱ theȱ groundworkȱ forȱ futureȱ leasesȱ ofȱ equipmentȱ
fromȱ Sysixȱ toȱ Moody.ȱ Sevenȱ yearsȱ later,ȱ inȱ 2008,ȱ twoȱ leaseȱ
schedulesȱ forȱ variousȱ computerȱ itemsȱ wereȱ executed;ȱ theyȱ

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2ȱ No.ȱ14Ȭ2736ȱ
appearedȱ toȱ haveȱ beenȱ signedȱ byȱ Moody’sȱ viceȱ presidentȱ
andȱSysix’sȱpresident.ȱSysixȱassignedȱitsȱendȱofȱbothȱleasesȱtoȱ
anotherȱ company,ȱ Rockwellȱ Financialȱ Group,ȱ whichȱ inȱ turnȱ
acquiredȱloansȱfromȱParkȱNationalȱBankȱ(PNB)ȱtoȱfinanceȱtheȱ
twoȱ individualȱ leasesȱ betweenȱ Sysixȱ andȱ Moody.ȱ PNBȱ proȬ
curedȱ indemnificationȱ coverageȱ forȱ itsȱ loansȱ toȱ Rockwellȱ
fromȱRLIȱInsuranceȱCompanyȱinȱtheȱformȱofȱaȱfinancialȱinstiȬ
tutionȱ bond.ȱ Thereȱ was,ȱ however,ȱ aȱ problemȱ atȱ theȱ heartȱ ofȱ
theseȱtransactions:ȱSysix’sȱpresidentȱhadȱforgedȱtheȱsignatureȱ
ofȱMoody’sȱviceȱpresidentȱonȱeachȱofȱtheȱtwoȱleaseȱschedules.ȱ
Moodyȱ neverȱ agreedȱ toȱ eitherȱ scheduleȱ norȱ didȱ itȱ everȱ reȬ
ceiveȱanyȱofȱtheȱpromisedȱequipment.ȱ
PNBȱnotifiedȱRLIȱofȱitsȱpotentialȱlossȱunderȱtheȱbondȱRLIȱ
hadȱ issued,ȱ butȱ PNBȱ itselfȱ soonȱ wentȱ under.ȱ Actingȱ asȱ reȬ
ceiverȱ forȱ PNB,ȱ theȱ Federalȱ Depositȱ Insuranceȱ Corporationȱ
(FDIC)ȱsuedȱRLIȱinȱfederalȱcourt,ȱarguingȱthatȱtheȱlanguageȱ
ofȱ theȱ bondȱ obligatedȱ RLIȱ toȱ indemnifyȱ PNBȱ (andȱ thusȱ
FDIC)ȱ forȱ itsȱ lossesȱ relatedȱ toȱ theȱ forgeriesȱ onȱ theȱ leaseȱ
schedules.ȱ Eventuallyȱ theȱ districtȱ courtȱ grantedȱ summaryȱ
judgmentȱinȱFDIC’sȱfavor.ȱBecauseȱweȱagreeȱwithȱtheȱdistrictȱ
courtȱ thatȱ theȱ plainȱ languageȱ ofȱ theȱ bondȱ coveredȱ FDIC’sȱ
losses,ȱweȱaffirm.ȱ
Iȱ
Thisȱ seriesȱ ofȱ transactionsȱ beganȱ whenȱ Robertȱ Gunter,ȱ
viceȱ presidentȱ andȱ generalȱ counselȱ ofȱ Moody,ȱ andȱ Johnȱ
Sheaffer,ȱ presidentȱ ofȱ Sysix,ȱ signedȱ aȱ documentȱ entitledȱ
“Masterȱ Equipmentȱ Leaseȱ Agreement”ȱ inȱ Decemberȱ 2001.ȱ
Theȱ masterȱ leaseȱ referredȱ toȱ futureȱ leaseȱ schedulesȱ thatȱ theȱ
partiesȱ wouldȱ executeȱ “fromȱ timeȱ toȱ time,”ȱ andȱ statedȱ thatȱ
eachȱleaseȱscheduleȱ“shallȱconstituteȱaȱseparatelyȱenforceableȱ
leaseȱ…ȱforȱtheȱEquipmentȱtherein.”ȱ

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No.ȱ14Ȭ2736ȱ 3
InȱMarchȱ2008,ȱMoodyȱandȱSysixȱpurportedlyȱexecutedȱaȱ
leaseȱscheduleȱ(LeaseȱScheduleȱS080),ȱwhichȱboreȱtheȱsignaȬ
turesȱofȱSheafferȱandȱGunter.ȱTheȱminimumȱtermȱofȱtheȱleaseȱ
wasȱ48ȱmonthsȱbeginningȱAprilȱ1,ȱ2008,ȱwithȱaȱmonthlyȱrentȱ
ofȱ$72,691.73ȱforȱhundredsȱofȱpiecesȱofȱcomputerȱequipmentȱ
listedȱ inȱ anȱ attachedȱ exhibit.ȱ Scheduleȱ S080ȱ statedȱ thatȱ theȱ
totalȱ monthlyȱ rentȱ wasȱ forȱ equipment,ȱ theȱ totalȱ purchaseȱ
priceȱofȱwhichȱwasȱnotȱtoȱexceedȱ$2,977,135.49.ȱItȱalsoȱnotedȱ
thatȱ itȱ incorporatedȱ theȱ termsȱ andȱ conditionsȱ ofȱ theȱ 2001ȱ
masterȱ lease.ȱ Theȱ twoȱ menȱ supposedlyȱ executedȱ aȱ similarȱ
leaseȱscheduleȱthatȱsameȱyear,ȱinȱDecemberȱ2008,ȱagainȱforȱaȱ
largeȱ batchȱ ofȱ computerȱ equipmentȱ (Leaseȱ Scheduleȱ S084).ȱ
TheȱmonthlyȱrentȱforȱScheduleȱS084ȱwasȱ$32,410.51,ȱwithȱtheȱ
purchaseȱ priceȱ ofȱ theȱ describedȱ equipmentȱ notȱ toȱ exceedȱ
$1,111,024.ȱ Likeȱ Scheduleȱ S080,ȱ Scheduleȱ S084ȱ incorporatedȱ
theȱtermsȱofȱtheȱmasterȱleaseȱbetweenȱMoodyȱandȱSysix.ȱButȱ
likeȱ Scheduleȱ S080,ȱ Scheduleȱ S084ȱ wasȱ aȱ forgery.ȱ Sheafferȱ
signedȱ Gunter’sȱ nameȱ toȱ bothȱ schedulesȱ andȱ createdȱ theȱ
termsȱofȱeachȱoutȱofȱwholeȱcloth.ȱSheafferȱadmittedȱasȱmuchȱ
inȱ aȱ letterȱ inȱ Decemberȱ 2008,ȱ whereȱ heȱ wrote,ȱ “Theȱ Moodyȱ
BibleȱInstituteȱhasȱnoȱideaȱandȱneverȱexcuetedȱ[sic]ȱscheduleȱ
80ȱ0rȱ[sic]ȱ84ȱandȱforȱthatȱmatterȱRockwellȱFinancialȱisȱcomȬ
pleteȱ unȱ asareȱ [sic]ȱ thatȱ Iȱ compeltlyȱ [sic]ȱ fabricatedȱ theseȱ
deals.”ȱItȱappearsȱfromȱtheȱrecordȱthatȱRockwellȱandȱMoodyȱ
discoveredȱtheȱforgeriesȱaroundȱJulyȱ2009;ȱSheafferȱcommitȬ
tedȱsuicideȱthatȱmonth.ȱ
Inȱ2008,ȱbeforeȱSheaffer’sȱforgeriesȱwereȱdiscovered,ȱSysixȱ
assignedȱallȱofȱitsȱrightsȱinȱbothȱleaseȱschedulesȱtoȱRockwell.ȱ
Afterȱ eachȱassignment,ȱ Rockwellȱsoughtȱ loansȱ fromȱ PNBȱ toȱ
coverȱitsȱendȱofȱtheȱdeal.ȱAȱPNBȱloanȱpresentationȱdocument,ȱ
datedȱMarchȱ7,ȱ2008,ȱindicatesȱthatȱRockwellȱinitiallyȱsoughtȱ
$3.1ȱmillionȱfromȱPNB;ȱthisȱsumȱwasȱassociatedȱwithȱSchedȬ

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4ȱ No.ȱ14Ȭ2736ȱ
uleȱS080,ȱwhichȱwasȱexecutedȱlessȱthanȱtwoȱweeksȱlater.ȱAnȬ
otherȱPNBȱloanȱpresentationȱdocumentȱdatedȱDecemberȱ10,ȱ
2008,ȱshowsȱRockwellȱseekingȱ$1.12ȱmillion,ȱpresumablyȱasȬ
sociatedȱwithȱScheduleȱS084,ȱwhichȱwasȱexecutedȱjustȱaȱfewȱ
daysȱ afterȱ theȱ presentation.ȱ Aȱ fewȱ weeksȱ afterȱ eachȱ loanȱ
presentation,ȱ Rockwellȱ andȱ PNBȱ signedȱ aȱ documentȱ calledȱ
“Assignmentȱ andȱ SecurityȱAgreement.”ȱ Thisȱ documentȱ speȬ
cificallyȱreferredȱtoȱbothȱtheȱleaseȱscheduleȱinȱquestionȱandȱaȱ
separateȱ promissoryȱ noteȱ Rockwellȱ hadȱ executedȱ forȱ aȱ speȬ
cificȱ amount.ȱ Theseȱ amountsȱ wereȱ slightlyȱ differentȱ fromȱ
thoseȱ onȱ theȱ loanȱ presentations.ȱ Forȱ Scheduleȱ S080,ȱ RockȬ
well’sȱ promissoryȱ noteȱ wasȱ forȱ $2,978,334.28,ȱ withȱ monthlyȱ
installmentsȱ ofȱ $72,691.73.ȱ (Recallȱ thatȱ theȱ maximumȱ purȬ
chaseȱ amountȱ forȱ Scheduleȱ S080ȱ wasȱ $2,977,135.49,ȱ withȱ aȱ
monthlyȱ amountȱ dueȱ ofȱ $72,691.73.)ȱ Forȱ Scheduleȱ S084,ȱ
Rockwell’sȱ promissoryȱ noteȱ wasȱ forȱ $1,131,989.75,ȱ withȱ aȱ
$32,410.51ȱ monthlyȱ paymentȱ (comparedȱ toȱ $1,111,024ȱ onȱ
Scheduleȱ S084,ȱ whichȱ hadȱ theȱ sameȱ monthlyȱ amountȱ ofȱ
$32,410.51).ȱ
InȱMayȱ2009,ȱPNBȱacquiredȱaȱbondȱfromȱRLIȱtoȱcoverȱpoȬ
tentialȱ lossesȱ flowingȱ fromȱ itsȱ loansȱ toȱ Rockwellȱ duringȱ theȱ
periodȱfromȱMayȱ1,ȱ2009ȱtoȱMayȱ1,ȱ2010.ȱOfȱparticularȱinterȬ
estȱ here,ȱ theȱ bond’sȱ Insuringȱ Agreementȱ Eȱ statedȱ thatȱ RLIȱ
agreedȱtoȱindemnifyȱPNBȱforȱȱ
[l]ossȱ resultingȱ directlyȱ fromȱ theȱ Insuredȱ havȬ
ing,ȱinȱgoodȱfaith,ȱforȱitsȱownȱaccountȱorȱforȱtheȱ
accountȱ ofȱ others,ȱ …ȱ acquired,ȱ soldȱ orȱ delivȬ
eredȱ orȱ givenȱ value,ȱ extendedȱ creditȱ orȱ asȬ
sumedȱ liability,ȱ onȱ theȱ faithȱ of,ȱ anyȱ Written,ȱ
Originalȱ …ȱ Securityȱ Agreement,ȱ whichȱ (i)ȱ
bearsȱ aȱ handwrittenȱ signatureȱ ofȱ anyȱ maker,ȱ

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No.ȱ14Ȭ2736ȱ 5
drawer,ȱissuer,ȱendorser,ȱassignor,ȱlessee,ȱtransȬ
ferȱagent,ȱregistrar,ȱacceptor,ȱsurety,ȱguarantor,ȱ
orȱofȱanyȱotherȱpersonȱwhoseȱsignatureȱisȱmaȬ
terialȱtoȱtheȱvalidityȱorȱenforceabilityȱofȱtheȱseȬ
curity,ȱ whichȱ isȱ aȱ Forgery,ȱ orȱ (ii)ȱ isȱ altered,ȱ orȱ
(iii)ȱisȱlostȱorȱstolenȱ…ȱ.ȱ
AgreementȱEȱalsoȱstatedȱthatȱ“[a]ctualȱphysicalȱpossessionȱofȱ
theȱitemsȱlistedȱ…ȱbyȱtheȱInsured,ȱitsȱcorrespondentȱbankȱorȱ
otherȱ authorizedȱ representative,ȱ isȱ aȱ conditionȱ precedentȱ toȱ
theȱInsured’sȱhavingȱreliedȱonȱtheȱfaithȱofȱsuchȱitems.”ȱAȱfewȱ
otherȱ provisionsȱ ofȱ theȱ bondȱ concernȱ usȱ asȱ well.ȱ Theȱ bondȱ
definesȱ aȱ “Securityȱ Agreement”ȱ asȱ “aȱ Writtenȱ agreementȱ
whichȱ createsȱ anȱ interestȱ inȱ personalȱ propertyȱ orȱ fixturesȱ
andȱ whichȱ securesȱ paymentȱ orȱ performanceȱ ofȱ anȱ obligaȬ
tion.”ȱ“Original”ȱdocuments,ȱitȱsays,ȱareȱ“theȱfirstȱrenderingȱ
orȱ archetype.”ȱ Itȱ alsoȱ specifiesȱ timeȱ limitsȱ onȱ lawsuits:ȱ theyȱ
“shallȱnotȱbeȱbroughtȱpriorȱtoȱtheȱexpirationȱofȱ60ȱdaysȱafterȱ
theȱoriginalȱproofȱofȱlossȱisȱfiledȱwithȱtheȱUnderwriterȱorȱafȬ
terȱ theȱ expirationȱ ofȱ 24ȱ monthsȱ fromȱ theȱ discoveryȱ ofȱ suchȱ
loss.”ȱ Finally,ȱ theȱ bondȱ containsȱ whatȱ itȱ termsȱ anȱ “antiȬ
bundling”ȱprovision:ȱitȱstatesȱthatȱforȱdocumentsȱcontainingȱ
forgeries,ȱ“theȱalterationȱorȱcounterfeitȱorȱsignatureȱmustȱbeȱ
onȱ orȱ ofȱ theȱ enumeratedȱ documentȱ itselfȱ notȱ onȱ orȱ ofȱ someȱ
otherȱ documentȱ submittedȱ with,ȱ accompanyingȱ orȱ incorpoȬ
ratedȱbyȱreferenceȱintoȱtheȱenumeratedȱdocument.”ȱ
Atȱ someȱ pointȱ inȱ Augustȱ 2009,ȱ PNBȱ demandedȱ thatȱ
Moodyȱ andȱ Rockwellȱ submitȱ paymentsȱ onȱ Schedulesȱ S080ȱ
andȱS084.ȱNoȱmoneyȱcame,ȱandȱsoȱPNBȱsuedȱthemȱforȱnonȬ
paymentȱ inȱ Septemberȱ 2009.ȱ Aȱ monthȱ later,ȱ PNBȱ gaveȱ RLIȱ
noticeȱthatȱitȱhadȱdiscoveredȱaȱpotentialȱlossȱcoveredȱbyȱtheȱ
bond.ȱByȱtheȱendȱofȱOctober,ȱhowever,ȱPNBȱhadȱfailed.ȱTheȱ

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6ȱ No.ȱ14Ȭ2736ȱ
Officeȱ ofȱ theȱ Comptrollerȱ ofȱ theȱ Currencyȱ closedȱ PNBȱ andȱ
namedȱ FDICȱ asȱ PNB’sȱ receiver.ȱAtȱ theȱ sameȱ time,ȱ FDICȱ enȬ
teredȱaȱpurchaseȱagreementȱwithȱU.S.ȱBankȱNationalȱAssociȬ
ation,ȱ underȱ whichȱ U.S.ȱ Bankȱ boughtȱ PNB’sȱ assetsȱ andȱ asȬ
sumedȱ itsȱ liabilities.ȱ Underȱ theȱ purchaseȱ agreement,ȱ FDICȱ
paidȱU.S.ȱBankȱforȱ80%ȱofȱPNB’sȱlossesȱunderȱtheȱtwoȱleaseȱ
schedules,ȱandȱU.S.ȱBankȱabsorbedȱtheȱremainingȱ20%;ȱU.S.ȱ
Bankȱ alsoȱ settledȱ PNB’sȱ originalȱ lawsuitȱ againstȱ Rockwell.ȱ
FDICȱdeterminedȱthatȱitȱwasȱleftȱwithȱlossesȱofȱ$2,103,365.ȱItȱ
filedȱaȱclaimȱforȱthatȱamountȱwithȱRLIȱinȱJuneȱ2010,ȱbutȱRLIȱ
deniedȱtheȱclaimȱinȱNovemberȱ2010.ȱ
BelievingȱthatȱRLI’sȱdenialȱviolatedȱtheȱtermsȱofȱtheȱbondȱ
RLIȱhadȱissuedȱtoȱPNB,ȱFDICȱfiledȱaȱbreachȬofȬcontractȱclaimȱ
againstȱ RLIȱ inȱ Mayȱ 2012.ȱ Theȱ districtȱ courtȱ hadȱ subjectȬ
matterȱ jurisdictionȱ overȱ theȱ suitȱ underȱ 12ȱU.S.C.ȱ
§ȱ1819(b)(2)(A),ȱ whichȱ providesȱ thatȱ civilȱ suitsȱ toȱ whichȱ
FDICȱisȱaȱpartyȱariseȱunderȱtheȱlawsȱofȱtheȱUnitedȱStates.ȱInȱ
Juneȱ 2014ȱ itȱ resolvedȱ theȱ suitȱ withȱ aȱ grantȱ ofȱ summaryȱ
judgmentȱforȱFDIC.ȱ
IIȱ
RLIȱoffersȱfiveȱreasonsȱwhy,ȱinȱitsȱview,ȱtheȱbondȱitȱissuedȱ
toȱPNBȱdoesȱnotȱcoverȱFDIC’sȱloss.ȱWeȱwillȱaddressȱeachȱinȱ
turn.ȱ
Aȱ
TheȱbondȱcoversȱlossesȱresultingȱdirectlyȱfromȱPNB’sȱreliȬ
anceȱ onȱ aȱ documentȱ thatȱ bearsȱ aȱ forgedȱ signature.ȱ Itȱ givesȱ
severalȱexamplesȱofȱdocumentsȱthatȱqualifyȱforȱcoverage,ȱinȬ
cludingȱ securityȱ agreements,ȱ whichȱ asȱ weȱ haveȱ notedȱ mustȱ
beȱ inȱ writingȱ andȱ mustȱ createȱ “anȱ interest”ȱ inȱ propertyȱ toȱ
secureȱ paymentȱ orȱ performanceȱ ofȱ anȱ obligation.ȱ RLIȱ conȬ

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No.ȱ14Ȭ2736ȱ 7
tendsȱthatȱtheȱleaseȱschedulesȱatȱissueȱinȱthisȱcaseȱdoȱnotȱfitȱ
thatȱ descriptionȱ andȱ thusȱ doȱ notȱ warrantȱ RLI’sȱ coverageȱ ofȱ
FDIC’sȱ losses.ȱ (Noȱ oneȱ assertsȱ thatȱ theȱ leaseȱ schedulesȱ areȱ
properlyȱclassifiedȱasȱanyȱofȱtheȱotherȱdocumentsȱqualifyingȱ
forȱcoverageȱunderȱtheȱbond.)ȱ
AsȱRLIȱseesȱit,ȱtheȱleaseȱschedulesȱdidȱnotȱcreateȱanȱinterȬ
estȱinȱanyȱproperty.ȱInstead,ȱtheyȱmerelyȱreflectedȱSysix’sȱexȬ
istingȱinterestȱinȱtheȱcomputerȱequipmentȱandȱmemorializedȱ
Moody’sȱobligationȱtoȱmakeȱpayments.ȱMoodyȱhadȱ noȱobliȬ
gationȱtoȱbuyȱtheȱequipment,ȱRLIȱsays,ȱandȱthusȱtheȱschedȬ
ulesȱcouldȱnotȱconveyȱtitleȱtoȱanyone.ȱTheȱproblemȱwithȱthisȱ
argumentȱisȱthatȱtheȱbondȱdoesȱnotȱspecifyȱwhatȱsortȱofȱ“inȬ
terest”ȱhadȱtoȱhaveȱbeenȱretainedȱinȱtheȱpropertyȱinȱorderȱforȱ
theȱ leaseȱ toȱ qualifyȱ asȱ aȱ securityȱ agreement.ȱ Theȱ wordȱ “inȬ
terest”ȱdoesȱnot,ȱcontraryȱtoȱRLI’sȱassumption,ȱdescribeȱonlyȱ
anȱ ownershipȱ interest.ȱ Theȱ leaseȱ schedulesȱ hereȱ conveyedȱ
somethingȱ lessȱ thanȱ fullȱ ownership:ȱ aȱ possessoryȱ interestȱ inȱ
theȱ computerȱ equipmentȱ thatȱ Sysixȱ wasȱ supposedlyȱ leasingȱ
toȱ Moody.ȱ Inȱ keepingȱ withȱ thatȱ conveyance,ȱ theȱ schedulesȱ
anticipateȱMoody’sȱtakingȱpossessionȱofȱtheȱlistedȱcomputerȱ
equipment.ȱ PNBȱ reasonablyȱ viewedȱ thisȱ languageȱ asȱ creatȬ
ingȱanȱenforceableȱinterestȱforȱMoodyȱinȱtheȱlistedȱproperty.ȱ
Theȱlanguageȱofȱtheȱbondȱrequiresȱnothingȱmore.ȱ
RLIȱpushesȱbackȱwithȱseveralȱcasesȱthatȱconsiderȱwhetherȱ
certainȱdocumentsȱcouldȱbeȱconsideredȱsecurityȱagreementsȱ
forȱpurposesȱofȱtheȱUniformȱCommercialȱCode.ȱSectionȱ9Ȭ102ȱ
ofȱ theȱ UCCȱ definesȱ “securityȱ agreement”ȱ asȱ “anȱ agreementȱ
thatȱ createsȱ orȱ providesȱ forȱ aȱ securityȱ interest”—thatȱ is,ȱ anȱ
interestȱsufficientȱtoȱpermitȱtheȱsecuredȱpartyȱtoȱlookȱtoȱthatȱ
propertyȱ forȱ repayment.ȱ Theȱ ideaȱ isȱ similarȱ toȱ theȱ oneȱ reȬ
flectedȱinȱtheȱbond,ȱbutȱRLIȱhasȱprovidedȱnoȱreasonȱwhyȱtheȱ

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8ȱ No.ȱ14Ȭ2736ȱ
UCCȱtakenȱasȱaȱwholeȱshouldȱdictateȱtheȱresultȱhere.ȱAsȱtheȱ
districtȱcourtȱnoted,ȱtheȱbondȱandȱtheȱUCCȱemployȱtheȱtermsȱ
“lease”ȱ andȱ “securityȱ agreement”ȱ forȱ differentȱ reasonsȱ andȱ
inȱdifferentȱcontexts.ȱWeȱneedȱnotȱwadeȱintoȱtheȱdiscussionsȱ
about,ȱ forȱ example,ȱ theȱ differencesȱ forȱ UCCȱ purposesȱ beȬ
tweenȱ trueȱ leasesȱ andȱ installmentȱ salesȱ contracts.ȱ Theȱ plainȱ
languageȱ ofȱ theȱ bondȱ requiresȱ onlyȱ thatȱ “anȱ interest”ȱ inȱ
propertyȱbeȱconveyedȱthroughȱaȱdocumentȱinȱorderȱforȱitȱtoȱ
beȱ aȱ securityȱ agreement.ȱ Nothingȱ inȱ theȱ UCCȱ underminesȱ
thatȱlanguage.ȱȱ
RLIȱalsoȱarguesȱbrieflyȱthatȱPNBȱdidȱnotȱ“treat”ȱtheȱleaseȱ
schedulesȱasȱsecurityȱagreements,ȱbutȱitȱfailsȱtoȱexplainȱwhyȱ
thatȱ isȱ relevantȱ toȱ theȱ languageȱ ofȱ theȱ bond.ȱ Weȱ agreeȱ withȱ
FDICȱthatȱtheȱinterestȱconveyedȱinȱtheȱleaseȱschedulesȱisȱsufȬ
ficientȱ toȱ treatȱ thoseȱ leaseȱ schedulesȱ asȱ securityȱ agreementsȱ
underȱtheȱbondȱandȱthusȱasȱsomethingȱthatȱentitlesȱFDICȱtoȱ
indemnificationȱcoverageȱforȱitsȱlosses.ȱ
Bȱ
RLIȱalsoȱarguesȱthatȱFDICȱhasȱnotȱshownȱthatȱitsȱlossȱreȬ
sultedȱdirectlyȱfromȱaȱforgery.ȱIfȱthatȱwereȱtrue,ȱitȱwouldȱbeȱaȱ
problem,ȱbecauseȱtheȱbondȱrequiresȱ(asȱRLIȱputsȱit)ȱ“aȱdirectȱ
nexusȱ betweenȱ theȱ forgeryȱ andȱ theȱ loss”ȱ inȱ orderȱ toȱ triggerȱ
coverage.ȱMoreȱprecisely,ȱtheȱbondȱpromisesȱindemnificationȱ
forȱ “[l]ossȱ resultingȱ directlyȱ fromȱ theȱ Insuredȱ having,ȱ inȱ
goodȱfaith,ȱ…ȱassumedȱliability,ȱonȱtheȱfaithȱof,ȱanyȱWritten,ȱ
Originalȱ…ȱSecurityȱAgreement,ȱwhichȱ…ȱbearsȱaȱhandwritȬ
tenȱ signatureȱ …ȱ whichȱ isȱ aȱ forgery.”ȱ RLIȱ contendsȱ thatȱ theȱ
forgedȱ signaturesȱ onȱ theȱ leaseȱ schedulesȱ didȱ notȱ directlyȱ
causeȱ PNB’sȱ loss,ȱ becauseȱ theȱ computerȱ equipmentȱ deȬ
scribedȱ inȱ eachȱ scheduleȱ didȱ notȱ exist,ȱ andȱ soȱ thereȱ wasȱ
nothingȱforȱSysixȱtoȱleaseȱtoȱMoodyȱinȱtheȱfirstȱplace.ȱThereȬ

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No.ȱ14Ȭ2736ȱ 9
fore,ȱ evenȱ ifȱ theȱ signatureȱ hadȱ beenȱ genuine,ȱ RLIȱ says,ȱ theȱ
underlyingȱ “collateral”ȱ wouldȱ haveȱ beenȱ worthless.ȱ Itȱ conȬ
cludesȱthatȱinȱthisȱsituationȱtheȱrealȱsourceȱofȱtheȱlossȱwouldȱ
beȱworthlessȱcollateral,ȱnotȱforgery,ȱandȱthusȱtheȱlossȱwouldȱ
notȱbeȱcoveredȱbyȱtheȱbond.ȱȱ
RLI’sȱreadingȱofȱtheȱbondȱoverlooksȱaȱcriticalȱdetail.ȱTheȱ
bondȱ doesȱ notȱ sayȱ thatȱ theȱ lossȱ mustȱ haveȱresultedȱ directlyȱ
fromȱ aȱ forgery;ȱ itȱ saysȱ thatȱ theȱ lossȱ mustȱ haveȱ resultedȱ diȬ
rectlyȱfromȱrelianceȱuponȱaȱsecurityȱagreementȱthatȱcontainedȱ
aȱ forgery.ȱ Contraryȱ toȱ RLI’sȱ contention,ȱ theȱ bondȱ doesȱ notȱ
requireȱ FDICȱ toȱ showȱ thatȱ theȱ forgedȱ signatureȱ byȱ itselfȱ
harmedȱPNB’sȱabilityȱtoȱrecoupȱitsȱloss.ȱIfȱPNBȱreliedȱinȱgoodȱ
faithȱ onȱ theȱ leaseȱ schedulesȱ toȱ disburseȱ fundsȱ toȱ Rockwell,ȱ
andȱtheȱleaseȱschedulesȱcontainedȱbothȱtheȱforgedȱsignaturesȱ
andȱtheȱlistsȱofȱfictitiousȱequipment,ȱFDICȱcanȱshowȱthatȱitsȱ
lossȱsatisfiesȱtheȱtermsȱofȱtheȱbond.ȱȱ
Relyingȱ primarilyȱ onȱ districtȱ courtȱ andȱ someȱ unȬ
publishedȱ casesȱ fromȱ outsideȱ thisȱ circuit,ȱ RLIȱ urgesȱ usȱ toȱ
findȱ anȱ exceptionȱ forȱ coverageȱ basedȱ onȱ theȱ “fictitiousȬ
collateral”ȱ doctrine.ȱ Theseȱ casesȱ takeȱ theȱ positionȱ thatȱ RLIȱ
advances,ȱnamely,ȱthatȱaȱbank’sȱlossȱforȱpurposesȱofȱaȱbondȱ
suchȱasȱthisȱmustȱflowȱfromȱtheȱforgeryȱitself.ȱThatȱconditionȱ
cannotȱ beȱ metȱ ifȱ theȱ underlyingȱ collateralȱ isȱ worthlessȱ orȱ
nonȬexistent.ȱ Thisȱ court,ȱ however,ȱ hasȱ expressedȱ doubtȱ
aboutȱ aȱ “fictitiousȬcollateralȱ doctrine,”ȱ albeitȱ inȱ aȱ caseȱ dealȬ
ingȱwithȱslightlyȱdifferentȱbondȱlanguageȱfromȱthatȱatȱissueȱ
here.ȱ Seeȱ Firstȱ Nat’lȱ Bankȱ ofȱ Manitowocȱ v.ȱ Cincinnatiȱ Ins.ȱ Co.,ȱ
485ȱF.3dȱ 971,ȱ 980ȱ (7thȱ Cir.ȱ 2007)ȱ (rejectingȱ asȱ “scantilyȱ reaȬ
soned”ȱ aȱ stateȱ courtȱ caseȱ concludingȱ thatȱ bondȱ languageȱ
“doesȱnotȱcoverȱlossesȱresultingȱfromȱtheȱnonexistenceȱofȱasȬ
setsȱassignedȱbyȱaȱforgedȱinstrument”).ȱRLIȱalsoȱurgesȱusȱtoȱ

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10ȱ No.ȱ14Ȭ2736ȱ
adoptȱ aȱ “stringent”ȱ lossȬcausationȱ standardȱ differentȱ fromȱ
theȱoneȱdiscussedȱinȱFirstȱNationalȱBankȱofȱManitowoc.ȱȱ
Ourȱ primaryȱ reasonȱ forȱ rejectingȱ RLI’sȱ argumentȱ isȱ
straightforward:ȱweȱareȱboundȱbyȱtheȱplainȱlanguageȱofȱtheȱ
bond,ȱandȱthisȱbondȱdoesȱnotȱmakeȱcoverageȱdependentȱonȱ
theȱ qualityȱ ofȱ theȱ collateral.ȱ Itȱ requiresȱ onlyȱ aȱ documentȱ
bearingȱ aȱ forgedȱ signature,ȱ andȱ goodȬfaithȱ relianceȱ onȱ thatȱ
documentȱ thatȱ causedȱ theȱ bank’sȱ loss.ȱ Forȱ similarȱ reasons,ȱ
RLI’sȱargumentȱaboutȱlossȱcausationȱisȱmisplaced.ȱȱ
Furthermore,ȱtheȱdistrictȱcourtȱofferedȱanȱadditionalȱreaȬ
son,ȱ toȱ whichȱ RLIȱ hasȱ notȱ adequatelyȱ responded,ȱ forȱ itsȱ reȬ
fusalȱtoȱacceptȱRLI’sȱfictitiousȬcollateralȱargument.ȱTheȱcourtȱ
observedȱ thatȱ theȱ leaseȱ schedulesȱ wereȱ moreȱ thanȱ aȱ simpleȱ
descriptionȱ ofȱ (fictitious)ȱ collateral;ȱ theyȱ wereȱ themselvesȱ
collateralȱ thatȱ inducedȱ theȱ transactionsȱ betweenȱ PNBȱ andȱ
Rockwell.ȱ Theȱ districtȱ court’sȱ rationaleȱ reflectsȱ theȱ wayȱ thatȱ
transactionsȱ likeȱ thisȱ oneȱ actuallyȱ operate:ȱ theȱ signedȱ docuȬ
mentȱitselfȱservesȱasȱtheȱbasisȱforȱtheȱtransaction.ȱTheȱsameȱisȱ
true,ȱ forȱ example,ȱ inȱ futuresȱ markets,ȱ whereȱ contractsȱ forȱ
commodities,ȱnotȱtheȱunderlyingȱcommodities,ȱareȱtheȱitemsȱ
ofȱ value.ȱAsȱ theȱ districtȱ courtȱ did,ȱ weȱ concludeȱ thatȱ FDIC’sȱ
lossȱ resultedȱ directlyȱ fromȱ PNB’sȱ relianceȱ onȱ theȱ leaseȱ
schedules,ȱ eachȱ ofȱ whichȱ containedȱ aȱ forgeryȱ andȱ eachȱ ofȱ
whichȱwasȱinȱitselfȱanȱitemȱofȱvalueȱtoȱtheȱbank.ȱ
Cȱ
Relianceȱ isȱ theȱ nextȱ issueȱ weȱ mustȱ consider.ȱ RLIȱ arguesȱ
thatȱ PNBȱ didȱ notȱ “extend[ȱ]ȱ creditȱ orȱ assume[ȱ]ȱ liability,ȱ onȱ
theȱfaithȱof”ȱtheȱleaseȱschedules,ȱasȱtheȱbondȱrequires.ȱInȱreȬ
ality,ȱRLIȱcontinues,ȱPNBȱapprovedȱRockwell’sȱloanȱapplicaȬ
tionsȱbeforeȱitȱeverȱsawȱtheȱleaseȱschedules,ȱandȱthereȱisȱnoȱ

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No.ȱ14Ȭ2736ȱ 11
evidenceȱthatȱanyoneȱatȱPNBȱwhoȱapprovedȱtheȱloansȱmadeȱ
anyȱ decisionsȱ basedȱ uponȱ theirȱ contents.ȱ Thus,ȱ RLIȱ conȬ
cludes,ȱ PNBȱ cannotȱ haveȱ extendedȱ creditȱ toȱ Rockwellȱ “onȱ
theȱ faithȱ of”ȱ thoseȱ documents,ȱ whichȱ wereȱ theȱ onlyȱ onesȱ
withȱforgedȱsignatures.ȱ
Inȱthisȱinstance,ȱRLIȱoversimplifies.ȱPNBȱdidȱpossessȱtheȱ
leaseȱschedulesȱbeforeȱitȱexecutedȱ(onȱtheȱsameȱday)ȱaȱsecuriȬ
tyȱagreementȱwithȱRockwellȱandȱRockwellȱsignedȱaȱpromisȬ
soryȱ note.ȱ Bothȱ eventsȱ precededȱ PNB’sȱ disbursementȱ ofȱ
fundsȱ toȱ Rockwell.ȱ Thisȱ raisesȱ theȱ question:ȱ atȱ whatȱ pointȱ
didȱ PNBȱ actuallyȱ “extend[ȱ]ȱ creditȱ …ȱ onȱ theȱ faithȱ of”ȱ theȱ
leaseȱschedules?ȱRLIȱproposesȱthatȱtheȱoperativeȱdecisionȱonȱ
PNB’sȱpartȱwasȱtheȱmomentȱatȱwhichȱitȱgaveȱpreliminaryȱapȬ
provalȱ toȱ theȱ loansȱ forȱ Rockwell.ȱ Thatȱ makesȱ littleȱ sense,ȱ
however,ȱ givenȱ theȱ factȱ thatȱ moreȱ neededȱ toȱ happenȱ beforeȱ
moneyȱ changedȱ hands.ȱ Onlyȱ afterȱ PNBȱ tookȱ thoseȱ otherȱ
stepsȱdidȱitȱfinallyȱdisburseȱtheȱfunds.ȱȱ
Theȱ loanȱ presentationsȱ thatȱ precededȱ eachȱ ofȱ PNB’sȱ twoȱ
loansȱ toȱ Rockwellȱ areȱ inȱ theȱ record,ȱ alongȱ withȱ theȱ otherȱ
documentsȱ weȱ discussȱ here.ȱ Theȱ firstȱ presentationȱ isȱ datedȱ
Marchȱ 7,ȱ 2008.ȱ Itȱ precededȱ theȱ executionȱ ofȱ Leaseȱ Scheduleȱ
S080ȱbyȱaboutȱtwoȱweeksȱandȱshowsȱthatȱRockwellȱrequestȬ
edȱ$3,100,000.ȱScheduleȱS080ȱitself,ȱpurportedlyȱexecutedȱonȱ
Marchȱ 20,ȱ bearsȱ theȱ figureȱ ofȱ $2,977,135.49ȱ asȱ theȱ originalȱ
equipmentȱ cost,ȱ andȱ showsȱ aȱ monthlyȱ rentȱ ofȱ $72,691.73.ȱ
Eightȱdaysȱlater,ȱRockwellȱexecutedȱaȱpromissoryȱnoteȱforȱaȱ
totalȱ amountȱ ofȱ $2,978,334.28,ȱ withȱ monthlyȱ installmentsȱ ofȱ
$72,691.73ȱ (preciselyȱ whatȱ Scheduleȱ S080ȱ calledȱ for).ȱ Theȱ
sameȱ day,ȱ PNBȱ executedȱ anȱ assignmentȱ andȱ securityȱ agreeȬ
mentȱ regardingȱ PNB’sȱ loanȱ toȱ Rockwell.ȱ Theȱ agreementȱ reȬ
fersȱ toȱ Scheduleȱ S080ȱ byȱ itsȱ dateȱ andȱ nameȱ asȱ theȱ “relatedȱ

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12ȱ No.ȱ14Ȭ2736ȱ
contract”ȱ andȱ reflectsȱ theȱ sameȱ $2,978,334.28ȱ amount,ȱ overȱ
$120,000ȱlessȱthanȱtheȱamountȱproposedȱinȱtheȱloanȱpresentaȬ
tion.ȱ PNB’sȱ secondȱ loanȱ toȱ Rockwellȱ inȱ Decemberȱ 2008ȱ folȬ
lowedȱtheȱsameȱpattern.ȱTheȱinitialȱloanȱpresentationȱonȱDeȬ
cemberȱ 10,ȱ 2008,ȱ indicatedȱ thatȱ PNBȱ wouldȱ loanȱ $1,120,000ȱ
toȱRockwell.ȱLeaseȱScheduleȱS084,ȱexecutedȱonȱDecemberȱ15ȱ
andȱ16,ȱwasȱcloseȱbutȱnotȱidentical:ȱitȱreflectedȱanȱequipmentȱ
purchaseȱ priceȱ ofȱ $1,111,024,ȱ withȱ aȱ monthlyȱ rentȱ ofȱ
$32,410.51.ȱRockwell’sȱDecemberȱ22ȱpromissoryȱnoteȱincludȬ
edȱaȱmonthlyȱpaymentȱamountȱofȱ$32,410.51,ȱandȱtheȱsecuriȬ
tyȱagreementȱitȱsignedȱwithȱPNBȱthatȱsameȱdayȱmadeȱspecifȬ
icȱreferenceȱtoȱScheduleȱS084.ȱ(TheȱtotalȱamountȱforȱtheȱsecȬ
ondȱ loanȱ wasȱ $1,131,989.75;ȱ neitherȱ partyȱ explainsȱ whyȱ itȱ
wasȱhigherȱthanȱbothȱtheȱloanȱpresentationȱandȱtheȱamountȱ
onȱScheduleȱS084.)ȱ
TheseȱdocumentsȱsupportȱtheȱconclusionȱthatȱtheȱoperaȬ
tiveȱ momentȱ wasȱ whenȱ PNBȱ actuallyȱ disbursedȱ theȱ money,ȱ
notȱ whenȱ itȱ initiallyȱ approvedȱ theȱ loans—inȱ otherȱ words,ȱ
whenȱ theȱ moneyȱ wentȱ outȱ theȱ door.ȱ Thatȱ momentȱ didȱ notȱ
arriveȱ untilȱ PNBȱ hadȱ inȱ itsȱ possessionȱ theȱ twoȱ leaseȱ schedȬ
ulesȱthatȱcontainedȱtheȱforgedȱsignatures.ȱThereȱisȱlittleȱquesȬ
tionȱ thatȱ PNBȱ consultedȱ thoseȱ schedulesȱ beforeȱ comingȱ toȱ
finalȱagreementȱwithȱRockwell,ȱgivenȱtheȱspecificȱreferencesȱ
toȱtheȱleaseȱschedulesȱandȱtheȱagreements’ȱuseȱofȱtheȱpreciseȱ
monthlyȱ rentalȱ amountsȱ fromȱ theȱ schedules.ȱ RLIȱ contendsȱ
thatȱ aȱ reasonableȱ jurorȱ couldȱ findȱ thatȱ PNBȱ didȱ notȱ relyȱ onȱ
theȱ leaseȱ schedules,ȱ butȱ weȱ cannotȱ seeȱ howȱ onȱ thisȱ record.ȱ
Theȱ onlyȱ plausibleȱ conclusionȱ isȱ thatȱ PNBȱ ultimatelyȱ “exȬ
tendedȱcreditȱ…ȱonȱtheȱfaithȱof”ȱdocumentsȱbearingȱforgerȬ
iesȱ(theȱleaseȱschedules).ȱ
ȱ

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No.ȱ14Ȭ2736ȱ 13
FDICȱ alsoȱ pointsȱ toȱ testimonyȱ fromȱ PNB’sȱ seniorȱ viceȱ
president,ȱ Richardȱ Dunbar,ȱ asȱ evidenceȱ thatȱ PNBȱ reliedȱ onȱ
theȱ leaseȱ schedules.ȱ Dunbarȱ testifiedȱ inȱ aȱ depositionȱ thatȱ
PNBȱ“hadȱtheȱoriginalȱofȱ[theȱleaseȱschedules]ȱpriorȱtoȱfundȬ
ingȱ theseȱ loanȱ transactions,”ȱ becauseȱ PNBȱ “alwaysȱ reȬ
quire[d]ȱ thoseȱ originals,”ȱ andȱ thatȱ PNBȱ “rel[ied]ȱ inȱ goodȱ
faith”ȱ onȱ theȱ leaseȱ schedulesȱ whenȱ makingȱ itsȱ loansȱ toȱ
Rockwell.ȱ RLIȱ disparagesȱ thisȱ testimony,ȱ pointingȱ outȱ thatȱ
peopleȱ otherȱ thanȱ Dunbarȱ approvedȱ theȱ loansȱ atȱ theȱ loanȱ
presentationȱ stage.ȱ Thisȱ suggests,ȱ RLIȱ argues,ȱ thatȱ Dunbarȱ
lackedȱ personalȱ knowledgeȱ ofȱ theȱ decisionsȱ toȱ makeȱ theȱ
loans.ȱButȱDunbarȱwasȱPNB’sȱsignatoryȱtoȱtheȱfinalȱsecurityȱ
agreementsȱ andȱ assignmentsȱ betweenȱ Rockwellȱ andȱ PNB.ȱ
Thoseȱ documentsȱ reflectedȱ theȱ monthlyȱ amountsȱ fromȱ theȱ
leaseȱ schedulesȱ andȱ referredȱ toȱ theȱ schedulesȱ byȱ dateȱ andȱ
name.ȱThatȱisȱenoughȱtoȱshowȱthatȱDunbarȱplayedȱsomeȱroleȱ
inȱtheȱdisbursementȱofȱtheȱfundsȱtoȱRockwell.ȱȱ
Inȱ sum,ȱ RLIȱ hasȱ notȱ pointedȱ toȱ enoughȱ toȱ permitȱ aȱ reaȬ
sonableȱ juryȱ toȱ findȱ thatȱ PNBȱ didȱ notȱ provideȱ loansȱ toȱ
RockwellȱonȱtheȱfaithȱofȱdocumentsȱcontainingȱforgedȱsignaȬ
tures.ȱToȱtheȱcontrary,ȱtheȱundisputedȱmaterialȱfactsȱdemonȬ
strateȱthatȱPNBȱpossessedȱandȱreviewedȱtheȱleaseȱschedulesȱ
asȱ itȱ cameȱ toȱ aȱ finalȱ arrangementȱ withȱ Rockwell,ȱ andȱ itȱ exȬ
plicitlyȱ referredȱ toȱ theȱ schedulesȱ andȱ incorporatedȱ theirȱ
monthlyȱpaymentȱtermsȱinȱtheȱfinalȱloanȱdocuments.ȱȱ
Dȱ
RLI’sȱ nextȱ argumentȱ isȱ thatȱ FDICȱ failedȱ toȱ complyȱ withȱ
theȱrequirementȱinȱtheȱbondȱrequiringȱitȱtoȱhaveȱactualȱphysȬ
icalȱpossessionȱofȱtheȱforgedȱdocument.ȱRLIȱinterpretsȱthisȱtoȱ
meanȱactualȱpossessionȱofȱtheȱoriginalȱ2001ȱmasterȱlease.ȱItȱisȱ
undisputedȱthatȱFDICȱneverȱpossessedȱthatȱdocument.ȱErgo,ȱ

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14ȱ No.ȱ14Ȭ2736ȱ
RLIȱsays,ȱFDICȱcannotȱshowȱthatȱitȱassumedȱliabilityȱ“onȱtheȱ
faithȱ ofȱ …ȱ anyȱ Written,ȱ Original”ȱ securityȱ agreementȱ conȬ
tainingȱaȱsignatureȱ“whichȱisȱaȱForgery,”ȱwhereȱ“Original”ȱisȱ
definedȱasȱ“theȱfirstȱrenderingȱorȱarchetype.”ȱ
RLIȱ isȱ againȱ notȱ takingȱ theȱ bond’sȱ languageȱ inȱ context.ȱ
Theȱ bondȱ doesȱ notȱ requireȱ theȱ insuredȱ partyȱ toȱ possessȱ theȱ
originalȱ ofȱ everyȱ documentȱ associatedȱ withȱ aȱ transaction,ȱ
includingȱaȱmasterȱloanȱdocumentȱthatȱprecededȱanȱindividȬ
ualȱ leaseȱ agreement.ȱ Weȱ canȱ assumeȱ thatȱ theȱ masterȱ leaseȱ
beganȱ theȱ businessȱ relationshipȱ betweenȱ Moodyȱ andȱ Sysix,ȱ
butȱeachȱleaseȱscheduleȱrepresentsȱaȱstandaloneȱtransaction,ȱ
eachȱwithȱitsȱownȱexecutionȱdateȱandȱfinancing.ȱItȱisȱundisȬ
putedȱ thatȱ FDICȱ possessesȱ theȱ originalȱ ofȱ eachȱ leaseȱ schedȬ
ule.ȱAsȱ weȱ alreadyȱ haveȱ discussed,ȱ eachȱ leaseȱ scheduleȱ isȱ aȱ
securityȱ agreementȱ asȱ definedȱ byȱ theȱ bond,ȱ andȱ eachȱ conȬ
tainsȱ aȱ forgeryȱ uponȱ whichȱ PNBȱ (andȱ FDICȱ byȱ extension)ȱ
sufficientlyȱ reliedȱ toȱ triggerȱ coverage.ȱ Inȱ short,ȱ FDICȱ posȬ
sessesȱ theȱ writtenȱ originalsȱ ofȱ theȱ operativeȱ securityȱ agreeȬ
ments—here,ȱtheȱleaseȱschedules.ȱ
RLIȱ suggestsȱ thatȱ becauseȱ (asȱ itȱ seesȱ it)ȱ theȱ leaseȱ schedȬ
ulesȱ “containȱ noȱ materialȱ terms”ȱ andȱ “areȱ simplyȱ listsȱ ofȱ
leasedȱ equipment,”ȱ theyȱ doȱ notȱ qualifyȱ asȱ agreements.ȱ Aȱ
lookȱ atȱ theȱ schedules,ȱ however,ȱ showsȱ thatȱ theyȱ areȱ notȱ soȱ
limited.ȱ Inȱ particular,ȱ theȱ firstȱ pageȱ ofȱ eachȱ scheduleȱ proȬ
videsȱtheȱmaterialȱterms:ȱtheȱminimumȱtermȱofȱtheȱlease,ȱtheȱ
commencementȱ date,ȱ theȱ monthlyȱ rent,ȱ theȱ maximumȱ purȬ
chaseȱ priceȱ ofȱ theȱ leasedȱ equipment,ȱ andȱ anȱ automaticȱ reȬ
newalȱprovisionȱinȱtheȱeventȱthatȱtheȱlesseeȱfailsȱtoȱreturnȱtheȱ
equipmentȱuponȱterminationȱofȱtheȱlease.ȱAlthoughȱtheȱleasȬ
esȱ alsoȱ incorporateȱ theȱ masterȱ leaseȱ byȱ reference,ȱ RLIȱ conȬ
tendsȱ thatȱ thisȱ mustȱ beȱ disregardedȱ becauseȱ ofȱ theȱ “antiȬ

-- 14 of 16 --

No.ȱ14Ȭ2736ȱ 15
bundling”ȱ provisionȱ withinȱ theȱ bond.ȱ Weȱ needȱ notȱ addressȱ
thisȱ argumentȱ becauseȱ inȱ ourȱ viewȱ theȱ incorporationȱ ofȱ theȱ
masterȱ leaseȱ doesȱ notȱ changeȱ anything,ȱ givenȱ theȱ leaseȱ
schedules’ȱ statusȱ asȱ theȱ operativeȱ forgeryȬbearingȱ securityȱ
agreementsȱinȱthisȱcase.ȱ
Eȱ
Finally,ȱ RLIȱ contendsȱ thatȱ FDIC’sȱ claimȱ fallsȱ outsideȱ theȱ
bond’sȱcontractualȱstatuteȱofȱlimitations.ȱPNBȱdiscoveredȱitsȱ
lossȱinȱSeptemberȱ2009,ȱyetȱFDICȱdidȱnotȱfileȱsuitȱagainstȱRLIȱ
untilȱ Mayȱ 2012.ȱ Theȱ bondȱ containsȱ aȱ provisionȱ imposingȱ aȱ
24Ȭmonthȱlimitȱonȱtheȱinitiationȱofȱlitigation,ȱmeasuredȱfromȱ
theȱ dateȱ ofȱ discoveryȱ ofȱ theȱ insured’sȱ loss;ȱ RLIȱ arguesȱ thatȱ
thisȱcontrols.ȱWeȱcanȱdispenseȱwithȱthisȱargumentȱeasily.ȱTheȱ
FinancialȱInstitutionsȱReformȱRecoveryȱandȱEnforcementȱActȱ
(FIRREA),ȱ enactedȱ inȱ 1989ȱ (longȱ beforeȱ theseȱ transactions),ȱ
saysȱthatȱ“[n]otwithstandingȱanyȱprovisionȱofȱanyȱcontract,”ȱ
theȱ statuteȱ ofȱ limitationsȱ forȱ anyȱ contractȱ claimȱ broughtȱ byȱ
FDICȱisȱtheȱlongerȱofȱsixȱyearsȱorȱtheȱapplicableȱstateȱstatuteȱ
ofȱ limitations.ȱ 12ȱ U.S.C.ȱ §ȱ1821(d)(14);ȱ Pub.ȱ L.ȱ No.ȱ 101Ȭ73,ȱ
§ȱ212ȱ (1989).ȱ Theȱ presentȱ caseȱ involvesȱ aȱ contractȱ claimȱ
broughtȱ byȱ FDICȱ inȱ itsȱ capacityȱ asȱ receiver.ȱ RLIȱ concedesȱ
thatȱifȱtheȱFIRREAȱperiodȱapplies,ȱthisȱsuitȱwasȱtimely.ȱ
RLIȱfightsȱthisȱoutcomeȱwithȱaȱconvolutedȱargumentȱthatȱ
startsȱ withȱ theȱ propositionȱ thatȱ theȱ 24Ȭmonthȱ limitationȱ onȱ
suitsȱinȱtheȱbondȱisȱnotȱanalogousȱtoȱaȱstatuteȱofȱlimitations.ȱ
Ifȱ thatȱ isȱ so,ȱ thenȱ (RLIȱ contends),ȱ theȱ periodȱ inȱ theȱ bondȱ
overridesȱ FIRREA’sȱ sixȬyearȱ (orȱ greater)ȱ allowanceȱ forȱ thisȱ
kindȱ ofȱ suitȱ byȱ FDICȱ becauseȱ itȱ isȱ aȱ contractualȱ provision,ȱ
andȱcontractualȱprovisionsȱareȱfavoredȱbyȱIllinoisȱlawȱwhenȱ
contraryȱ toȱ statutesȱ ofȱ limitations.ȱ Itsȱ argument,ȱ however,ȱ
utterlyȱ ignoresȱ theȱ factȱ thatȱ FIRREA’sȱ periodȱ appliesȱ

-- 15 of 16 --

16ȱ No.ȱ14Ȭ2736ȱ
“[n]otwithstandingȱanyȱprovisionȱofȱanyȱcontract.”ȱTheȱstatȬ
utoryȱlanguageȱcouldȱnotȱbeȱclearer.ȱCongressȱprovidedȱthatȱ
FIRREAȱ wouldȱ overrideȱ shorterȱ contractualȱ timeȱ limits,ȱ notȱ
theȱotherȱwayȱaround.ȱ
RLI’sȱ onlyȱ responseȱ isȱ toȱ argueȱ thatȱ theȱ languageȱ inȱ
FIRREAȱ isȱ merelyȱ aȱ choiceȬofȬlawȱ provision,ȱ notȱ theȱ firmȱ
commandȱweȱperceiveȱitȱtoȱbe.ȱRLIȱdoesȱnotȱexplainȱthisȱarȬ
gumentȱasideȱfromȱaȱcitationȱtoȱourȱdecisionȱinȱFDICȱv.ȱWaȬ
bick,ȱ 335ȱ F.3dȱ 620ȱ (7thȱ Cir.ȱ 2003),ȱ whichȱ doesȱ notȱ dealȱ withȱ
theȱ “notwithstanding”ȱ language.ȱ Wabickȱ addressedȱ theȱ lanȬ
guageȱ inȱ FIRREAȱ instructingȱ courtsȱ toȱ useȱ “theȱ longerȱ of”ȱ
eitherȱ sixȱ yearsȱ orȱ theȱ applicableȱ stateȱ statuteȱ ofȱ limitationsȱ
(whichȱwasȱ10ȱyearsȱinȱIllinois).ȱTheȱstatutoryȱlanguageȱhereȱ
unequivocallyȱinstructsȱcourtsȱtoȱsetȱasideȱ“anyȱprovisionȱofȱ
anyȱ contract.”ȱ RLIȱ alsoȱ pointsȱ toȱ CTSȱ Corp.ȱ v.ȱ Waldburger,ȱ
134ȱS.ȱ Ct.ȱ 2175ȱ (2014),ȱ statingȱ thatȱ theȱ Supremeȱ Courtȱ “reȬ
centlyȱaddressedȱthisȱissue”ȱinȱthatȱcase.ȱTheȱissueȱtoȱwhichȱ
RLIȱ refers,ȱ however,ȱ isȱ justȱ theȱ generalȱ distinctionȱ betweenȱ
statutesȱ ofȱ limitationȱ andȱ statutesȱ ofȱ repose.ȱ Waldburgerȱ exȬ
aminedȱanȱenvironmentalȱstatute,ȱnotȱFIRREA.ȱTheȱquestionȱ
wasȱ whetherȱ thatȱ statuteȱ preemptedȱ onlyȱ statutesȱ ofȱlimitaȬ
tions,ȱorȱalsoȱstatutesȱofȱrepose.ȱNothingȱinȱWaldburgerȱcastsȱ
anyȱdoubtȱonȱourȱreadingȱofȱFIRREA.ȱȱ
IIIȱ
Theȱ bondȱ thatȱ RLIȱ issuedȱ toȱ PNBȱ coversȱ theȱ lossȱ thatȱ
PNBȱ (andȱ thusȱ FDICȱ asȱ receiver)ȱ sufferedȱ inȱ thisȱ case.ȱ BeȬ
causeȱ FIRREAȱ specificallyȱ overridesȱ conflictingȱ contractualȱ
periodsȱforȱbringingȱsuit,ȱandȱFDICȱsuedȱwithinȱtheȱstatutoȬ
ryȱ time,ȱ itsȱ claimȱ wasȱ notȱ subjectȱ toȱ dismissalȱ asȱ untimely.ȱ
WeȱthereforeȱA FFIRMȱtheȱjudgmentȱofȱtheȱdistrictȱcourtȱinȱfaȬ
vorȱofȱFDIC.ȱ

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