Third Circuit disposition — 01-2524

NOT PRECEDENTIAL
THE UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
No. 01-2524
___________
FEDERAL DEPOSIT INSURANCE CORPORATION,
as Receiver for City Savings, F.S.B., in Receivership,
vs.
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA
Federal Deposit Insurance Corporation,
Appellant.
___________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
(D.C. No. 96-cv-02575)
District Judge: The Honorable Nicholas H. Politan
___________
ARGUED JULY 24, 2002
BEFORE: NYGAARD, ROSENN, and GREENBERG, Circuit Judges.
(Filed : February 6, 2003)
___________
Lawrence H. Richmond, Esq. (Argued)
Federal Deposit Insurance Corporation
801 17th Street, NW
Washington, DC 20434
Barbara S. Woodall, Esq.
Room H-11109
Federal Deposit Insurance Corporation

-- 1 of 7 --

2
Appellate Litigation Section
1717 H Street, N.W.
Washington, DC 20006
Gerald A. Liloia, Esq.
Riker, Danzig, Scherer, Hyland & Perretti
One Speedwell Avenue
Headquarters Plaza
Morristown, NJ 07962
Counsel for Appellant
William B. McGuire, Esq. (Argued)
Tompkins, McGuire, Wachenfeld & Barry
100 Mulberry Street
Gateway Four
Newark, NJ 07102
Robert E. Kushner, Esq.
D'Amato & Lynch
70 Pine Street
New York, NY 10270
Counsel for Appellee
___________
OPINION OF THE COURT
___________
NYGAARD, Circuit Judge.
This case results from a series of banking errors that led to City Federal
Savings Bank’s insolvency from a defaulted loan. The FDIC, as receiver for the failed City
Federal, sued National Union Insurance Company to recover on a fidelity bond
indemnifying City Federal for losses incurred from employees’ dishonest or fraudulent
acts. The District Court granted summary judgment to National Union. We will affirm.

-- 2 of 7 --

3
I. Facts
Port Liberte Partners launched a large construction project in Jersey City,
New Jersey. City Federal Savings Bank, a federally chartered bank, provided much of the
funding for the Project. Later, National Union Fire Insurance Co. issued a financial
institution bond to City Federal. This bond was essentially an insurance policy that
indemnified City Federal or its subsidiaries for up to $20 million of losses caused by
fraudulent or dishonest acts of City Federal employees. The policy stated that it would
provide coverage for:
Loss resulting directly from dishonest or fraudulent acts
committed by an employee acting alone or in collusion with
others. Such dishonest or fraudulent acts must be committed
with manifest intent:
(a) to cause the insured to sustain loss; and
(b) to obtain financial benefit for the employee or another
person or entity.
As used throughout this insuring agreement, financial benefit
does not include any employee benefits earned in the normal
course of employment, including: salaries, commissions, fees,
bonuses, promotions, awards, profit sharing or pensions.
City Federal became insolvent when Port Liberte defaulted on all of City
Federal’s loans to it. The Director of the Resolution Trust Corporation was appointed
receiver for City Federal. City Federal filed a formal proof of loss with National Union,
claiming that the loans made to Port Liberte were only made on the advice of George E.
Mikula, an executive vice president of City Federal. It further contended that Mikula

-- 3 of 7 --

4
concealed critical information about Port Liberte. Finally it asserted that, had the City
Federal Board of Directors known of this information, they would not have approved the
loans. National Union denied the claim.
The FDIC took over as the receiver for City Federal and filed this lawsuit
against National Union on behalf of City Federal, claiming breach of contract and seeking
declaratory relief in the amount of $19,009,729. The FDIC alleges that Mikula
intentionally concealed reports and appraisals, causing City Federal to make the loans upon
which Port Liberte then defaulted. Specifically, the FDIC claims that National Westminster
Bank, the co-lender on the Project, wrote off millions of dollars of losses on the loans they
made to Port Liberte, and that Mikula knew this, but did not disclose this information to the
Board. In addition, the FDIC asserts that Mikula knew, but did not disclose to the Board,
that both internal and external appraisals showed that the Project was no longer
economically feasible. The FDIC argues that although Mikula himself did not benefit from
these transactions, he concealed this information for the benefit of Port Liberte or the
subcontractors working on the Project.
II. Discussion
The FDIC asserts that the District Court erred by adding a requirement to the
National Union bond that the financial benefit obtained by a third party must be an
“improper” benefit. We agree that the District Court erred in this respect. A requirement
that the benefit be “improper” is not found in the language of the National Union bond.
Nonetheless we will affirm because to obtain coverage, all that need be shown is a manifest

-- 4 of 7 --

1. In F&D, we held that summary judgment was improper because, among other
reasons, we found that “the circumstances present[ed] a genuine issue of material fact
concerning [the bank executives’] manifest intent to cause City Federal to sustain the . . .
loss.” 205 F.3d at 652.
5
intent to provide a financial benefit to a third party. The FDIC failed to show that Mikula
had such manifest intent.
In Resolution Trust Corp. v. Fidelity & Deposit Co. of Maryland, 205 F.3d
615, 626 (3d Cir. 2000) (“F&D”), we analyzed a bond virtually identical to the National
Union bond at issue, and determined that
the following elements [must] be present in order for a loss to
constitute a covered event: (1) the insured must incur a loss;
(2) the loss must have ‘result[ed] directly’ from dishonest or
fraudulent acts of an employee or employees; (3) the employee
must have committed the acts with the ‘manifest intent’ to
cause the insured to suffer the loss sustained . . . ; and (4) the
employee must have committed the acts with the ‘manifest
intent’ to obtain a financial benefit for the employee or a third
party, and the financial benefit obtained must not be of the type
covered by the exclusionary clause.
205 F.3d at 636. In F&D, if the defendant could establish that any one of these
requirements was not met, the loss would not constitute a covered event, and summary
judgment in favor of the defendant would be appropriate.1 Therefore, for the FDIC to
recover under the National Union bond, it must show that Mikula acted with both the
specific intent to cause City Federal a loss and with the specific intent to obtain a financial
benefit for himself or for a third party. See id. at 642.
Although it is generally difficult to resolve summarily a question of intent

-- 5 of 7 --

6
that is material to a cause of action, a plaintiff must make a sufficient initial evidentiary
showing of the requisite intent to survive the motion for summary judgment. Coolspring
Stone Supply, Inc. v. American States Life Ins. Co., 10 F.3d 144, 148 (3d Cir. 1993). We
stated in F&D, “the term ‘manifest intent’ requires the insured to demonstrate that it was
the offending employee’s purpose or desire to obtain financial benefit for himself or a
third party, and to cause the insured to sustain a loss.” 205 F.3d at 644.
Here, when viewing the facts in the light most favorable to City Federal, the
record facts fall short of a threshold showing that Mikula had the “manifest intent” to cause
City Federal a loss and to benefit a third party. First, most of the facts that Mikula allegedly
concealed from the Board were well known by many other City Federal executives. Second,
these allegedly concealed facts did not definitively show that the Project was a failure.
Instead, they showed simply that the Project had problems. Third, Mikula did not have
authority to disburse loan funds, but rather made recommendations to the Board. And
finally, although some of the loan proceeds were paid directly to subcontractors for work
already completed, this was to assuage the subcontractors, who were threatening to leave
the job.
III.
We hold that because the undisputed evidence shows that Makula and others
did not have the manifest intent to obtain a financial benefit for themselves or for a third
party, the District Court committed no error in entering summary judgment for the
defendant. For this reason, we will affirm the judgment of the District Court.

-- 6 of 7 --

_________________________
TO THE CLERK:
Please file the foregoing opinion.
/s/ Richard L. Nygaard
Circuit Judge

-- 7 of 7 --