Transwest Credit Union v. Cumis Insurance Society

Filing 151

MEMORANDUM DECISION denying oral motion made by Cumis on 1/31/13. Signed by Judge Ted Stewart on 2/1/13. (ss)

IN THE UNITED STATES COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION

TRANSWEST CREDIT UNION,
Plaintiff,

MEMORANDUM DECISION AND
ORDER DENYING DEFENDANT’S
MOTION FOR JUDGMENT AS A
MATTER OF LAW

vs.

CUMIS INSURANCE SOCIETY, INC.,

Case No. 2:09-CV-297 TS

Defendant.

This matter is before the Court on Defendant CUMIS Insurance Society’s (“CUMIS”)
Federal Rule of Civil Procedure 50 Motion for Judgment as a Matter of Law. At the close of
Plaintiff Transwest Credit Union’s (“Transwest”) case, CUMIS moved for judgment as a matter
of law, arguing that (1) the evidence submitted demonstrates as a matter of law that CUMIS was
prejudiced as a result of Transwest’s late notice and (2) a reasonable jury would not have a
legally sufficient evidentiary basis to find that Transwest “enforced” the lending policies at issue
in this case.

1

Fed. R. Civ. P. 50(a) provides,
(1) If a party has been fully heard on an issue during a jury trial and the court finds that a
reasonable jury would not have a legally sufficient evidentiary basis to find for the party
on that issue, the court may:
(A) resolve the issue against the party; and
(B) grant a motion for judgment as a matter of law against the party on a claim or defense
that, under the controlling law, can be maintained or defeated only with a favorable
finding on that issue.
In reviewing a Rule 50 Motion, the Court reviews all of the evidence in the record.1
However, all reasonable inferences are drawn in favor of the nonmoving party and the Court does
“not make credibility determinations or weigh the evidence.”2 Judgment as a matter of law is
appropriate “only if the evidence points but one way and is susceptible to no reasonable
inferences which may support the opposing party’s position.”3 A judgment as a matter of law is
appropriate “[i]f there is no legally sufficient evidentiary basis . . . with respect to a claim or
defense . . . under the controlling law.”4
Pursuant to the terms of the Credit Union Bond, Transwest had an obligation to provide
CUMIS notice of any covered loss within 60 days of discovering the loss. The Court has already
found that Transwest failed to provide timely notice. However, under Utah law, failure to give

1

Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000).

2

Id.

3

Finley v. United States, 82 F.3d 966, 968 (10th Cir. 1996).

4

Baty v. Willamette Indus., Inc., 172 F.3d 1232, 1241 (10th Cir. 1999).
2

notice within the time specified does not invalidate Transwest’s claim if CUMIS fails to
demonstrate that it was prejudiced by the late notice.5
CUMIS has the burden to show that it was prejudiced by the late notice.6
When the party with the burden of proof moves for a directed verdict the evidence
must be viewed from a different perspective. Rather than considering the
evidence for its sufficiency to support a finding for the opposing party as is done
when the party not having the burden of proof has made such a motion, the
evidence is tested for its overwhelming effect. The test is a strict one, and a
directed verdict for the party having the burden of proof may be granted only
where he has established his case by evidence that the jury would not be at liberty
to disbelieve.7
Prejudice is the loss of a valuable right or benefit, and occurs when an insurer suffers a
material change in its ability to investigate, settle, or defend the claims at issue.8 “The question
of prejudice should be evaluated in light of the purposes of the notice requirements, namely, to
enable the insurer, to investigate and take the necessary steps to protect its interests,” including
the loss of money or property value.9 CUMIS may show prejudice by presenting evidence that
(1) its ability to investigate the claim has been lost; or (2) opportunities to negotiate settlement
have been lost; or (3) opportunities to defend have been lost.10

5

See Utah Code Ann. § 31A-21–312.

6

See id.

7

Hurd v. Am. Hoist & Derrick Co., 734 F.2d 495, 499 (10th Cir. 1984) (internal citations
omitted).
8

F.D.I.C. v. Oldenburg, 34 F.3d 1529, 1547 (10th Cir. 1994).

9

Id. (internal citation omitted).

10

See id.
3

Here, CUMIS has elicited testimony from a prior financial officer of Transwest, Paul
Metcalf, that Transwest became aware as early as spring 2006 that a number of the loans in their
construction loan portfolio were for speculative home projects. Mr. Metcalf visited various
home sites and discovered that many of the homes were not on track to be completed in a timely
fashion, that the homes were for sale, and that there was a concentration risk resulting from a
number of the homes being built in the same geographic areas, at times in the same cul-de-sac.
Mr. Metcalf and the President of Transwest, Marc Mikkelson, also testified that around the same
time, Transwest received a report from a state entity warning that a number of the construction
loans on Transwest’s books were for speculative home projects. In addition, Mr. Mikkelson
testified that he was told by the CEO of a separate credit union that it would not purchase a part
of Transwest’s loan portfolio because it contained speculative loans. This evidence supports a
finding that Transwest was aware of the facts giving rise to its claim nearly a year before
Transwest filed its notice of loss.
CUMIS has elicited testimony from both Mr. Mikkelson and Mr. Metcalf that up to ten to
fifteen percent of Transwest’s losses resulted from recovery errors committed by Transwest in
recovering on the loans at issue. CUMIS also elicited testimony from Mr. Mikkelson and Mr.
Metcalf that nearly $2 million of Transwest’s alleged loss is undocumented. Bart Ferrin, an
independent consultant hired by Transwest to review its loan files, testified that a large portion of
the loss most likely resulted from the decline in real estate market values that occurred after the
loans were issued.

4

As previously stated, the Court has found that Transwest failed to provide timely notice
under the Credit Union Bond. The year that transpired from the time the facts giving rise to the
loss were discovered, in combination with the evidence provided above, could certainly lead the
jury to conclude that CUMIS was prejudiced by Transwest’s late notice. However, the Court is
not persuaded that this evidence is so overwhelming that the jury would not be at liberty to
believe that CUMIS was not prejudiced by the late notice.
Next, CUMIS moves for judgment as a matter of law on the issue of enforcement of the
loan policies. According to CUMIS, a reasonable jury would not have a legally sufficient
evidentiary basis to find that Transwest enforced the lending policies at issue in this case.
Under the terms of the Credit Union Bond, CUMIS was obligated to compensate
Transwest for losses resulting directly from a named employee’s failure to faithfully perform his
or her trust. To meet its burden on this element, Transwest must prove by a preponderance of the
evidence that Transwest’s employees, Michael Warren and Kristin Runyan-Martin, acted in
conscious disregard of Transwest’s established and enforced share, deposit, or lending policies.
Transwest has submitted into evidence the lending policies in effect during the time
frame that the subject loans were issued. Mr. Mikkelson testified that the lending policies were
approved by the board, were available to all employees on Transwest’s intranet site, and were to
be used in conjunction with lending form checklists. Mr. Mikkelson also testified that the
construction lending policies were to be enforced by Mr. Warren. Mr. Warren testified that it
was probably his responsibility to enforce the lending policies. From this evidence, the jury
could find that the relevant lending policies were enforced.

5

In sum, the Court finds that Transwest has provided a legally sufficient evidentiary basis
such that a reasonable juror could find in its favor. Therefore, the Court will deny CUMIS’s
Motion.
It is therefore
ORDERED that CUMIS’s Federal Rule of Civil Procedure 50 Motion for Judgment as a
Matter of Law is DENIED.
DATED February 1, 2013.
BY THE COURT:

_____________________________________
TED STEWART
United States District Judge

6