                                                                                      NOT PRECEDENTIAL

                                UNITED STATES COURT OF APPEALS
                                     FOR THE THIRD CIRCUIT
                                        ________________

                                                  No. 12-1553
                                               ________________

     DAVID H. MARION, RECEIVER FOR BENTLEY FINANCIAL SERVICES, INC.,

                                                                         Appellant

                                                          v.

                             HARTFORD FIRE INSURANCE COMPANY

                                               ________________

                              Appeal from the United States District Court
                                 for the Eastern District of Pennsylvania
                                 (D.C. Civil Action No. 2-06-cv-04666)
                             District Judge: Honorable Mitchell S. Goldberg
                                           ________________

                                          Argued September 19, 2012
                                             ________________

            Before: AMBRO, GREENAWAY, JR., and O‟MALLEY*, Circuit Judges

                                        (Opinion filed: May 16, 2013)


David D. Langfitt, Esquire
Locks Law Firm
601 Walnut Street
The Curtis Center, Suite 720 East
Philadelphia, PA 19106


John H. Lewis, Jr. Esquire

*
    Honorable Kathleen M. O‟Malley, United States Court of Appeals for the Federal Circuit, sitting by designation.

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Montgomery, McCracken, Walker & Rhoads
120 South Broad Street, 28th Floor
Philadelphia, PA 19109

David H. Marion, Esquire
Richard G. Tuttle, Esquire (Argued)
Oleg V. Nudelman, Esquire
Archer & Greiner, P.C.
One Liberty Place
1650 Market Street, 32nd Floor
Philadelphia, PA 19103-7393

       Counsel for Appellant

Bruce L. Phillips, Esquire (Argued)
Jeffrey C. Venzie, Esquire
Venezie, Phillips & Warshawer
2032 Chancellor Street
Philadelphia, PA 19103

       Counsel for Appellee
                                   ________________

                                       OPINION
                                   ________________

O‟MALLEY, Circuit Judge

       David H. Marion (“Marion”), in his capacity as receiver for Bentley Financial

Services, Inc. (“BFS”), brought suit against Hartford Fire Insurance Company

(“Hartford”) seeking indemnification under a fidelity bond issued by Hartford to BFS and

the Entrust Group (“Entrust”). The district court granted summary judgment in favor of

Hartford, holding that Marion failed to raise a genuine dispute of material fact regarding

whether BFS suffered a covered loss under the fidelity bond. Because Marion set out

sufficient material facts to support his claim that BFS incurred a covered loss when its



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president and chief executive officer, Robert Bentley (“Bentley”), embezzled funds from

both BFS and Entrust accounts, we reverse.

                                          I.        BACKGROUND

         Bentley was the president and controlling shareholder of BFS, a Pennsylvania

investment firm that brokered certificates of deposit (“CDs”). Bentley formed Entrust to

act as custodian for CDs brokered by BFS. From June 1996 to October 2003, Bentley

orchestrated a Ponzi scheme through BFS and Entrust. A Ponzi scheme is an investment

fraud in which investors are paid off, not with returns generated by their investments—

because their money usually is converted, not invested—but with revenue generated from

later investors. Here, Bentley oftentimes sold fictitious CDs, even selling the same fake

CD to multiple customers. When he sold actual CDs, he often misrepresented their terms

to his customers. Bentley would sell the CDs on behalf of BFS and instruct investors to

send their funds to Entrust. Entrust would sometimes transfer funds to BFS accounts,

from which interest payments would be made to investors to help keep the scheme afloat.

Throughout the scheme, it appears that Bentley also used both the Entrust and BFS

accounts as personal banks—embezzling the bulk of the funds taken in for his own uses.

Bentley was eventually prosecuted, convicted of fraud, and sentenced to fifty-five months

of imprisonment. 1

         In an action bought by the Securities and Exchange Commission against Bentley,

BFS, and Entrust, Marion was appointed receiver for all three defendants. In this


1
 In a previous case involving Bentley‟s scheme, this court described the fraud in more detail than is necessary here.
See Marion v. TDI Inc., 591 F.3d 137, 141-43 (3d Cir. 2010).

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capacity, Marion brought the current action on behalf of BFS against Hartford, seeking to

recover under a fidelity bond issued by Hartford for the losses incurred from Bentley‟s

scheme.

       The fidelity bond in dispute was issued by Hartford and insured both BFS and

Entrust. While Marion filed no action on behalf of Entrust, even though Entrust is a

named insured on the fidelity bond, the Entrust assets are included in the BFS

receivership. The policy limit on the fidelity bond is $2 million, with a $10,000

deductible. The bond states:

             The Underwriter . . . agrees to indemnify the Insured for:

                               INSURING AGREEMENTS

                                        FIDELITY
                     (A) 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
              by the Employee with the manifest intent:
                     (a)    to cause the Insured to sustain such loss; and
                     (b)    to obtain financial benefit for the Employee or
                            another person or entity.

J.A. 65. An “Employee” is defined to include, among others:

             [A]n officer or other employee of the Insured, while
             employed in, at, or by any of the Insured‟s offices or premises
             covered hereunder, and a guest student pursuing studies or
             duties in any of said offices or premises.

J.A. 66. In a section entitled “OWNERSHIP,” the bond provides further detail on

covered losses:




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                                      OWNERSHIP

              Section 10. This bond shall apply to loss of Property (1)
              owned by the Insured, (2) held by the Insured in any capacity,
              or (3) for which the Insured is legally liable. This bond shall
              be for the sale use and benefit of the Insured named in the
              Declarations.

J.A. 69. “Property” is defined to include, among other things, “Money,” J.A. 67, which,

in turn, means “a medium of exchange in current use authorized or adopted by a domestic

or foreign government as a part of its currency,” J.A. 66.

       Before the district court, Hartford moved for summary judgment, arguing that no

genuine dispute existed regarding whether BFS suffered a covered loss. Specifically,

Hartford asserted that “Bentley did not steal any money which was owned by BFS, or

held by BFS, or for which BFS was legally liable,” J.A. 110 (Def. Hartford Fire Ins.

Co.‟s Br. in Supp. of Mot. for Summ. J. 11), tracking the language in the fidelity bond‟s

ownership provision quoted above. According to Hartford, BFS suffered no covered loss

because “all of the money belonged to the investors.” J.A. 112. And BFS did not “hold”

the money, Hartford contended, because the investor funds were held instead by Entrust

or Bentley. Hartford last argued that BFS was not “legally liable” for the investor funds.

On this point, Hartford urged that, to be covered under the fidelity bond, the purportedly

lost funds must have been obtained lawfully, not, as here, through fraud.

       Marion responded with two arguments. First, Marion asserted that BFS

experienced an actual loss when BFS incurred contractual liability to its investors through

the investment contracts in which Bentley sold fictitious or misrepresented CDs on behalf

of BFS. But Marion did not develop this argument in his brief. Instead, most of

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Marion‟s opposition was based on his second argument, an embezzlement theory: BFS

incurred a covered loss when Bentley embezzled funds that were “owned” by BFS under

the bond. That is, the embezzled funds were either “held” by BFS itself or were funds for

which BFS was “legally liable.” BFS was liable for the investor funds held by Entrust,

Marion argued, because BFS was the entity that actually sold the fraudulent investments

and, thus, was liable to investors for those sales. Marion further contended that the

embezzled funds were constructively held by BFS, and that the corporate distinction

between BFS and Entrust should be disregarded (Marion acknowledged that BFS and

Entrust are legally distinct from Bentley).

       The district court sided with Hartford, finding that Marion failed to raise a genuine

dispute that BFS suffered a covered loss. It rejected Marion‟s first argument because a

fidelity bond, which is distinct from liability insurance, is an insurance contract that

indemnifies against the loss of property, not a contract that insures against liability to

third parties. Although it recognized that the fidelity bond covers the loss of property for

which the insured is legally liable, the district court believed that a loss under the bond is

not incurred unless the insured spends its own money as a result of the liability, i.e., until

the insured experiences an actual monetary loss arising from the legal liability. Because

it found that BFS expended no money to make good on the obligations to its investors,

the district court held that BFS suffered no covered loss. The district court also rejected

Marion‟s argument that BFS suffered a loss when Bentley embezzled the investor funds

out of BFS and Entrust accounts because BFS did not “own” the embezzled funds, since

the money belonged to the investors.           BFS challenges these rulings on appeal.

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                                     II. DISCUSSION

       We review a district court‟s grant of summary judgment under a plenary standard,

applying the same standard as the district court. See Smith v. Borough of Dunmore, 633

F.3d 176, 179 (3d Cir. 2011). “The court shall grant summary judgment if the movant

shows that there is no genuine dispute as to any material fact and the movant is entitled to

judgment as a matter of law.” Fed. R. Civ. P. 56(a). “The non-moving party is „entitled

to every favorable inference that can be drawn from the record,‟ and we will affirm only

if there is no genuine issue for trial.” Smith, 633 F.3d at 179 (quoting Kautz v. Met–Pro

Corp., 412 F.3d 463, 466 (3d Cir. 2005)).

       This case involves the interpretation of a fidelity bond, and the parties agree that

Pennsylvania law applies. In that state, a “fidelity bond is a contract of insurance, and the

rules of interpretation of insurance policies apply.” Penn Twp. v. Aetna Cas. & Sur. Co.,

719 A.2d 749, 750 (Pa. Super. Ct. 1998). We undertake plenary review of the scope of

an insurance policy because “the proper coverage of an insurance contract when the

underlying facts are not in dispute is a question of law.” Niagara Fire Ins. Co. v.

Pepicelli, Pepicelli, Watts & Youngs, P.C., 821 F.2d 216, 219 (3d Cir. 1987). When

interpreting insurance contracts, “the intent of the parties as manifested by the language

of the written instrument” controls. Standard Venetian Blind Co. v. Am. Empire Ins. Co.,

469 A.2d 563, 566 (Pa. 1983). That is, if “the language of the contract is clear and

unambiguous, a court is required to give effect to that language.” Id.



                                              7
       On appeal, Marion abandons any argument that BFS‟s contractual liability to

investors—liability it has insufficient funds to satisfy—constitutes a recoverable loss

under the fidelity bond. See Br. of Appellant 19 (“In no sense did Receiver ever suggest

that BFS‟s legal liability gave rise to an insurable interest unrelated to the property

embezzled.”). Marion appears to recognize that such contractual obligations are not the

proper subject of fidelity bonds. A “fidelity bond is a contract of indemnity against loss,”

not against liability untied to an actual loss. 11 Lee R. Russ & Thomas F. Segalla, Couch

On Insurance § 160:7 (3d ed. 2012). For its part, Hartford does not defend the trial

court‟s conclusion that the fidelity bond would not cover funds for which an insured is

legally liable unless and until the insured expends its own funds to reimburse those whose

property was stolen. The parties narrow their focus on appeal.

       Marion argues that, to the extent Bentley embezzled funds from BFS accounts,

that money was clearly money “held” by BFS for investors and were funds for which

BFS was “legally liable.” To the extent the money was kept in Entrust accounts, Marion

argues that Entrust was acting as the custodian of funds for which BFS remained liable at

all times. Hartford responds by contending that, because investor money went directly to

Entrust accounts, it was never held by BFS; according to Hartford, that Bentley

occasionally moved funds through BFS accounts does not change which entity actually

“held” them. As for the argument regarding BFS‟s legal liability for funds in either

account, Hartford argues that one cannot be legally liable for funds within the meaning of

the fidelity bond unless those funds were “legally” or “lawfully” obtained.



                                              8
       We agree with Marion that there are genuine disputes of fact regarding whether

BFS suffered covered losses under the fidelity bond arising from Bentley‟s

embezzlement activities. Accordingly, for the reasons explained below, we vacate the

judgment entered in favor of Hartford and remand for further proceedings.

       The fidelity bond is clear about what it covers: it insures against the “[l]oss

resulting directly from dishonest or fraudulent acts committed by an Employee.” J.A. 65.

The fidelity bond‟s ownership provision elaborates on the losses covered under the bond:

“This bond shall apply to loss of Property (1) owned by the Insured, (2) held by the

Insured in any capacity, or (3) for which the Insured is legally liable.” J.A. 69. There is

no strict ownership requirement under the bond—property losses are covered under the

bond even when the property is only held in some capacity for another or is property for

which the insured is legally liable.

       Marion adduced evidence that Bentley embezzled funds which BFS held. Bentley

sold fraudulent CDs to investors on behalf of BFS. The investors sent their money to

Entrust and, at times, Entrust would, in turn, transfer investor money to BFS accounts

from which payments to certain investors would occur. Marion presented several

cancelled checks that Bentley wrote to either himself or third-parties from BFS bank

accounts. See J.A. 271-84, 339-57. BFS undoubtedly “held” certain funds in its own

bank accounts and it appears undisputed that some of Bentley‟s embezzlement was of

those funds. We are unpersuaded that BFS had to be designated the formal custodian of

the funds before the funds sitting in its accounts could be deemed “held” by BFS. The



                                              9
bond references funds “held in any capacity,” J.A. 69; even a temporary capacity or a

clearinghouse capacity would satisfy this broad provision.

        Marion‟s argument that BFS suffered covered losses to the extent funds were

embezzled from Entrust accounts is more complicated than his argument regarding the

funds in BFS‟s own accounts. Marion argues that the funds in Entrust accounts, while

not “held” by BFS, were still funds for which BFS was legally liable. Marion adduced

substantial evidence in support of this theory. He first presented evidence regarding the

relationship between BFS and Entrust. The investment contracts of record indicate that

BFS was the entity making the sale. See J.A. 201-26. Under those contracts, BFS was

required to purchase on behalf of the investors CDs with specific terms, and had an

obligation to pay interest to the investors. See id. Pursuant to those same contracts,

investors transferred funds to Entrust, as custodian of the sale proceeds. BFS directed the

transfer of monies from the Entrust accounts to the BFS accounts for various purposes,

including making interest payments to investors. Testimony of Bentley confirmed this

relationship. See J.A. 181 (Tr. of Jury Trial, Bentley Direct 90, May, 25, 2006, Marion v.

TDI, Inc., No. 02-17176 (E.D. Pa.)) (“I formed the Entrust Group to act as the custodian

for their certificates of deposit for the clients of Bentley Financial Services.”). From this,

a reasonable juror could conclude that BFS was at all times legally liable for the funds

directed to the Entrust accounts. We see nothing in the fidelity bond that requires that

funds for which an insured is legally liable be maintained in an account in the insured‟s

name.



                                             10
       Marion next adduced evidence that Bentley embezzled substantial funds from the

Entrust accounts. Marion produced several checks drawn from Entrust accounts. See

J.A. 285-95, 329-33. And he proffered Bentley‟s testimony that Bentley regularly wrote

checks from Entrust accounts to himself and others. J.A. 173. Marion then proffered

testimony that Bentley directly deposited embezzled funds into his personal accounts and

used the stolen money to pay taxes to cover up the scheme, to “entertain” himself and his

employees, for his own personal country club expenses, to cover his personal trading

losses, and for “escort services.” J.A. 862-67. There is, thus, material evidence on the

record that the very type of loss covered by the fidelity bond occurred.

       Hartford‟s only contention refuting Marion‟s argument regarding its legal liability

for Entrust funds is that, because the investor funds were not legally obtained (i.e., they

were obtained through Bentley‟s fraud), no covered loss can result from the

embezzlement. We are not persuaded. No such requirement is evident from the fidelity

bond. The bond covers the loss of property owned or held by BFS, or property for which

it is legally liable, regardless of how the property is acquired. Pennsylvania‟s principles

of contract interpretation permit no other reading of the bond—it plainly contains no

requirement that the funds be “legally” obtained before an insured could be deemed

“legally liable” for them. See Standard Venetian Blind Co., 469 A.2d at 566 (“Where,

however, the language of the contract is clear and unambiguous, a court is required to

give effect to that language.”). Indeed, Hartford supplies no legal authority in support of

the position it urges. In sum, its argument is unpersuasive.

                                       III. REMAND

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       We decide today only that the district court erred in granting summary judgment

in favor of Hartford on the ground that BFS neither owned, held, nor was legally liable

for any of the embezzled funds. We do not address, because the record is not developed

on them, other predicate questions relating to liability under the fidelity bond. Thus, we

do not determine whether the loss of any investor funds resulted “directly” from

Bentley‟s dishonest acts or if the funds were taken with the requisite intent to cause BFS

to sustain a loss and gain financial benefit for Bentley. We also cannot and do not

express an opinion on the amount of any covered loss.

                                   IV. CONCLUSION

       For the foregoing reasons, we vacate the district court‟s grant of summary

judgment in favor of Hartford and remand this case for further proceedings in accordance

with this decision.




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