         Case: 14-12472   Date Filed: 02/09/2015   Page: 1 of 11


                                                                   [PUBLISH]



          IN THE UNITED STATES COURT OF APPEALS

                   FOR THE ELEVENTH CIRCUIT
                     ________________________

                           No. 14-12472
                         Argument Calendar
                     ________________________

                D.C. Docket No. 1:13-cv-00176-WS-B



BANK OF BREWTON,

                                            Plaintiff - Counter
                                            Defendant - Appellant,

versus

THE TRAVELERS COMPANIES, INC.,
ST. PAUL GUARDIAN INSURANCE COMPANY,

                                            Defendants - Counter
                                            Claimants - Appellees.

                     ________________________

              Appeal from the United States District Court
                 for the Southern District of Alabama
                     ________________________

                          (February 9, 2015)
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Before TJOFLAT, JILL PRYOR and ANDERSON, Circuit Judges.

PER CURIAM:

       This case requires us to determine whether, under Alabama law, a financial

institution bond’s definition of “counterfeit”—“an imitation which is intended to

deceive and to be taken as an original”—encompasses a duly authorized stock

certificate procured under false pretenses. We hold that it does not. Accordingly,

we affirm the District Court.


                                                  I.

       The Bank of Brewton (the “Bank”), is a small, privately held bank located in

Escambia County, Alabama. At all times relevant to this appeal, the Bank was

covered by a financial institution bond 1 (the “Bond”) issued by the Travelers

Companies, Inc. (“Travelers”). The Bond provided coverage for, inter alia, “loss

resulting directly from the [Bank] having, in good faith, . . . extended credit . . . on

the faith of [a certificated security], which is a Counterfeit.” The Bond defines

“Counterfeit” as “an imitation which is intended to deceive and to be taken as an

original.”



       1
          A financial institution bond is essentially a type of insurance coverage for banks. See
Am. Cas. Co. of Reading, Pa. v. Etowah Bank, 288 F.3d 1282, 1284 (11th Cir. 2002) (“A
financial institution bond is a type of fidelity bond that is designed to insure financial institutions
against fraudulent or unfaithful dealings by employees and certain outside parties which could
damage the institution.”).
                                                   2
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       Over the years, the Bank made and renewed a number of loans to its long-

time customer, Jackson Hines, for which Hines pledged various assets as collateral.

In November 2005, as collateral for one of these loans, Hines assigned 180 shares

of stock in The Securance Group (“TSG”) to the Bank and delivered to the Bank a

stock certificate representing these shares (“Certificate No. 2”). 2 Either at the same

time or at some later date, Hines delivered a second stock certificate to the Bank

(“Certificate No. 7”), reflecting the assignment of an additional 180 shares of TSG

stock. In March 2009, a Bank employee compared the two certificates and

discovered that Certificate No. 2 was actually a color copy of the original

Certificate No. 2.

       Upon inquiry, Hines explained that he had inadvertently given the Bank a

copy and had since lost the original. Hines informed TSG that he had lost

Certificate No. 2, asserted that he had not pledged or encumbered Certificate No. 2

other than with the Bank, and requested a replacement certificate. TSG issued a

new certificate (“Certificate No. 11”) representing the same 180 shares, which

Hines then delivered to the Bank.




       2
          Travelers disputes that Hines actually assigned the shares represented by Certificate No.
2 to the Bank at this point in time, but since the Bank was the non-moving party below, we
accept its version of the facts as true for the purposes of this appeal.
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      In December 2009, the Bank consolidated all of Hines’s outstanding loans

into one loan of approximately $1.5 million and also issued an additional loan of

approximately $95,000 to cover the fees associated with the consolidation. These

loans were secured, in part, by the 360 shares of TSG stock.

      In April 2010, the other shoe dropped. TSG’s president, who was also a

member of the Bank’s board, discovered that in 2007, Hines had assigned the 180

shares of TSG stock represented by Certificate No. 2 to another bank. At that time

Hines had also delivered the original Certificate No. 2 to the other bank. TSG’s

president promptly informed the Bank of this discovery, notifying it that as a

result, Certificate No. 11 was void and of no effect. The Bank asked Hines to

replace the 180 shares with other collateral, but he instead defaulted on the

December 2009 loans and filed for bankruptcy.

      The Bank promptly filed a claim with Travelers for the loss incurred by

Hines’s default. Travelers tentatively took the position that the loss was not

covered by the Bond but continued to investigate the claim for the next several

years. In February 2013, the Bank filed a breach-of-contract action against

Travelers in the Circuit Court of Montgomery County, alleging that the Bank had

“sustained a covered loss based on a forged or counterfeit stock certificate,” but

that Travelers had refused to pay for the loss. Travelers removed to the United

States District Court for the Middle District of Alabama and then moved to transfer
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venue to the Southern District of Alabama. The motion for transfer was granted,

Travelers answered denying the claim, and discovery ensued.

      After discovery, Travelers moved for summary judgment. Travelers argued,

inter alia, that the Bank’s loss was not covered by the Bond because the loss did

not stem directly from the Bank’s having relied in good faith on the counterfeit

Certificate No. 2. Specifically, Travelers pointed out that the loss complained of

by the Bank occurred in connection with the December 2009 loans, and that the

Bank knew as early as April 2009 that Certificate No. 2 was a copy.

      The Bank then asserted for the first time in its response that either

Certificate No. 2 or Certificate No. 11 would qualify as a counterfeit security, on

which losses stemming directly from good-faith reliance would be covered under

the Bond. Travelers, in its reply brief, contended that it was unaware that the Bank

was proceeding on the theory that Certificate No. 11 qualified as a counterfeit, but

that, in any event, Certificate No. 11 could not be the basis of a claim under the

Bond because it was not a counterfeit. The Bank moved to strike Travelers’s reply

brief or, in the alternative, for leave to file a surreply, on the ground that

Travelers’s argument that Certificate No. 11 was not a counterfeit was “an entirely

new position which was not asserted in Travelers’ summary judgment motion.”

After the District Court granted the Bank leave to file a surreply, the Bank


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contended that Certificate No. 11 was a counterfeit because it was intended to

replace and represent the original Certificate No. 2.

      The District Court granted summary judgment for Travelers. The court

considered whether either the copied Certificate No. 2 or the original Certificate

No. 11 was a counterfeit security and, if so, whether the Bank’s loss was directly

caused by good-faith reliance on such certificate. The court found that any loss

sustained in connection with Certificate No. 2 was not covered because such a loss

did not follow directly from the Bank’s reliance on the certificate. Following the

discovery that Certificate No. 2 was a copy in April 2009, the Bank had expressly

stated that it “considers Certificate #2 null and void and releases Certificate #2 and

accepts Certificate #11 as collateral on [Hines’s] current debts.” Thus, by its own

admission, the December 2009 loan could not have been made in reliance on

Certificate No. 2, and certainly not in good-faith reliance.

      The District Court also concluded that any claim based on a loss flowing

from good-faith reliance on Certificate No. 11 was not covered by the Bond. The

court explained that Certificate No. 11 was not a counterfeit under the terms of the

Bond because it was not an imitation purporting to be an authentic document;

rather, Certificate No. 11 was an authentic document that happened to be null and

void when issued.


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       The Bank timely appealed from the grant of summary judgment. We have

jurisdiction under 28 U.S.C. §§ 1332(a) and 1291.

                                                II.

       We review the grant or denial of a motion for summary judgment de novo.

Mais v. Gulf Coast Collection Bureau, Inc., 768 F.3d 1110, 1119 (11th Cir. 2014).

In doing so, we review all evidence and draw all reasonable inferences in the light

most favorable to the non-moving party. Id. Summary judgment is required when

“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).

                                               III.

       On appeal, the Bank argues that the District Court erred in finding that

Certificate No. 11 was not a “counterfeit” under the terms of the Bond.3 Boiled

down, the Bank’s argument appears to be quite simple: the Bond defines a

“counterfeit” as “an imitation which is intended to deceive and to be taken as an

original”; and Hines, with the requisite intent, gave the Bank a valueless stock




       3
         The Bank also argues in the alternative that Travelers has waived, or should be estopped
from making, the argument that Certificate No. 11 was not a counterfeit. We reject this
argument for the same reasons the District Court did. Specifically, the Bank’s response to
Travelers’s motion for summary judgment articulated a theory of recovery that was not fairly
disclosed by the pleadings (that Certificate No. 11 was the counterfeit, not Certificate No. 2), so
it was appropriate for Travelers to respond to this argument in its reply brief.
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certificate that appeared for all intents and purposes to be a valuable stock

certificate.

       Because Alabama substantive law applies to this diversity action, our task is

to divine what an Alabama court would likely hold if presented with this case.

Goodwin v. George Fischer Foundry Sys., Inc., 769 F.2d 708, 711 (11th Cir.

1985); cf. Am. Cas. Co. of Reading, Pa. v. Etowah Bank, 288 F.3d 1282, 1285

(11th Cir. 2002) (applying Georgia substantive law to a diversity dispute

concerning coverage under a financial institution bond). To do so, we look first to

whether Alabama courts have spoken on the issue. While there does not appear to

be any precedent precisely on point, an Alabama Supreme Court opinion cites

favorably to a Sixth Circuit case that is instructive. See Fidelity & Casualty Co. v.

Bank of Commerce, 234 So. 2d 871, 877 (Ala. 1970) (holding that a loss sustained

by a bank in reliance on fabricated invoices was not covered by the bank’s bond,

citing First National Bank of Memphis v. Aetna Casualty & Surety Co., 309 F.2d

702 (6th Cir. 1962) as support for its holding).

       In First National Bank of Memphis, the Sixth Circuit was confronted with

the issue of whether a loss caused by a bank’s reliance on warehouse receipts

indicating (falsely) that the debtor possessed approximately 1.3 million bushels of

soy beans was covered under a bankers blanket bond (the predecessor to a financial

institution bond). 309 F.2d at 703–04. The court concluded that the loss was not
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covered under the bond because the warehouse receipts were not forged or

counterfeited. Id. at 705. Instead, “[t]hey were signed and issued by the

[warehouse owner] and endorsed by [the debtor], all by duly authorized officers.

Falsity lies in the representation of facts contained in the warehouse certificates

and not in the genuineness of their execution.” Id.

       Construing Texas law, our court has also explained the distinction between

fraudulently procured documents and counterfeit documents, in Bank of the

Southwest v. National Surety Co., 477 F.2d 73 (5th Cir. 1973).4 In that case, the

plaintiff bank brought suit against its insurer under a bankers blanket bond to

recover for losses it sustained in reliance on, inter alia, a License Receipt and a

Title Certificate that purported to provide it with an interest in a 1969 Lincoln

Continental. Id. at 75. In reality, the loan applicant “had previously sold th[e]

automobile and delivered his original title certificate to the purchaser. He then

obtained the Title Certificate given to the [b]ank by falsely swearing to the Texas

Highway Department that he had lost his original copy.”

       The bank argued that it should recover because the bond contained a

provision covering losses sustained on counterfeited documents. Looking to the


       4
         In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), this
court adopted as binding precedent all decisions of the former Fifth Circuit handed down prior to
October 1, 1981.

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definition of “counterfeited,” defined in the bond as “only an imitation of a

security document or other written instrument . . . which is intended to deceive and

to be taken for an original,” the court concluded that the bank’s loss was not within

the coverage provided by the bond. Id. at 77 (emphasis omitted). “Both the

License Receipt and the Title Certificate were authentic, albeit the product of

fraudulent misrepresentations to the State authorities. Thus, neither could have

been ‘counterfeit.’” Id.

      We find the reasoning in these cases to be compelling. An attempt to

deceive by means of a document that imitates the appearance of an authentic

original is not the same as an attempt to deceive by means of false factual

representations implicit in an authentic document. To conflate the two, as the

Bank would have us do, would “obliterate elementary distinctions among the

techniques of deceptions[,] . . . distinctions [which] are recognized in ordinary and

commercial usage and . . . preserved in the bond.” Exch. Nat’l Bank of Olean v.

Ins. Co. of N. Am., 341 F.2d 673, 676 (2d Cir. 1965).

      Here, as in First National, the falsity at issue “lies in the representation of

facts contained in [Certificate No. 11] and not in the genuineness of [its]

execution.” 309 F.2d at 705. The Bond does not cover losses resulting from every

document tainted by fraud. Instead, the Bond provides coverage for a subset of

deception-based losses—those stemming from documents that imitate an original.
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The difference hinges on the nature of the underlying misrepresentation. While

counterfeit documents deceive by misrepresenting authenticity, Certificate No.

11’s deception concerned a misrepresentation of value. As in Bank of Southwest,

there is no question that the document at issue was authentic—Certificate No. 11

was issued by TSG and numbered, dated, and signed by the appropriate officer just

like every other stock certificate it issues; the problem, simply, was that because it

was obtained under false pretenses, it had no value. See 477 F.2d at 77.

                                         IV.

      In sum, we conclude that although Certificate No. 11 was fraudulently

procured, and as such, valueless, it was an authentic document and thus not

“counterfeit” under the terms of the Bond. Accordingly, the judgment of the

District Court is

      AFFIRMED.




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