GARZA, Circuit Judge:
General counsel for a now-defunct savings and loan, and his law firm, were found liable for legal malpractice through a jury verdict for $35 million. The district court held that their conduct was excluded from their malpractice insurance coverage. 97 B.R. 293. Because the law firm was adjudged dishonest by the jury, we AFFIRM the exclusion from coverage, but we REMAND this cause to the district court to give credit for amounts paid by settling defendants before trial.
John Mmahat, a partner in Mmahat & Duffy, was general counsel for Gulf Federal, a federally-chartered savings and loan, for over twenty years. He even served as chairman of the board for six years in the early 1980s. Gulf Federal began to sustain losses in the residential lending market, and by 1982 was insolvent. Because the Garn-St Germain Depository Institutions Act of 1982 let S & L's lend more freely and widely, Gulf Federal began making commercial loans rather than merge with a more sound institution.
About this time, the Federal Home Loan Bank Board (the "FHLBB") restricted the amount any S & L could lend to any one borrower. 12 C.F.R. § 563.9-3. An S & L could lend only a certain percentage of its net worth or withdrawable accounts under these "loans to one borrower" or LTOB restrictions. Gulf Federal's LTOB limit was $200,000 (later $500,000).
Those commercial loans followed the path of many of their brothers in the mid-1980s, and Gulf Federal fell under the weight of the defaults. The FDIC sued Mmahat for malpractice in advising Gulf Federal to make all those loans in violation of the LTOB regulations.
The court below found, however, that FDIC could not recover from New England Insurance Co. ("New England"), Mmahat & Duffy's insurance carrier, as their acts fell under a "dishonesty exclusion," which read:
Claiming that Mmahat & Duffy was not "dishonest," and that the policy should cover
I. Appeal of Liability
Mmahat and Mmahat & Duffy appeal — on multiple points — the jury's finding of liability for malpractice and breach of fiduciary duty.
A. Contribution of Settling Defendants
Several officers and directors of Gulf Federal settled with the FDIC at or before trial for some $1.9 million, but the jury was not given an interrogatory to determine what portion of ultimate fault should be attributed to them. Mmahat complains that was error; under Louisiana law he is entitled to a proportionate reduction of his liability by the percentage of fault attributed to the settlors. La.Civ.Code Ann. art. 1804 (West 1988); Nance v. Gulf Oil Corp., 817 F.2d 1176, 1180-81 (5th Cir.1987).
The FDIC concedes that Mmahat is entitled to some credit for the amounts paid by the settling defendants, but since "[f]ederal law governs the rights of the FDIC," FDIC v. Lattimore Land Corp., 656 F.2d 139, 143 n. 6 (5th Cir.1981), they urge us to adopt a federal common law rule to govern this type of case and insure uniformity in similar suits tried nationwide. Under FDIC's proposed pro tanto rule, Mmahat would get a dollar-for-dollar credit for any amount paid by the settling defendants.
Mmahat had the burden at trial of proving the settlors' share of fault, but the court below found that there was insufficient evidence in the record to permit a finding of proportionate fault. This finding makes the proportionate reduction v. pro tanto inquiry moot, so we will not resolve it here, but we are left with a question of double recovery. Because the money paid by the settling defendants and recovery from Mmahat overlap, we feel Mmahat should get credit for the amount paid. We therefore remand this issue to the district court to determine what portion of the amount paid by the settlors is attributable to the seven loans Mmahat was sued on, and give Mmahat a dollar-for-dollar credit on that amount.
B. Discharge in Bankruptcy
Mmahat filed for bankruptcy protection after this suit was filed but before trial; the district court lifted the automatic stay and consolidated the actions. Because the jury found that Mmahat had breached a fiduciary duty, the court found that the judgment was not dischargeable because of his bankruptcy. The bankruptcy code excepts from discharge acts committed by "fraud or defalcation while acting in a fiduciary capacity." 11 U.S.C. § 523(a)(4). Mmahat argues that the exception should not apply since there was no "acquisition or use of property that is not the debtor's." Boyle v. Abilene Lumber, Inc., 819 F.2d 583, 588 (5th Cir.1987).
FDIC argues that there was defalcation: Mmahat urged Gulf Federal to make improper loans so that he could earn fees. Mmahat thereby enriched himself at the cost of Gulf Federal's assets. Carey Lumber Co. v. Bell, 615 F.2d 370, 376 (5th Cir.1980). We agree. Mmahat cannot discharge this judgment in bankruptcy.
Mmahat and New England argue that FDIC's claim was prescribed by Louisiana law before FDIC took over Gulf Federal
Mmahat argues that contra non valentem did not apply because he did not conceal facts which would have put the FDIC on notice of the malpractice. But FDIC did not own, nor could it enforce the claims until it took over as receiver; no amount of notice would have allowed FDIC to sue before that time. Further, the only court to address this issue held that when the government acquires a cause of action from an institution, limitations begins to run as figured from the perspective of the institution, not the regulators. FDIC v. Buttram, 590 F.Supp. 251, 254-55 (N.D.Ala.1984). And we agree with the Buttram court.
Because we find that contra non valentem tolled the limitations clock on this action until the attorney-client relationship ended at receivership, we affirm on this point. This action was not prescribed when FDIC stepped in.
D. Conduct of Trial
The trial court allowed several witnesses to give opinion testimony even though FDIC's pre-trial order listed them as fact, not expert, witnesses. Mmahat argues this was an abuse of discretion, but we do not agree. Fed.R.Evid. 701 allows even lay witnesses to give opinion testimony that is "(a) rationally based on the perception of the witness and (b) helpful to a clear understanding of the witness' testimony or the determination of a fact in issue." It was clearly within the trial court's discretion to allow the witnesses to give opinion testimony.
Mmahat also argues that the court below erred in admitting into evidence certain FHLBB examination reports, prepared without Gulf Federal's knowledge before it went into receivership. Specifically, the documents contained hearsay statements from Joseph Mmahat — John's brother — opining that Mmahat encouraged improper loans so his law firm could make fees. The document itself was admissible as a public record, but Fed.R.Evid. 805 demands that all hearsay within a document have its own exception. Because Joseph Mmahat was himself still a defendant at the time the document was introduced into evidence, it was clearly admissible as a non-hearsay admission under Fed.R.Evid. 801(d)(2)(A).
Mmahat brought a series of state law counter-claims against FDIC for negligent regulation. In essence, Mmahat claims the FDIC should be liable for failure to put Gulf Federal into receivership sooner. The district court dismissed the claims because they addressed discretionary functions and so were excepted from the Federal Torts Claims Act ("FTCA"). 28 U.S.C. § 2671 et seq. That exception to the FTCA reads, in pertinent part:
Mmahat argues that the discretionary function exception does not apply to negligent regulation of a financial institution, and cites Gaubert v. U.S., 885 F.2d 1284 (5th Cir.1989). In Gaubert, we held that the FHLBB could lose the protection of the exception if it went beyond discretionary acts and began day-to-day management of a financial institution. Id. at 1290. But Mmahat's reliance on Gaubert is misplaced. There, we found that over-interference can take regulators outside the discretionary function exception; here, Mmahat wants us to take the FDIC out of the exception for failure to interfere. We decline to do so, and affirm the district court on this point.
F. Legal Malpractice
Mmahat argues that there was insufficient evidence to sustain the jury's finding of legal malpractice, because there was no evidence that he gave advice specifically on the seven loans at issue in this case. We will not disturb the jury's verdict unless, considering the evidence in the light most favorable to the FDIC, the facts and inferences point so overwhelmingly to Mmahat that reasonable jurors could not have arrived at a verdict except in his favor. Lubbock Feed Lots, Inc. v. Iowa Beef Processors, Inc., 630 F.2d 250, 268-69 (5th Cir.1980).
Striving to meet his burden of proof on appeal, Mmahat cites examples of certain officers and directors who did not hear or follow his advice on certain specific occasions. We do not find those examples sufficient to overcome the verdict of a correctly instructed jury. We likewise reject New England's complaint that Mmahat acted not as attorney but as chairman of the board, and therefore could not have committed legal malpractice as a matter of law. The jury's verdict will stand.
G. Jury Instructions
Finally, Mmahat and the firm argue that the court below incorrectly instructed the jury as to proximate cause, failure to mitigate damages, and the attorney-client relationship. We find that the court gave full and complete instructions on each of the issues, and defer to the district court's broad discretion to formulate a charge. U.S. v. Graves, 669 F.2d 964, 970 (5th Cir.1982).
II. Insurance Coverage
The district court found that Mmahat had been adjudged "dishonest" when the jury found he breached his fiduciary duty to Gulf Federal, so his conduct was excluded from the New England policy's coverage. Further, the court held that since the jury also found that Mmahat & Duffy had breached its fiduciary duty, it was excluded from coverage as well. Finally, the court held that, if the policy did apply, the aggregate limits ought to be paid, and not the individual act sum.
A. Dishonesty of the Firm
FDIC does not challenge the district court's finding of dishonesty as to Mmahat. Rather, they argue that Mmahat & Duffy cannot be held "dishonest" as they are liable only vicariously and did no culpable acts outside of Mmahat's personal participation. The policy's dishonesty exclusion has a safety hatch for "innocent co-insureds" who are "not so adjudged to have committed" a dishonest act. But this is not just an issue of vicarious liability; here the firm was adjudged dishonest: the jury
In Ashland Oil, Inc. v. Miller Oil Purchasing Co., Inc., 678 F.2d 1293 (5th Cir.1982), the president, vice-president and three managers of a company conspired to commit an environmental tort. We held there that the conduct was excluded from insurance coverage because the conspiracy was not "the unauthorized intentional act of an individual employee," but was a "deliberate execution of a preconcerted plan, conceived in the mind of [the company] and carried out by a central nervous system of key [company] personnel." Id. at 1317. Here, though only Mmahat himself did the culpable acts, they weren't one-time, individual acts. Nor were they unauthorized. Rather, they were continuing and planned, made up a large portion of firm revenue, and were the pet of Mmahat, who was nothing if not key personnel at the firm.
The FDIC argues that acts of one player, no matter how key in the firm's structure, cannot transfer dishonesty absent something more. Rivers v. Brown, 168 So.2d 400 (La.Ct.App. 3d Cir.1964), cert. ref'd, 247 La. 250, 170 So.2d 509 (La.1965) (company not excluded from coverage by assault by president and major shareholder), and Baltzar v. Williams, 254 So.2d 470 (La.Ct.App. 3d Cir.1971) (town not excluded by violence of sheriff's deputy). But Mmahat's systematic and pervasive wrongdoing in this case is completely distinguishable from the one-time outbursts at issue in an assault and battery setting, such as Rivers and Baltzar.
Had FDIC not asked the jury whether Mmahat & Duffy breached its fiduciary duty to Gulf Federal, the firm would not have been "adjudged dishonest," and we might not be here today. But, as the district court correctly pointed out, FDIC "was not content to rest its case on whether Mmahat and his firm were guilty of malpractice solely because of improper advice.... Rather, [FDIC] included in its argument and evidentiary presentation to the jury the claim that Mmahat and his firm breached their fiduciary duties as lawyers because of actions taken to generate fees." We will not let FDIC undo what it has wrought.
We are now in the throes of an S & L crisis, and the final bill of failures like Gulf Federal is sure to touch us all for years to come. Mmahat and others like him played a big part in that crisis by recklessly granting commercial loans against general banking wisdom, and they are rightly being called on to pay for those errors. But worthy as the cause may be, we will not stretch this insurance policy to help pay the bill. We affirm the district court's exclusion of coverage.
B. Aggregate Coverage Limits
The New England policy has a $1 million limit for single claims and a $2 million limit for aggregate claims. The district court held that the aggregate limit applied, as there were multiple instances of malpractice. New England argues that the single limit ought to apply, as Mmahat carried out a series of related acts, which constitute a single claim under the policy.
New England cites Gregory v. Home Ins. Co., 876 F.2d 602 (7th Cir.1989), where the single limit applied though there were multiple plaintiffs. But there the insured had done only one act — prepared a brochure and tax opinion — that had harmed many. Still, Gregory helps us by defining "related acts:" they are acts which are "logically or causally connected." Id. at 605. So, if Mmahat's opinions and advice to Gulf Federal were logically or causally connected, they were related acts and the single claim limit ought to apply.
The FDIC has maintained throughout that Mmahat gave all his LTOB advice towards one end: generate fees for his firm. New England argues that his acts were, then, logically and causally connected
Because we find that FDIC is not entitled to double recovery of the amount paid by settling defendants, we REMAND this case to the district court to determine what portion of that settlement relates to the loans at issue in this case. Mmahat and the firm should then get a dollar-for-dollar credit for that amount. For the reasons stated above, the judgment of the district court is in all other things AFFIRMED.