Appeal from the United States District Court for the Southern District of Alabama. D.C. Docket No. 1:13-cv-00176-WS-B.
For Bank of Brewton, Plaintiff - Appellant: Charles Nelson Gill, Richard Hamilton Gill, Copeland Franco Screws & Gill, PA, Montgomery, AL.
For The Travelers Companies, Inc., St. Paul Guardian Insurance Company, Defendants - Appellees: Sybil Vogtle Newton, Starnes Davis Florie, LLP, Birmingham, AL; Scott D. Stevens, Starnes Davis Florie, LLP, Mobile, AL.
Before TJOFLAT, JILL PRYOR and ANDERSON, Circuit Judges.
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.
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 (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."
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" ). 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.
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 ...