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Generale v. Federal Insurance Co.

decided: August 26, 1988.


Appeal from judgment entered on a directed verdict in the United States District Court for the Southern District of New York (Sand, J.), in favor of third-party defendant Flota Mercante Grancolombiana, S.A. on the estoppel claim asserted by third-party plaintiff Federal Insurance Company.

Lumbard, Oakes and Miner, Circuit Judges.

Author: Miner

MINER, Circuit Judge:

Third-party plaintiff-appellant Federal Insurance Co. ("Federal") appeals from a portion of a judgment entered after a jury trial in the United States District Court for the Southern District of New York (Sand, J.) in favor of third-party defendant-appellee Flota Mercante Grancolombiana, S.A. ("Flota"). On this appeal, Federal challenges the entry of a directed verdict on Federal's "estoppel" theories of liability. Finding no merit in its claim, we conclude that a verdict properly was directed in Flota's favor.


Societe Generale ("Societe"), a French bank, commenced the principal action before Judge Sand to recover under the "extended forgery" provision of a bankers' blanket bond and policy issued by Federal. The policy insured against losses resulting from Societe's good faith acceptance of a counterfeited or forged title document. Societe claimed recompense under this provision for a loss due to the fraud perpetrated by one of its customers, Colombian Coffee Company ("CCC"). CCC was controlled by Alberto and Victor Duque, who also were the principals in Luis A. Duque Pena E Hijos, Ltda. ("LDPH"), a Colombian coffee supplier. CCC acted as the agent for LDPH in the United States. Through these two companies, and with the help of their employees, Guillermo Sepulveda and Fernando and Camilo Bautista, the Duques designed and executed a scheme that ultimately bilked Societe of approximately $3,000,000.

The Duques used CCC to implement their fraudulent scheme. CCC regularly purchased coffee from Colombian suppliers for resale to U.S. purchasers. As American agent for LDPH, CCC regularly purchased coffee from LDPH in Colombia and resold it in the U.S. CCC maintained a line of credit with Societe that was used to finance these purchases. By drawing on its credit line, CCC was able to pay LDPH without first reselling the coffee to an American buyer.

The amount advanced depended on the size and quality of the shipments, which were documented by bills of lading issued by the ocean carrier when it took possession of the coffee in Colombia. The bills, representing title to the goods at the destination port, were issued to CCC. CCC would present these bills to Societe and, after examination, the bank would authorize an advance. Although CCC negotiated the bills to Societe, the bank ultimately indorsed them to CCC, taking a security interest in the coffee (through a "Trust Receipt" executed by CCC) in lieu of actual title to the goods. This allowed CCC, as holder of the bills, to take delivery of the coffee upon arrival in the U.S. and resell it. CCC would use part of the proceeds of this sale to pay back the Societe loan; the remainder of the proceeds was CCC's profit on the venture.

The Duques apparently recognized that Societe was not able to check closely the bills of lading submitted by CCC. They fabricated bills of lading, representing non-existent coffee shipments, and presented them (through CCC) to Societe. To facilitate this fraud, the Duques secured blank copies of bills of lading used by Flota, an ocean shipping line. The Duques completed the blank bills using fictitious shipping information; the bills were presented to the bank with all necessary stamps affixed and were purported to be signed by an authorized Flota signatory. However, the signatures on the bills were illegible and could not be identified at trial by anyone familiar with the signatures of authorized Flota signatories.

On the strength of these false bills, Societe made two loans, one on November 15, 1982 for $1,300,000 and one on November 19 for $1,560,000. CCC defaulted, and thereafter Societe discovered that the security for the loans was spurious. Federal refused Societe's demand to be compensated for these losses under the bankers' blanket bond and policy, and this suit followed. Federal impleaded Flota, seeking indemnity for its liability to Societe, claiming that: (1) Flota had failed to exercise due care to prevent unauthorized access to its blank bills, thereby making the Duques' fraud possible; and (2) Flota was estopped from denying the validity of the bills under the Uniform Commercial Code and New York common law.

At trial, Federal attempted to link Ramon Abadia, an employee of Flota's port agent, Transportadora Grancolombiana, S.A. ("Transportadora"), to the Duques. Federal argued that the evidence established a conspiracy involving Abadia, the Duques and others. It claimed that Abadia had been bribed to provide blank Flota bills of lading to the Duques. Federal attempted to show that the bills were provided with the necessary stamps (voyage number, date and bill of lading number) already affixed, and that, in some cases, the bills had been signed by Abadia. Federal's evidence included the expert testimony of Gregory McNally concerning the authenticity of the signatures and stamps on the false bills, and testimony of Camilo and Fernando Bautista, employees of the Duques, about their knowledge of the fraud. The Bautistas recounted various statements of Alberto and Victor Duque that included references to "the office of Flota in Buenaventura," and their "friend in Buenaventura." In at least one conversation, Abadia was mentioned by name.

Appellant offered other evidence of Abadia's involvement including a purported summary of the financial information of an LDPH-related company indicating that the Duques made a payment to Abadia (the "Extracto"); a signed statement of Guillermo Sepulveda purportedly certifying the Extracto as a business document; an excerpt from Sepulveda's testimony in a Colombian court; and an exculpatory statement made by Sepulveda implicating Abadia. Judge Sand eventually excluded this evidence on various grounds.

Abadia testified for Flota, denying his involvement in the fraudulent scheme. He admitted that he had authority to sign bills of lading, but claimed that he was not authorized to appoint another to sign the bills; only his supervisor, the General Manager of Transportadora, had the authority to designate Flota signatories. Abadia also noted that although the stamps used to authenticate bills of lading were kept by Transportadora in the office where he worked, they were stored in a locked drawer to which he did not have access. Under repeated questioning, Abadia denied affixing the stamps to the blank bills or signing them.

At the close of Federal's case, Flota moved for a directed verdict. Judge Sand ruled that Federal had failed to offer sufficient evidence to support its estoppel claims and directed verdict on those claims. ...

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