Court Opinion

ID: 2962119
Source: CourtListenerOpinion
Date Created: 2015-09-21 20:52:58.805782+00
Date Added: 2024-06-11T15:01:20.958010
License: Public Domain

USCA1 Opinion

	

          August 26, 1993   UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                 ____________________          No. 93-1142                            RESOLUTION TRUST CORPORATION,                                 Plaintiff, Appellee,                                          v.                              JERALD R. FELDMAN, ET AL.,                               Defendants, Appellants.                                 ____________________                                     ERRATA SHEET               The  opinion  of the  Court issued  on  August 20,  1993, is          amended as follows:               On page 3, line 8,  delete "in exchange" so that  line reads          as follows:  "exchanged its secured position for an unsecured".                                                              _________                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                 ____________________        No. 93-1142                            RESOLUTION TRUST CORPORATION,                                 Plaintiff, Appellee,                                          v.                              JERALD R. FELDMAN, ET AL.,                               Defendants, Appellants.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                     [Hon. William G. Young, U.S. District Judge]                                             ___________________                                 ____________________                                        Before                                 Breyer, Chief Judge,                                         ___________                            Bownes, Senior Circuit Judge,                                    ____________________                              and Boudin, Circuit Judge.                                          _____________                                 ____________________            J. Daniel Lindley with whom Peter  Antell and Antell &  Associates            _________________           _____________     ____________________        were on brief for appellants.            James H.  Wexler with whom Bennett  H. Klein and Kotin, Crabtree &            ________________           _________________     _________________        Strong were on brief for appellee.        ______                                 ____________________                                   August 20, 1993                                 ____________________                 BOUDIN, Circuit Judge.  In this appeal we revisit a suit                         _____________            brought by the Resolution  Trust Company ("RTC"), as receiver            for a failed bank, to collect  on a promissory note given the            bank by  Quinaquisset Realty Trust ("Quinaquisset").   In the            first  round we  affirmed the  district court's  dismissal of            Quinaquisset's claims against a third party. Resolution Trust                                                         ________________            Corp.  v. Driscoll,  985 F.2d  44  (1st Cir.  1993).   We now            _____     ________            affirm the district court's entry of summary judgment for the            RTC in its action  against Quinaquisset and its rejection  of            Quinaquisset's counterclaims against the RTC as receiver.                 In  October  1987,  Fox  Run Realty  Trust  ("Fox  Run")            conveyed  to  Quinaquisset  certain condominium  rights  in a            property called Willowbend that  Fox Run was then developing.            Quinaquisset   was  given   these  rights   because  it   had            contributed land  to the  development.  In  a contemporaneous            transaction, Fox Run then repurchased the condominium rights,            giving Quinaquisset  a $1.1  million promissory note  as part            payment with the balance paid in cash.  Then, in April  1989,            Quinaquisset  borrowed $950,000  from Sentry  Federal Savings            Bank ("Sentry"), giving it  in exchange a $950,000 promissory            note  which  is  the subject  of  this  case.   A  number  of            individuals  signed   a  guaranty  of  this   new  note,  and            Quinaquisset  gave   Sentry   the  $1.1   million  Fox   Run-            Quinaquisset note as collateral for the new note.                                         -2-                                         -2-                 Fox Run was also indebted to  Sentry, having obtained in            December 1986  a  $13 million  loan  from Sentry  to  finance            Willowbend.   In  return for  this loan,  Sentry took  back a            promissory  note  secured   by  a  mortgage   on  Willowbend.            Sentry's mortgage was initially  subordinated as to 152 acres            of  Willowbend  on  which  Quinaquisset  then  held  a  first            mortgage, but  Quinaquisset released its mortgage  in October            1987  when  it   received  the   condominium  permit   rights            subsequently  repurchased by  Fox  Run.    No  one  has  ever            explained  why  Quinaquisset exchanged  its  secured position            exchanged its secured position for an unsecured claim of $1.1                                                  _________            million against  Fox Run,  but the consequences  were evident            when Fox Run encountered financial difficulties.                 In  August  1989,  Fox  Run fell  into  default  on  its            payments to  Quinaquisset.  The  next month,  Fox Run  halted            payments on its $13 million debt to Sentry.  Quinaquisset had            been using the  payments received  from Fox Run  on the  $1.1            million note  to cover  Quinaquisset's payments to  Sentry on            the  $950,000 note.  When Fox Run ceased to pay Quinaquisset,            Quinaquisset  in turn fell  into default on  its own $950,000            note to  Sentry.  In  April 1990 Fox  Run and Sentry  entered            into a settlement agreement under which Sentry received title            to  Willowbend in return for its promise not to proceed under            the  $13  million  note   against  two  individuals  who  had            guaranteed Fox Run's payments to Sentry.  Sentry retained its                                         -3-                                         -3-            mortgage on Willowbend, and  in a subsequent foreclosure sale            the property  was acquired  by the Evergreen  Holding Company            ("Evergreen"), a wholly owned subsidiary of Sentry.                   In May  1990, Sentry, seeking to recover  the balance of            the $950,000  note from  Quinaquisset, brought suit  in state            court  against  Quinaquisset's  trustee  and  the  individual            guarantors of  the note.   In  September 1990, Sentry  itself            failed.   The  RTC stepped  in as  its receiver,  and removed            Sentry's  pending  state  court suit  against  Quinaquisset's            trustee and the guarantors to federal district court.                 In  the district  court, Quinaquisset  asserted numerous            claims of its  own against  the RTC as  successor to  Sentry,            against Evergreen,  and against Fox Run's trustees.   It also            asserted  that  the  alleged  misconduct  of  these  entities            rendered   the  Quinaquisset-Sentry   note  null   and  void.            Quinaquisset's  claims against Evergreen  were dismissed on a            motion for summary judgment.   On May 12, 1992,  the district            court entered  separate judgment  for  Evergreen pursuant  to            Fed. R. Civ. P.  54(b), and we affirmed on  appeal. Driscoll,                                                                ________            985 F.2d at 45.                   Prior  to  its  entry  of judgment  for  Evergreen,  the            district court had on July 19, 1991, granted summary judgment            for  the RTC on its  claims against Quinaquisset.   The court            found  all  but one  of  Quinaquisset's  counterclaims to  be            barred by the  D'Oench, Duhme doctrine, codified as 12 U.S.C.                           ______________                                         -4-                                         -4-               1823(e),  which  limits  claims  based  on  agreements  or            understandings not  reflected in bank records.   See D'Oench,                                                             ___ ________            Duhme  Co. v. FDIC, 315 U.S. 447 (1942).  The remaining claim            __________    ____            against  the RTC was dismissed on other grounds and no appeal            has been  taken as to it.  On November 13, 1992, the district            court entered  separate judgment for  the RTC  under Fed.  R.            Civ.  P. 54(b).  The judgment included an award of attorneys'            fees and costs to RTC.  This appeal followed.                 In  this court, Quinaquisset  challenges the  Rule 54(b)            certification, but instead of offering a coherent explanation            of why  judgment  for  the  RTC  should  have  been  delayed,            Quinaquisset attacks the attorneys'  fee award.  The district            court  evidently  entered a  separate  judgment  for the  RTC            because all claims between Quinaquisset  and the RTC had been            resolved; the remaining  claims by  Quinaquisset against  the            Fox  Run  trustees,  in   federal  court  solely  on  pendant            jurisdiction, were remanded to the state court.   We conclude            that the judgment is properly before us.1                 Turning to  the merits,  Quinaquisset contends that  the            district court's reliance on D'Oench, Duhme to dispose of its                                         ______________            claims  against the RTC as Sentry's receiver is mistaken.  It            says that  its claims against  the RTC  are not based  on any                                            ____________________                 1The certificate may have been unnecessary.  Because the            district court  added a  paragraph to the  judgment remanding            the  claims against  the  Fox Run  trustees  to state  court,            apparently the  judgment disposed of all  remaining claims in            the federal court suit.                                         -5-                                         -5-            agreement, hidden or  otherwise, between  itself and  Sentry,            but rather  on Sentry's  foreclosure and sale  of Willowbend.            Quinaquisset argues that Sentry's  settlement with Fox Run in            April  1990,  and its  subsequent  foreclosure  on Fox  Run's            principal asset, Willowbend, destroyed  the value of the $1.1            million Fox Run-Quinaquisset note  deposited with the bank as            collateral  for  Quinaquisset's  own   debt,  and  that  this            impairment  of  collateral   in  turn  served  to   discharge            Quinaquisset's debt to Sentry.                 This legal theory represents a substantial winnowing  of            Quinaquisset's  claims made  in the  district court.   There,            Quinaquisset alleged  that Sentry engaged in wrongful conduct            not  only at  the foreclosure stage  but also  earlier, e.g.,                                                                    ____            with respect to Quinaquisset's  October 1987 discharge of its            mortgage  on  part  of  Willowbend and  its  reconveyance  of            condominium permit rights to Fox Run.  Quinaquisset also made            claims, likely foreclosed by D'Oench, Duhme, suggesting  that                                         ______________            Sentry had  privately promised to  assure that Fox  Run would            repay Quinaquisset the $1.1 million.                   In fairness  to the  district court, it  has often  been            difficult  among  the  welter  of  claims  to  be  sure  what            Quinaquisset  was actually  arguing at  various points.   Nor            does  the RTC  help  matters when  it  presses, as  usual,  a            reading  of D'Oench, Duhme so  broad that one  is reminded of                        ______________            sovereign immunity  claims made  by independent nations.   In                                         -6-                                         -6-            any  event, whether to avoid D'Oench, Duhme or for some other                                         ______________            reason,  Quinaquisset has now reduced its legal position to a            single claim (against the RTC) and defense (against the RTC's            own suit) based  on the impairment  of the value of  the $1.1            million  note   given  to   Sentry  as  collateral   for  the            Quinaquisset note.       This  streamlined position  may help            Quinaquisset  to  avoid  application of  the  D'Oench,  Duhme                                                          _______________            doctrine--although the RTC  claims that the doctrine  applies            anyway--but the strategy raises its own problem:  the lack of            any  legitimate  theory  of  liability.   The  gist  of  what            happened,  in relation  to the  foreclosure, was  that Sentry            held the  mortgage on  Willowbend to  secure the  $13 million            loan  to Fox  Run, Fox  Run stopped  paying, and  Sentry then            foreclosed  the  mortgage and  applied  the  proceeds to  the            debt.2   This  left  Quinaquisset's $950,000  note to  Sentry            still  unpaid and the RTC  proceeded with Sentry's prior suit            to  collect.  These  circumstances provide scant  basis for a            claim  against Sentry  or  the  RTC,  or  a  defense  against            collection of the unpaid note.                 Quinaquisset relies  centrally on  section 3-606  of the            Massachusetts Commercial  Code, Mass. Gen.  L. ch. 106,    3-                                            ____________________                 2As noted,  Sentry also  received a conveyance  of title            from Fox Run, and Sentry in exchange released two individuals            who  had guaranteed payment of the Fox Run-Sentry note.  This            conveyance  was  subject  to  the  mortgage,  but  presumably            assured that Fox Run would not challenge the foreclosure.                                         -7-                                         -7-            606.    That section,  titled "Impairment  of Resource  or of            Collateral," states in pertinent part:                 (1)  The holder  [of an instrument]  discharges any                 party to the instrument  to the extent that without                 such party's consent the holder                      (a)  without  express  reservation  of  rights                 releases or  agrees not  to sue any  person against                 whom the party has to the knowledge of the holder a                 right of recourse or agrees to suspend the right to                 enforce  against  such  person  the  instrument  or                 collateral  or  otherwise  discharges such  person,                 except  that  failure  or  delay in  effecting  any                 required   presentment,   protest,  or   notice  of                 dishonor with  respect to any such  person does not                 discharge   any  party  as   to  whom  presentment,                 protest,  or notice  of  dishonor is  effective  or                 unnecessary;  or                      (b)  unjustifiably impairs  any collateral for                 the instrument given  by or on behalf  of the party                 or  any  person  against  whom he  has  a  right of                 recourse.                 Although invoked by Quinaquisset, subsection (1)(a) does            not by any  stretch of  the imagination apply  in this  case.            With respect to the Quinaquisset-Sentry note--the  subject of            this suit--Sentry never purported to release anyone from, nor            promised  not to  sue  anyone under,  this  note.   The  only            releases  issued  by  Sentry  had  nothing  to  do  with  the            Quinaquisset-Sentry  note:   they   were  releases   of   the            individual guarantors of Fox Run's debt to Sentry, a debt for            which Quinaquisset  was not responsible since it  was never a            party to nor a guarantor of the Fox Run-Sentry note.                  Turning to  subsection (1)(b), Quinaquisset  argues that            Sentry  divested Fox  Run of  Willowbend by  the  transfer of                                         -8-                                         -8-            title  from Fox  Run  followed by  the mortgage  foreclosure.            This  in  turn,  says  Quinaquisset,  meant  that  Fox  Run's            principal asset  was no  longer available to  Quinaquisset to            back up Fox Run's debt to Quinaquisset.  This is  quite true,            although somewhat misleading.3   It might also  be said that,            in some  sense, Sentry's  actions "impaired"  the "collateral            for the instrument,"  if collateral  is taken to  be the  Fox            Run-Quinaquisset  note  which  Sentry  held   to  secure  the            Quinaquisset-Sentry note and that  latter note is called "the            instrument."                 But  subsection (1)(b)  requires that the  impairment be            "unjustifiabl[e]"  and  we  think  it  absurd  to  argue,  as            Quinaquisset does  without a shred of authority,  that it was            unjustifiable for  Sentry to foreclose on  property for which            it held the mortgage  when a default occurred on  the secured            debt.  That  is just what  security is there  for.  The  fact            that this security was an asset of a party, Fox Run, who also            had a debt to  Quinaquisset meant that Quinaquisset was  made            worse off by  the foreclosure.   That is  the normal fate  of            unsecured creditors when the bankrupt's only asset is already            pledged.                                            ____________________                 3It is misleading because Willowbend was  not much of an            asset, even in Fox Run's hands,  so long as it was subject to            a  mortgage to secure a defaulted debt apparently as large or            larger than the value of Willowbend.                                         -9-                                         -9-                 Quinaquisset might  have been  better off if  Sentry had            pursued Fox Run's guarantors instead of looking to Willowbend            to  satisfy Fox Run's debt, but the guarantees were to Sentry            and the mortgage ran  to Sentry.  Sentry's decision  to forgo            its  claims  against the  Fox Run  guarantors  in favor  of a            trouble-free sale of the  property was an entirely reasonable            choice which was Sentry's to make.  Sentry is not responsible            for  Quinaquisset's dilemma; if  Quinaquisset's claim against            Fox Run is illusory, it  has no one but itself (and  possibly            Fox Run) to blame.                   Since  Quinaquisset has failed  to set forth  a cause of            action or  defense against  Sentry under section  3-606 (and,            thus, against  the RTC as receiver), we  sustain the district            court on that ground.  See Doe v. Anrig, 728 F.2d 30, 32 (1st                                   ___ ___    _____            Cir. 1984) (court may affirm on a ground not relied on by the            district  court).   We need  not address  the  RTC's numerous            other  arguments as to  why section  3-606 should  not apply.            Other versions of  Quinaquisset's claims against  Sentry made            in the district  court may  properly have  been dismissed  on            grounds  of D'Oench, Duhme, but since these versions have not                        ______________            been  argued in this court,  we have no  occasion to consider            them.4                                            ____________________                 4Quinaquisset also complains that  Sentry, and then  the            RTC, declined  to  surrender the  Fox  Run-Quinaquisset  note            after the  foreclosure so that Quinaquisset  could pursue its            rights  under the  note.   But (assuming  the note  still had            value after the foreclosure),  the note remained security for                                         -10-                                         -10-                 The  final  issue  is  the  district  court's  award  of            attorneys' fees  to the RTC.  Under the terms of the guaranty            supporting  Quinaquisset's  note  to Sentry,  the  individual            guarantors agreed not only to guarantee the Quinaquisset debt            but to pay all  costs and attorneys' fees incurred  by Sentry            "in  connection with  the  enforcement of  .  . .  [Sentry's]            rights under, this  Guaranty."    The district court  awarded            the  RTC $79,374 in legal  fees for the  district court suit,            and it  held that the  guarantors were jointly  and severally            liable for this amount.                   Quinaquisset   objects  to  the  portion  of  the  award            attributable to  the Evergreen phase  of the litigation.   It            argues that the claims against Evergreen were not within  the            scope of the  guaranty and that the request for  such fees is            in  any event  untimely because  it was  made well  after the            separate judgment  in favor  of Evergreen.   We consider  the            scope issue first.   On  the issue of  interpretation of  the            guaranty,   our review  is plenary;  neither  side relies  on            anything  other  than the  language  of  the guaranty,  which            extends  to "all"  costs and  attorneys'  fees of  Sentry "in            connection with" the enforcement of Sentry's rights under the            guaranty.                                             ____________________            Quinaquisset's  debt to  Sentry;  Sentry says,  as one  might            expect, that  the conditions for  returning the note  had not            been satisfied; and Quinaquisset offers no reply.                                         -11-                                         -11-                 Although  this  suit  began  with  Sentry's  efforts  to            collect  against  the  Quinaquisset guarantors,  Quinaquisset            then asserted separate  third-party claims against Evergreen.            The only colorable claim against Evergreen was an attempt  to            undo  the  foreclosure  of Sentry's  mortgage  on Willowbend.            Driscoll, 985 F.2d at 47.  We agree that it might be too much            ________            of  a stretch of the  "in connection with"  language to treat            this phase of the litigation--if  there were nothing more  to            Evergreen's  involvement--as any part  of the  enforcement of            Sentry's rights under the Quinaquisset-Sentry note.                    But there was  more to Evergreen's involvement.   In the            answer to Sentry's complaint  Quinaquisset asserted that  the            conduct of Sentry's subsidiary or affiliate, i.e., Evergreen,                                                         ____            was  a defense to Sentry's suit against the guarantors on the            Quinaquisset-Sentry  note; and  in the  third-party complaint            against Evergreen,  Quinaquisset  said that  the  conduct  of            various entities  including Evergreen made the  note null and            void.  While this claim or defense as to Evergreen evaporated            under scrutiny, the allegations made it essential for the RTC            to defend Evergreen  as part of Sentry's own  collection suit            against the guarantors.                 As for timeliness,  Quinaquisset's objection rests on  a            decision  of this  court,  White v.  New  Hampshire Dep't  of                                       _____     ________________________            Employment Security,  629 F.2d 697  (1st Cir. 1980).   There,            ___________________            this  court held that a  motion for attorneys'  fees under 42                                         -12-                                         -12-            U.S.C.   1988 came too late when made over  four months after            entry of  a  final judgment  adopting  a consent  decree  and            apparently   ending   active    litigation   in   the   case.            Quinaquisset fails to mention  that the decision was reversed            over a decade ago by  the Supreme Court on the very  point at            issue.   455 U.S.  445 (1982).   In any  event, there  was no            untimeliness here even under  our original decision in White,                                                                   _____            so the objection is doubly without merit.                 Attorneys' fees were not sought until after the separate            judgment in favor  of Evergreen but  Evergreen itself had  no            claim  to attorneys' fees.  Rather, the guaranty ran in favor            of  Sentry, now  the  RTC as  receiver.    The RTC  did  seek            attorneys' fees for  all its work,  including the defense  of            Evergreen's actions,  before a final judgment  was entered in            its favor.                 Lastly, we  affirm  the district  court's decision  that            each  guarantor  is  individually  responsible  for  the full            amount  of attorneys'  fees.   Quinaquisset  argues that  the            attorneys' fee should have been apportioned among guarantors,            just as  liability for  the underlying debt  was apportioned;            the guaranty made each guarantor liable for only $150,000 (or            $75,000 in a few  cases) of the underlying $950,000  debt, as            provided  in a schedule attached to the guarantee.  The short            answer is that liability for costs and attorneys'  fees rests            on a  different  provision  of the  guaranty  that  made  the                                         -13-                                         -13-            "Guarantors"  liable  for   such  costs   and  fees   without            limitation.                   A promise cast in these terms normally makes each person            liable for  the full sum, whether the  liability is described            as joint,  several, or  both.  4  A. Corbin, Contracts    928                                                         _________            (1951).   Distinctions among those concepts  (joint, several,            joint  and several) relate to  other matters, such as joinder            and  release, not to the amount of  liability.  The amount of            liability can be contractually limited by specifying that the                      ___            promisors  are  liable  only  for  specific  amounts, Corbin,                                                                  ______            supra,   925, at 703-04, but  in this case no such limitation            _____            was  attached to  the  promise to  pay  collection costs  and            attorneys' fees.                 The judgment of the district court is affirmed.                                                       ________                                         -14-                                         -14-