Court Opinion

ID: 194895
Source: CourtListenerOpinion
Date Created: 2011-02-07 02:27:30+00
Date Added: 2024-06-11T15:11:23.343389
License: Public Domain

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-

     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-

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-

   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-

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-

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-

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-

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-

     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-

     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-

     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-

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-

"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-