Court Opinion

ID: 2964823
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:31:39.846685+00
Date Added: 2024-06-11T11:43:02.056915
License: Public Domain

USCA1 Opinion

	

       No. 96-2200
                                      BAYBANK,
                                Plaintiff, Appellant,
                                         v.
                               VERMONT NATIONAL BANK,
                                Defendant, Appellee.
                                ____________________
                    APPEAL FROM THE UNITED STATES DISTRICT COURT
                          FOR THE DISTRICT OF MASSACHUSETTS
                   [Hon. Douglas P. Woodlock, U.S. District Judge]
                                ____________________
                                       Before
                               Torruella, Chief Judge,
                            Bownes, Senior Circuit Judge,
                              and Stahl, Circuit Judge.
                                ____________________
            John 
                J. 
                  Kuzinevich 
                             with 
                                  whom 
                                      Is
                                        aac H. Peres and Kuzinevich & Miller,
       P.C. were on brief for appellant.
            Robert W. Mahoney with whom Joseph L. Stanganelli, Hale and Dorr,
       LLP, and Potter Stewart, Jr. were on brief for appellee.
                                ____________________
                                    July 7, 1997
                                ____________________

                      STAHL,            Circuit                  Judge.  
                      Plaintiff-appellant  Baybank filed  a  seven  count
            complaint 
                     against defendant-appellee Vermont National Bank for
            damages  arising out of  a failed loan  in which Baybank  had
            purchased 
                     a 
                      participation.1  The district court granted summary
            judgment 
                    in 
                       favor 
                            of 
                               Vermont National, and Baybank now appeals.
            Finding no error, we affirm.
                                     Background
                      In 1986 Vermont National made a $1,750,000 loan due
            to mature  on June 5,  1988, to Liftline  Lodge, Inc., a  ski
            operation.  In early 1988, Vermont National and Baybank began
            negotiating 
                       Baybank's potential participation in the loan.  In
            April, 
                  Baybank 
                         consummated the purchase of an interest equal to
            90% 
               of 
                  the 
                      outstanding principal balance of the Liftline loan.
            The  parties  executed   a  participation  agreement  and   a
            participation certificate to memorialize the arrangement.   
                      The  participation   agreement  contained   several
            inaccuracies.
                          The agreement reflected a loan in the amount of
            $1,417,500 with an  origination date of  October 3, 1986,  to
            mature on October  3, 1996.  In fact, $1,417,500  represented
            only 
                the 
                    amount 
                          of 
                             Baybank's participation, the loan originated
            on June  5, 1986 and  was to mature  on June 5,  1988.    The
            1.  Baybank alleged breach of the participation agreement
            (two counts), breach of trust, breach of fiduciary duty and
            conversion.  Baybank also sought declaratory and injunctive
            relief against Vermont National.   
                                         -2-
                                          2

            agreement 
                     made 
                         no 
                            mention of renewal of the loan upon maturity.
                      On June 5, 1988, six weeks after Baybank's purchase
            of the  participation  and upon  the maturity  date,  Vermont
            National renewed the Liftline loan for a five year period  to
            mature on June 5, 1993.  Vermont National continued to  remit
            and Baybank  continued  to  accept without  comment  its  90%
            interest in Liftline's  payments on the  loan.  By  February,
            1991, however, due to a series of poor ski seasons,  Liftline
            defaulted on the loan and filed for bankruptcy.  
                      Upon Liftline's  default, Baybank  cooperated  with
            Vermont National in trying to resolve the Liftline  situation
            favorably. 
                       
                      Baybank 
                              neither demanded payment in full of its 90%
            share of the  loan nor asserted that  it had never agreed  to
            participate in the 1988 renewal.  It was not until 1993  that
            Baybank 
                   first alleged that it never intended to participate in
            the renewal and filed this complaint.
                      In 
                        its 
                           complaint, 
                                      Baybank sought damages arising from
            Vermont  National's  alleged  breach  of  the   participation
            agreement.  Baybank claimed that the participation  agreement
            did 
               not 
                   extend to the renewal and, therefore, Vermont National
            owed Baybank its 90% share of the loan at maturity on June 5,
            1988. 
                  
                  Baybank 
                         based 
                               its 
                                   claims for conversion, breach of trust
            and  breach  of  fiduciary  duty  on  this  same  allegation.
            Alternatively,  Baybank   contended   that,   even   if   the
            participation agreement  extended  to  the  renewal,  Vermont
                                         -3-

            National breached the agreement by failing to provide Baybank
            with 
                items 
                      of financial information as the agreement required.
            The 
               district 
                        court granted summary judgment against Baybank on
            all counts.  This appeal followed.  
                                 Standard of Review
                      We 
                        review 
                               the 
                                  award 
                                        of 
                                           summary judgment de novo.  See
            Ortiz-Pinero v. Rivera-Arroyo, 84 F.3d 7, 11 (1st Cir. 1996).
            Summary judgment is  appropriate in the absence of a  genuine
            issue of material fact, when the moving party is entitled  to
            judgment as  a matter of law.  See Fed. R. Civ. P. 56(c).   A
            fact is  material when  it has  the potential  to affect  the
            outcome 
                   of 
                      the suit.  See  J. Geils Band Employee Benefit Plan
            v. Smith Barney  Shearson, Inc., 76  F.3d 1245, 1250-51  (1st
            Cir.), cert. denied, 117 S. Ct. 81 (1996).  Neither party may
            rely 
                on 
                   conclusory allegations or unsubstantiated denials, but
            must  identify specific  facts  derived from  the  pleadings,
            depositions,  answers  to  interrogatories,  admissions   and
            affidavits 
                      to 
                        demonstrate either the existence or absence of an
            issue of fact.  See Fed. R. Civ. P. 56(c) & (e). 
                                     Discussion
                      The central issue this  case raises is whether  the
            participation 
                         agreement 
                                  contemplated Baybank's participation in
            the renewal.  Finding  the agreement ambiguous, the  district
            court 
                 admitted extrinsic evidence of the parties' intent as an
            aid 
               in 
                  its 
                      construction of the agreement.  The court concluded
                                         -4-
                                          4

            that Baybank  had agreed to participate  in the renewal.   On
                al Baybank contends that the contract was not  ambiguous,
            and that even if it was, the evidence at a minimum  precluded
            summary judgment on its claims.  We examine each of Baybank's
            arguments in turn.  
            A.  Was the Participation Agreement Ambiguous?
                      T
            appe       he 
                         parties 
                                 agree that pursuant to the participation
            agreement, 
                      Vermont law governs this dispute.  See Miniter Ins.
            Agency, Inc. v. Ohio Indemnity Co., 112 F.3d 1240, 1245  (1st
            Cir. 
                1997) 
                      (indicating that where parties agree as to what law
            governs, federal court sitting in diversity is free to forego
            an 
              independent 
                         analysis 
                                  and may accept the parties' agreement).
            The  parties also  agree  that  the  participation  agreement
            misidentified  several   terms  of   the  actual   agreement,
            specifically, the amount of the loan and the origination  and
            maturity dates.  Baybank characterizes these as  "scrivener's
            errors" and contends that under Vermont law the participation
            agreement reflects no substantive ambiguity.
                      In Vermont,  whether a contract  is ambiguous is  a
            question of law.2   See Breslauer v. Fayston Sch. Dist.,  659
            2.  The parties agree that we should construe the
            participation agreement under general contract principles. 
            See, e.g., Den Norske Bank v. First Nat'l Bank of Boston, 75
            F.3d 49, 52 (1st Cir. 1996) (applying general contract
            principles under Massachusetts law to analyze disputed
            participation agreement).  Neither our research nor that of
            the parties has uncovered any Vermont authority suggesting a
            more appropriate analytical approach.
                                         -5-
                                          5

            A.2d 
                1129, 
                      1135 (Vt. 1995); Isbrandtsen v. North Branch Corp.,
            556 A.2d 81, 83 (Vt.  1988).  Vermont law, however, does  not
            restrict courts making that inquiry to the four corners of  a
            written agreement.   Instead, courts  may consider  extrinsic
            evidence of "the circumstances surrounding the making of  the
            agreement as well as the object, nature and subject matter of
            the 
               writing,"  Breslauer, 659 A.2d at 1135 (internal quotation
            omitted), and will find ambiguity in the event that a writing
            in itself supports a different interpretation than that which
            appears when read in light of the surrounding  circumstances,
            See Isbrandtsen,  556  A.2d  at 84.    Both  interpretations,
            however, must be reasonable in order to establish  ambiguity.
            See id.  
                      On  its  face  the  participation  agreement  seems
            unambiguous. 
                         The parties, however, agree that the amounts and
            dates  in   the  agreement  do   not  reflect  their   actual
            understanding
                        , and each party directs us to extrinsic evidence
            suggesting 
                      competing 
                               interpretations of the agreement.  That we
            must resort to extrinsic evidence to determine the intent  of
            the parties renders the contract necessarily ambiguous.3
            3.  Without regard to the legal strategy of either party, we
            note that neither of the litigants sought rescission and
            reformation on the basis of mistake.  In Vermont,
            "[r]eformation is appropriate when an agreement has been
            made, or a transaction has been entered into or determined
            upon, . . . , but in reducing such agreement or transaction
            in writing, the written instrument fails to express the real
            agreement or transaction."  LaRock v. Hill, 310 A.2d 124, 126
            (Vt. 1973) (internal citations and quotations omitted). 
                                         -6-
                                          6

                      Baybank argues unpersuasively that consideration of
            the  participation  certificate   in  conjunction  with   the
            participation agreement  renders  the latter  unambiguous  in
            Baybank's  favor.    We  recognize  that  the   participation
            certificate, executed on the  same date as the  participation
            agreement,  correctly   states   the  amount   of   Baybank's
            participation and explicitly refers to the June 5, 1986  note
            which had a maturity date of June 5, 1988.  The participation
            certificate, however,  neither references  the  participation
            agreement  nor explicitly  sets any  parameters on  Baybank's
            participation.   The certificate,  in other  words, does  not
            definitively resolve the agreement's ambiguity.    
                      Even if we assume  that consideration of these  two
            documents 
                     together results in one reasonable interpretation of
            the participation agreement, a host of extrinsic evidence  in
            the  record supports  an alternative  but equally  reasonable
            interpretation.   Much  of this  evidence also  bears on  the
            substance 
                     of 
                        Baybank's breach of contract claim and we discuss
            it fully in our  analysis of that claim.   We note only  that
            Vermont  law  directs   us  to  consider  the   circumstances
            Reformation of this agreement would require a consideration
            of any extrinsic evidence of the terms of the actual
            agreement which the writing in question failed to record. 
            See Paradise Restaurant, Inc. v. Somerset Enters., Inc., 671
            A.2d 1258, 1262 (Vt. 1995).  Whether through reformation or
            through a finding of ambiguity, therefore, we would need to
            construe the agreement through relevant extrinsic evidence. 
            As the parties have chosen the route of ambiguity, we let
            that doctrine frame our analysis.  
                                         -7-
                                          7

            surrounding the agreement; it does not direct us to select  a
            single circumstance  which if  considered in  a vacuum  might
            resolve the  ambiguity.   See  Breslauer,  659 A.2d  at  1135
            (directing courts to  consider evidence on the  circumstances
            surrounding 
                       the making of the agreement as well as the object,
            nature and subject matter of the agreement itself).  
            B.  Does the Participation Agreement Contemplate the Renewal?
                      Courts faced with ambiguity in a contract resort to
            "subordinate 
                        rules of construction," see Isbrandtsen, 556 A.2d
            at  85, including  consideration of  extrinsic evidence,  see
            Abbiati
                   
                   v. 
                      Bu
                        ttura & Sons, Inc., 639 A.2d 988, 991 (Vt. 1994),
            to determine the  proper construction of  the contract.   The
            proper construction is that which reflects or effectuates the
            intent of the parties.  See Abbiati, 639 A.2d at 991.  In any
            given case  relevance guides the  use of extrinsic  evidence.
            Some of the same evidence that may bear on whether a  written
            contract is  ambiguous  may also  cast  light on  the  proper
            interpretation of the language  upon a finding of  ambiguity.
            See, e.g.,  id. at 991  (indicating that circumstances  under
            which 
                 the 
                     contract arose are relevant in determining intent of
            parties).    
                      Generally,  the construction  of  a contract  is  a
            question of law.  See Morriseau v. Fayette, 670 A.2d 820, 826
            (Vt. 
                1995). 
                        
                        "[W]here the meaning of a contract is uncertain,"
            however, "the  intent of the  parties becomes  a question  of
                                         -8-
                                          8

            fact." 
                   
                   Housi
                        ng Vt. v. Goldsmith & Morris, 685 A.2d 1086, 1088
            (Vt. 
                1996). 
                        
                       In 
                          this 
                               case, therefore, we must determine whether
            the 
               record 
                     contains 
                              sufficient evidence from which a reasonable
            jury 
                could 
                      conclude that Baybank did not intend to participate
            in the  renewal.  We  conclude that the  record in this  case
            allows  for no such  dispute.  Instead  it reflects that  the
            parties intended the participation agreement to extend to the
            renewal, and,  therefore,  the district  court  appropriately
            granted summary judgment in favor of Vermont National.
                      From Baybank's  negotiations with Vermont  National
            prior 
                 to 
                    June 5, 1988, the date that Baybank now claims marked
            the end of its participation period, until September of 1993,
            when 
                Baybank 
                        filed 
                             its 
                                 complaint, Baybank repeatedly reaffirmed
            its  understanding that  its  participation extended  to  the
            renewal.  George Todd  Marchant, Vice President in  Baybank's
            commercial  loan department  and  member  of  Baybank's  loan
            committee, 
                      negotiated the initial participation agreement with
            Louis Dunham, Executive Vice President of Vermont  National.4
            Marchant 
                    testified 
                             that 
                                  he and Dunham discussed the anticipated
            renewal 
                   of 
                      the 
                         Liftline 
                                  loan scheduled to occur six weeks after
            Baybank  purchased  its  participation,  and  that  the  loan
            committee's approval of  participation in  the Liftline  loan
            4.  The loan committee at Baybank had final authority to
            approve loans in which Baybank sought to participate.
                                         -9-
                                          9

            included  participation in  the renewal.5   Marchant  further
            testified that a handwritten note in the top corner of one of
            the 
               loan 
                    documents produced from Baybank's file read "per Lou,
            this note will be renewed on the same terms."6  
                      From September 1991  to spring 1993, David  Hobert,
            then  an  account  officer   with  Baybank,  served  as   the
            participating agent in  the loan.   In this capacity,  Hobert
            oversaw the relationship between Baybank and Vermont National
            pertinent to the  Liftline loan and worked with officials  at
            Vermont National "in administering the direction of the  loan
            and  foreclosure." Hobert  testified  that  when  he  assumed
            oversight 
                     of 
                        the 
                           loan, 
                                 nearly two years after the maturity date
            to 
              which 
                    Baybank now clings, "it was understood that [Baybank]
            had a 90% participation."
                      On behalf of  Baybank, Hobert  worked closely  with
            Vermont 
                   National as the two banks considered their options and
            planned 
                   their 
                        workout 
                                strategies.7  Hobert visited the Liftline
            5.  Marchant testified that he recalled a three year renewal
            rather than the five year renewal Vermont National asserts. 
            To the extent that fact is in dispute, it is not material to
            Baybank's claim; Baybank does not dispute the length of time
            of any renewal to which it agreed.  Instead, Baybank argues,
            it never agreed to any renewal at all.  
            6.  The testimony of Louis Dunham, Executive Vice President
            of Vermont National, corroborates Marchant's understanding of
            the scope of the participation.  
            7.  Interestingly, rather than immediately file the present
            complaint against Vermont National, shortly after default
            Baybank filed suit in state court in Massachusetts against
            guarantors of the loan.
                                        -10-
                                         10

            lodge  in 1992,  nearly four  years after  the maturity  date
            Baybank claims, to examine the collateral and participate  in
            negotiations with  the  lodge owners  on clearing  the  debt.
            Hobert 
                  testified that he made this trip because Baybank "was a
            90% 
               participant 
                           in 
                             the 
                                 loan," and he was invited to inspect the
            property 
                    with 
                         the 
                            lead 
                                 bank.  On behalf of Baybank, Hobert also
            proposed a settlement with Liftline's guarantors and proposed
            that Baybank and Vermont National form a corporation of which
            Baybank would own 90% and Vermont National would own 10%, for
            the 
               purpose 
                       of 
                         taking 
                                title to the property and other assets of
            Liftline.      
                      Documentary 
                                 evidence from Baybank's files throughout
            the life  of the  loan further  undermines Baybank's  renewal
            claim. 
                   
                   In 
                     October 
                             1988 
                                  and again in 1989, Baybank sent Vermont
            National  "audit  confirmation"  notices  requesting  Vermont
            National 
                    to 
                       submit information regarding Baybank's interest in
            the Liftline loan.  Both of the notices reflect a due date or
            maturity date  of June 5,  1993, which  corresponds with  the
            maturity date  of the renewed loan.   Watch List Reports,  in
            which Baybank  lists  "troubled" loans  requiring  additional
            monitoring, 
                       listed 
                             the 
                                 Liftline loan and specifically indicated
            an origination date of April 25, 1988 and a maturity date  of
            June 5, 1993.
                      As indicated,  the question  of the  intent of  the
            parties 
                   to 
                      an ambiguous agreement is one of fact.  See Housing
                                        -11-
                                         11

            Vt., 685 A.2d at  1088.  In this  case Baybank has failed  t
                      any  evidence  that  would  place  its  intent   t
                        n the renewal in dispute.  Instead, the record in
                                                                        o
            identify                                                    o
            participate 
                       i
            this 
                case 
                     establishes beyond question that Baybank intended to
            and  did participate  in the  renewal of  the Liftline  loan.
            Accordingly, the  district  court correctly  granted  summary
            judgment     in    favor    of    Vermont     National.8     
            C.  Did  Vermont  National  Commit  Other  Breaches  of   the
                           Participation Agreement?  
                      Baybank contends  that  even if  the  participation
            agreement 
                     did extend to the renewal, Vermont National breached
            the 
               agreement 
                         by 
                           failing 
                                   to provide it with certain information
            the agreement  required.   Baybank also  claims that  Vermont
            National 
                    settled 
                            a 
                             claim 
                                   against the individual guarantors over
            8.  Our conclusion that Baybank intended to participate in
            the renewal also forecloses Baybank's claims for conversion,
            breach of trust, and breach of fiduciary duty, all of which
            Baybank premises on its argument that the participation
            agreement required Vermont National to remit Baybank's 90%
            participation on June 5, 1988 rather than roll the funds into
            the renewal.  With respect to conversion and breach of trust,
            Baybank fails to establish that Vermont National did anything
            impermissible with Baybank's participation interest.  If we
            accept Baybank's assertion that Vermont National had a
            fiduciary duty to Baybank at least with respect to paying
            Baybank its share of the Liftline loan proceeds, Baybank
            fails to establish any conduct by Vermont National that
            constitutes a breach of that duty.  Vermont National
            continued paying Baybank its participation share of the
            monthly payments until the default, and Baybank continued to
            accept those payments.  After the bankruptcy court provided
            Vermont National with adequate protection payments on the
            Liftline loan, Vermont National forwarded Baybank 90% of each
            monthly payment.    
                                        -12-
                                         12

            Baybank's objection  in  contravention of  the  participation
            agreement.9  We find neither of these arguments persuasive.  
                      The participation agreement provides: 
                           As long  as  the  Participating
                           Bank  continues   to  have   an
                           ownership interest in the Loan,
                           the Originating Bank agrees  to
                           regularly      provide      the
                           Participating
                                        Bank with complete
                           and current credit related  and
                           other 
                                information concerning the
                           Borrower,  the  Loan  and   the
                           collateral 
                                     securing the Loan . .
                           . .
            Baybank points  us to  the deposition  testimony of  Kathleen
            Mullin 
                  and 
                      David 
                           Hobert, 
                                   Baybank employees who oversaw the loan
            at different points during its existence.  The district court
            reviewed 
                    both of these sources and determined that they failed
            to  establish even a  dispute of fact  as to whether  Vermont
            National breached the participation in this way.  
                      We 
                        need 
                             not 
                                 revisit this evidence in detail.  Mullin
            testified 
                     that 
                          she 
                             could 
                                   not remember specifically what Vermont
            National had failed  to provide and what  she had or had  not
            received. 
                      
                      Hobert professed no knowledge as to why Baybank had
            9.  Baybank insists that it adduced "strong evidence" that
            Vermont National and Liftline did not actually execute the
            original loan on June 5, 1986, but rather backdated the note
            to reflect that date.  According to Baybank, but for the
            backdating, the note was actually in default, and the
            participation agreement required Vermont National to inform
            Baybank of any default.  Baybank's brief, one-paragraph
            discussion of this argument offers us no compelling reason to
            repeat the district court's thorough analysis or to disturb
            the court's legal conclusions.  
                                        -13-
                                         13

            not received certain documents, specifically, whether it  was
            due 
               to 
                 Vermont 
                         National's delinquency or that of the debtors or
            guarantors.   Mullin and  Hobert simply  could not  recollect
            exactly  what information Baybank had in its possession, what
            information  Baybank  sought  and  what  information  Vermont
            National failed  to produce.   In  short, we  agree with  the
            district 
                    court that their testimony fails to raise any genuine
            issue of material fact on this claim.  
                      Finally,  Baybank  argues  that  Vermont   National
            breached  the participation  agreement  by settling  a  claim
            against the individual guarantors of the Liftline loan.   The
            participation  agreement  prohibited  Vermont  National  from
            "waiv[ing] 
                      or 
                        releas[ing] any claim against any Borrower and/or
            against any co-maker, guarantor or endorser under the  Loan."
            Baybank directs us to the affidavit of Richard Butler, Senior
            Vice President of Baybank,  who claims that Vermont  National
            settled against the guarantors in contravention of  Baybank's
            instructions.       This    conclusory    assertion    simply
            mischaracterizes the record.
                      The record  reveals that  on April  15, 1993,  Mark
            LaPointe  of  Vermont National  and  David  Hobert  met  with
            attorneys for the guarantors.  Hobert, not LaPointe, proposed
            a  settlement but  failed  to  reach an  agreement  with  the
            guarantors. 
                        
                       A 
                         memorandum dated April 20, 1993, the veracity of
            which 
                 Baybank 
                         does 
                             not 
                                 dispute, memorializes this meeting.  The
                                        -14-
                                         14

            guarantors then  moved to enforce  a settlement agreement  in
            bankruptcy 
                      court despite the fact that none of the parties had
            agreed to final  terms of settlement.   Vermont National  and
            Baybank both  opposed  the  motion.   The  bankruptcy  court,
            however, granted the  motion, effectively forcing  settlement
            upon 
                the 
                    banks.  Butler's conclusory allegations fail to raise
            a genuine issue of material fact. 
                                     Conclusion
                      Having 
                            found 
                                  no error, we conclude that the district
            court  appropriately granted  summary  judgment in  favor  of
            Vermont National on all counts.
                      Affirmed.  Costs to appellee.
                                        -15-
                                         15