Bezanson v. Fleet Bank, NH

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 93-2040

DENNIS G. BEZANSON, TRUSTEE OF THE ESTATE OF UNITEX, INC.,

Plaintiff, Appellant,

v.

FLEET BANK - NH,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW HAMPSHIRE

[Hon. Paul J. Barbadoro, U.S. District Judge]

Before

Torruella, Cyr and Boudin,

Circuit Judges

Graydon G. Stevens with whom Kelly, Remmel & Zimmerman was on

brief for appellant.
Francis L. Cramer with whom Valerie A. Walsh and Sullivan &

Gregg, P.A. were on brief for appellee.

July 14, 1994

BOUDIN, Circuit Judge. Unitex, Inc., a New Hampshire

Corporation, made graphics equipment purchased by newspaper

and magazine publishers. In March 1985, Unitex defaulted on

a $3 million bank loan owed to Indian Head National Bank

("the bank").1 The loan was secured by all of Unitex'

assets and on March 8, 1985, Indian Head took possession of

Unitex' entire operation. The bank's object was to sell

Unitex as an ongoing business, but for the time being it

reduced Unitex' activities to servicing customers and

providing spare parts. A number of Unitex' customers told

the bank that they would cease using Unitex as a supplier

unless Unitex acquired new management by June 1985.

In late May 1985, after soliciting unsuccessfully for

buyers, the bank received an offer from Graphics Technology,

Inc. ("GTI"). GTI was a start-up company formed by three

principals in order to purchase Unitex. Two of them had

considerable experience in graphics technology and the

principals visited the Unitex plant and spoke with employees

and distributors. GTI aimed to purchase Unitex with borrowed

money and retained two firms to assist it in raising the

capital: A R Technology, Inc., a financial consultant, and

Parker Benjamin, Inc., a regional investment banker.

1Fleet Bank-NH ("Fleet") succeeded to the interests of
Indian Head at some time after the transactions at issue in
this case.

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On May 22, 1985, GTI made a written offer to Indian Head

to purchase the assets of Unitex for $3,250,000. Ronald

Cote, the bank officer primarily involved in seeking a buyer

for the assets, spoke to a Parker Benjamin representative

several times and was told that it had a "high level of

confidence [the] deal can be done and rather quickly." A

representative of A R Technology, Inc. also told the bank of

Parker Benjamin's optimism. The bank drafted but did not

transmit a letter dated May 27 accepting GTI's May 22 offer.

On May 29, 1985, the GTI principals met with Cote and

the bank's president to discuss the May 22 offer. The bank

presented a draft proposal calling for a July 12 closing date

and a $200,000 nonrefundable deposit to be made when the bank

accepted the offer. GTI furnished a proposed interim plan

for GTI to take over operation of Unitex prior to the closing

(the bank having expressed a desire to surrender day-to-day

management). Indian Head objected to two aspects of the

interim operation plan and GTI offered modifications. GTI

balked at the $200,000 deposit and this issue was left

unresolved.

On June 1, 1985, GTI sent Cote a letter providing more

detail about the interim operating plan and increasing the

GTI offer to $3,400,000. The letter said that Unitex

customers, contacted by GTI, were enthusiastic and some had

expressed an interest in offering financial assistance to

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GTI, if required; also, according to the letter, key former

Unitex employees were willing to rejoin the company. There

was no mention of the nonrefundable deposit, but the letter

said that GTI was "rapidly reviewing the remaining few [open

points] for a final solution."

On June 3, 1985, Chorus Data Systems, Inc. ("Chorus"),

made the bank a competing proposal. In substance, it

proposed a joint venture between Chorus and the bank looking

toward the operation of Unitex for a period, followed by a

public offering of a rebuilt Unitex a year or so hence; the

bank's expected gain was projected to be between $3 million

and $8 million, depending on the price obtained in the public

offering. The bank was attracted by the prospect of sharing

in the value of a revived Unitex. In a June 4 meeting with

GTI representatives, the bank rejected GTI's offer.

On June 5, 1985, representatives of the bank and Chorus

met. Cote rejected the joint venture approach on grounds of

unspecified regulatory problems; he suggested instead that

Fleet take a note for $3 million from a proposed new company

(which would own the Unitex assets) and convert the note into

equity four months later. An agreement in principle along

these lines was reached either then or the next day. On June

6, GTI was told that the bank had decided to sell Unitex to

another bidder. Unitex' customers were advised that Unitex

would soon be operating under new ownership headed by Chorus.

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On June 20, 1985, Chorus and the bank signed a written

agreement. The details are complicated but in substance a

new corporation--called Cuneiform--was to purchase the Unitex

assets. A $3 million interest bearing note would be issued

to the bank by Cuneiform, and the note would be exchanged in

120 days for convertible preferred stock to be held by the

bank. If, as the parties anticipated, the new company were

ultimately offered to the public or sold to another company,

the preferred stock would be converted to common stock at an

agreed upon ratio and the bank would obtain 49 percent of the

business and thereby share in the upside profit. No deposit

was required from Chorus or the new entity, nor did Chorus

provide any guarantee of the $3 million note.

In July 1985, Unitex filed for bankruptcy. In

bankruptcy, the claims of unsecured creditors of Unitex

exceeded $3,700,000. On March 7, 1990, Dennis Bezanson,

trustee of the estate of Unitex, filed the present action in

district court against Fleet as the successor to Indian Head.

The complaint, so far as pertinent here, charged that Indian

Head had violated its duty under New Hampshire law by failing

to dispose of the Unitex assets in a commercially reasonable

manner.

The case was tried to a jury in March 1993. The jury

found in favor of the trustee and awarded damages of

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$379,779.21, effectively the $3,400,000 offer made by GTI

less the amount Unitek owed the bank.2

Fleet filed post-trial motions for judgment as a matter

of law or for a new trial, attacking the jury verdict as to

both liability and damages. In a decision filed on August

27, 1993, the district court found that the evidence

supported the jury's finding of liability but that Fleet was

entitled to judgment as a matter of law because the trustee

had not provided evidence of damages sufficient to permit a

reasonable jury to find that damages had been proved with

"reasonable certainty." The new trial motion was dismissed

as moot.

The trustee has appealed from the district court's

judgment in favor of Fleet. Fleet not only defends the

judgment but argues, in the alternative, that it was also

entitled to judgment as a matter of law on the issue of

liability. Fleet has not cross-appealed, but it is entitled

to defend the district court's judgment--that the trustee

take nothing--on any ground properly preserved in the

district court. See Martin v. Tango's Restaurant, Inc., 969

F.2d 1319, 1325 (1st Cir. 1992).

2Although the original loan to Unitex had been for $3
million, Indian Head was owed $3,020,220.79 in June 1985,
apparently because of expenses incurred by the bank for which
Unitex was responsible.

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We address the issue of liability first and then turn to

the issue of damages. The applicable law in this case is in

part state and in part federal. State law determines what

had to be proved, by whom and to what degree of persuasion.

Federal law determines the relationship between judge and

jury, including the standard--that no reasonable jury could

find otherwise-- for granting judgment notwithstanding the

verdict. Our review of such a judgment is de novo. See

Biggins v. Hazen Paper Co., 953 F.2d 1405, 1409 (1st Cir.

1992).

1. The Uniform Commercial Code, adopted by New

Hampshire, provides that sale of collateral to satisfy a debt

must be "commercially reasonable" in "every aspect" including

"method, manner, time, place and terms." N.H. Rev. Stat.

Ann. 382-A:9-504(3). We agree with the district court's

concise gloss on the "commercially reasonable" language:

commercial reasonableness normally depends on evaluation of

all the circumstances surrounding the disposition of

collateral; and in general "no single factor, even price,

will conclusively determine the commercial reasonableness of

a secured party's actions."3

3See generally, e.g., C.I.T. Corp v. Lee Pontiac, Inc.,

513 F.2d 207, 209 (9th Cir. 1975); Georgia Pacific Corp. v.

First Wisconsin Financial Corp., 805 F. Supp. 610, 617 (N.D.

Ill. 1992); 7 A.L.R. 4th 309 (1981) (collecting cases).

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Fleet argues on appeal that the party disposing of

collateral can never be deemed unreasonable if it accepts a

lower firm offer in preference to a higher but contingent

one. This argument need not detain us long. Common sense

alone suggests that in some circumstances a higher contingent

offer will be far more valuable than a lower certain one.

The proverb says that a bird in the hand is worth two in the

bush; it does not say that a bird in hand is worth more than

any number of birds in the bush.

Even if there were a rule such as that urged by Fleet--

which there is not--it is doubtful that it would apply here.

The $3 million offer by Chorus appears to have been "certain"

only in a formal sense. In substance, nothing secured the $3

million note obtained from Cuneiform beyond the original

Unitex assets. This does not mean that the deal was a bad

one from the bank's point of view but only that the "firm"

offer Indian Head accepted gave it no more security than it

already had.

Whether the action of the bank was commercially

unreasonable judged by all the circumstances is a more

interesting question. Perhaps the apparent prospects of

Unitex as a going company would have made it prudent for an

actual owner of the assets to reject a $3,400,000 offer and

to prefer an equity stake while the business was

resuscitated. Similarly, a security holder, owed $5 million,

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who in good faith held out for more than $3,400,000 might

well have been able to defend this judgment as a reasonable

one, even if the strategy turned out badly.4

We need not pursue these issues because Indian Head was

not the owner of the property, and its actions as a secured

creditor were tainted by bad faith, or so the jury must have

found. One who possesses collateral for a loan in default

cannot walk away with the collateral if it is worth more than

the debt. Rather, the lender normally is entitled to the

value of the collateral up to the amount of the outstanding

debt. The balance belongs to the borrower or, if the

borrower is then bankrupt, to the bankruptcy trustee on

behalf of the other creditors. See N.H. Rev. Stat. Ann.

382-A:9-504(2) (absent agreement "the secured party must

account to the debtor for any surplus"); Contrail Leasing

Partners, Ltd. v. Consolidated Airways, Inc., 742 F.2d 1095

(7th Cir. 1984).

In this case, the $3,400,000 offer by GTI was for more

than the balance owed the bank. If the bank had been

seriously concerned about the reliability of the offer or had

feared that customers would desert Unitex before the deal

could be completed, it might have rejected GTI's proposal on

4Apparently in the event Unitex' technology proved to be
rapidly outmoded by developments in computerization. In this
respect, both GTI and Indian Head apparently were deceived in
thinking that Unitex had a bright future.

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those grounds. But what happened strongly suggests not that

the bank doubted that it could recover its full outstanding

debt but that it became interested in obtaining even more.

But anything more belonged to the creditors and not to the

bank. The jury probably thought that the bank's conduct was

deplorableandin nosensea"commercially reasonable"disposition.

In fairness to Indian Head, we note that there is also

some evidence consistent with its position that it acted in

good faith. For example, notes made by Cote say that on June

6 Cote spoke to Parker Benjamin "to clarify" its expectations

and was told that there was "a high probability" of raising

the money but that the financing depended on verifying

Unitex' assets and this would take three weeks. Still, it

was up the jury to weigh the conflicting inferences from all

the evidence and to conclude, as it apparently did, that Cote

was protecting the record after the decision had been made.

2. The question whether evidence is adequate to show

damages is closer. In this case, the district court held

that New Hampshire law required the damages be proved to a

"reasonable certainty." The district court concluded that no

reasonable jury could find it reasonably certain that GTI

would have been able to finance and carry through the

transaction if its offer had been accepted. Parker

Benjamin's expressions of confidence "that [the] deal can be

done and rather quickly" were, the court found, "nothing more

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than speculation . . . ." Under New Hampshire law, the

debtor may recover as damages "any loss caused" by the

secured party's unreasonable disposition of the collateral.

N.H. Rev. Stat. Ann. 382-A:9-507. See A to Z Rental, Inc. v.

Wilson, 413 F.2d 899 (4th Cir. 1969) (damages based on

rejected offer). In commercial litigation in New Hampshire,

as elsewhere, the burden of proof of damages is upon the

claimant who must show by "a preponderance" of the evidence

both the extent and amount of such damages.5 Our concern is

not with these propositions, but with the district court's

further conclusion that New Hampshire law required that the

damages be established with "reasonable certainty."

The district court borrowed its "reasonable certainty"

standard from two New Hampshire cases that impose this

requirement on the computation of lost profits in breach of

contract cases. Great Lakes Aircraft Co. v. City of

Claremont, 608 A.2d 840 (N.H. 1992); Hydraform Products Corp.

v. American Steel, 498 A.2d 339 (N.H. 1985). These cases are

ones in which the claimant argued that a business would have

been profitable in a specified amount but for the breach of

contract or other wrongful conduct of the wrongdoer. Lost

5See Baley v. Sommovigo, 631 A.2d 913, 917 (N.H. 1993)

("The party seeking to recover damages has the burden of
proving by a preponderance of the evidence the extent and
amount of such damages."); Grant v. Town of Newton, 370 A.2d

285, 287 (N.H. 1977) (claimant must show by preponderance
causation of "and extent and amount of such damages.").

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profits of this kind are often quite speculative; they depend

upon how a variety of variables affecting a stream of

revenues and expenses would have played out over time, if the

wrongdoing had not occurred.

Our case does not require such a complex conjectural

judgment: the only question is whether the specific

transaction in question--a $3,400,000 purchase of Unitex

assets by GTI in or around June 1985--would have gone forward

if the bank had pursued this transaction rather than

diverting its efforts to securing an equity stake. This is a

matter of prophesy, to be sure, but we see no reason in

policy and nothing in the New Hampshire case law to suggest

that the trustee needed to show anything more than the "more-

likely-than-not" prospect usually associated with a

preponderance of the evidence standard.6

The New Hampshire UCC pertinently provides that its

remedies shall be liberally administered "to the end that the

aggrieved party may be put in as good a position as if the

other party had fully performed" and the comment to the

provision notes: "Compensatory damages are often at best

approximate: they have to be proved with whatever

definiteness and accuracy the facts permit, but no more."

6The phrase "lost profits" is too mutable to provide a
hard-edged test for when reasonable certainty is required;
but we doubt that the label well suits the claim of the
trustee to have an estate asset sold in good faith for as
close to fair value as circumstances permit.

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N.H. Rev. Stat. 382-A:1-106(1) and comment 1. Finally,

even if "reasonable certainty" were the standard in this

case, there is marked inclination to relax the test where the

defendant's conduct is willful. See A. Farnsworth, Contracts

12.15, at 920-21 (2d ed. 1990).

Resolving credibility issues and all reasonable

inferences in favor of the jury verdict, see Putnam Resources

v. Pateman, 958 F.2d 448, 459 (1st Cir. 1992), we think that

the evidence is adequate to support the jury's view that the

GTI transaction would more likely than not have succeeded but

for the bank's misconduct. In considering whether financing

would have been secured, the jury was entitled to rely on the

rather general but also quite confident predictions

attributed to GTI's investment banker. These statements were

hearsay because they appeared in the form of notes made by

the bank representative who conferred with Parker Benjamin.

But there was no objection to admission of the notes and

recorded statements may therefore be considered for the truth

of the matter asserted. For all we know, a Parker Benjamin

witness might have been summoned if an objection had been

made.

Of course, such predictions would carry far more weight

if the Parker Benjamin representative had provided more

detail to underpin his conclusion--for example, by describing

preliminary efforts to raise the money, similar past

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transactions, or the commercial promise of Unitex. Still,

experts are allowed to testify to their bare conclusions, see

Fed. R. Evid. 703, and the bare conclusion here is quite

favorable to the trustee. Further, the bank's action turning

down the $3,400,000 offer in favor of retaining an equity

stake might be viewed as a judgment by the bank that the

assets were worth at least $3,400,000 and, if the bank

thought so, the jury might suppose that potential lenders to

GTI would reach the same conclusion.

The district court expressed doubt that the investment

banker could make a well grounded judgment about financing

when GTI itself had still not received all of the information

about Unitex that GTI wanted from the bank. Based on the

testimony, there is no reason to believe that GTI was seeking

anything more than detailed verification about matters

represented in the offering "package" that the bank provided

to potential bidders. The mere fact that GTI was seeking

additional information or confirmation is not itself enough

to show that Parker Benjamin's prediction of financing was

irresponsible.

The bank points to a number of other uncertainties that

attended the GTI proposal. In addition to GTI's need for

financing, GTI requested a substantial period in which to

evaluate Unitex; the question of management of Unitex during

the transition and before closing remained to be settled; and

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the issue of the nonrefundable downpayment was never

resolved. Fleet's brief tries to develop these uncertainties

to furnish sound reasons why Indian Head would in good faith

have been justified in rejecting GTI in favor of Chorus.

The jury, however, was entitled to conclude that the

bank did not make such a good faith judgment but was

enthusiastic about the GTI proposal until its attention was

diverted by the lure of improper gain. GTI's own enthusiasm

for the transaction is unquestioned, and its efforts to

secure financing were underway and had been optimistically

assessed. Thus, a reasonable jury could have found that it

was more likely than not that the GTI proposal would

ultimately have been accepted, and financing for it achieved,

but for the bank's bad faith rejection of the GTI proposal.

The judgment of the district court is reversed and the

matter is remanded for further proceedings consistent with

this opinion.

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