Nasco, Inc. v. Public Storage, Inc.

United States Court of Appeals
For the First Circuit

No. 94-1035

NASCO, INC.,

Plaintiff, Appellant,

v.

PUBLIC STORAGE, INC.,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Joseph L. Tauro, U.S. District Judge]

Before

Torruella, Circuit Judge,

Coffin, Senior Circuit Judge,

and Stahl, Circuit Judge.

Joseph G. Abromovitz with whom Marsha A. Morello and Abromovitz &

Leahy, P.C. were on brief for appellant.

John P. Connelly with whom James E. Carroll and Peabody & Arnold

were on brief for appellee.

July 18, 1994

STAHL, Circuit Judge. In this appeal, plaintiff-

appellant NASCO, Inc., challenges the district court's entry

of summary judgment against it and in favor of defendant-

appellee Public Storage, Inc. ("PSI"). NASCO asserts that

the court erred in concluding that a trial was not warranted

on its claims for breach of contract and unfair and deceptive

trade practices. After conducting a careful review of the

record, we agree. We therefore vacate and remand for a trial

on the merits.

I.

BACKGROUND

A. The Facts

In June 1987, NASCO, a closely-held family

corporation which had manufactured and distributed springs

for mattresses and box springs, ceased business operations.

At the time NASCO closed down, it owed Shawmut Bank

approximately $800,000.00. NASCO had been having trouble

servicing its debt to Shawmut and faced foreclosure. Its

only asset of any value was the Chelsea, Massachusetts,

facility from which it had operated its business. This

facility was estimated to be worth approximately

$4,000,000.00.

In early 1988, NASCO retained real estate broker

Peter Cooney of Coldwell Banker to act as its agent in

marketing the Chelsea facility for sale. Soon after the

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property went on the market, agents of PSI approached NASCO

and expressed an interest in purchasing it for use as a self-

storage facility. In April 1988, PSI offered NASCO

approximately $3,800,000.00 for the facility, subject to

certain terms and conditions. Negotiations ensued and

continued for approximately two years. During this period,

Shawmut continually threatened foreclosure, but held off

because of the apparent seriousness of the negotiations

between NASCO and PSI.

Throughout the period of negotiations, other

companies, groups, and individuals expressed interest in

purchasing the property. PSI's interest, however, appeared

significantly more substantial, as PSI representatives (1)

repeatedly assured NASCO that PSI would purchase the property

as soon as it acquired a permit allowing the property to be

used as a self-storage facility; (2) became personally

involved in zoning issues and land court litigation to secure

such a permit;1 and (3) offered to meet with representatives

from Shawmut to demonstrate PSI's good faith and interest in

acquiring the property. NASCO therefore put all of its

energies into finalizing a deal with PSI.

Finally, on January 31, 1990, following a personal

review of the property by certain PSI representatives, PSI

1. Following the land court litigation, the City of Chelsea
granted PSI a use permit on December 28, 1989.

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signed a purchase and sales agreement ("the Agreement") to

buy the property for $3,575,000.00.2 NASCO countersigned

the Agreement on February 2, 1990. One paragraph of this

Agreement, reproduced below, is particularly relevant to this

litigation:

11. Expiration. This Agreement

shall be of no force or effect unless,
within seven (7) days after the date this
Agreement has been executed by Seller and
Buyer's Real Estate Representative, an
Officer, the Secretary or Assistant
Secretary of Buyer, executes this
Agreement on behalf of Buyer and delivers
to Seller an executed copy of this
Agreement signed on behalf of Buyer by
both its Real Estate Representative and
either the Secretary or an Assistant
Secretary of Buyer, together with the
[$20,000.00] Deposit [PSI agreed to
provide upon execution of the Agreement].

Importantly, although a PSI Assistant Secretary

signed the Agreement and thereafter delivered a copy of it to

NASCO, PSI never provided NASCO with the $20,000.00 deposit

referenced in paragraph 11.

Subsequent to the signing of the Agreement, the

following pertinent events took place. On February 12, 1990,

PSI asked NASCO to reactivate electric service to the Chelsea

property. NASCO complied with this request. On February 21,

1990, Thomas Bennett, NASCO's attorney, wrote to David Dunn,

PSI's attorney, and brought to his attention the fact that

2. NASCO reduced the purchase price from $3,800,000.00 to
$3,575,000.00 in order to offset certain expenses incurred by
PSI during the two-year negotiation period.

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PSI had not yet provided NASCO with the $20,000.00 deposit.

When Peter Cooney, NASCO's real estate agent, received a copy

of this letter, he contacted PSI representatives, who assured

him that the transaction remained viable. These same

representatives told him that "the red tape of setting up a

development plan" had occasioned the delay in forwarding the

deposit. Meanwhile, Attorney Dunn responded to Attorney

Bennett's letter by informing him that the deposit "was being

worked" on by PSI. Attorney Dunn did not inform Attorney

Bennett that the deal was off at this time.

On or about February 22, 1990, PSI generated a

mortgage update on the property. On March 2, 1990, PSI

prepared a project analysis for the property. On March 19,

1990, Attorney Dunn wrote to Attorney Bennett and informed

him that PSI had "decided to terminate" the Agreement. On or

about that same date, PSI produced a "Project Abandonment

Authorization" which indicated that the Agreement was

cancelled as of March 19, 1990, and which noted that no PSI

deposits were at risk. Nonetheless, on April 3, 1990, PSI

generated a second project analysis.

On April 13, 1990, Shawmut learned that PSI had

cancelled the Agreement. Soon thereafter, Shawmut sent NASCO

a formal Notice of Intent to Foreclose. On May 23, 1990,

Shawmut held a foreclosure sale and itself purchased the

property for approximately $852,000.00.

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B. Proceedings Below

On November 9, 1992, NASCO filed a two-count

complaint against PSI, alleging that PSI had (1) breached the

Agreement; and (2) engaged in unfair and deceptive trade

practices in violation of Mass. Gen. L. ch. 93A. The

complaint sought more than $8,000,000.00 in damages.

Jurisdiction was premised upon diversity of citizenship.

On October 29, 1993, following the close of

discovery, PSI filed a motion for summary judgment on both

counts of the complaint. With regard to NASCO's breach of

contract claim, PSI argued that, under paragraph 11, its

failure to pay the $20,000.00 deposit within seven days of

signing of the Agreement unambiguously had caused the

Agreement to "expire by its own terms." In the alternative,

PSI asserted that the deposit provision was a condition

precedent, and that its failure to pay the deposit had

prevented the Agreement from coming into existence. With

regard to NASCO's unfair trade practices claim, PSI contended

that its conduct, even if objectionable, would not "raise an

eyebrow of someone inured to the rough and tumble of the

world of commerce," and therefore did not attain "a level of

rascality" which could give rise to liability under ch. 93A.

See Levings v. Forbes & Wallace, Inc., 396 N.E.2d 149, 153

(Mass. App. Ct. 1979) (interpreting reach of ch. 93A, 11,

which governs unfair trade practices claims brought by those

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"engaged in trade or commerce in business transactions with

others similarly engaged").

In response, NASCO argued, inter alia, that

paragraph 11 is ambiguous as to whether PSI's failure to pay

the deposit either caused the Agreement to expire or

constituted a failure to satisfy a condition precedent, and

that extrinsic evidence is admissible to help resolve this

ambiguity. It then contended that the extrinsic evidence in

this case demonstrates that the Agreement did come into

existence and did not expire when PSI did not pay the

deposit. NASCO next maintained that this same evidence

created a triable issue as to whether PSI's conduct was

beyond the toleration of even those persons "inured to the

rough and tumble of the world of commerce," id., and

precluded summary judgment on its ch. 93A claim. Finally,

NASCO asserted that PSI's conduct and its own detrimental

reliance on that conduct gave rise to viable claims of

estoppel and breach of the implied covenant of good faith and

fair dealing, and that these claims, while not explicitly

pleaded in its complaint, were implicit in the allegations

underlying its ch. 93A count.

On December 8, 1993, the district court granted

PSI's summary judgment motion. With respect to NASCO's

breach of contract claim, the court declined to look at

NASCO's extrinsic evidence, reasoning that paragraph 11

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clearly and unambiguously required payment of the deposit by

PSI for the Agreement to have continuing effect.3 With

respect to NASCO's ch. 93A claim, the court stated: "For the

same reasons [that NASCO's breach of contract claim fails],

Count II of the complaint (the 93A claim), which does not

specifically allege any misrepresentations made by PSI, but

merely a failure to comply with the Agreement, is also

without merit." The court did not explicitly respond to

NASCO's contention that its complaint adequately set forth

causes of action for estoppel and breach of the implied

covenant of good faith and fair dealing. This appeal

followed.

II.

DISCUSSION

NASCO's appellate arguments largely mirror the

relevant ones made in its memorandum of law in support of its

opposition to PSI's summary judgment motion.4 NASCO

3. It is not clear from its memorandum of decision whether
the court viewed the Agreement as having never been in effect
or as having expired seven days after its execution.

4. In its brief, NASCO raises for the first time an
alternative argument that the extrinsic evidence proves that,
subsequent to concluding the Agreement, the parties modified
the deposit provision of paragraph 11. Because NASCO never
made this argument to the district court, we will regard it
as waived. See FDIC v. World Univ. Inc., 978 F.2d 10, 13

(1st Cir. 1992) (arguments raised for the first time on
appeal ordinarily are deemed waived). Of course, if it so
desires, NASCO may file a post-remand motion to amend its
complaint so as to state an alternative claim for
modification.

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contends that (1) the district court erred in granting PSI

summary judgment on its breach of contract claim; (2) the

court erred in granting PSI summary judgment on its ch. 93A

claim; and (3) the court erred in overlooking the estoppel

and breach of the implied warranty of good faith and fair

dealing claims that inhered in the allegations in its

complaint. After reciting the summary judgment standard, we

discuss each argument in turn.

A. Summary Judgment Standard

When presented with a motion for summary judgment,

courts should "pierce the boilerplate of the pleadings and

assay the parties' proof in order to determine whether trial

is actually required." Wynne v. Tufts Univ. Sch. of

Medicine, 976 F.2d 791, 794 (1st Cir. 1992), cert. denied,

113 S. Ct. 1845 (1993). A summary judgment motion should be

granted when "the pleadings, depositions, answers to

interrogatories, and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as to

any material fact and that the moving party is entitled to

judgment as a matter of law." Fed. R. Civ. P. 56(c).

"In this context, `genuine' means that the evidence

is such that a reasonable jury could resolve the point in

favor of the nonmoving party," Rodriguez-Pinto v. Tirado-

Delgado, 982 F.2d 34, 38 (1st Cir. 1993) (internal quotation

marks and citations omitted) (emphasis supplied), while

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"material" means that the fact has "the potential to affect

the outcome of the suit under the applicable law," Nereida-

Gonzalez v. Tirado-Delgado, 990 F.2d 701, 703 (1st Cir.

1993). One should note, however, that we always read the

record "in the light most flattering to the nonmovant and

indulg[e] all reasonable inferences in that party's favor."

Maldonado-Denis v. Castillo-Rodriguez, No. 93-2012, slip op.

at 7, (1st Cir. May 6, 1994). Our recitation of the facts in

this case, see supra section I-A, reflects this tenet.

Finally, our review of a summary judgment ruling is

plenary. Garside v. Osco Drug, Inc., 895 F.2d 46, 48 (1st

Cir. 1990).

B. The Breach of Contract Claim

As noted above, the district court granted PSI

summary judgment on NASCO's breach of contract claim. In so

doing, the court declined to consider any evidence beyond the

four corners of the Agreement, ruling that, under "the clear

and unambiguous" provisions of paragraph 11, "PSI's failure

to pay the deposit made the Agreement without force and

effect." NASCO challenges this ruling, arguing that

paragraph 11 is ambiguous on the question of whether PSI's

failure to pay the deposit somehow precluded the Agreement

from taking effect, that extrinsic evidence is admissible to

clarify this ambiguity, and that the extrinsic evidence in

this case creates a triable issue as to whether PSI's failure

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to pay the deposit had any bearing on the Agreement's

efficacy. We are persuaded by NASCO's argument.

Under Massachusetts law, "the question of whether a

contract term is ambiguous is one of law for the judge."

FDIC v. Singh, 977 F.2d 18, 22 (1st Cir. 1992) (citation

omitted). When the judge finds that a contract term is, in

some material respect, uncertain or equivocal in meaning,

then "`all the circumstances of the parties leading to its

execution may be shown for the purpose of elucidating, but

not contradicting or changing its terms.'" Boston Edison Co.

v. F.E.R.C., 856 F.2d 361, 365 (1st Cir. 1988) (applying

Massachusetts law) (quoting Robert Industries, Inc. v.

Spence, 291 N.E.2d 407, 409 (Mass. 1973)); see also

Massachusetts Mun. Wholesale Elec. Co. v. Town of Danvers,

577 N.E.2d 283, 289 (Mass. 1991) (courts consider extrinsic

evidence to discern intent of contracting parties when a

contract term is ambiguous).

As an initial matter, we do not share the district

court's conviction that the intended operation and meaning of

paragraph 11's provisions are clear and unambiguous. On the

one hand, Paragraph 11 is entitled "Expiration." This

suggests that the Agreement would, upon execution, come into

and remain in effect unless and until some specified act or

omission caused it to cease existing. On the other hand, the

text of paragraph 11 states that the Agreement would "be of

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no force or effect unless," within seven days of its signing

by NASCO and PSI's real estate representative, "an Officer,

the Secretary or Assistant Secretary of [PSI] executes this

Agreement . . . and delivers to Seller an executed copy of

this Agreement signed on behalf of Buyer by both its Real

Estate Representative and either the Secretary or an

Assistant Secretary of Buyer, together with the Deposit."

This suggests that the Agreement would not come into effect

at all unless and until some certain condition or conditions

precedent had transpired. Thus, even if PSI is correct in

asserting that the viability of the Agreement depended upon

its payment of the deposit, it is not at all clear whether

the Agreement ever went into effect.5

Of course, if payment of the deposit by PSI were,

under either of PSI's theories, see supra note 5, a

requirement for the Agreement to be in effect beyond the

seven-day window set forth in paragraph 11, then the

ambiguity on the question of whether the Agreement had ever

come into effect would be immaterial. In our view, however,

paragraph 11 does not clearly and unambiguously make payment

of the deposit within the seven-day window such a

requirement. We do think that one plausibly can read

paragraph 11 as mandating that the deposit be delivered

5. PSI's alternative arguments that the Agreement (1)
expired by its own terms; or (2) never came into existence
underscore this point.

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"together with" a copy of the executed Agreement for the

Agreement to be viable. Nonetheless, we think it at least as

plausible to view the delivery of a signed copy of the

Agreement itself as the viability-triggering act, and to

construe the deposit provision as merely confirming an

earlier provision6 which provided that PSI would deliver the

$20,000.00 when it delivered to NASCO a copy of the fully

executed Agreement. Therefore, we are of the opinion that

the deposit provision is ambiguous. See Singh, 977 F.2d at

22 ("[C]ontract language which is susceptible to differing,

but nonetheless plausible constructions is ambiguous.")

(citation and ellipsis omitted). This ruling finds support

in the fact that, under an extremely strict and literal

reading of paragraph 11, PSI's undisputed delivery of a copy

of the fully executed Agreement without the deposit would

have been meaningless.7

6. Paragraph 3 of the Agreement states: "Of the [full
$350,000.00] deposit referenced in paragraph 1.(a) hereof,
$20,000.00 shall be paid upon execution hereof . . . ."

(Emphasis supplied).

7. One should note that PSI does not argue that the deposit
had to be paid at the very same time as its delivery of a

signed copy of the Agreement to NASCO. Instead, PSI contends
that paragraph 11 clearly and unambiguously called for
payment of the deposit at some point within the seven-day
window. A highly-literal reading of paragraph 11 (the only
type of reading that could entitle PSI to summary judgment),
however, cannot support this argument; the Agreement called
for the deposit to be paid "together with" the delivery of an
executed copy of the Agreement.

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Having determined that the relevant provisions of

paragraph 11 are ambiguous, we turn now to the parties'

extrinsic evidence. And, we believe it apparent that this

evidence undermines the district court's ruling that, as a

matter of law, "PSI's failure to pay the Deposit made the

Agreement without force and effect." We think a reasonable

jury could conclude, on the basis of the evidence regarding

the parties' actions subsequent to the February 9, 1990

expiration of the seven-day window provided for in paragraph

11, that the parties did not intend payment of the deposit to

be a sine qua non for the Agreement to be viable beyond this

date. This evidence includes, but is not limited to, (1)

PSI's February 12, 1990 request that NASCO reactivate

electric service to the Chelsea property; (2) PSI's

assurances to NASCO's real estate representative, made in

late February 1990, that the transaction would go through and

that the delay in paying the deposit was due to "the red tape

of setting up a development plan"; (3) PSI's attorney's

representation to NASCO's attorney, made in late February

1990, that the deposit "was being worked on"; and (4) the

mortgage update and project analyses involving the property

prepared by PSI between February 22, 1990 and April 3, 1990.

Accordingly, we vacate the district court's entry

of summary judgment against NASCO on its breach of contract

claim, and remand for a trial on the merits.

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C. The ch. 93A Claim

As noted above, the district court premised its

entry of summary judgment against NASCO on the ch. 93A claim

on its conclusion that PSI did not breach the Agreement.

Because the court erred in reaching this conclusion at the

summary judgment stage, we cannot rely upon its reasoning to

affirm the summary judgment ruling on the ch. 93A claim.

PSI nonetheless argues, as it did before the

district court, that we should affirm the entry of summary

judgment in its favor on NASCO's ch. 93A claim because (1)

the claim is governed by ch. 93A, 11; and (2) ch. 93A, 11

requires that objectionable conduct reach "a level of

rascality" not present here. More particularly, PSI contends

that, in a breach of contract situation, liability does not

attach under ch. 93A, 11 unless a defendant knowingly

breached a contract in order to secure additional benefits to

itself to the detriment of a plaintiff. See Atkinson v.

Rosenthal, 598 N.E.2d 666, 670 (Mass. App. Ct. 1992) ("There

is in those decisions [imposing liability under ch. 93A,

11] a consistent pattern of the use of a breach of contract

as a lever to obtain advantage for the party committing the

breach in relation to the other party; i.e., the breach of

contract has an extortionate quality that gives it the rancid

element of unfairness. In the absence of conduct having that

quality, a failure to perform obligations [under a contract],

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even though deliberate and for reasons of self-interest, does

not present an occasion for invocation of ch. 93A remedies.")

(citation omitted).

The difficulty with PSI's argument is that, even if

we credit all of its premises, we believe that a reasonable

jury could conclude from the evidence in this case that PSI

breached the Agreement in order to obtain for itself

unbargained-for benefits to the detriment of NASCO. Four

facts in particular inform this decision. First, as we

stated in the preceding section of this opinion, a reasonable

jury could find that, irrespective of whether or not PSI paid

the $20,000.00 deposit, the Agreement became viable and

enforceable when PSI's Assistant Secretary signed it and

delivered it to NASCO. Second, a reasonable jury could

conclude that PSI was contractually obligated to hand over

the $20,000.00 deposit at the same time it delivered to NASCO

a copy of the fully executed Agreement. Third, a reasonable

jury could find that NASCO desperately needed the Agreement

to go forward in order to extricate itself from its dire

financial straits. And fourth, a reasonable jury could find

that PSI was fully cognizant of NASCO's desperate financial

situation. On the basis of these facts, and others noted

above, we think that a reasonable jury could infer that PSI

(1) signed the Agreement in order to obligate NASCO to

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deliver the property to it for $3,575,000.00, if PSI so

chose;8 (2) intentionally breached its obligation to pay the

$20,000.00 deposit, knowing full well that NASCO was in no

position to repudiate the Agreement on the basis of PSI's

non-payment of the deposit; (3) used the period of time after

the signing of the Agreement to investigate the property

further and to determine whether it should honor the

Agreement; and (4) then used its wrongful non-payment of the

deposit in order to avoid its obligations under the

Agreement. In other words, we believe that a reasonable jury

could find that PSI manipulated the situation so as to create

for itself, at no cost, both a fully enforceable option to

buy the property and a textual basis for repudiating the

agreement at its discretion. This was more than PSI

bargained for; moreover, it deprived NASCO, at the least, of

$20,000.00 to which NASCO was contractually entitled.9

Accordingly, we vacate the district court's entry

of summary judgment on NASCO's ch. 93A claim, and remand for

a trial on the merits.

8. In so stating, we note paragraph 7(b) of the Agreement:
"If Seller shall fail to consummate this Agreement for any
reason except Buyer's default, Buyer may, in addition to any
other remedy, enforce specific performance of the terms of
this Agreement."

9. Paragraph 7(c) of the Agreement provides: "If Buyer
shall fail to consummate this Agreement for any reason except
Seller's default, then Seller shall be entitled to retain the

deposit paid hereunder . . . ."

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D. The Pleading Issue
D. The Pleading Issue

Finally, NASCO asserts that the district court

erred in failing to infer from the allegations underlying its

ch. 93A claim independent claims of estoppel and breach of

the implied warranty of good faith and fair dealing. The

issue is a close one. On the one hand, it is impossible to

fault the district court for taking NASCO's complaint, which

makes absolutely no mention of either estoppel or any implied

warranties, at face value. On the other hand, we have

construed Fed. R. Civ. P. 8 to allow recovery under an

unpleaded legal theory so long as related legal theories and

essential allegations have been pleaded. See Connecticut

Gen. Life Ins. Co. v. Universal Ins. Co., 838 F.2d 612, 622

(1st Cir. 1988).

It is, however, unnecessary for us to reach this

question at this time. After remand, NASCO will have ample

opportunity to file a Fed. R. Civ. P. 15(a) motion to amend

its complaint so as to state explicitly claims of estoppel

and breach of the implied warranty of good faith and fair

dealing. And, if NASCO is correct in arguing that

allegations already made and evidence already obtained in

this case are sufficient to support these claims, we are

confident that its motion will be granted. See Foman v.

Davis, 371 U.S. 178, 182 (1962) (where there is no compelling

reason for disallowing an amendment, Rule 15(a)'s admonition

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that leave to amend shall be "freely given" is to be heeded).

III.

CONCLUSION

For the reasons stated above, we vacate the

district court's entry of summary judgment in favor of PSI on

NASCO's claims for breach of contract and unfair and

deceptive trade practices, and remand this matter for a trial

on the merits.

Vacated and remanded.
Vacated and remanded

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