Den Norske Bank As v. First Nat'L of Bost

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 95-1682

DEN NORSKE BANK AS,

Plaintiff, Appellant,

v.

THE FIRST NATIONAL BANK OF BOSTON, ET AL.,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Nathaniel M. Gorton, U.S. District Judge]

Selya, Circuit Judge,

Bownes, Senior Circuit Judge,

and Cyr, Circuit Judge.

Glen Banks, with whom Steven C. Koppell and Fulbright & Jaworski,

LLP, were on brief for appellant.

Joseph L. Kociubes, with whom Mark W. Batten and Bingham, Dana &

Gould were on brief for appellees.

February 2, 1996

CYR, Circuit Judge. Plaintiff Den norske Bank AS ("Den
CYR, Circuit Judge.

norske") appeals from a district court order granting summary

judgment to defendant First National Bank of Boston ("First

National")1 on its claims for breach of contract and breach of

fiduciary duty. We vacate the judgment.

I
I

BACKGROUND
BACKGROUND

In 1985, First National loaned $43.2 million to Glades

Roads Associates ("Glades Roads") to construct an office building

in Florida, and took a first mortgage on the Project. In 1986,

appellant Den norske entered into a Loan Participation Agreement

("Agreement")2 with First National. Den norske purchased approx-

imately 17% (or $7.5 million) of the Glades Roads loan. First

National retained an 83% interest in the loan, and served as

"Principal" the party charged with administering the loan.

The Agreement also provided, in pertinent part:

11. Approval of Principal's Actions. Principal

[First National] agrees that it shall not without prior

written agreement by all Participants: (1) reduce the

1References to "First National" include its predecessor,
BancBoston, and references to "Den norske" include its predeces-
sor, DnC America Banking Corp.

2"In a typical [loan participation arrangement], one bank
the 'lead bank' first makes the loan agreement with the
borrower and then makes a separate agreement the participation
agreement with other banks, to which the lead bank sells
shares in the loan (usually retaining a share for itself, howev-
er), evidenced by participation certificates. The result is that
only the lead bank has a direct contractual relationship with the
borrower." First Nat'l Bank of Louisville v. Continental Ill.

Nat'l Bank & Trust Co. of Chicago, 933 F.2d 466, 467 (7th Cir.

1991).

2

amount of the Loan principal or interest payments; (2)

reduce the Loan interest rate; (3) postpone for a
period of more than 60 days any due date for payment of
the Loan principal; (4) release or subordinate any of
the collateral or waive any claim against any guarantor
or person who may be secondarily liable who would have
a material, adverse effect on the collection and en-
forcement of the Loan or the Loan documents; (5) sus-
pend the accrual of Loan interest.

In other matters concerning the routine adminis-

tration of the loan, [First National] agrees not to

deviate from the Loan Documents unless the majority
(dollars outstanding) of the lending institutions agree
to the change provided [First National] is in the
majority. In all cases where a consensus cannot be
reached on matters of administration that is acceptable
to [First National], [First National] agrees to adhere

to the Loan Documents.

In all cases pertaining to default, [First Nation-

al] agrees to adhere to [Section] 13.

. . . .

13. Loan Default Procedures. [First National]

and Participants agree that in case of default, courses

of action will be agreed to by a majority (dollars

outstanding) of the lending institutions providing
[First National] is in the majority. In cases where a
consensus cannot be reached on matters pertaining to
default that is acceptable to [First National], then
[First National] agrees to adhere to the Loan Documents

for all appropriate remedies. . . . (Emphasis added.)

In July 1991, Glades Roads defaulted on the note. At

the time of the default, First National still held its 83%

interest in the note; Den norske 17%. First National invoked the

acceleration clause, made demand for the entire outstanding loan

principal and accrued interest, then commenced foreclosure

proceedings. In September 1991, however, First National asked

Ernst & Young to evaluate the comparative benefit to First

National of (i) an immediate foreclosure and (ii) a negotiated

loan restructuring agreement whereby Glades Roads would make an

3

immediate payment of $8 million and a five-year balloon payment

of $17 million, and First National in turn would "forgive" $9.6

million. Valuing the Glades Roads project at $24.7 million,

Ernst & Young recommended restructuring rather than foreclosure.

Den norske, believing that the Project was worth far more,

preferred to foreclose, hold the property for five years, and

collect rental income. First National rejected the Den norske

proposal and opted for its own five-year restructuring plan.

In 1992, Den norske brought this diversity action

against First National in federal district court, alleging that

First National's failure to obtain "prior written agreement by

all Participants" with the Glades Roads loan forgiveness arrange-

ment, pursuant to 11 of the Agreement, supra pp. 2-3, consti-

tuted breach of contract, breach of fiduciary duty, and an unfair

trade practice. The district court initially denied cross-

motions for summary judgment, finding 11 and 13 of the Agree-

ment ambiguous. Den norske Bank AS v. First Nat'l Bank of

Boston, 838 F. Supp. 19 (D. Mass. 1993).3

Following discovery, however, the court reconsidered,

eventually awarding summary judgment to defendant First National

on the remaining Den norske claims. Den norske Bank AS v. First

Nat'l Bank of Boston, No. 92-11294-NMG, 1993 WL 773796 (D. Mass.

May 24, 1995). The court concluded that 11 unambiguously

entitled Den norske to veto a loan forgiveness only in the pre-

3The district court dismissed the unfair trade practice
claim, a decision not challenged on appeal.

4

default stage of "routine" loan administration, but that 13

gave First National the right to choose any "course of action"

thereafter. Id. at *3. The court ruled also that even if the

Agreement were determined ambiguous, Den norske's extrinsic

evidence was insufficient to support a rational inference that

the parties intended to give Den norske a post-default veto. Id.

at *4 ("The extrinsic evidence submitted by the plaintiff is

unpersuasive and does not create an ambiguity or a genuine issue

of material fact.").

II
II

DISCUSSION
DISCUSSION

Den norske presents a two-part challenge to the summary

judgment ruling. First, it contends that proper contract inter-

pretation requires summary judgment against First National

because 11 unambiguously ordains that First National cannot

unilaterally "reduce the amount of the [Glades Road] Loan princi-

pal" under any circumstances, including the borrower's default,

and no provision in 13 countermands the specific prohibition in

11. Second, even assuming 11 and 13 were ambiguous or

inconsistent, Den norske's extrinsic evidence raises genuine

factual disputes as to whether the contracting parties intend-

ed to afford Den norske a unilateral veto over any post-default

loan forgiveness [hereinafter: "veto"] which cannot be re-

solved at summary judgment.

A. Applicable State Law
A. Applicable State Law

Interpretation of the Agreement is governed by Massa-

5

chusetts law. See Agreement 22. Normally, contract interpre-

tation is a question of law for the court. Fairfield 274-278

Clarendon Trust v. Dwek, 970 F.2d 990, 993 (1st Cir. 1992);

Freelander v. G. & K. Realty Corp., 258 N.E.2d 786, 788 (Mass.

1970). Should the court find the contract language unambiguous,

we interpret it according to its plain terms. See Dwek, 970 F.2d

at 993; Hiller v. Submarine Signal Co., 91 N.E.2d 667, 669-70

(Mass. 1950).

If, however, the contract language is ambiguous, on its

face or as applied, contract meaning normally becomes a matter

for the factfinder. See Dwek, 970 F.2d at 993; Freelander, 258

N.E.2d at 788. Although not admissible either to contradict or

alter express terms, extrinsic evidence is admissible to assist

the factfinder in ascertaining the intent of the parties as

imperfectly expressed in ambiguous contract language. See Robert

Indus., Inc. v. Spence, 291 N.E.2d 407, 410 (Mass. 1973). In

descending order of importance, extrinsic evidence may include:

(1) the parties' negotiations on the particular loan, see Merri-

mack Valley Nat'l Bank v. Baird, 363 N.E.2d 688, 690 (Mass.

1977); Charles River Mortgage Co. v. Baptist Home of Mass., 630

N.E.2d 304, 306 (Mass. App. Ct.), review denied, 636 N.E.2d 278

(Mass. 1994); (2) their course of performance, see Affiliated FM

Ins. Co. v. Constitution Reins. Corp., 626 N.E.2d 878, 882 n.10

(Mass. 1994) (citing Restatement (Second) of Contracts 203(b)

(1981)); (3) their prior course of dealing, see id.; and (4)

trade usage in the relevant (viz., banking) industry, see id. at

6

881-82 (citing Restatement 222 cmt. b (1981); A.J. Cunningham

Packing Corp. v. Florence Beef Co., 785 F.2d 348, 351 (1st Cir.

1986)); Baccari v. B. Perini & Sons, Inc., 199 N.E. 912, 915-16

(Mass. 1936); see also Jamesbury Corp. v. Worcester Valve Co.,

443 F.2d 205, 210 (1st Cir. 1971) (citing 3 Arthur L. Corbin,

Corbin on Contracts 542, at 108 (1970)).

B. Standard of Review
B. Standard of Review

We examine a grant of summary judgment de novo, with a

view to whether there is a "genuine issue as to any material fact

and . . . the moving party is entitled to a judgment as a matter

of law." Fed. R. Civ. P. 56(c); see Byrd v. Ronayne, 61 F.3d

1026, 1030 (1st Cir. 1995). Once the moving party (First Nation-

al) makes this showing, the party bearing the ultimate burden of

proof (Den norske) cannot rest on mere allegations, but must

proffer sufficient competent evidence upon which a rational trier

of fact could find in its favor. See, e.g., Milton v. Van Dorn

Co., 961 F.2d 965, 969 (1st Cir. 1992) (citing Anderson v.

Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)); see also Celotex

Corp. v. Catrett, 477 U.S. 317, 322 (1986). "'[A]n argument

between parties about the meaning of a[n] [ambiguous] contract is

typically an argument about a "material fact,"'" and summary

judgment is normally unwarranted unless "'the [extrinsic] evi-

dence presented about the parties' intended meaning [is] so

one-sided that no reasonable person could decide [to] the con-

trary.'" Allen v. Adage, Inc., 967 F.2d 695, 698 (1st Cir. 1992)

(quoting Boston Five Cents Sav. Bank v. Secretary of Dep't of

7

HUD, 768 F.2d 5, 8 (1st Cir. 1985)); Blanchard v. Peerless Ins.

Co., 958 F.2d 483, 491 (1st Cir. 1991) (same). Nonetheless, we

must resolve all genuine factual disputes, and any competing

rational inferences, in the light most favorable to Den norske,

the party against whom summary judgment entered. See Byrd, 61

F.3d at 1030.

C. Interpretation of Participation Agreement
C. Interpretation of Participation Agreement

1. Contract Ambiguity
1. Contract Ambiguity

The district court found that the Agreement unambigu-

ously afforded First National, qua majority participant, the

unilateral right to forgive principal on post-default loans. Den

norske Bank AS, 1993 WL 773796, at *3. The court reasoned that

the prohibition against debt forgiveness in 11, 1, applies

only to pre-default loans. See supra Section I. Section 11,

2, of the Agreement refers to "other matters concerning the

routine administration of the loan." (Emphasis added.) The phrase

"other matters" suggests that 2 is residual; that is, 1

describes all other "matters" relating to "routine" loan adminis-

tration not described in 2. By definition, post-default

administration of a loan is not "routine," and therefore cannot

be governed by 11. We do not agree.

First, though the district court drew a perfectly

plausible inference from the contract language, we do not think

it can be considered the only reasonable inference. For one

thing, the 11 caption states "Approval of Principal's Actions,"

not "Approval of Principal's Pre-default Actions." The district

8

court implicitly assumed that the phrase "concerning the routine

administration of the loan," in 2, stood in apposition to the

term "matters," whereas it is as faithfully understood to refer

to the phrase "other matters." In other words, 11, 2, can be

construed to suggest that 11, 1, adverts to "other matters"

(i.e., actions taken by the lead bank) of such overriding impor-

tance to minority participants as to preclude their characteriza-

tion as "routine" matters.

Next, if the contracting parties intended to supplant,

in its entirety, the 11 definition of the parties' rights and

obligations upon the occurrence of a borrower default, 11, 3,

is oddly couched. For instance, 11, 3, does not say: "In

the event of default, the parties agree that loan administration

will be governed (or controlled) by Section 13." Rather, the

choice of language is more inscrutable: "In all cases pertaining

to default, [First National] agrees to adhere to Paragraph 13."

(Emphasis added.) This language lends conspicuous ambiguity in

at least two significant respects. First, ostensibly it imposes

a contractual obligation (i.e., "adherence") upon First National

alone, and not on Den norske. It suggests that though 13

imposed additional obligations on First National, see, e.g.,

Agreement 13 (noting that, if the majority of participants

cannot reach a consensus, First National, qua Principal, must

"adhere" to loan documents in selecting "appropriate remedies"),

it was not intended to supplant any Den norske contractual right

already enumerated in 11. And, at least arguably, the broad-

9

based caption to 11 "Approval of Principal's Actions"

intimates that Den norske's unconditional right of veto extends

to matters embraced by the phrase "courses of action" in 13.

Second, unlike "govern" and "control," the verb "adhere" cannot

be read to rule out the possibility that 13 merely supplements

11 and does not displace it as the only provision defining the

parties' contractual rights and obligations in the post-default

period.

First National counters that Den norske's alternate

interpretation would render 13 a virtual nullity, see Merchants

Nat'l Bank v. Stone, 5 N.E.2d 430, 433 (Mass. 1936) (noting that,

where possible, no part of contract should be deemed superflu-

ous),4 since it would preclude First National from pursuing some

otherwise appropriate "courses of action" following a default by

the borrower. On the contrary, though Den norske's interpreta-

tion may limit First National's post-default prerogatives under

13, clearly it does not render 13 wholly superfluous. So con-

strued, section 13 still would reserve considerable decisional

latitude to the lead bank, permitting First National to choose

any post-default "course of action," even an innovative one not

4Meeting parry for thrust, Den norske argues that First
National's interpretation would render 11, 1, a nullity,
since a lead bank rarely (if ever) would have occasion (or need)
to forgive a loan unless the borrower were in default. Although
this proposition has some appeal, it suffers from the same defect
as First National's "nullity" argument; viz., neither conclu-

sively resolves the facial contract ambiguity so as to enable

summary judgment. Of course, customary banking practices may be
introduced as circumstantial extrinsic evidence of usage of
trade, from which a jury might infer contract meaning. See infra

Section II.C.2(b).

10

specifically described in the loan documents, as long as it did

not choose a course of action (e.g., unilateral loan principal

forgiveness) expressly prohibited under 11, 1.

First National next argues that its interpretation

represents the only "common sense" reading of the Agreement that

comports with the economic realities underlying loan partici-

pation agreements, which are by their very nature risk-spreading

financial arrangements. Thus, a lead bank (at least one which

remains the majority participant) retains a much greater finan-

cial stake in maximizing loan recoveries than do the minority

participants. Consequently, upon a default a minority partici-

pant should not be able to take unfair advantage of the majority

participant by invoking a veto, thereby forcing the majority

either to take a "course of action" it deems inappropriate, or to

buy out the minority participant's share at a premium. See,

e.g., First Nat'l Bank of Louisville v. Continental Ill. Nat'l

Bank & Trust Co. of Chicago, 933 F.2d 466, 470 (7th Cir. 1991)

("The banks that had financed five-sixths of the loan thought it

in their best interest not to call the loan, despite the borro-

wer's default. Given that decision, it was in [the minority

participant's] interest to play dog in the manger . . . ."); see

also Carondelet Sav. & Loan Ass'n v. Citizens Sav. & Loan Ass'n,

604 F.2d 464 (7th Cir. 1979); Mark Twain Bank v. Continental

Bank, N.A., 817 F. Supp. 792 (E.D. Mo. 1993).

The "economic realities" driving participation agree-

ments vary too widely in individual cases to control the "four

11

corners" analysis of the Agreement in this case.5 As with all

contracting parties, "each bank [negotiating a participation

agreement] wants to preserve, so far as possible, its freedom of

action," First Nat'l Bank of Louisville, 933 F.2d at 470 (empha-

sis added), yet this intuition is tempered by its assessment as

to the financial benefits which would accrue in the event a

mutually acceptable "compromise" agreement can be achieved. For

example, lead banks utilize participation agreements (1) to

spread credit risks by diversifying their loan portfolios, see

Banco Espanol de Credito v. Security Pac. Nat'l Bank, 973 F.2d

51, 53 (2d Cir. 1992), cert. denied, 113 S. Ct. 2992 (1993); W.C.

Lott, et al., Structuring Multiple Lender Transactions, 112

Banking L.J. 734 (1995); Note, Bankruptcy and the U.C.C. as

Applied to Securitization, 73 B.U. L. Rev. 873 (1993); (2) to

avoid regulatory lending limits, see, e.g., 12 C.F.R. 32.107

(1985), thereby permitting lead banks to make more capital

available to important commercial clients, see Andrew Strehle,

Teaching Old Laws New Tricks: The Prospect for Loan Participation

Regulation, 13 Ann. Rev. Banking L. 421, 423-24 (1994); and (3)

to generate fees from servicing and administering loans. See

5See generally Eric M. Schiller, Scott A. Lindquist, &

Christopher Q. King, Current Issues in Loan Participation and Co-

Lending Agreements, C974 ALI-ABA 457, 464 (1995) ("Generalizing

about enforcement of loan participation and co-lending agreements
is nearly impossible. Although there is some uniformity in terms
among these agreements, the resolution of any conflict will
necessarily turn almost entirely upon the precise terms of the
contracts, which may differ substantially from one transaction to
the next. Moreover, in applying legal standards prescribed by the
contracts, consideration of the facts and circumstances of each
individual case is necessary.").

12

generally First Nat'l Bank of Belleville v. Clay-Hensley Comm'n

Co., 525 N.E.2d 217, 219-20 (Ill. App. Ct. 1988) (describing

various "lead bank" incentives for negotiating participation

agreements).6 It cannot be ascertained conclusively solely

by scrutinizing the terms of the Agreement how much First

National was prepared to concede, in 1986, to obtain Den norske's

agreement to advance $7.5 million and to assume a percentage of

the risk associated with the Glades Roads Note. Accordingly,

there is no reliable way to identify the particular economic

realities at work in the First National-Den norske loan partici-

pation relationship without recourse to extrinsic evidence. See

infra Section II.C.2.

Finally, the cases First National relies upon as

support for its "economic reality" interpretation are inapposite.

In Carondelet, for example, the participation agreement was

utterly silent as to the existence of an analogous minority-held

veto (over decisions whether to declare loan defaults), whereas

the Agreement in our case clearly incorporates a veto provision

( 11, 1), though its intended scope (i.e., pre- or post-

default) is demonstrably ambiguous. Carondelet Sav. & Loan

Ass'n, 604 F.2d at 470; see also First Nat'l Bank of Louisville,

933 F.2d at 470 (noting that minority participant's contract

interpretation "lacks textual support"). Moreover, the Seventh

6By contrast, minority participants look to limit credit
search and administration costs associated with making direct
loans or investments, see Note, 73 B.U. L. Rev. at 873, and to

obtain higher interest rates on their investments, see Banco

Espanol de Credito, 973 F.2d at 53.

13

Circuit ultimately discussed "economic realities" only in con-

junction with its review of the extrinsic evidence of custom and

usage credited by the factfinder, and not in connection with the

question whether the agreement was facially unambiguous as a

matter of law. Carondelet Sav. & Loan Ass'n, 604 F.2d at 470.

Finally, Carondelet was an appeal from a final judgment for the

lead bank following a bench trial, and not from a grant of

summary judgment. Id. at 468. There the factfinder's assessment

of extrinsic evidence would have been reviewed only for clear

error.

2. Extrinsic Evidence
2. Extrinsic Evidence

As the Agreement is amenable to more than one reason-

able interpretation, we must determine whether Den norske adduced

enough competent extrinsic evidence of the contracting parties'

intent to support a rational jury verdict in its favor. See

Blanchard, 958 F.2d at 491. The district court concluded that

the extrinsic evidence proffered by Den norske could not support

a rational inference that 11 and 13 afforded Den norske a

post-default veto. Den norske Bank AS, 1993 WL 773796, at *4.

The Den norske extrinsic evidence pertains to the contract

negotiations and to "usage of trade" in the banking industry.

(a) Contract Negotiations
(a) Contract Negotiations

Den norske adduced evidence that First National normal-

ly used its own standardized form contract for all its participa-

tion agreements in the mid-1980s, that First National's Florida-

based loan officers were permitted to customize these agreements

14

in negotiations with prospective minority participants, and that

Liska Langston, one of these loan officers, wrote a letter in

April 1986 noting that specific changes had been made to the

First National-Den norske agreement. Langston highlighted the

changes on a copy of the "revised Participation Agreement,"

including an entirely redrafted version of 11. Den norske

contends that this circumstantial evidence invites a rational

inference that it deliberately negotiated changes to the stan-

dardized version of 11 to assure itself a veto. See In re 604

Columbus Ave. Realty Trust, 968 F.2d 1332, 1358 (1st Cir. 1992)

(noting that, under Massachusetts contract law, specifically

negotiated contract terms normally control over standardized

contract provisions) (citing Carrigg v. Cordeiro, 530 N.E.2d 809,

813 (Mass. App. Ct. 1988), review denied, 536 N.E.2d 612 (Mass.

1989)).

First National responds that the extrinsic evidence

proffered by Den norske is insufficient, for two reasons. It

cites affidavits and depositions which attest that (i) the so-

called "revised" version of 11 actually was part of a standard-

ized First National form; or (ii) the negotiating officers

(including Liska Langston) could not recall having discussed any

proposed 11 changes with Den norske in 1986. These conten-

tions, which bear on the weight to be given the circumstantial

evidence proffered by Den norske, do not undermine Den norske's

argument that genuine issues of material fact remain unresolved.

See Byrd, 61 F.3d at 1030.

15

First, it is not at all surprising that a loan officer

might not recall the unrecorded details of a decade-old negotia-

tion, such as particular oral conversations. Moreover, Langston

confirmed that her signature appears on the April 1986 letter

highlighting certain substantial "changes" and "revis[ions]" to

standardized form 11 arrived at through negotiation. Thus, the

authenticated, uncontradicted April 1986 letter signed by Lang-

ston could support a rational inference that Den norske had

proposed specific changes in 11, and that First National was

announcing its agreement with the Den norske counterproposal.

See Deposition Exhibit No. 6 (Langston Letter dated April 14,

1986) ("[A]dvise us as soon as possible if you concur [with these

"changes" and "revis[ions]].").

In the same vein, Den norske proffered participation

agreements it negotiated with lead banks other than First Nation-

al, wherein it consistently reserved a minority veto, as circum-

stantial evidence that Den norske would not have intended that

its First National loan participation be any exception. See

Vadala v. Teledyne Indus., Inc., 44 F.3d 36, 39 (1st Cir. 1995)

("Certainly the fact that there is a pattern of occurrences,

reflecting an apparent cause and effect sequence, can strengthen

the likelihood that the present case is one more in the pattern.

This is how human beings reason about circumstantial evidence.").

Coupled with other extrinsic evidence proffered by Den norske,

see infra Section II.C.2(b), these exhibits if admitted at

trial and credited by the jury could contribute to a rational

16

inference that the contracting parties intended to depart from

the standardized First National form versions of 11 and 13 so

as to provide Den norske with a veto over any loan forgiveness

arrangement. See In re 604 Columbus Ave. Realty Trust, 968 F.2d

at 1358.

(b) Usage of Trade
(b) Usage of Trade

Den norske proffered extrinsic evidence pertaining

to the relevant 1985-86 period that it was common, industry-

wide, to incorporate such minority participant veto powers over

loan forgiveness arrangements. The evidence took three forms:

(1) affidavits from current and former commercial loan officers

(viz., Den norske Vice President David Schwarz and former Vice

President Daniel deMenocal) based on their personal knowledge of

banking industry practices; (2) learned treatises on the banking

industry, see, e.g., Sandra Stern, Structuring Loan Participation

1.05(1)(d), at 1-20 (1992) ("Typically, participation agree-

ments provide that the lead bank may agree to modification of the

loan documents [if the loan becomes delinquent] . . . as long as

it does not reduce the amount of principal due . . . .") (empha-

sis added);7 and (3) participation agreements negotiated by Den

7See generally Eric M. Schiller, Scott A. Lindquist, Chris-

topher Q. King, Current Issues in Loan Participation and Co-

Lending Agreements, C974 ALI-ABA 457, 479-80 (1995) ("Most

participation agreements allow fairly broad discretion to the
lead lender on the issue of when to declare the loan in default
or initiate enforcement action. This is quite logical given that
the lead lender generally has the best understanding of the loan,
the borrower, and the current situation. However, the lead
lender's flexibility in dealing with loan defaults and remedies
may not be as broad as it might at first appear. For example,
the lead lender may be prohibited from waiving, releasing, or

17

norske with other lead banks, wherein Den norske consistently

reserved such a veto. First National argues that this "usage of

trade" evidence is insufficiently probative, for three reasons.

First, it contends that Den norske's affiants were not

qualified to give expert testimony on banking industry practices.

We do not agree. Whatever may have been Schwarz' qualifica-

tions,8 deMenocal was a forty-year banking veteran (with Citi-

bank and Den norske) who attested that he had (i) served as a

vice-president in charge of "large commercial loan transactions,"

(ii) had "become very familiar with participation agreements from

the perspective of both the lead bank and the participating

banks," and (iii) observed firsthand the "well established

industry custom[] and practice[]" to allow such minority-partici-

pant vetoes. Under Massachusetts law, this is the type of

testimony through which "usage of trade" is established. See,

e.g., Baccari, 199 N.E. at 916 (noting that "[t]he testimony of a

witness who had been employed as a road builder for twenty-eight

years was sufficient to warrant a finding of a usage, and that

these parties contracted with reference to it," and observing

that the "credibility" of witnesses describing usages of trade

modifying material provisions of the loan documents, particularly

payment provisions.") (emphasis added).

8First National argues that Schwarz is not competent to
provide expert testimony on "usage of trade" because he did not
deal frequently with loan participation agreements; thus, he
could not form a reliable opinion as to prevalent banking prac-
tices. Since deMenocal's qualifications, at least those dis-
closed in the summary judgment record, clearly were sufficient to
establish competence, we need not resolve the challenge to the
Schwarz affidavit.

18

ultimately is a factual question "for the master") (emphasis

added); Barry v. Quimby, 92 N.E. 451, 453 (Mass. 1910) ("The

witness [on 'usage'] testifies to the existence of a fact from

actual knowledge, acquired through observation and experience in

the business . . . ."); Industrial Eng'g & Metal Fabricators,

Inc. v. Fontaine Bros., 319 N.E.2d 726, 727-28 (Mass. App. Ct.

1974) (discerning no error in factfinder's reliance on affidavit

of person whose "recitation of his background and qualifications

affirmatively demonstrated his competence to testify of his own

personal knowledge on the factual issue of whether there was a

custom in the trade") (citation omitted); see also Leibovich v.

Antonellis, 574 N.E.2d 978, 982 (Mass. 1991) (noting that jury is

arbiter of "soundness" of expert testimony, and that "[o]ne

factor in assessing the strength of expert testimony is the

expert's knowledge and experience"). First National has not

demonstrated to our satisfaction that deMenocal would not be

permitted to provide expert testimony at trial. See Fed. R.

Evid. 702, 703; Daubert v. Merrell Dow Pharmaceuticals, Inc., 113

S. Ct. 2786 (1992) (noting that trial court serves "gatekeeper"

function in determining competency, qualifications, and "helpful-

ness" of expert testimony); see also United States v. Saccoccia,

58 F.3d 754, 781 (1st Cir. 1995) (same). Moreover, Den norske

cites to published treatises on standard banking practices,

excerpts from which may be admissible at trial in support of

deMenocal's testimony. See Fed. R. Evid. 803(18); Carondelet

Sav. & Loan Ass'n, 604 F.2d at 470 (noting that defendant relied

19

on expert testimony and learned treatises to prove usage of

trade, in order to discern meaning of ambiguous language in loan

participation agreement).9

Second, First National argues that the expert testimony

proffered by Den norske merely represented self-serving state-

ments which would help their employer, since both affiants were

Den norske employees. Once again, however, we are not persuaded

that First National has demonstrated that the expert qualifica-

tions of these affiants are undermined by their present and

former association with Den norske so as to render their testimo-

ny inadmissible. Of course, such matters may bear heavily on

witness credibility, bias, and the weight of the evidence. But

these are matters for the factfinder. See Newell Puerto Rico,

Ltd. v. Rubbermaid, Inc., 20 F.3d 15, 23 (1st Cir. 1994); Leibo-

vich, 574 N.E.2d at 982 (noting that it is "[t]he jury's func-

tion, vis-a-vis an expert witness, . . . to assess the soundness

and credibility of his opinions"). At summary judgment, more-

over, courts normally assume that the trier of fact would credit

the expert testimony proffered by the nonmovant (i.e., Den

norske). See Woodman v. Haemonetics Corp., 51 F.3d 1087, 1091

(1st Cir. 1995); Affiliated FM Ins. Co., 626 N.E.2d at 882 ("The

9Of course, the claim that First National was unaware of the
"usage of trade" described by deMenocal is not controlling. See,

e.g., Berwick & Smith Co. v. Salem Press, Inc., 117 N.E.2d 825,

827 (Mass. 1954) (noting that proof of defendant's "actual
knowledge" of usage is unnecessary; "`[w]here the usage is
established the presumption is that the parties contracted with

reference to it'") (quoting Baccari, 199 N.E. at 916) (emphasis

added).

20

existence and scope of a usage of trade are questions of fact.")

(citing Restatement (Second) of Contracts 222(2) (1981);

DiMarzo v. American Mut. Ins. Co., 449 N.E.2d 1189, 1201 (Mass.

1983)); see also U.C.C. 1-205(2).

Finally, First National argues that the proffered

expert testimony is insufficiently probative of banking industry

practices because it merely evidences "that participants general-

ly attempt to negotiate such protections," not that they gener-

ally succeed in obtaining such concessions from the lead

bank.10 Quite the contrary, the "typical" participation

agreement usage with which Den norske's experts were familiar,

and to which presumably they would testify, is that a minority

participant veto is the industry norm. Moreover, if First

National means to suggest that such "general" practices are not

probative as to whether it is more or less likely that particular

contracting parties harbored such an intent, it is simply in

error. Cf. U.C.C. 1-205(2) (noting that "usage of trade"

includes "any practice or method of dealing having such regulari-

10First National further argues that "demenocal is not

entirely supportive of Den norske's position," in that he assert-

ed that it was "possible" that an "indirect" minority participant
might not have enough bargaining power to insist on a veto.
DeMenocal described an inapposite scenario called an "indi-
rect" participation in which an original lender participant
enters into a second and collateral participation agreement with

a "third bank" in order to allocate, inter se, the original

participant's credit risk on the underlying loan. DeMenocal
correctly noted that the "third bank" in such a scenario would
have no direct contractual relationship with the borrower.
Although Den norske (like most "direct" loan participants)
likewise has no contractual relationship with the borrower
Glades Roads see supra note 2, it is in no sense the type of

"indirect" participant described by demenocal.

21

ty of observance . . . as to justify an expectation that it will

be observed with respect to the transaction in question") (empha-

sis added); Carondelet Sav. & Loan Ass'n, 604 F.2d at 470 (noting

that lead bank's extrinsic evidence of industry custom and usage,

in the form of witness testimony and treatises, was admissible

because it made it more "likely" that the contracting parties

would not have intended to use an ambiguously broad term like

"servicing" to exclude the lead bank's unilateral right to modify

the loan documents if the industry custom were otherwise);

Affiliated FM Ins. Co., 626 N.E.2d at 882 ("The existence and

scope of a usage of trade are questions of fact.") (emphasis

added). The precise function of "usage of trade" evidence is to

provide circumstantial proof of the contracting parties' intent.

A party need not show that all participation agreements invari-

ably entitle minority participants to post-default vetoes. See

id. ("Where, as here, the contract language is ambiguous, evi-

dence of custom and trade practice may be admitted to arrive at

an interpretation `"which appears to be in accord with justice

and common sense and the probable intention of the parties."'")

(citations omitted; emphasis added).11

11First National likewise cites Den norske's internal credit
manuals, which suggest that Den norske loan officers not agree to
minority participant vetoes in any participation agreement
negotiated for Den norske as lead bank. Viewed in the light most

favorable to Den norske, however, these manuals merely suggest
the obvious truth that it is likely that lead banks will almost
always negotiate to avoid a minority participant veto provision.

See supra Section II.C.1 (discussing First National's "economic

reality" theory). By contrast, "usage of trade" deals not with
contract negotiation, but with the "typical" end product included

in negotiated loan participation agreements.

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III
III

CONCLUSION
CONCLUSION

We therefore conclude that Den norske adduced suffi-

cient competent extrinsic evidence which, if admitted at trial

and credited by the jury, could support a rational verdict in its

favor. The parties agree that the disposition of the breach of

contract claim controls the breach of fiduciary duty claim.

Consequently, the summary judgment entered on counts 1 and 2 must

be vacated. The case is remanded for further proceedings consis-

tent with this opinion. Costs to appellant.

So ordered.
So ordered.

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