United States Court of Appeals
For the First Circuit
No. 98-1744
FHS PROPERTIES LIMITED PARTNERSHIP, ETC.,
Plaintiff, Appellee,
v.
BC ASSOCIATES, ET AL.,
Defendants, Appellants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Morris E. Lasker, Senior U.S. District Judge]
Before
Selya, Circuit Judge,
Cyr, Senior Circuit Judge,
and Stahl, Circuit Judge.
John D. Donovan, Jr., with whom Randall W. Bodner, Brian G.
Murphy, and Ropes & Gray, were on brief for appellants.
Mitchell H. Kaplan, with whom Thomas F. Maffei, Robert
DiAdamo, and Choate, Hall & Stewart, were on brief for appellee.
April 29, 1999
STAHL, Circuit Judge. In this diversity case,
defendants-appellants BC Associates, et al. ("appellants") appeal
a final judgment of the district court, issued in part on a jury
verdict and in part as a matter of law. Appellants also challenge
the court's denial of their motion for a new trial on damages. We
reverse the district court's judgment as a matter of law and affirm
the court's denial of the motion for a new trial.
I. Facts
On appeal, two partners dispute whether a 1991 settlement
payment made to third parties by one of the partners should be
characterized under the partnership agreements as a "Deficit Loan"
or as an indemnification obligation. Insofar as appellants are
challenging the judgment entered against them as a matter of law by
the district court, we view the evidence in the light most
favorable to them. See Gibson v. City of Cranston, 37 F.3d 731,
733 (1st Cir. 1994). But insofar as they are challenging the
jury's verdict, we view the evidence in the light most favorable to
the verdict. See Dichner v. Liberty Travel, 141 F.3d 24, 27 (1st
Cir. 1998). Defendants BCA-1 and BCA-2 (together "BCA") and
plaintiff-appellee FHS Properties Limited Partnership ("FHS"), are
respectively the managing partners and sole other general partner
of two partnerships that developed and now own International Place,
a two-tower office complex in downtown Boston. FHS has a sixty-
percent interest in the two partnerships. BCA has a forty-percent
interest. The partners envisioned developing the complex in two
distinct phases and therefore formed Fort Hill Square Associates
("Partnership 1") to develop Phase 1 of the project and Fort Hill
Square Phase 2 Associates ("Partnership 2") to develop Phase 2.
The partners signed two partnership agreements ("Partnership
Agreements"), essentially identical in their terms, which provided
that the agreements would be construed in accordance with
Massachusetts law.
Phase 1 of the project was initially financed through a
construction loan from Bank of Boston. When construction was
complete, the construction loan was "taken out" and replaced with
permanent financing by Teachers' Insurance and Annuity Association
("TIAA"). When the partners decided to proceed with Phase 2, Bank
of Boston again agreed to finance the construction, subject to a
permanent "take out" commitment from TIAA. The second construction
loan was secured by all of the partnerships' assets, including a
mortgage on Phase 1. Notwithstanding its security interest, Bank
of Boston, in May 1990, approved a plan to distribute $15 million
of partnership cash to the partners on three future distribution
dates, provided that certain conditions were satisfied on those
dates.
The settlement obligation at issue in this case arose in
January 1991, when two entities, who were then limited partners of
BCA-1 and who shared an interest in Phase 1 but not Phase 2 of the
project, sued defendants Partnership 1, BCA-1, FHS, Donald
Chiofaro, Theodore Oatis, Bank of Boston, and TIAA, claiming that
the general partners of BCA-1 had misused partnership assets by
pledging them as security for the construction of Phase 2 (the
"Dimeo" suit). The initiation of the suit distressed the
partnerships' lenders. Bank of Boston sought an assurance from
TIAA that notwithstanding the pendency of the suit, it would honor
its promise to pay off the bank's construction loan and replace it
with permanent financing once Phase 2 was complete. TIAA refused
to give such an assurance. Bank of Boston responded by threatening
to cease financing Phase 2 construction and insisted that the
partnerships sign a "Forbearance Agreement," which became effective
on March 14, 1991. That agreement stated that it would be an event
of default under the construction loan if the Dimeo suit was not
settled by April 15, 1991; and pending the April 15 deadline, the
bank would finance only fifty percent of the requisitions made
under the loan agreement, forcing the partnerships to cover the
balance from other funds, which could potentially include the $15
million earmarked for distribution.
Not surprisingly, BCA and FHS jointly worked to resolve
the Dimeo suit by the April 15 deadline. They negotiated on
multiple occasions with the Dimeo plaintiffs' lawyers and met with
Bank of Boston and TIAA in an effort either to borrow funds with
which to settle the suit or to eliminate the terms of the
Forbearance Agreement. On each occasion, the lenders refused to
lend the necessary money or to change the terms of the Forbearance
Agreement.
On April 12, 1991, the last business day before the
bank's deadline, BCA and FHS reached an oral agreement with the
Dimeo plaintiffs to settle the suit for $5.6 million. Payment was
due in one week, on April 19. The partners promptly informed Bank
of Boston and TIAA that the case had been resolved.
On April 18, however, FHS informed BCA, by notice to
BCA's general partner Chiofaro, that BCA was forbidden from using
Partnership 1 or Partnership 2 funds to satisfy the settlement, and
threatened to remove BCA as managing general partner should it do
so. FHS added that it would notify Bank of Boston and TIAA of its
position. According to FHS, partnership funds could not be used to
pay the settlement because the settlement was solely BCA's
obligation.
After deliberating through the evening of April 18,
Chiofaro decided on the morning of April 19 to use only BCA funds
to pay the settlement. That day, he paid the Dimeo plaintiffs
$5.6 million. In return, the Dimeo plaintiffs forfeited to BCA
their small, indirect equity interests in Phase 1, represented by
the limited partnership interests in BCA-1.
Section 5.2 of the Partnership Agreements permits a
partner to lend the partnerships certain amounts as "Deficit Loans"
if four conditions are met: (1) there must exist a "financial
requirement" of the partnership, that (2) "cannot . . . reasonably
be satisfied from partnership capital, additional capital,
financing proceeds, revenues and other partnership moneys," (3)
"the parties [have] use[d] their best efforts to obtain reasonable
non-recourse institutional financing . . . of the required amounts"
but have been unable to "obtain such financing," and (4) a partner
has "elect[ed] . . . in its sole discretion" to loan the
partnership the necessary funds." In November 1991, some six
months after satisfying the Dimeo settlement, BCA sent a letter to
FHS, asserting that its settlement payment constituted a "Deficit
Loan," accruing interest at 18%. FHS responded that no such
Deficit Loan had been made, and that BCA was not entitled to
indemnification for any part of the $5.6 million payment. FHS then
filed the instant action seeking a declaration that neither
Partnership 1 nor Partnership 2 owed any sum to BCA.
II. Prior Proceedings
The parties tried the case to a jury over twelve days
beginning October 14, 1997. Although denominated defendants,
appellants assumed the burden of proof and proceeded through trial
effectively as plaintiffs. Upon the close of appellants' evidence,
FHS moved for judgment as a matter of law on the Deficit Loan
issue, contending that the second requirement of Section 5.2 had
not been met because "[t]here can be no question before the jury
that the partnership[s] had money with which to pay this
obligation." The court reserved ruling on the motion and submitted
the question to the jury. The district court also instructed the
jury on damages, advising that damages should reflect the $5.6
million settlement payment made by BCA, less the value of any
benefits obtained by it, including the limited partnership
interests in Phase 1 obtained in the settlement and the value, if
any, of the release from the lawsuit. Appellants did not object to
this instruction.
After deliberation, the jury answered special
interrogatories establishing that appellants had proved each of the
four conjunctive elements for a "Deficit Loan;" and alternatively,
that appellants were entitled to be indemnified by the partnerships
for the settlement payment. Following the return of the special
verdict, the court gave a number of additional instructions on
damages. In the end, the jury returned a verdict establishing
appellants' damages at $2.1 million.
Following the jury's verdict, FHS renewed its motion for
judgment as a matter of law and appellants filed a motion for a new
trial on damages. The court, on May 13, 1998, entered final
judgment, ruling that a Deficit Loan did not exist under the
partnership agreements as a matter of law and that appellants were
only entitled to indemnification. According to the court, "the
facts established at trial show that the Dimeo suit could
reasonably have been paid from partnership funds." Additionally,
the court denied appellants' motion for a new trial. In the end,
the court entered judgment awarding appellants indemnification
payments in the amount of $2.1 million accruing interest at 6% per
annum. By contrast, as a Deficit Loan, the amount the partnerships
owed appellants would have accrued interest at 18% per annum.
Appellants appeal both the judgment as a matter of law
and the denial of their motion for a new trial.
III. Discussion
A. Judgment as a Matter of Law
We review a district court's granting of judgment as a
matter of law de novo. See Correa v. Hospital San Francisco, 69
F.3d 1184, 1191 (1st Cir. 1995). "A judgment as a matter of law
may be granted only if the evidence, viewed from the perspective
most favorable to the nonmovant, is so one-sided that the movant is
plainly entitled to judgment, for reasonable minds could not differ
as to the outcome." Gibson, 37 F.3d at 735. In considering the
evidence, we, like the district court, "cannot evaluate the
credibility of witnesses, resolve conflicts in testimony, or
evaluate the weight of evidence." Criado v. IBM Corp., 145 F.3d
437, 441 (1st Cir. 1998) (citation and internal quotation marks
omitted).
During trial, appellants contended that the partnerships'
admittedly plentiful funds were not reasonably available to pay the
Dimeo settlement because of restrictions imposed by the loan
agreements. Appellants also argued that FHS's refusal to permit
BCA to use partnership funds further hindered these funds from
being reasonably available.
The court, however, rejected these theories as a matter
of law because it regarded as undisputed two facts: (1) Bank of
Boston had permitted Partnership 1 to distribute up to $15 million
to the partners and this money could have been used to fund the
settlement; and (2) Chiofaro's and Oatis's testimony that before
FHS's objection on April 18, 1991, they intended to pay the
settlement from partnership funds without obtaining bank approval
demonstrated that loan restrictions did not hinder the use of
funds. The court additionally found that FHS's refusal to permit
the use of partnership funds was irrelevant because BCA, as
managing general partner, had the authority to settle the lawsuit
with partnership funds regardless of FHS's position.
Reviewing the record in the light most favorable to
appellants, we disagree with the district court's assessment of the
evidence as undisputed. In our view, the jury verdict was
adequately supported by appellants' evidence that partnership funds
were not reasonably available because of loan restrictions and
FHS's lack of cooperation. The partnerships' loan documents
provided that all of the partnerships' assets served as collateral
for the construction loan. Specifically, section 14(c) of the
Construction Loan Agreement and the related Pledge and Escrow
Agreement of Cash Account stated that Bank of Boston had a security
interest in all of the partnerships' assets and that neither
partnership could apply funds for any purpose without bank consent.
Witness testimony further supported this documentary evidence:
Chiofaro and Oatis testified that funds could not be used to pay
the settlement without bank permission, which was not forthcoming;
and Coleman Benedict, an FHS representative, testified that the
partnerships did not have enough free cash to fund the settlement.
It is true that Bank of Boston authorized the
disbursement of $15 million to the partners, but appellants
introduced evidence that these funds were not reasonably available
to pay the Dimeo settlement. Fifteen million dollars had been
earmarked for distribution on three dates: $8 million on June 5,
1990, $3 million six months thereafter, and $4 million six months
thereafter. According to loan documents and Oatis's testimony,
these earmarked funds could not be distributed without bank
approval on each disbursement date. Moreover, according to Oatis,
the earmarked funds were not sufficient on April 19, 1991 to pay
the $5.6 million settlement. Eight million dollars had already
been distributed to the partners as of the first release date and
therefore were no longer part of the partnership assets. The next
$3 million were not distributed on the scheduled second
disbursement date because that amount had been used to fund fifty
percent of the Phase 2 construction expenses during the pendency of
the Forbearance Agreement. Finally, the last $4 million were
earmarked for distribution in May 1991, after the settlement
payment was due. While BCA theoretically could have used the $4
million in anticipation of the forthcoming release date, the jury
could have found that FHS's threats, as well as uncertainty
regarding the bank's required consent, rendered the funds not
reasonably available on April 19, 1991. In all events, simple
arithmetic proves that $4 million is not $5.6 million.
We also disagree with the district court's decision that
Chiofaro's and Oatis's testimony that they had initially intended
to pay the settlement from partnership funds without obtaining bank
approval is conclusive evidence that bank restrictions did not
encumber partnership funds. While such testimony tends to prove
that partnership funds were reasonably available, it is not
conclusive evidence on this point. The jury could have credited
Oatis's testimony that he did not intend to obtain bank permission
before April 19 because it was not until that date that he realized
the distribution of funds necessary for payment could not occur
without FHS's cooperation.
The testimony introduced at trial therefore sufficiently
supported the jury's finding that funds were not reasonably
available to settle the Dimeo suit on April 19, 1991. Under these
circumstances, the district court erred in ruling as a matter of
law that the conditions for a Deficit Loan had not been met. Thus,
we reverse the court's judgment as a matter of law, reinstate the
jury's finding that the conditions for a Deficit Loan were met, and
remand so that judgment may be entered in accordance with this
opinion.
B. Motion for New Trial
Appellants also challenge the district court's refusal to
grant a new trial on damages, contending that the court's
instructions to the jury on damages were erroneous and
alternatively, that the jury's valuation of their damages at only
$2.1 million is not supported by the evidence. We review the
court's denial of a motion for a new trial for an abuse of
discretion. See Air Safety v. Roman Catholic Archbishop of Boston,
94 F.3d 1, 4 (1st Cir. 1996).
According to appellants, the district court erred in
instructing the jury that it could deduct the value of the limited
partners' release from its base damages when there was no evidence
of the value of the release in the record. See Kelliher v. General
Transp. Serv., Inc., 29 F.3d 750, 754 (1st Cir. 1994) (jury
instruction may not be given if there is insufficient evidence to
support it).
Appellants, however, did not preserve this argument for
appeal. Fed. R. Civ. P. 51 states, in relevant part, that "[n]o
party may assign as error the giving or the failure to give an
instruction unless the party objects thereto before the jury
retires to consider its verdict, stating distinctly the matter
objected to and the grounds of the objection."
Although appellants contend that they objected to the
jury instruction and further submission of the issue, we have been
unable to discern any such objection. Rather, our reading of the
record indicates that appellants failed to object when the court,
at the close of the evidence, instructed the jury:
In calculating damages, I instruct you that
the base figure on which your calculation is
made is the 5.6 million paid to settle the
suit. From that amount, you should deduct the
value, if any, of the assets which you find
that Chiofaro purchased from [the limited
partners] in settlement of the suit, that is,
what you find to be the value, again, if any,
of the 22 percent interest in the BCA[-1]
partnership, as well as the value of the
release given Chiofaro by [the limited
partners].
Appellants also failed to object when the jury, after a period of
deliberation, requested by note that the court "supply parameters
'for the value of the release.'" Appellants' assertion that during
a resulting lobby conference, they "stated that there existed no
testimony in the record as to the value of the release [and]
objected to additional instruction concerning the value of the
release and to further submission of the issue to the jury"
misstates the record. During the lobby conference, the court asked
the parties whether there was testimony on the value of the
releases. Counsel for appellants responded: "The only testimony,
I believe, was opinion testimony on the value of the interest. So
subtraction works, but I think that's unfair." Counsel did not,
however, object to the court's instructing the jury to subtract the
value of the release from the $5.6 million base figure. Rather,
the only so-called objection noted by counsel at that time was
"[y]ou've got to repeat your [earlier] instruction and say the
evidence is the evidence." These comments, together, fall short of
Rule 51's requirement that the objection "stat[e] distinctly the
matter objected to and the grounds of the objection."
Absent a timely objection, an erroneous jury instruction
warrants a new trial only where the assigned error "'caused a
miscarriage of justice or . . . undermined the integrity of the
judicial process.'" Play Time, Inc. v. LDDS Metromedia
Communications, Inc., 123 F.3d 23, 29 (1st Cir. 1997) (quoting
Scarfo v. Cabletron Sys., Inc., 54 F.3d 931, 940 (1st Cir. 1995)).
We see no miscarriage of justice here and therefore hold that
appellants have waived their objection to the jury instruction.
See, e.g., Play Time, 123 F.3d at 30, n.8 (no miscarriage of
justice where the issue "implicates only the question of damages
for breach of a private agreement between the litigants;" and no
damage to integrity of the judicial process where "the proceedings
below were conducted with meticulous attention to the rights of
both parties").
Appellants also make the argument that even if the value
of the release played no role in the jury's reduction of its
recovery so that the $3.5 million reduction represents the value
of limited partnership interests only they are still entitled to
a new trial on damages because the jury's valuation is not
supported by the record. In challenging the jury's damage award,
appellants face a daunting task. Our review "is limited to
examining whether evidence in the record supports the verdict. If
the jury award has a rational basis in evidence, we must affirm
it." Air Safety, 94 F.3d at 4 (citation and internal quotation
marks omitted). "While 'the jury may not render a verdict based on
speculation or guesswork,' a reviewing court will not tinker with
the jury's assessment of money damages as long as it does not fall
outside the broad universe of theoretically possible awards that
can be said to be supported by the evidence." Dopp v. Pritzker, 38
F.3d 1239, 1249 (1st Cir. 1994) (citation omitted). In the end,
"[w]e will not disturb an award of damages for economic loss
provided it does not violate the conscience of the court or strike
such a dissonant chord that justice would be denied were the
judgment permitted to stand." Vera-Lozano v. Int'l Broadcasting,
50 F.3d 67, 71 (1st Cir. 1995) (citation and internal quotation
marks omitted).
Here, the jury's valuation of the limited partnership
interests falls within the broad universe of awards supported by
the evidence. Together, the limited partners had a 22.5% interest
in BCA-1, which in turn had a 40% interest in Phase 1. Thus, the
limited partners had a 9% interest in Phase 1. Oatis testified
during trial that, in 1989, he prepared for FHS a valuation of
Phase 1 for $150 to $200 million. Using the 9% figure, the limited
partnership interests in this amount would have been $13 to $18
million. Francis McCarthy, former comptroller of Chiofaro Company,
one of Chiofaro's interests, testified that, some time after August
1990, Chiofaro asked him to calculate certain tax consequences of
acquiring one of the limited partner's interest at purchase prices
ranging from $1.96 to $4 million. The jury could have determined
that this testimony reflected a proper valuation of one of the
limited partner's interest. Appellants themselves introduced into
evidence a letter from Richard Renehan, lead trial counsel for
defendants in Dimeo, to Earl Cooley, counsel for plaintiffs,
stating that defendants were "prepared to buy your clients out for
cash at the fair market value of their interests" and offering $1.6
million. Kevin Currier, the Chief Financial Officer of Dimeo
Construction Company ("Dimeo"), a limited partner with a 20%
interest in BCA-1, testified that, based on this letter, he valued
the sale of Dimeo's interest at $1.5 million on Dimeo's 1991 tax
return (and the IRS challenged this valuation as insufficient).
Finally, Coleman Benedict testified that during settlement
negotiations he discussed with Chiofaro the limited partners'
interest at values ranging from zero to $15 million, depending on
"assumptions you used about the condition of the market in the
future." Based on the sum of this evidence, the jury could have
reasonably valued the limited partnership interests in BCA-1 at
$3.5 million. We will not second-guess its decision to do so.
IV. Conclusion
For the foregoing reasons, we reverse the decision of the
district court in part and affirm in part. No costs.