United States Court of Appeals
For the First Circuit
Nos. 02-1040, 02-1588
UNITED STATES STEEL, a/k/a USX CORPORATION,
Plaintiff, Appellant,
v.
M. DEMATTEO CONSTRUCTION CO. and M. DEMATTEO CONSTRUCTION
CO./FLATIRON CONSTRUCTORS, a JOINT VENTURE,
Defendants, Appellees.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nancy Gertner, U.S. District Judge]
Before
Lynch, Circuit Judge,
Cyr, Senior Circuit Judge
and Lipez, Circuit Judge.
Marc Redlich, with whom Merle Ruth Hass, Howard Burger, and
Berman, Paley, Goldstein, & Kannry, L.L.P., were on brief for
appellant.
Hugh J. Gorman, III, with whom Joel Lewin, Michael D. Healan
and Hinckley, Allen & Snyder, L.L.P., were on brief for appellees.
December 30, 2002
LIPEZ, Circuit Judge. This case requires us to consider
the rights, if any, of a subcontractor who did not substantially
perform under his contract, to recover payment from a general
contractor for work performed by the subcontractor who abandoned
the job because of financial problems which soon led to bankruptcy
proceedings. The case is brought by United States Steel ("USS"),1
a secured creditor of the bankrupt subcontractor, Cyclone, Inc.
("Cyclone"). USS seeks to recover from the general contractor, M.
DeMatteo Construction Co., and M. DeMatteo Construction Co. and
Flatiron Constructors, a Joint Venture (collectively "DeMatteo"),
all accounts receivable due the subcontractor. The district court
entered summary judgment for DeMatteo on the ground that, as a
matter of well-established Massachusetts law, the subcontractor is
not entitled to any recovery under the contract at issue.2 Though
our analysis differs from that of the district court, we affirm.
I.
DeMatteo is the general contractor at various public
construction projects associated with the "Big Dig," a massive
1
Plaintiff, formerly known as USX Corporation, changed its
name to United States Steel, L.L.C. in August 2001 and will be
referred to herein as such.
2
In this instance, the district judge accepted and adopted the
detailed report and recommendation of a magistrate judge. In the
interest of simplicity, we do not distinguish between the two
judicial officers. Rather, we refer to the determinations below as
those of the district court.
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undertaking that will submerge a section of interstate highway
below the streets of Boston. Between September 1996 and October
1999, DeMatteo entered into three separate contracts with Cyclone,
whereby Cyclone was to provide and install temporary and permanent
fencing at construction sites. On or about October 8, 1999,
Cyclone ceased its operations and stopped working on the projects.
On December 3, 1999, Cyclone filed a voluntary chapter 11 petition
in the United States Bankruptcy Court for the District of Maryland,
during which proceeding USS was acknowledged as a secured creditor
and authorized to collect accounts receivable due Cyclone.
On April 4, 2001, USS brought this lawsuit in an attempt
to collect amounts it believes may be due Cyclone under the
contracts between Cyclone and DeMatteo. USS does not dispute that
Cyclone had not substantially completed its work under the
contracts when it terminated its operations. However, it contends
that under the terms of the contracts, if the costs to DeMatteo of
completion were less than the amount by which DeMatteo was enriched
by Cyclone's work performed and materials supplied, then USS, as
Cyclone's secured creditor, is entitled to the balance.3
On June 8, 2001, DeMatteo moved for summary judgment.
USS opposed this motion and filed two motions of its own, one
pursuant to Fed. R. Civ. P. 56(f), seeking additional discovery,
3
The details of the work done, including the amounts paid or
owing Cyclone, are unknown to USS.
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and the second seeking certification to the Supreme Judicial Court
of Massachusetts of several questions of Massachusetts law. The
district court granted summary judgment for DeMatteo on November
28, 2001, holding that a fair reading of the contract provisions is
consistent with Massachusetts common law which prohibits recovery
for the subcontractor under the contract or under a theory of
quantum meruit absent substantial performance. The court denied
the Fed. R. Civ. P. 56(f) Motion for Additional Discovery and the
request for certification, and dismissed the case. On December 28,
2001, USS filed a timely notice of appeal. Thereafter, on March
26, 2002, USS filed a Fed. R. Civ. P. 60(b) Motion for Relief from
Judgment. The district court denied the Rule 60(b) Motion on May
13, 2002, and USS's second appeal followed. On May 21, 2002, we
entered an order consolidating these appeals for briefing and
argument.
II.
We review the district court's grant of summary judgment
for DeMatteo de novo, examining the record in the light most
favorable to USS and drawing all reasonable inferences in its
favor. We affirm the district court's decision only if "there is
no genuine issue of material fact" and DeMatteo "is entitled to
judgment as a matter of law." Rochester Ford Sales, Inc. v. Ford
Motor Co., 287 F.3d 32, 38 (1st Cir. 2002)(quoting Fed. R. Civ. P.
56(c)). Here we focus on the contracts between Cyclone and
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DeMatteo to determine the rights accruing to each party in case of
abandonment of work by the subcontractor without substantial
performance.
It is well established under Massachusetts law that a
contractor "cannot recover on the contract itself without showing
complete and strict performance of all its terms." Peabody N.E.,
Inc. v. Town of Marshfield, 689 N.E.2d 774, 779 (Mass. 1998)
(quoting Andre v. Maguire, 26 N.E.2d 347 (Mass. 1940)). Failing
complete performance, a contractor "who in good faith substantially
performs a contract may recover in quantum meruit." J.A. Sullivan
Corp. v. Commonwealth, 494 N.E.2d 374, 378 (Mass. 1986)(citing
Andre, 26 N.E.2d at 348). "It is equally well established that 'an
intentional departure from the terms of the contract without
justification or excuse in matters other than those so trifling as
to be properly regarded as falling within the rule of de minimis
will bar all recovery for materials supplied and work performed.'"
Hayeck Bldg. & Realty Co. v. Turcotte, 282 N.E.2d 907, 910 (Mass.
1972)(quoting Russo v. Charles I. Hosmer, Inc., 44 N.E.2d 641, 643
(Mass. 1942)).
On the present record, USS does not dispute that Cyclone
neither completely nor substantially performed the work contracted
for, and that this failure to perform was not excused. Therefore,
as a matter of Massachusetts common law, Cyclone is not entitled to
recover any amount from DeMatteo either under the contract or under
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a theory of quantum meruit. However, USS contends that the terms
of the contract between Cyclone and DeMatteo alter the common law,
permitting Cyclone to recover sums due under the contract from
DeMatteo, even if Cyclone breached the contract. This alteration
by contract of the common law rule requiring complete and strict
performance as a condition of compensation under the contract is a
legal possibility. See Walsh v. Atlantic Research Assoc., 71
N.E.2d 580 (Mass. 1947) (finding that parties can provide by the
terms of the contract that a breaching party is entitled to
damages).
USS relies on Article XV of the 1996 contract (Article
XVI of the 1999 contracts)4 to support its claim that the contract
alters the common law rule. Article XV states in relevant part as
follows.
Article XV - REMEDIES OF GENERAL CONTRACTOR
The Subcontractor stipulates and agrees that each of the
agreements and covenants herein contained, and by it
made, constitutes a material condition of this
Subcontract. In the event of any breach by the
Subcontractor of any condition of this Agreement or of
the General Contract Documents herein incorporated by
reference, then and in that event the Contractor may:
(1) Deduct from any payment otherwise due or becoming
due all sums chargeable to Subcontractor and
damages due from said breach; and
4
All three contracts contain substantially similar provisions
relating to the rights of the general contractor upon the
subcontractor's default. For the sake of simplicity, we refer to
the provisions at issue collectively as "Article XV".
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(2) Terminate the Subcontract for default in the
following manner...
Upon such termination for default the General Contractor
may take immediate possession of all equipment,
materials, tools, and appliances at the site or sites of
the Subcontract work and may complete said work either
with its own forces or by the employment of any other
person, firm, or corporation. No further payment shall
be or become due the Subcontractor following such
termination for default. When the work is wholly
complete, the Subcontractor shall pay General Contractor
all costs of completing the work and all damages of every
kind or nature caused by said termination less the amount
of any balances due the Subcontractor.
(emphasis added).
USS argues that a fair reading of these contract provisions
requires that the general contractor pay the subcontractor for work
performed despite the subcontractor's breach, and that this amounts
to an agreement to modify the subcontractor's common law rights of
recovery. We disagree.5
In using the clause "the contractor may..." before the
specification of two remedies, Article XV sets forth elective
rights of the general contractor in case of breach by the
subcontractor. Under Massachusetts law, if a contract does not
5
In advancing its reading of the contract, USS relies on a
district court opinion interpreting a similar contract between
Cyclone and another general contractor in accordance with USS's
position. See USS v. Modern Cont'l Constr. Co, Inc., and Modern
Continental/Obayashi, No. Civ.A.01-10561-DPW, 2002 WL 1949223 (D.
Mass. Aug. 5, 2002). Notwithstanding the similarities in the
contract provisions, that case is not currently before us, and
there may be differences between Modern Continental and the instant
case which would only become evident upon closer scrutiny of Modern
Continental.
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specify that the remedies identified are exclusive, or that they
abrogate the common law remedies available, the common law remedies
still apply. Global Software, Inc. v. DTS Software Brasil, LTDA,
No. Civ.A.00-10033-GAO, 2002 WL 73819, at *2 (D. Mass. Jan. 15,
2002)("[U]nder Massachusetts law, expressly stated remedies are not
automatically exclusive."); Finkelstein v. Sneierson, 173 N.E. 703,
704 (Mass. 1930) ("[T]he remedy provided [in the agreement] was not
exclusive of the plaintiff's right to maintain an action for
damages for breach of the agreement."); 17A Am. Jur. 2d Contracts
§ 748 (2002) (collecting cases) ("Where, however, there is no
express or implied limitation in the contract making the stated
remedy exclusive, the prevailing view seems to be that a party may
at his election pursue either the prescribed remedy or any other
remedy the law gives."). Therefore, the general contractor may
elect not to exercise any of its options under Article XV when the
subcontractor breaches the contract, relying instead on the
applicable common law rule to defend itself against any claims for
relief brought by the breaching subcontractor.
Due to Cyclone's admitted material breach by abandonment
of the contract, DeMatteo was discharged from its obligations under
the contract, obviating, in this case, DeMatteo's need to
affirmatively terminate. The termination provision in a contract
is applicable "only in case the [contractor] terminates the
employment upon the conditions and in the manner specified in the
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contract .... The provision is not applicable to the case where the
[subcontractor] abandons the work under the contract." J. Alfred
Dolben v. Duncan Constr. Co., 177 N.E. 105, 111 (Mass. 1931).6 See
13 A.L. Corbin, Corbin on Contracts §1252 (Interim ed. 2002)
(breach of a contractual duty by one party to a bilateral contract
discharges the duty of performance on the part of the other.).
Unwilling to accept the legal implications of the
material breach of the contract by Cyclone through abandonment, USS
argues that it is owed money under Article XV(1) by reference to
Article IX of the contract. Article IX mandates payment by the
general contractor to the subcontractor for work performed during
the period of the contract when the general contractor receives
payment from the owner.7 USS argues that this payment constitutes
"payment otherwise due or becoming due" under Article XV(1) which
6
We recognize that the parties in J. Alfred Dolben were an
owner and a general contractor. We see no reason why the principle
would change when the parties are a general contractor and a
subcontractor.
7
Article IX provides in relevant part:
(1) If and when the General Contractor receives payment
from the Owner...it shall pay said sum to the
Subcontractor less an amount of five
percent....which shall be held as retainage.
(2) The amounts to be retained by the General
Contractor shall become due and payable upon
determination by the Owner's Engineer of the final
quantities hereunder...and, as a further condition
precedent to payment of any retainage,
Subcontractor must furnish...evidence that the
Subcontract work has been fully performed.
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DeMatteo must furnish to Cyclone before proceeding to terminate the
contract according to Article XV(2). We find this argument
unpersuasive.
Because Cyclone committed a material breach by abandoning
work under the contract, DeMatteo was discharged from its
contractual obligations, and the provisions of the contract
concerning payment, even assuming the meaning advanced by USS, were
no longer available to Cyclone as the basis for a lawsuit seeking
payment for work performed. According to well established
authority, "one guilty of wilful breach can maintain no suit on
that contract against the other party." Corbin, supra, §1254.
Indeed, the Massachusetts rule that a contractor "cannot recover on
the contract itself without showing complete and strict performance
of all its terms," Peabody N.E., Inc., 689 N.E.2d at 779, is akin
to this general principle of contract law.
Moreover, Article XV(1) is in the section of the contract
titled "Remedies of the General Contractor." Although this section
does not obligate DeMatteo to invoke the stipulated remedies,
neither does it authorize an affirmative claim by the subcontractor
against the general contractor in derogation of the common-law
rights of the general contractor. Since USS stands in the shoes of
Cyclone, USS has no greater rights than Cyclone would. Thus, there
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is no basis for USS to recover any amount from DeMatteo under
Article XV(1).8
III.
Subsequent to the district court's entry of summary
judgment for DeMatteo, USS filed an unsuccessful Fed. R. Civ. P.
Rule 60(b) Motion for Relief from Judgment. We review the district
court's denial of USS's Rule 60(b) Motion for abuse of discretion,
proceeding with "the understanding that relief under Rule 60(b) is
extraordinary in nature and that motions invoking that rule should
be granted sparingly." Karak v. Bursaw Oil Corp., 288 F.3d 15, 19
(1st Cir. 2002).
Rule 60(b) provides that "[o]n a motion and upon such
terms as are just, the court may relieve a party...from a final
judgment, order, or proceeding" for six enumerated grounds. USS
asserts three of those grounds: 60(b)(1) mistake, inadvertence,
surprise, or excusable neglect; 60(b)(2) newly discovered evidence
which by due diligence could not have been discovered in time to
move for a new trial under Rule 59(b), and; 60(b)(3) fraud,
misrepresentation, or other misconduct of an adverse party.
8
USS concedes in its reply brief that Article XV(2) does not
apply because DeMatteo did not formally terminate the contract:
"There is no evidence, and no claim, that DeMatteo terminated
Cyclone. Thus the termination provision, whatever it means, is not
at issue."
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A. Rule 60(b)(2)
We begin our analysis with Rule 60(b)(2), the ground
addressed most comprehensively by the district court. In arguing
"newly discovered" evidence, USS retracts its concession of
Cyclone's breach without substantial performance on one of the
contracts and alleges breach by DeMatteo due to chronically
delinquent payment under all three contracts, implying that this
delinquency caused Cyclone's breach by driving Cyclone into
bankruptcy.
In an affidavit dated March 25, 2002 (nearly four months
after the district court entered summary judgment for DeMatteo),
David Karr, an employee of USS, attests to the evidence indicating
substantial performance on one of the contracts, and attempts to
explain why this information was not presented at the September 5,
2001 hearing on summary judgment, despite the fact that the
materials were in the possession of USS prior to this date. He
explains that Cyclone forwarded nearly two hundred boxes of
materials concerning this matter and hundreds of other contracts,
and it took time to identify and assess information relevant to the
three Cyclone-DeMatteo contracts at issue. Because Karr "made
every effort to obtain and review all of the pertinent documents
and information," USS argues that the materials are "newly
discovered" and "could not by due diligence" have been discovered
sooner.
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In light of this claim, we juxtapose a timeline of the
legal proceedings against USS's acquisition and review of evidence
pertinent to its lawsuit. On December 17, 1999, in the United
States Bankruptcy Court for the District of Maryland, USS was
determined to be a secured creditor of Cyclone and was authorized
to review Cyclone's records, thus triggering USS's interest in the
contractual relationship between Cyclone and DeMatteo and its right
of access to evidence pertaining to the DeMatteo contracts
contained in Cyclone's records. Although USS protests that it did
not actually receive Cyclone's records until July 26, 2001, it
filed its lawsuit against DeMatteo on April 4, 2001. Not
surprisingly, DeMatteo filed an answer on April 20, 2001, and
promptly moved for summary judgment on June 8, 2001. These acts of
DeMatteo cannot be impugned as unfair haste just because USS set
the lawsuit in motion prior to reviewing all of the evidence
available to it.
Even accepting that USS only had actual possession of
Cyclone's records on July 26, 2001, USS concedes that the evidence
pertaining to invoices, materials supplied and work performed on
the DeMatteo contracts found in Cyclone's records was in its
possession six weeks prior to the September 5, 2001 hearing on
DeMatteo's summary judgment motion. It also possessed the records
a full four months before the district court entered summary
judgment in favor of DeMatteo on November 28, 2001.
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A party is entitled to relief, under Rule 60(b)(2), from
summary judgment where (1) the evidence has been discovered since
the trial;9 (2) the evidence could not by due diligence have been
discovered earlier by the movant; (3) the evidence is not merely
cumulative or impeaching; and (4) the evidence is of such a nature
that it would probably change the result were a new trial to be
granted. Mitchell v. United States, 141 F.3d 8, 18 (1st Cir.
1998). Although, as noted, the relevant records were in its
possession at least six weeks prior to the summary judgment hearing
on September 5, 2001, USS did not examine the relevant evidence
until after the hearing.
This failure to review the records prior to the hearing
falls short of the second criterion requiring that the evidence
could not by due diligence have been discovered earlier. A party
seeking relief from a judgment based on newly discovered evidence
must "at the very least, offer a convincing explanation as to why
he could not have proffered the crucial evidence at an earlier
stage of the proceedings." Karak, 288 F.3d at 20. Since USS could
have gained access to the records as early as December 1999 (when
the United States Bankruptcy Court for the District of Maryland
9
In this case, the "final judgment, order or proceeding" from
which the movant seeks relief is an order of summary judgment which
was entered subsequent to a hearing rather than a trial. Although
it refers to evidence "discovered since the trial," the Mitchell
standard for relief under Rule 60(b)(2) is equally applicable to
evidence discovered after a summary judgment hearing.
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granted USS the right to review Cyclone's records), USS's
protestations of inadequate time and overwhelming volume are
unavailing.
The moving party bears the burden of meeting each of the
four Mitchell criteria. Since USS fails to meet its burden with
respect to the second, the district court did not abuse its
discretion in denying the motion for relief from judgment under
Rule 60(b)(2).
B. Rule 60(b)(1) and (3)
Rule 60(b)(1) permits a court to relieve a party from a
final judgment due to "mistake, inadvertence, surprise, or
excusable neglect." Here, the same impediment that barred the Rule
60(b)(2) claim for relief applies. The district court found that,
if USS had acted with due diligence by either procuring the records
from Cyclone earlier or reviewing the records more quickly when
they were received, it could have brought the evidence to the
court's attention prior to the September 5, 2001 hearing.
Therefore, there is no element of surprise, inadvertence, or
excusable neglect in USS's failure to discover the evidence sooner.
As outlined above, USS has had access to Cyclone's records since
December 1999. The information therein, pertaining to invoices,
materials supplied and work performed, was foreseeably relevant to
the lawsuit that USS initiated. See Barrett v. Lombardi, 239 F.3d
23, 28 (1st Cir. 2001) ("[W]here the plaintiff should have been
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aware of the deficiencies in his case before the entry of judgment,
relief under Rule 60(b) would not have been justified.") (quoting
Mas Marques v. Digital Equip. Corp., 637 F.2d 24, 29 (1st Cir.
1980))(alteration in original)(internal quotations omitted).
To obtain relief from judgment under Rule 60(b)(3) due to
"fraud, misrepresentation or other misconduct of an adverse party,"
the movant must demonstrate misconduct by clear and convincing
evidence.10 Karak, 288 F.3d at 20-21 (citing Anderson v. Cryovac,
Inc., 862 F.2d 910, 923 (1st Cir. 1988)). USS alleges that
DeMatteo's failure to provide information regarding performance and
payment under the contract -- which it "knew or should have known
directly undermined the arguments it was making to the district
court" -- amounts to misconduct. However, USS offers no evidence
that it sought such information prior to filing its Rule 56(f)
motion11 and concedes that it did not seek formal discovery from
DeMatteo. On this record, the district court did not abuse its
discretion in determining that "claims that the defendants acted
fraudulently are groundless" and denying the motion for relief from
judgment under Rule 60(b)(3).
10
The movant must also show that the misconduct foreclosed full
and fair preparation or presentation of his case. However, since
USS failed to provide sufficient evidence of misconduct, we do not
reach this second criterion.
11
USS asserts that it "sought the relevant information from
DeMatteo long before it commenced this action" but makes no effort
to substantiate this statement.
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IV.
USS also appeals the district court's denial of its Rule
56(f) Motion for Additional Discovery and its request for
certification to the Supreme Judicial Court of Massachusetts.
A. Rule 56(f) Motion for Additional Discovery
The management of pretrial discovery lies primarily
within the sound discretion of the district court. Faigin v.
Kelly, 184 F.3d 67, 84 (1st Cir. 1999). This court "will intervene
in such matters only upon a clear showing of manifest injustice,
that is, where the lower court's discovery order was plainly wrong
and resulted in substantial prejudice to the aggrieved party."
Filiatrault v. Comverse Tech. Inc., 275 F.3d 131, 137-38 (1st Cir.
2001) (quoting Mack v. Great Atl. & Pac. Tea Co., 871 F.2d 179, 186
(1st Cir. 1989)). USS does not satisfy this stringent test.
In its Rule 56(f) motion, USS conceded that there was no
substantial performance of the contracts, and it did not seek
evidence to prove otherwise. At the September 5, 2001 summary
judgment hearing, USS merely requested that the court "allow some
additional discovery into what the damages would be or are, would
be, if we are entitled to recover, because that might bring the
matter to an end." Thus, USS did not seek discovery on an issue of
material fact that could alter the outcome of DeMatteo's contention
on summary judgment that, as a matter of contract law, USS was not
entitled to any recovery. It was well within the district court's
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discretion to postpone discovery pertaining to calculation of
damages until after its decision on the dispositive legal issue.
B. Request for Certification
Certification of a question of Massachusetts law to the
Supreme Judicial Court is proper when the question is
"determinative of the cause then pending in the certifying court
and as to which it appears to the certifying court there is no
controlling precedent in the decisions of [the Supreme Judicial
Court]." Mass. S.J.C.R. 1:03. See Nett ex rel. Nett v. Bellucci,
269 F.3d 1, 8 (1st Cir. 2001).
The district court's decision as to whether or not to
certify is reviewed for abuse of discretion. As USS correctly
notes, the Supreme Court has observed that certification is
particularly appropriate where the question at issue is novel, and
the law unsettled. Lehman Bros. v. Schein, 416 U.S. 386, 391
(1974). However, there is nothing novel or unsettled about
Massachusetts law on the rights, if any, of a subcontractor who did
not substantially perform under his contract, to recover payment
from a general contractor for work performed by the subcontractor
before he walked off the job. In the recent case of Peabody N.E.,
Inc., 689 N.E.2d at 774, the Supreme Judicial Court affirmed the
well-established principle that contractors "cannot recover on the
contract itself without showing complete and strict performance of
all its terms," and that a contractor can recover under a theory of
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quantum meruit only "if he can prove both substantial performance
of the contract and an endeavor on his part in good faith to
perform fully." Id. at 779-80. This is a recent and unambiguous
statement of Massachusetts law. There was no abuse of discretion
in the district court's denial of USS's request for certification.
V.
For the reasons stated above, the decision of the
district court is affirmed.
So ordered.
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