Crowe v. Bolduc

United States Court of Appeals
For the First Circuit

No. 02-2601

BYRON A. CROWE,

Plaintiff, Appellee,

v.

J.P. BOLDUC,

Defendant, Appellant.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MAINE

[Hon. David M. Cohen, U.S. Magistrate Judge]

Before

Lynch, Circuit Judge,
R. Arnold*, Senior Circuit Judge, and
Howard, Circuit Judge.

Jennifer D. Sawyer, with whom were John M.R. Paterson and
Bernstein, Shur, Sawyer & Nelson, on brief for appellee.

Lee H. Bals, with whom were Michael J. Gartland and Marcus,
Clegg & Mistretta, P.A., on brief for appellant.

July 3, 2003

*
Of the Eighth Circuit, sitting by designation.
 LYNCH, Circuit Judge. A jury held that J.P. Bolduc was

liable for close to $100,000 in attorneys' fees and costs incurred

by Byron Crowe in a third-party lawsuit arising out of Bolduc's

acquisition of the assets of Crowe's business, the Crowe Rope

Company, and some other property.

Two basic arguments are urged on appeal. The first issue

is whether the trial judge erred by excluding evidence and whether

Bolduc is entitled to a new trial. Two rationales used to exclude

the evidence -- which amount to the proposition that witnesses who

are lawyers are not to be subjected to cross-examination for bias

as other witnesses are -- are plainly erroneous, and we

specifically disapprove of them. But there was another rationale

for exclusion which withstands review, so Bolduc is not entitled to

a new trial on that ground. The second issue, actually a series of

sub-issues, concerns the interpretation of the agreement. We

sustain the jury verdict. This case contains cautionary tales and

lessons about trial practice.

The case grew out of an earlier litigation in which Crowe

successfully defended a suit by a trade creditor of Crowe Rope

seeking to seize certain annuity payments due to Crowe under the

agreements with Bolduc. Achille Bayart & Cie v. Crowe, 238 F.3d

44, 46 (1st Cir. 2001). After his successful defense, Crowe sought

to recover his costs and legal fees from Bolduc pursuant to the

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agreements. Bolduc refused, and Crowe brought suit. Crowe v.

Bolduc, 215 F. Supp. 2d 233, 236-37 (D. Me. 2002).

The Magistrate Judge who heard the case made two rulings

challenged here. First, on a pre-trial motion in limine, he ruled

that the two attorneys called as witnesses by Crowe to testify to

the intent of the agreements could not be cross-examined for bias

arising out of their firm's contingent fee agreement in the

litigation. Second, he ruled on a motion for summary judgment that

the agreements were ambiguous, and so the question of their

interpretation should go to the jury, and then he upheld the jury

verdict on a subsequent motion for judgment as a matter of law.

I. Facts

Crowe was the President and sole shareholder of Andrew

Crowe & Sons, Inc. d/b/a Crowe Rope Company. It had been one of

the major American manufacturers of rope, but had fallen on hard

times. As of December 12, 1995, Crowe Rope owed over eight million

dollars to Fleet National Bank of Massachusetts.1 Crowe himself

owed an additional $50,223.61 to Fleet Bank, and one other company

of which he was the sole shareholder, Portco, Inc., owed another

$150,670.83. Crowe Rope was the guarantor of the debts of both

Crowe and Portco, either directly or indirectly.

1
The original loan transactions had been with Shawmut
National Bank, but shortly before December 1995, Shawmut had been
acquired by and merged with Fleet Bank. As a result, Fleet Bank
acquired the loans previously held by Shawmut. Achille Bayart, 238
F.3d at 45 n.2.

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 Bolduc had been the President and CEO of W.R. Grace & Co.

and now had a number of business interests. In December 1995,

through several holding companies, Bolduc acquired the debt owed by

Crowe Rope, Crowe and Portco to Fleet Bank. Bolduc paid Fleet Bank

$8.4 million. Subsequently Crowe Rope transferred all of its

assets to a Bolduc entity, and Bolduc foreclosed on the real

estate, machinery and equipment of Crowe Rope. Achille Bayart, 238

F.3d at 45-46. All of Crowe's personal guarantees were paid by

Bolduc, at a cost of over $1 million. Bolduc also agreed to pay a

$40,000.00 annuity to Crowe and his wife Ruth in exchange for title

to several parcels of real estate owned by the Crowes, some of

which had been rented to Crowe Rope.

The Crowes entered into several written agreements with

Bolduc, including an agreement dated December 8, 1995 ("the

Agreement"), and a letter from Bolduc to the Crowes, also dated

December 8, 1995 ("the Letter Agreement"). The Letter Agreement

provided that Bolduc and a new corporation to be formed by him

would pay the Crowes the sum of $40,000.00 annually, as long as

either of them lived, in exchange for the real estate. The

Agreement established that Bolduc would pay Crowe $60,000.00 in

twelve equal payments over the first year for consulting services

and an agreement not to compete with the new corporation for five

years. The pertinent text of the two agreements is set forth

later.

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 The specter of possible litigation by creditors against

either Crowe Rope or the Crowes was a dominant concern of the

parties. Should the Crowes' annuity be taken in judgment by any

court, Bolduc promised to provide an equivalent substitute payment.

Bolduc also acknowledged that several such creditor suits were

already pending at the time of the agreement. The Letter Agreement

required the Crowes to "immediately notify Bolduc, in writing, of

any such claim." Bolduc "thereupon shall be entitled to defend

such claim, to compromise it or settle it, in his sole judgment, as

he may deem appropriate, and at his sole cost and expense."

Paragraph 6 of the Agreement described Crowe's obligation to

cooperate with any defense mounted by Bolduc.

The transaction, however, made no provision for the

payment of any trade creditors of Crowe Rope, and left no assets in

Crowe Rope, now an insolvent shell company. These debts amounted

to over $4 million. One of these creditors, Achille Bayart & Cie,

filed a complaint in federal district court on May 6, 1998 against

the Crowes, seeking to collect a debt of $132,287.00 plus double

damages ("the Achille Bayart action"). Achille Bayart, 238 F.3d at

46. Achille Bayart brought suit pursuant to the Maine Uniform

Fraudulent Transfer Act, Me. Rev. Stat. Ann. tit. 14, §§ 3571-3582

(West 2003), arguing that there remained equity in Crowe Rope over

and above the amount paid by Bolduc to Fleet Bank, while unsecured

creditors such as Achille Bayart received nothing. Achille Bayart,

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238 F.3d at 46. Achille Bayart sought to avoid the $40,000.00

annuity to the Crowes as a fraudulent transfer. Crowe defended the

case. Crowe, 215 F. Supp. 2d at 236-37. The case went to trial in

January 2000. At the conclusion of Achille Bayart's case, Crowe

moved for judgment as a matter of law pursuant to Fed. R. Civ. P.

50(a). The court found that there was insufficient evidence to

permit a jury to conclude that there was such excess value, and the

motion was granted. Achille Bayart, 238 F.3d at 46. Achille

Bayart then appealed to this court, which affirmed. Id. at 49.

Crowe then sought to collect $91,477.26 from Bolduc, the

legal fees and costs he incurred in defending the Achille Bayart

action. Crowe, 215 F. Supp. 2d at 236-37. Crowe's counsel had

notified Bolduc of the Achille Bayart action in a letter dated

October 28, 1998, five months after Crowe received notice. At that

time, Crowe sought to tender defense of the action to Bolduc, but

Bolduc refused. Bolduc's counsel cited the immediate-notice

provision as the reason for their refusal. Counsel for Crowe had

responded to Achille Bayart's complaint, filed interrogatories, and

submitted motions to dismiss and stay discovery. The legal fees at

that time amounted to approximately $7,000.00. During the course

of the Achille Bayart action, Bolduc's counsel did not make any

complaints, criticisms or suggestions about the handling of the

case. Id. at 236. Crowe forwarded at least one settlement offer

made by Achille Bayart to Bolduc, and Achille Bayart independently

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approached Bolduc with another settlement offer. Bolduc refused

both.

Crowe brought suit against Bolduc in Maine Superior

Court, alleging breach of contract and promissory estoppel.

Bolduc, a citizen of Maryland, then removed the case to the U.S.

District Court for the District of Maine, under U.S.C. 28 §§ 1332,

1441(a) (2000). After discovery, Bolduc moved for summary judgment

on both of Crowe's claims, asserting that the contract

unambiguously gave Bolduc a right to refuse to defend a suit

against Crowe, and that Crowe's promissory estoppel claim was

barred by the parol evidence rule. The Magistrate Judge issued a

decision on May 6, 2002, recommending that summary judgment be

denied with regard to the breach of contract claim and granted with

regard to the promissory estoppel claim. The Magistrate Judge's

recommendations were adopted, after de novo review, by the District

Judge. Crowe, 215 F. Supp. 2d at 234. The case then went to a

jury trial, which was heard by consent before the Magistrate Judge.

Before trial, both sides indicated their intention to

call as witnesses the lawyers from each of their respective firms

who had participated in drafting the agreements. Crowe planned to

call Gregory Tselikis and Robert Keach, both of whom are members of

Bernstein, Shur, Sawyer & Nelson ("BSS&N"), the firm which

represented Crowe in the Bolduc acquisition, the Achille Bayart

action and the instant suit against Bolduc. Bolduc intended to

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call George Marcus and Jennie Clegg, both of whom are members of

the same firm as Bolduc's trial counsel, Marcus, Clegg &

Mistretta.2 At a pre-trial conference, Crowe requested that the

trial court prohibit cross-examination of Tselikis and Keach

regarding BSS&N's fee arrangement with Crowe. BSS&N was

representing Crowe in this case on a contingent fee basis. The

Magistrate Judge granted Crowe's request in an oral in limine order

issued on September 13, 2002.

At trial, Bolduc moved twice for judgment as a matter of

law under Rule 50(a); both motions were denied. The jury found in

Crowe's favor, and he was awarded a judgment in the amount of

$86,381.98. Bolduc then moved for judgment as a matter of law

under Rule 50(b). He asserted that the contract was unambiguous as

a matter of law, and that no reasonable jury could conclude that

the failure to give notice was not a material breach of the

contract. This motion, too, was denied. Bolduc now appeals the

decision in the motion in limine order and the denials of his

motions for judgment as a matter of law.

2
George Marcus was the only member of his firm to actually
testify at trial. At the time the agreements were drafted, Marcus
worked at a different law firm, Pierce Atwood, but subsequently
formed Marcus, Griegel & Clegg (which later became Marcus, Clegg &
Mistretta). Bolduc came with Marcus as a client when Marcus left
Pierce Atwood.

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 II. Motion in Limine

The appeal from the exclusion of evidence by motion in

limine raises a number of issues of practical significance to the

bar and trial courts.

Bolduc argues that the Magistrate Judge, as the trial

judge, committed errors of law and abused his discretion in

limiting Bolduc's counsel in their opening argument and in their

cross-examination of attorneys Keach and Tselikis, both witnesses

and shareholders of BSS&N. Specifically, the judge ordered

Bolduc's counsel to refrain from mentioning that Keach and Tselikis

had a financial interest in the outcome of the action as a result

of BSS&N's contingent fee agreement with Crowe in this case. Part

of Bolduc's intended cross-examination concerned the failure of the

lawyers at BSS&N to give timely notice of the Achille Bayart action

to Bolduc, and their agreement to represent Crowe on a contingent

basis to atone for their error. Bolduc also argued that the

information tended to show that BSS&N might be sued by Crowe over

the failure to give notice if the suit turned out badly for Crowe,

thus maximizing the financial incentives involved for the two

witnesses.

At trial, the two BSS&N attorneys both testified as fact

witnesses and gave their opinions as to the intent and meaning of

the disputed language in the key agreement documents. Since the

court had found the contract to be ambiguous, the jury heard parol

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evidence as to the intent and meaning of the pertinent language.

See Villas By the Sea Owners Ass'n v. Garrity, 748 A.2d 457, 461

(Me. 2000). Attorney Keach described himself as "a specialist in

the area of corporate bankruptcy law and related commercial

litigation," had practiced for over twenty years in that field, was

chair of the business reorganization committee of the American

Bankruptcy Institute and was "one of four Maine attorneys admitted

to the American College of Bankruptcy Lawyers." Certainly, the

subject matter of his testimony -- interpretation of a contract --

was not a subject commonly addressed by lay witnesses.3 Keach

interpreted the meaning and intent of the language at issue,

sentence by sentence. Attorney Tselikis has a similar background

and credentials, and he testified to the intent and meaning,

section by section, of the key language.

Specifically, Keach and Tselikis testified that the

"shall be entitled to defend such claim, to compromise it or settle

it" language contained on page two of the Letter Agreement meant

that Bolduc was required to defend, compromise or settle the claims

asserted in the Achille Bayart action. They also testified that

Paragraph 6 of the Agreement required Bolduc to reimburse Crowe for

the legal fees, costs and expenses he incurred in defending the

Achille Bayart action.

3
We do not suggest either lawyer must have been qualified as
an expert, and no claim to that effect is made.

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 There was contrary testimony from Bolduc and his

transaction attorney witness. The attorney witness who handled the

transaction for Bolduc was George Marcus, originally at Pierce

Atwood at the time of the agreement and then at the same firm as

Bolduc's trial counsel. Marcus did not have a contingent fee

agreement. The record is silent as to whether he charged for the

time spent on his testimony, although trial counsel did inform the

court that his firm had an hourly fee arrangement. Bolduc argues

that his inability to examine the two BSS&N attorney witnesses for

bias, or even to argue bias, was harmful to him and undermined

confidence in the verdict. He notes that Crowe's testimony was far

weaker than the testimony of his counsel on the intent and meaning

of the contract language.

The trial court gave three grounds for its in limine

exclusion ruling, two of which were in error. First, the

Magistrate Judge found there was no evidence that Keach and

Tselikis would color their testimony because of BSS&N's contingent

fee agreement with Crowe and their firm's financial interest in the

outcome of the case. Second, the Magistrate Judge believed that

"unlike all other witnesses testifying, lawyers are officers of the

court who, apart from the oath taking, are ethically bound to

testify truthfully." Third, the Magistrate Judge concluded that

allowing the parties to cross-examine the lawyer witnesses about

their firm's fee arrangements would "risk causing the jury to be

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confused as to what the real issues in the case [were]." The court

was "satisfied that the probative value of such fee related

evidence [was] substantially outweighed by this danger of

confusion." Apparently, the court felt that the use of an

attorneys' fee agreement to show bias on the part of Crowe's

witnesses would confuse the jury on the question of whether a

different agreement required the payment of Crowe's legal fees by

Bolduc. Accordingly, the court excluded the evidence under Federal

Rule of Evidence 403.

As to the first two grounds, we believe the trial court

committed errors of law. The trial court, on the first ground,

imposed a burden on the cross-examiner to show some evidence that

a witness might color his testimony due to financial incentives

before permitting cross-examination on the fact that the witness

had financial incentives to do exactly that. The offered evidence

is, of course, classic evidence of bias, which is routinely

permitted on cross-examination. Wheeler v. United States, 351 F.2d

946, 947 (1st Cir. 1965) (finding it is "clear that inquiry into

the possible financial stake of a witness in a particular outcome

of a case in which the witness is testifying is a proper subject

for cross-examination").

The problem was exacerbated here because the witnesses,

admittedly not called as experts, gave what amounted to opinion

testimony as to the meaning of the contract language. The majority

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rule in this country is that an expert witness may not collect

compensation which by agreement was contingent on the outcome of a

controversy. That rule was adopted precisely to avoid even

potential bias. New Eng. Tel. & Tel. Co. v. Bd. of Assessors, 468

N.E.2d 263, 265, 267 (Mass. 1984); see Accrued Fin. Servs., Inc. v.

Prime Retail, Inc., 298 F.3d 291, 300 (4th Cir. 2002). Maine

enforces this policy in part by a Bar Rule which prohibits the

hiring of witnesses on a contingent fee basis. Maine Bar Rule

3.7(g)(3).

The issue before us is not whether the lawyers should

have been permitted to testify at all. Bolduc did not seek to

exclude the testimony of Crowe's attorney witnesses, but sought

only to be able to examine them for bias. The issue, then, is

whether a restriction on cross-examination for bias as evidenced by

a contingent fee agreement on the ground that the witnesses are

attorneys is appropriate. The trial court mistook this issue of

cross-examination for bias for the issue of whether the Maine Bar

Code permitted the attorneys to testify at all. Where witnesses

under contingent fee agreements are permitted to testify,

examination on the contingent fee is considered vital. See United

States v. Valona, 834 F.2d 1334, 1343 (7th Cir. 1987) ("Other

circuits do not consider any type of witness contingent fee

arrangement outrageous and instead allow the jury to consider the

fee arrangement in its evaluation of witness credibility.")

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(collecting cases). See generally Note, Contingent Fees for Expert

Witnesses in Civil Litigation, 86 Yale L.J. 1680 (1977).

The First Circuit considered the interaction between

permitted testimony of a witness paid on a contingent fee basis and

opportunity to cross-examine in United States v. Cresta, 825 F.2d

538 (1st Cir. 1987). This court held in that criminal case that

the district court did not commit reversible error by declining to

exclude the (non-expert) testimony of any informant apparently paid

on a contingent basis. Id. at 545. Part of the trade-off, the

court explained, was that there would be vigorous cross-examination

for bias:

A contingent fee arrangement is not per se impermissible;
on a case by case basis, varying factors determine
whether the arrangement in question is permissible. . .
.
. . . While the risk of perjury is recognized,
courts have chosen to rely upon cross-examination to
ferret out any false testimony. Rather than adopting an
exclusionary rule, courts have chosen to leave the matter
to the jury to consider in weighing the credibility of
the informant.
There are established safeguards that must be
followed to ensure the veracity of the witness: the jury
must be informed of the exact nature of the contingency
agreement; the defense counsel must be permitted to
cross-examine the witness about the agreement; and the
jury must be specifically instructed to weigh the
witness' testimony with care.

Id. at 545-46 (citation omitted); see United States v. Gonzalez-

Vazquez, 219 F.3d 37, 46 (1st Cir. 2000) (quoting Cresta, 825 F.2d

at 546).

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 The second ground for exclusion relied on by the trial

court is also flawed. The court held that because attorneys are

officers of the court and "are ethically bound to testify

truthfully," there was a basis to preclude cross-examination for

bias. Witnesses who are attorneys may not be protected by special

dispensation from the normal rigors of cross-examination. Such a

rule of favor, as adopted by the trial court, would undermine

compliance by attorneys with their obligations.

Further, it was the province of the jury, not the court,

to evaluate the credibility of the witnesses. See Blake v.

Pellegrino, 329 F.3d 43, 47 (1st Cir. 2003) (finding that the judge

cannot substitute his own judgment for that of the jury in

assessing the persuasiveness of evidence). That the court has a

high opinion of attorneys in general, or even of particular

attorneys, does not justify the court's substituting its judgment

as to the veracity of those attorney witnesses for the judgment of

the jury.

There is a question as to whether our standard of review

for the in limine exclusion should be for abuse of discretion or

for plain error. Our rule as to motions in limine is that a party

must renew at trial its motion to offer or exclude evidence if

there has been an earlier provisional ruling by motion in limine

and a clear invitation to offer evidence at trial. United States

v. Holmquist, 36 F.3d 154, 166 (1st Cir. 1994). If, by contrast,

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the in limine ruling is final and unconditional, the issue was

preserved for appeal and no further steps need be taken to preserve

the issue. Fusco v. General Motors Corp., 11 F.3d 259, 262-63 (1st

Cir. 1993). Here there was no attempt at trial to introduce the

evidence which was the subject of the in limine exclusion. Our

circuit rule has now been codified in a 2000 amendment to Rule 103,

Federal Rules of Evidence. The Rule provides in part: "Once the

court makes a definitive ruling on the record admitting or

excluding evidence, either at or before trial, a party need not

renew an objection or offer of proof to preserve a claim of error

for appeal." Fed. R. Evid. 103(a).

As the commentary to the Rule makes clear: "The amendment

imposes an obligation on counsel to clarify whether an in limine or

other evidentiary ruling is definitive when there is doubt on that

point." Fed. R. Evid. 103 advisory committee's note, 2000

Amendment. Unfortunately, the trial court left doubt on the point

in its ruling:

And, if you feel at any point during the trial that
despite this ruling, which is in the nature of an in
limine ruling and is therefore by definition tentative,
if you feel that you have an argument based on the
circumstances of the record as it has developed to press
again this issue, then you may do so, of course, but at
sidebar. In other words, you are not to be asking any
questions of witnesses in cross-examination that seeks to
elicit this kind of information until we address the
issue again at sidebar. I'm not inviting you to do that,
you understand, but I just want to be clear that
obviously if you think there is something significant
about the way that the evidence has gone in and has not

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 been taken into account by way of analysis, then you can
raise it again.

It is not true, as the trial court assumed, that in limine rulings

are "by definition tentative." See Black's Law Dictionary 791 (7th

ed. 1999) (defining "in limine" as "preliminarily; presented to

only the judge, before or during trial"). Some in limine rulings

may be final, and whether the ruling is final or tentative has

important consequences for counsel. The trial court's ruling can

be read either way: that the ruling was only tentative, or that it

was final unless circumstances at trial changed and warranted a new

effort to introduce the evidence. Formulations such as the one

used by the trial court here are not uncommon but are inadvisable

because of the ambiguity created.

The burden, though, was on Bolduc to clarify whether the

in limine ruling was final or not, and he did not. However, given

the duality of the Magistrate Judge's in limine order, we think it

better to grant Bolduc the benefit of an abuse of discretion

standard of review on the Rule 403 decision.4 We discard the two

erroneous rationales and focus on the court's ruling that the risk

of jury confusion outweighed the benefit from the evidence.

4
Moreover, Crowe's briefs did not raise the issue of
Bolduc's failure to preserve his objection. Instead, Crowe argued
that an abuse of discretion standard applied on review. It was
only upon inquiry from the bench at oral argument that the parties
began to address the issue, with subsequent briefing.
Regardless, our decision as to the standard of review does not
affect the outcome: under the more stringent plain error standard,
we would also reject Bolduc's argument.

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Appellate courts have been very reluctant to second-guess a trial

judge's Rule 403 ruling, given the advantages of first-hand

observation of the trial. See United States v. Nelson-Rodriquez,

319 F.3d 12, 34 (1st Cir. 2003). While we might well have ruled

differently on the Rule 403 admissibility question were our review

de novo, we cannot say the judgment reached was so out of kilter as

to constitute an abuse of discretion.

III. Judgment as a Matter of Law

Our review of a denial of a motion for judgment as a

matter of law is de novo. Zimmerman v. Direct Fed. Credit Union,

262 F.3d 70, 75 (1st Cir. 2001). "A motion for judgment as a

matter of law only may be granted when, after examining the

evidence of record and drawing all reasonable inferences in favor

of the nonmoving party, the record reveals no sufficient

evidentiary basis for the verdict." Id. (citing Reeves v.

Sanderson Plumbing Prods., Inc., 530 U.S. 133, 149-51 (2000)).

This review is weighted toward preservation of the jury verdict,

which stands unless the evidence was so strongly and overwhelmingly

inconsistent with the verdict that no reasonable jury could have

returned it. Primus v. Galgano, 329 F.3d 236, 241-42 (1st Cir.

2003).

Bolduc's first argument is that the contract was

unambiguous as a matter of law. He contends that the contract

entitled Bolduc to do one of three things upon receiving notice of

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a suit against Crowe: take up the defense himself and either

proceed with the case or settle it; let Crowe continue the defense

and reimburse him for his costs; or do nothing. The Magistrate

Judge disagreed and rejected Bolduc's summary judgment motion and

subsequent motions for judgment as a matter of law on that ground.

Contract interpretation on ambiguity, as a matter of law, is

subject to de novo review. Mirra Co. v. Sch. Adm. Dist. No. 35,

251 F.3d 301, 304 (1st Cir. 2001); see Lohnes v. Level 3

Communications, Inc., 272 F.3d 49, 52-53 (1st Cir. 2001) (applying

plenary review to the question of contract ambiguity).

As a preliminary matter, we consider the interaction

between this question and Bolduc's second argument, that Crowe's

late notice constituted a material breach of the contract.

Bolduc's briefs do not clearly set forth the relationship between

his notice argument and his argument that the contract is

unambiguous in imposing no defense obligation. One might ask why,

if Bolduc clearly had no obligation to pay defense costs, there was

a contract provision requiring Crowe to give Bolduc immediate

written notice of any lawsuit. Bolduc's response would seem to be

that he agreed to pay indemnity for any judgment (up to the amount

of annuity and the consulting fee) if, and only if, he was given

timely notice of the lawsuit and had the chance to choose to defend

from the outset. But since the Achille Bayart lawsuit resulted in

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no judgment against Crowe, there was nothing to indemnify under

this theory and so no notice issue is raised.

If, on the other hand, the late notice/material breach

issue does have significance with regard to the issue of ambiguity,

as Bolduc professed to the trial court and to us, then its import

must be that Bolduc did have an obligation to pay defense costs

(which he denied having) subject to his receiving immediate written

notice. If so, and if, as the jury determined, there was no

material breach, then Bolduc was, on this theory, responsible to

pay defense costs. On this second approach, only the material

breach issue is important.

Bolduc tries to ride both horses at once.5 Before the

jury, Bolduc emphasized the prejudice from late notice theory.

Before this court, Bolduc emphasizes the theory that an unambiguous

contract imposed no obligation at all to pay defense costs. While

counsel are entitled to present inconsistent theories, there are

5
An argument to reconcile the two theories could be
constructed along these lines: If Bolduc had been given timely
notice of the Achille Bayart action, he would either have rejected
the defense or accepted. If he rejected the defense, then Crowe
should have permitted default judgment to be entered against him,
to be paid by Bolduc, and there would be no counsel fees spent on
defense. But the argument does not work -- the agreement did not
require Crowe to choose not to defend, nor was it in his interest
to make a choice not to defend.
If Bolduc intended contingently to argue only that if the jury
found the agreement imposed an obligation of defense costs, he
could still raise the defense that the obligation was excused by
Crowe's late notice, he has not made that clear, and that argument
does not go to contract interpretation.

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obvious dangers. Where, in a civil case, the two theories advanced

are so intellectually antagonistic that the one necessarily makes

the other false, the proponent of the irreconcilable theories runs

considerable risks.

In any event, neither horse has legs. The theory that

the contract unambiguously absolved Bolduc from defense costs (save

for requested cooperation costs incurred by Crowe) is unpersuasive,

and the jury was warranted in adopting Crowe's interpretation. The

theory that the violation of the timely-notice requirement amounted

to a material breach was creditably rejected by the jury on the

evidence.

A. Ambiguity

Under Maine law, "a contractual provision is considered

ambiguous if it is reasonably possible to give that provision at

least two different meanings." Villas By the Sea, 748 A.2d at 461.

Ambiguity is to be determined from the perspective of "an ordinary

or average person." Alternative Energy, Inc. v. St. Paul Fire &

Marine Ins. Co., 267 F.3d 30, 34 (1st Cir. 2001) (applying Maine

law). Determination of whether the contract is ambiguous is a

question of law for the court. Golden Rule Ins. Co. v. Atallah, 45

F.3d 512, 516 (1st Cir. 1995) (same). Contract language is

interpreted according to its "generally prevailing meaning."

Guilford Trans. Indus. v. Pub. Utils. Comm'n, 746 A.2d 910, 914

(Me. 2000) (quoting Restatement (Second) of Contracts § 202(3)(A)

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(1981)). "An interpretation that would render any particular

provision in the contract meaningless should be avoided." McCarthy

v. U.S.I. Corp., 678 A.2d 48, 52 (Me. 1996).

There were two competing interpretations of the

agreements. Under Crowe's interpretation, Crowe was assured that

Bolduc would pay for Crowe's defense and would provide indemnity

for any judgment against Crowe from the extremely likely lawsuits

filed by the unpaid and unsecured trade creditors of Crowe Rope.

This protection was essential to Crowe for another reason as well

-- all that Crowe received from the deal was relief from his

personal guarantees and an annuity of $40,000.00, plus a one year

consulting fee of $60,000.00, and he did not want those funds

jeopardized. From Crowe's point of view, Bolduc had an obligation

to pay all of Crowe's defense costs, and Crowe had an obligation to

cooperate. Bolduc also had the option to assume the defense and

pay the lawyers directly. If Bolduc did assume the defense, he

could control any settlement of the case; if he did not assume the

defense, he could not. The problem with this interpretation is

that Bolduc could easily have thought it against his interest to

agree to a defense cost obligation, and some language supports

Bolduc's position.

Bolduc's interpretation was that he purchased the bank

loans secured by the company's assets, he relieved Crowe of his

personal guarantees on the loans, he foreclosed and obtained the

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assets (but not the liabilities) of Crowe Rope, he agreed to pay

Crowe $40,000.00 yearly as an annuity and a one-time $60,000.00

consulting fee, and the only indemnity he ever provided was as to

the annuity and consulting fee. Even the limited indemnity was

subject to the requirement of timely notice. As Bolduc testified,

"if ultimately I'm going to be held liable to cover that $40,000,

I don't want somebody else determining my destiny." On Bolduc's

theory, once he was given timely notice, he then could reject the

defense of the suit and assume the risk of judgment, or he could

accept the defense and pay Crowe his legal fees for any cooperation

Bolduc requested of him. In the latter situation, Bolduc would

assume control of the defense and defense costs, and would

reimburse Crowe only for the costs of his cooperation. In the

first situation, on Bolduc's theory, Crowe would have no incentive

to incur any counsel fees because Bolduc would pay any judgment.

The problems with this theory, of course, are that it

required Crowe to trust that Bolduc would honor his annuity

indemnification, and it assumed that Crowe would be willing to risk

a judgment for more than the amount of the indemnification by not

defending. Still, Bolduc made his interest clear: "if I'm going to

pay, I want to play" and control the defense.

We turn to the language of the agreements and find it

ambiguous, permitting either of these interpretations. Bolduc

grounds his claim on the language of the Letter Agreement,

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specifically its provision that Bolduc "shall be entitled to defend

such claim, to compromise it or settle it." (emphasis added) The

Letter Agreement provides:

In the event that any claim is made against the
Crowes or either one of them . . . respecting such
payments to be made to the Crowes, or if such payments
are otherwise enjoined, trusteed, attached or delayed for
any reason whatsoever by any such person, the Crowes
shall immediately notify Bolduc, in writing, of any such
claim, and shall tender the entire defense of such claim
to Bolduc, who thereupon shall be entitled to defend such
claim, to compromise it or settle it, in his sole
judgment, as he may deem appropriate, and at his sole
cost and expense, but without affecting Bolduc's
obligation hereunder. No settlement, except with the
agreement of the Crowes, shall relieve the undersigned of
his obligation to make the substitute payment. In all
respects, the Crowes shall fully cooperate in the defense
and settlement of any such claim, provided that all cost
and expense thereof is paid or provided for by Bolduc.

Our inquiry does not stop with the Letter Agreement. To

determine contract ambiguity, courts look to the entirety of the

contract. Guilford, 746 A.2d at 915. Under Maine law, "in the

absence of anything to indicate a contrary intention, instruments

executed at the same time, by the same contracting parties, for the

same purposes, and in the course of the same transaction will be

considered and construed together, since they are, in the eyes of

the law, one contract or instrument." Hilltop Cmty. Sports Ctr.,

Inc. v. Hoffman, 755 A.2d 1058, 1062 (Me. 2000) (quoting Kandlis v.

Huotari, 678 A.2d 41, 43 (Me. 1996)). Our inquiry encompasses the

Agreement which was executed as part of the same transaction. The

Agreement provides, in Paragraph 6:

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 Defense. The parties acknowledge the possibility
that creditors of Crowe Rope may commence litigation
including involuntary bankruptcy proceedings against
Crowe Rope or Crowe. Crowe agrees to cooperate with
Bolduc in connection with the defense of such actions as
and to the extent requested by Bolduc, provided Bolduc
makes satisfactory provision for all costs including
legal fees incurred by Crowe in connection with such
proceedings. Bolduc agrees that absent such direction
and funding, Crowe shall not be required to defend any
pending or future civil actions, administrative
proceedings or future bankruptcy proceedings, it being
the intention of Crowe to cease all involvement with the
affairs of Crowe Rope. Bolduc acknowledges that there
are several creditor lawsuits now pending against Crowe
Rope and agrees that Crowe shall have no obligation to
defend the same.

The third and fourth sentences of Paragraph 6 of the

Agreement, read in conjunction with the Letter Agreement, render

the contract ambiguous. Under Bolduc's reading, the Paragraph

simply amounts to a statement that Crowe was not required to defend

an action against himself. At any time, any defendant has the

option of doing nothing. It is unclear, therefore, why either

Bolduc or Crowe should feel compelled to "agree" to it. It is

reasonable to read the language of Paragraph 6 as establishing

instead an arrangement whereby Bolduc would pay for the defense of

any action, and Crowe would not be required to participate unless

his costs were reimbursed. The Magistrate Judge did not err in

finding the contract was ambiguous. In doing so, he gave

expression to the entirety of the agreement, as directed by Maine

law.

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B. Sufficiency of the Evidence as to Defense Cost Obligation

The evidence at trial permitted the jury to find as it

did. When a written agreement is ambiguous, "the factfinder may

entertain extrinsic evidence casting light upon the intention of

the parties with respect to the meaning of the unclear language."

Hilltop, 755 A.2d at 1063 (internal citations omitted). Crowe

testified that Bolduc had promised to indemnify him against any

suits. Keach and Tselikis both testified that the intent of the

agreements was that Bolduc would be responsible for the costs of

defending any suit brought against Crowe. A reasonable jury could

have concluded that the agreement imposed an obligation on Bolduc

to pay Crowe's defense costs.

The business logic of the arrangement also supported the

jury verdict that the ambiguous language should be read in Crowe's

favor. Since the deal was structured by Bolduc so that he only

acquired assets and not the liabilities of Crowe Rope to trade

debtors, it was likely those creditors who were owed substantial

debts would sue, as did Achille Bayart. It was also likely that

Crowe, not Bolduc, would be the defendant. Crowe thus had a strong

interest to try to protect against both defense costs and a

judgment against him. If Bolduc had intended not to provide any

protection as to defense costs, there would have been no need for

any of the convoluted language as to defense, nor would there have

been a need for the notice provision. If "doing nothing" as to

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defense was truly an option reserved by Bolduc, he needed no

language at all in an agreement. As to the indemnity of the

annuity, Bolduc could simply have inserted language to the effect

that: (1) Bolduc agreed to pay any judgment against Crowe (up to

the amount of the annuity), but not defense costs, and would pay

the indemnity if, and only if, Crowe gave Bolduc immediate notice

of the claim made and provided Bolduc the opportunity to assume the

defense; and (2) if Bolduc called on Crowe to cooperate with the

defense assumed by Bolduc, then Bolduc would pay only Crowe's costs

of cooperation (including attorneys' fees).

On the question of obligation to pay defense costs, the

jury might have concluded in Bolduc's favor, but was not compelled

to do so by the evidence. The jury's reading was permissible.

C. Breach of Notice Provision

Bolduc's second argument is that even if he did have such

an obligation, no reasonable jury could have concluded that Crowe

did not materially breach the immediate written notice provision of

the Letter Agreement by waiting five months to notify Bolduc of the

Achille Bayart action. Crowe concedes that notice was not

immediate. The question is whether the breach was material.

Under Maine law, a material breach is "a non-performance

of a duty that is so material and important as to justify the

injured party in regarding the whole transaction as at an end."

Jenkins, Inc. v. Walsh Bros., Inc., 776 A.2d 1229, 1234 (Me. 2001)

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(internal quotations omitted). Time of performance is only one

element in the determination of whether belated performance

constitutes a breach. Associated Builders, Inc. v. Coggins, 722

A.2d 1278, 1280 (Me. 1999). Maine follows the Restatement (Second)

of Contracts in considering five factors as significant in

determining if a failure is material:

(a) the extent to which the injured party will be
deprived of the benefit which he reasonably expected;
(b) the extent to which the injured party can be
adequately compensated for the part of that benefit of
which he will be deprived;
(c) the extent to which the party failing to perform . .
. will suffer forfeiture;
(d) the likelihood that the party failing to perform . .
. will cure his failure . . .;
(e) the extent to which the behavior of the party failing
to perform or to offer to perform comports with standards
of good faith and fair dealing.

Id. at 1280 n.1 (quoting Restatement (Second) of Contracts § 241

(1981)).

Bolduc asserts that he was prejudiced by the delay,

specifically by his inability to hire legal counsel of his own

choosing, to formulate a defense strategy, to assert affirmative

defenses, to formulate answers to interrogatories, and to decide on

a jury trial. Bolduc testified at trial that he might have

preferred to settle the case in May, before any legal costs had

been incurred. But Bolduc's asserted prejudice must be evaluated

in context. As the trial judge reminded the jury, they were not to

"even consider Mr. Bolduc's affirmative defense -- and therefore

this whole issue of material breach -- unless [they] first [found]

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that Mr. Bolduc was obligated to reimburse Mr. Crowe for some or

all of the costs of the Achille Bayart lawsuit." Thus, materiality

must be measured against the options available to Bolduc once he

was responsible for defense costs: (1) not to defend and to pay a

default judgment in the sum of $132,287.00 plus double damages

sought by Achille Bayart; (2) to settle the case; or (3) to have

Crowe defend and have Bolduc reimburse Crowe for his incurred

costs.

Bolduc presented no evidence at trial that his interests

were materially compromised by the choices made by the BSS&N

lawyers; indeed, contrasting evidence was presented that Bolduc's

counsel had complimented the BSS&N lawyers on their defense. No

complaints or suggestions about how the case was handled were made

by Bolduc, either at the time of the Achille Bayart suit or in

retrospect. Bolduc's lawyers apparently even insisted that the

suit be defended.

At the time Crowe sought to tender his defense, the only

actions which had been taken were responding to the original

complaint, issuing interrogatories, and filing motions to dismiss

and to stay discovery. No answer had been filed to an amended

complaint received from Achille Bayart. Moreover, according to

Crowe's lawyers, the limited discovery time remaining after

notification (less than two months) was unimportant because they

felt that the case required little discovery. Few if any

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irrevocable decisions about the course of litigation had been made,

and those that had were not subsequently objected to by Bolduc

after his notification.

Nor did Bolduc demonstrate that his ability to settle the

Achille Bayart action was in any way compromised by the litigation

strategy of Crowe's counsel. Crowe's counsel testified to passing

on to Bolduc all settlement offers, including a general indication

by Achille Bayart that the suit could be settled for a percentage

of the amount sought in the complaint. Bolduc's counsel rejected

this settlement offer, insisting on an offer of no more than the

nominal sum of $10,000.00, of which half would be paid by Crowe.

Achille Bayart also made a settlement demand directly to Bolduc;

this too was refused. A reasonable jury could easily conclude that

Bolduc failed to demonstrate the materiality of the breach as a

result of Crowe's belated notification.

IV.

The jury verdict is affirmed. Costs are awarded to

Crowe.

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