United States Court of Appeals
For the First Circuit
No. 02-1701
IN RE: CHARLIE AUTO SALES, INC.,
Debtor.
CHARLIE AUTO SALES, INC.,
Plaintiff, Appellant,
v.
MITSUBISHI MOTOR SALES OF CARIBBEAN, INC.,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Carmen C. Cerezo, U.S. District Judge]
Before
Selya, Circuit Judge,
Coffin, Senior Circuit Judge,
and Lipez, Circuit Judge.
Vilman M. Dapena Rodrígues with whom Manuel Porro-Vizcarra was
on brief for appellant.
Rubén T. Nigaglioni for appellee.
July 17, 2003
LIPEZ, Circuit Judge. On December 18, 2000, plaintiff
Charlie Auto Sales, Inc. (CAS) filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Code, 11 U.S.C.
§ 1101 et seq. (2003), resulting in an automatic stay pursuant to
11 U.S.C. § 362. CAS appeals from the judgment of the district
court affirming the holding of the bankruptcy court that a consent
order between CAS and Mitsubishi Motor Sales of Caribbean, Inc.
(MMSC) modifying the automatic stay permitted the termination of
the dealership relationship between CAS and MMSC. We affirm.
I.
MMSC is the exclusive distributor of Mitsubishi and
Hyundai products in Puerto Rico; CAS is a servicing dealer of
Mitsubishi and Hyundai brand motor vehicles. The relationship
between MMSC and CAS is governed by a Servicing Dealership
Agreement (SDA). Although MMSC and CAS have been embroiled in
legal disputes since 1994, this particular dispute arises out of
CAS's voluntary petition for reorganization under Chapter 11 of the
Bankruptcy Code. Pursuant to 11 U.S.C. § 362(a), such a petition
gives rise to an automatic stay against "the commencement or
continuation . . . of a judicial, administrative, or other action
or proceeding against the debtor." This stay prevented MMSC from
invoking the termination provisions of the SDA and terminating the
dealership relationship between MMSC and CAS.
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On January 26, 2001, MMSC filed a motion to dismiss CAS's
petition for Chapter 11 reorganization for bad faith1 or,
alternatively, to modify the automatic stay to allow MMSC to
arbitrate the issue of just cause for termination of the
distribution relationship. A hearing on this motion was scheduled
for February 15, 2001. However, a couple of days prior to the
hearing, the parties agreed to negotiate a settlement of the issues
raised by MMSC's motion. The parties understood this settlement to
be "a precondition to commencing good-faith negotiations for the
settlement of all past, present and future claims between the
parties." On the afternoon of February 12, 2001, the attorneys met
in the offices of Attorney Charles A. Cuprill Hernandez, counsel
for CAS,2 and Cuprill drafted a consent order embodying the terms
1
The motion to dismiss the Chapter 11 petition for bad faith
was based on the allegation that CAS had filed the petition to
preempt certain for-cause termination of the dealership agreement.
In its motion, MMSC alleges that CAS was caught
attempting to bribe the expert appointed by
the [arbitration] panel into certifying
fraudulent claims it had made against MMSC in
an ongoing arbitration between the parties. .
. . It is only out of the desperation
resulting from the uncontroverted evidence
supporting the bribery charge that, a month
after a hearing on the matter and three days
after briefs on the issue were submitted, the
[Chapter 11] petition in the instant case was
filed. . . . The purpose of this bankruptcy is
clear: to delay the termination of the
distribution relationship.
2
There is conflicting information in the record concerning
the length of the February 12 meeting. Attorney Michael J. Rovell,
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of the negotiated agreement, which the parties submitted to the
bankruptcy court for approval. The order, entered on February 13,
2001, by the bankruptcy court without change, reads as follows:
This Court hereby modifies the stay provisions
of 11 U.S.C. § 362(a) in order to allow
Mitsubishi Motor Sales of Caribbean, Inc.
("MMSC"), to give notice of termination to
Debtor of MMSC's dealership relationship
therewith and proceed with arbitration as to
the termination of the dealership
relationship.
On February 15, 2001, MMSC sent CAS a letter notifying
CAS of the termination of the dealership relationship between MMSC
and CAS, effective March 17, 2001. The following day, MMSC filed
an action with an arbitration panel3 requesting a finding that the
termination was for just cause and, therefore, that CAS was not
entitled to any damages under Act 75 of Puerto Rico's Dealer's Act,
10 P.R. Laws Ann. § 278 et seq. (2002). On March 19, 2001, CAS
filed an urgent motion to stay the termination of the dealership
relationship on the grounds that the termination violated the
automatic stay and, in the alternative, that it violated the
consent order. The bankruptcy court denied the motion without
counsel for Charlie LaCosta, President of CAS, testified that the
meeting lasted between half an hour and an hour. Attorney Charles
A. Cuprill Hernandez, counsel for CAS, testified that the meeting
lasted between three and four and a half hours.
3
The SDA provides for resolution of disputes between the
parties by arbitration in accordance with the rules and regulations
of the American Arbitration Association. An arbitration panel had
been appointed in accordance with these provisions to oversee a
previous proceeding commenced by CAS against MMSC in 1994.
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prejudice to CAS filing it as an adversary proceeding, which CAS
did on March 21, 2001. On May 24, 2001, after holding hearings on
May 14 and 18, the bankruptcy court ruled in a bench decision that
the consent order modified the automatic stay and provided for
actual termination of the dealership relationship between MMSC and
CAS. Finding "ample evidentiary support in the record" for the
findings of the bankruptcy court, the district court subsequently
affirmed the decision.
II.
"In an appeal from district court review of a bankruptcy
court order, this court independently reviews the bankruptcy
court's decision, ordinarily applying the 'clearly erroneous'
standard to findings of fact and de novo review to conclusions of
law." Stoehr v. Mohammed Bin Abdul Rahman Al Saud, 244 F.3d 206,
207-08 (1st Cir. 2001). CAS argues that, contrary to the decision
of the bankruptcy court, the terms of the consent order do not
provide for actual termination of the dealership agreement.
Rather, they modify the stay to allow MMSC to commence arbitration
proceedings to determine whether there was just cause for the
termination of the dealership relationship. The relationship would
remain unaltered until the arbitration panel decided the just cause
issue. MMSC defends the bankruptcy court's determination that,
consistent with the terms of the SDA, the language "notice of
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termination" in the consent order allowed MMSC to actually
terminate the dealership relationship.
The bankruptcy court determined that the consent order
was a "compromise settlement governed by 31 Laws of Puerto Rico
Annotated 482" whose scope "depends upon the meaning of the phrase
'notice of termination.'" A court's interpretation of a contract
or consent order is reviewed for clear error "if the writing is
subject to more than one reasonable interpretation," Gel Systems,
Inc. v. Hyundai Eng'g & Constr. Co., 902 F.2d 1024, 1027 (1st Cir.
1990), or if the court relies on extrinsic evidence such as the
parties' intent. Wainwright Bank & Trust Co. v. Boulos, 89 F.3d
17, 23 (1st Cir. 1996); see also Servicios Comerciales Andinos,
S.A. v. GE Del Caribe, 145 F.3d 463, 469 (1st Cir. 1998). The
bankruptcy court interpreted "notice of termination" by reference
to the parties' intent "judged by considering the actions of the
parties at the time of the agreement and [] thereafter." Thus we
review the bankruptcy court's determination of the scope of the
consent order for clear error.
Except for situations not relevant to this appeal,
Article X of the SDA requires MMSC to give CAS written notice
before it terminates the dealership relationship. Notice must be
given either thirty or ninety days prior to actual termination,
depending upon CAS's offending conduct. This pre-termination
notice is referred to in Article X of the SDA as "notice of
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termination." MMSC argues that the term "notice of termination" in
the consent order carries the same meaning as the term in Article
X of the SDA: it contemplates a notice period prior to actual
termination of the dealership relationship. CAS argues that the
term "notice of termination" in the consent order does not refer
back to the SDA and merely requires MMSC to give CAS prior notice
of its intention to arbitrate the issue of just cause for
termination of the dealership agreement. According to CAS, only
after the arbitration panel has determined that there is just cause
can MMSC actually terminate the dealership relationship.
Taking into consideration the entirety of the
relationship between MMSC and CAS, the bankruptcy court concluded
that "notice of termination" was a term of art to be understood in
the context of Article X of the SDA. Because the SDA was the most
important document governing the relationship between MMSC and CAS,
and because the attorneys for both MMSC and CAS were familiar with
the terms of the SDA, it was reasonable for the bankruptcy court to
find that CAS's use of the term "notice of termination" in the
consent order was consistent with the meaning embodied in the SDA,
and hence contemplated an actual termination of the dealership
relationship after the requisite notice period.
The bankruptcy court supported this interpretation of the
intent of the parties by reference to CAS's actions subsequent to
the drafting of the consent order. On February 15, 2001, three
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days after the consent order was executed, MMSC gave CAS notice of
termination, making clear that termination would become effective
on March 17, 2001. On February 16, 2001, as stipulated by the
consent order, MMSC filed before the arbitration panel a request
for a declaratory judgment determining that the termination of the
relationship was for just cause. In the month leading up to the
termination date, MMSC sent letters to CAS regarding the procedures
to be followed in preparation for termination, and published
advertisements in various newspapers advising the public that CAS
would cease to be an MMSC servicing dealer effective March 17,
2001. Throughout these preparations for termination CAS remained
silent. CAS did not file a motion to stay termination of the
dealership agreement until March 19, when representatives of MMSC
entered the premises of CAS to remove signs, logos and various
equipment. As an explanation for this passivity, CAS offered the
implausible argument that it thought MMSC was merely "posturing."
CAS's inaction for over thirty days confirms the bankruptcy court's
conclusion that CAS understood that the phrase "notice of
termination" contemplated actual termination at the completion of
the notice period.
Although CAS argued that it "would never have signed a
document specially after filing Chapter 11, that [] would have
resulted in the liquidation of appellant's primordial asset from
which it expected to fully reorganize," the bankruptcy court found
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"no evidence of [these assertions] other than the argument of
counsel." The bankruptcy court's conclusion that CAS agreed to
actual termination of the dealership relationship is not, as CAS
suggests, illogical. CAS gained something of value from the
consent order--MMSC's agreement to abandon its motion for dismissal
of CAS's bankruptcy petition, and to pursue good-faith negotiations
for the settlement of all outstanding disputes between the parties.
Given the ample evidentiary support in the record for the
determination that the consent order modified the automatic stay
and provided for actual termination, the bankruptcy court's
interpretation of the consent order is not clearly erroneous.
Affirmed.
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