Charlie Auto Sales, Inc. v. Mitsubishi Motor Sales of Caribbean, Inc.

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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