USCA1 Opinion
August 26, 1993 UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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No. 93-1142
RESOLUTION TRUST CORPORATION,
Plaintiff, Appellee,
v.
JERALD R. FELDMAN, ET AL.,
Defendants, Appellants.
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ERRATA SHEET
The opinion of the Court issued on August 20, 1993, is
amended as follows:
On page 3, line 8, delete "in exchange" so that line reads
as follows: "exchanged its secured position for an unsecured".
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UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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No. 93-1142
RESOLUTION TRUST CORPORATION,
Plaintiff, Appellee,
v.
JERALD R. FELDMAN, ET AL.,
Defendants, Appellants.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. William G. Young, U.S. District Judge]
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Before
Breyer, Chief Judge,
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Bownes, Senior Circuit Judge,
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and Boudin, Circuit Judge.
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J. Daniel Lindley with whom Peter Antell and Antell & Associates
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were on brief for appellants.
James H. Wexler with whom Bennett H. Klein and Kotin, Crabtree &
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Strong were on brief for appellee.
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August 20, 1993
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BOUDIN, Circuit Judge. In this appeal we revisit a suit
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brought by the Resolution Trust Company ("RTC"), as receiver
for a failed bank, to collect on a promissory note given the
bank by Quinaquisset Realty Trust ("Quinaquisset"). In the
first round we affirmed the district court's dismissal of
Quinaquisset's claims against a third party. Resolution Trust
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Corp. v. Driscoll, 985 F.2d 44 (1st Cir. 1993). We now
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affirm the district court's entry of summary judgment for the
RTC in its action against Quinaquisset and its rejection of
Quinaquisset's counterclaims against the RTC as receiver.
In October 1987, Fox Run Realty Trust ("Fox Run")
conveyed to Quinaquisset certain condominium rights in a
property called Willowbend that Fox Run was then developing.
Quinaquisset was given these rights because it had
contributed land to the development. In a contemporaneous
transaction, Fox Run then repurchased the condominium rights,
giving Quinaquisset a $1.1 million promissory note as part
payment with the balance paid in cash. Then, in April 1989,
Quinaquisset borrowed $950,000 from Sentry Federal Savings
Bank ("Sentry"), giving it in exchange a $950,000 promissory
note which is the subject of this case. A number of
individuals signed a guaranty of this new note, and
Quinaquisset gave Sentry the $1.1 million Fox Run-
Quinaquisset note as collateral for the new note.
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Fox Run was also indebted to Sentry, having obtained in
December 1986 a $13 million loan from Sentry to finance
Willowbend. In return for this loan, Sentry took back a
promissory note secured by a mortgage on Willowbend.
Sentry's mortgage was initially subordinated as to 152 acres
of Willowbend on which Quinaquisset then held a first
mortgage, but Quinaquisset released its mortgage in October
1987 when it received the condominium permit rights
subsequently repurchased by Fox Run. No one has ever
explained why Quinaquisset exchanged its secured position
exchanged its secured position for an unsecured claim of $1.1
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million against Fox Run, but the consequences were evident
when Fox Run encountered financial difficulties.
In August 1989, Fox Run fell into default on its
payments to Quinaquisset. The next month, Fox Run halted
payments on its $13 million debt to Sentry. Quinaquisset had
been using the payments received from Fox Run on the $1.1
million note to cover Quinaquisset's payments to Sentry on
the $950,000 note. When Fox Run ceased to pay Quinaquisset,
Quinaquisset in turn fell into default on its own $950,000
note to Sentry. In April 1990 Fox Run and Sentry entered
into a settlement agreement under which Sentry received title
to Willowbend in return for its promise not to proceed under
the $13 million note against two individuals who had
guaranteed Fox Run's payments to Sentry. Sentry retained its
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mortgage on Willowbend, and in a subsequent foreclosure sale
the property was acquired by the Evergreen Holding Company
("Evergreen"), a wholly owned subsidiary of Sentry.
In May 1990, Sentry, seeking to recover the balance of
the $950,000 note from Quinaquisset, brought suit in state
court against Quinaquisset's trustee and the individual
guarantors of the note. In September 1990, Sentry itself
failed. The RTC stepped in as its receiver, and removed
Sentry's pending state court suit against Quinaquisset's
trustee and the guarantors to federal district court.
In the district court, Quinaquisset asserted numerous
claims of its own against the RTC as successor to Sentry,
against Evergreen, and against Fox Run's trustees. It also
asserted that the alleged misconduct of these entities
rendered the Quinaquisset-Sentry note null and void.
Quinaquisset's claims against Evergreen were dismissed on a
motion for summary judgment. On May 12, 1992, the district
court entered separate judgment for Evergreen pursuant to
Fed. R. Civ. P. 54(b), and we affirmed on appeal. Driscoll,
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985 F.2d at 45.
Prior to its entry of judgment for Evergreen, the
district court had on July 19, 1991, granted summary judgment
for the RTC on its claims against Quinaquisset. The court
found all but one of Quinaquisset's counterclaims to be
barred by the D'Oench, Duhme doctrine, codified as 12 U.S.C.
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1823(e), which limits claims based on agreements or
understandings not reflected in bank records. See D'Oench,
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Duhme Co. v. FDIC, 315 U.S. 447 (1942). The remaining claim
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against the RTC was dismissed on other grounds and no appeal
has been taken as to it. On November 13, 1992, the district
court entered separate judgment for the RTC under Fed. R.
Civ. P. 54(b). The judgment included an award of attorneys'
fees and costs to RTC. This appeal followed.
In this court, Quinaquisset challenges the Rule 54(b)
certification, but instead of offering a coherent explanation
of why judgment for the RTC should have been delayed,
Quinaquisset attacks the attorneys' fee award. The district
court evidently entered a separate judgment for the RTC
because all claims between Quinaquisset and the RTC had been
resolved; the remaining claims by Quinaquisset against the
Fox Run trustees, in federal court solely on pendant
jurisdiction, were remanded to the state court. We conclude
that the judgment is properly before us.1
Turning to the merits, Quinaquisset contends that the
district court's reliance on D'Oench, Duhme to dispose of its
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claims against the RTC as Sentry's receiver is mistaken. It
says that its claims against the RTC are not based on any
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1The certificate may have been unnecessary. Because the
district court added a paragraph to the judgment remanding
the claims against the Fox Run trustees to state court,
apparently the judgment disposed of all remaining claims in
the federal court suit.
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agreement, hidden or otherwise, between itself and Sentry,
but rather on Sentry's foreclosure and sale of Willowbend.
Quinaquisset argues that Sentry's settlement with Fox Run in
April 1990, and its subsequent foreclosure on Fox Run's
principal asset, Willowbend, destroyed the value of the $1.1
million Fox Run-Quinaquisset note deposited with the bank as
collateral for Quinaquisset's own debt, and that this
impairment of collateral in turn served to discharge
Quinaquisset's debt to Sentry.
This legal theory represents a substantial winnowing of
Quinaquisset's claims made in the district court. There,
Quinaquisset alleged that Sentry engaged in wrongful conduct
not only at the foreclosure stage but also earlier, e.g.,
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with respect to Quinaquisset's October 1987 discharge of its
mortgage on part of Willowbend and its reconveyance of
condominium permit rights to Fox Run. Quinaquisset also made
claims, likely foreclosed by D'Oench, Duhme, suggesting that
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Sentry had privately promised to assure that Fox Run would
repay Quinaquisset the $1.1 million.
In fairness to the district court, it has often been
difficult among the welter of claims to be sure what
Quinaquisset was actually arguing at various points. Nor
does the RTC help matters when it presses, as usual, a
reading of D'Oench, Duhme so broad that one is reminded of
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sovereign immunity claims made by independent nations. In
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any event, whether to avoid D'Oench, Duhme or for some other
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reason, Quinaquisset has now reduced its legal position to a
single claim (against the RTC) and defense (against the RTC's
own suit) based on the impairment of the value of the $1.1
million note given to Sentry as collateral for the
Quinaquisset note. This streamlined position may help
Quinaquisset to avoid application of the D'Oench, Duhme
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doctrine--although the RTC claims that the doctrine applies
anyway--but the strategy raises its own problem: the lack of
any legitimate theory of liability. The gist of what
happened, in relation to the foreclosure, was that Sentry
held the mortgage on Willowbend to secure the $13 million
loan to Fox Run, Fox Run stopped paying, and Sentry then
foreclosed the mortgage and applied the proceeds to the
debt.2 This left Quinaquisset's $950,000 note to Sentry
still unpaid and the RTC proceeded with Sentry's prior suit
to collect. These circumstances provide scant basis for a
claim against Sentry or the RTC, or a defense against
collection of the unpaid note.
Quinaquisset relies centrally on section 3-606 of the
Massachusetts Commercial Code, Mass. Gen. L. ch. 106, 3-
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2As noted, Sentry also received a conveyance of title
from Fox Run, and Sentry in exchange released two individuals
who had guaranteed payment of the Fox Run-Sentry note. This
conveyance was subject to the mortgage, but presumably
assured that Fox Run would not challenge the foreclosure.
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606. That section, titled "Impairment of Resource or of
Collateral," states in pertinent part:
(1) The holder [of an instrument] discharges any
party to the instrument to the extent that without
such party's consent the holder
(a) without express reservation of rights
releases or agrees not to sue any person against
whom the party has to the knowledge of the holder a
right of recourse or agrees to suspend the right to
enforce against such person the instrument or
collateral or otherwise discharges such person,
except that failure or delay in effecting any
required presentment, protest, or notice of
dishonor with respect to any such person does not
discharge any party as to whom presentment,
protest, or notice of dishonor is effective or
unnecessary; or
(b) unjustifiably impairs any collateral for
the instrument given by or on behalf of the party
or any person against whom he has a right of
recourse.
Although invoked by Quinaquisset, subsection (1)(a) does
not by any stretch of the imagination apply in this case.
With respect to the Quinaquisset-Sentry note--the subject of
this suit--Sentry never purported to release anyone from, nor
promised not to sue anyone under, this note. The only
releases issued by Sentry had nothing to do with the
Quinaquisset-Sentry note: they were releases of the
individual guarantors of Fox Run's debt to Sentry, a debt for
which Quinaquisset was not responsible since it was never a
party to nor a guarantor of the Fox Run-Sentry note.
Turning to subsection (1)(b), Quinaquisset argues that
Sentry divested Fox Run of Willowbend by the transfer of
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title from Fox Run followed by the mortgage foreclosure.
This in turn, says Quinaquisset, meant that Fox Run's
principal asset was no longer available to Quinaquisset to
back up Fox Run's debt to Quinaquisset. This is quite true,
although somewhat misleading.3 It might also be said that,
in some sense, Sentry's actions "impaired" the "collateral
for the instrument," if collateral is taken to be the Fox
Run-Quinaquisset note which Sentry held to secure the
Quinaquisset-Sentry note and that latter note is called "the
instrument."
But subsection (1)(b) requires that the impairment be
"unjustifiabl[e]" and we think it absurd to argue, as
Quinaquisset does without a shred of authority, that it was
unjustifiable for Sentry to foreclose on property for which
it held the mortgage when a default occurred on the secured
debt. That is just what security is there for. The fact
that this security was an asset of a party, Fox Run, who also
had a debt to Quinaquisset meant that Quinaquisset was made
worse off by the foreclosure. That is the normal fate of
unsecured creditors when the bankrupt's only asset is already
pledged.
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3It is misleading because Willowbend was not much of an
asset, even in Fox Run's hands, so long as it was subject to
a mortgage to secure a defaulted debt apparently as large or
larger than the value of Willowbend.
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Quinaquisset might have been better off if Sentry had
pursued Fox Run's guarantors instead of looking to Willowbend
to satisfy Fox Run's debt, but the guarantees were to Sentry
and the mortgage ran to Sentry. Sentry's decision to forgo
its claims against the Fox Run guarantors in favor of a
trouble-free sale of the property was an entirely reasonable
choice which was Sentry's to make. Sentry is not responsible
for Quinaquisset's dilemma; if Quinaquisset's claim against
Fox Run is illusory, it has no one but itself (and possibly
Fox Run) to blame.
Since Quinaquisset has failed to set forth a cause of
action or defense against Sentry under section 3-606 (and,
thus, against the RTC as receiver), we sustain the district
court on that ground. See Doe v. Anrig, 728 F.2d 30, 32 (1st
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Cir. 1984) (court may affirm on a ground not relied on by the
district court). We need not address the RTC's numerous
other arguments as to why section 3-606 should not apply.
Other versions of Quinaquisset's claims against Sentry made
in the district court may properly have been dismissed on
grounds of D'Oench, Duhme, but since these versions have not
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been argued in this court, we have no occasion to consider
them.4
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4Quinaquisset also complains that Sentry, and then the
RTC, declined to surrender the Fox Run-Quinaquisset note
after the foreclosure so that Quinaquisset could pursue its
rights under the note. But (assuming the note still had
value after the foreclosure), the note remained security for
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The final issue is the district court's award of
attorneys' fees to the RTC. Under the terms of the guaranty
supporting Quinaquisset's note to Sentry, the individual
guarantors agreed not only to guarantee the Quinaquisset debt
but to pay all costs and attorneys' fees incurred by Sentry
"in connection with the enforcement of . . . [Sentry's]
rights under, this Guaranty." The district court awarded
the RTC $79,374 in legal fees for the district court suit,
and it held that the guarantors were jointly and severally
liable for this amount.
Quinaquisset objects to the portion of the award
attributable to the Evergreen phase of the litigation. It
argues that the claims against Evergreen were not within the
scope of the guaranty and that the request for such fees is
in any event untimely because it was made well after the
separate judgment in favor of Evergreen. We consider the
scope issue first. On the issue of interpretation of the
guaranty, our review is plenary; neither side relies on
anything other than the language of the guaranty, which
extends to "all" costs and attorneys' fees of Sentry "in
connection with" the enforcement of Sentry's rights under the
guaranty.
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Quinaquisset's debt to Sentry; Sentry says, as one might
expect, that the conditions for returning the note had not
been satisfied; and Quinaquisset offers no reply.
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Although this suit began with Sentry's efforts to
collect against the Quinaquisset guarantors, Quinaquisset
then asserted separate third-party claims against Evergreen.
The only colorable claim against Evergreen was an attempt to
undo the foreclosure of Sentry's mortgage on Willowbend.
Driscoll, 985 F.2d at 47. We agree that it might be too much
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of a stretch of the "in connection with" language to treat
this phase of the litigation--if there were nothing more to
Evergreen's involvement--as any part of the enforcement of
Sentry's rights under the Quinaquisset-Sentry note.
But there was more to Evergreen's involvement. In the
answer to Sentry's complaint Quinaquisset asserted that the
conduct of Sentry's subsidiary or affiliate, i.e., Evergreen,
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was a defense to Sentry's suit against the guarantors on the
Quinaquisset-Sentry note; and in the third-party complaint
against Evergreen, Quinaquisset said that the conduct of
various entities including Evergreen made the note null and
void. While this claim or defense as to Evergreen evaporated
under scrutiny, the allegations made it essential for the RTC
to defend Evergreen as part of Sentry's own collection suit
against the guarantors.
As for timeliness, Quinaquisset's objection rests on a
decision of this court, White v. New Hampshire Dep't of
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Employment Security, 629 F.2d 697 (1st Cir. 1980). There,
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this court held that a motion for attorneys' fees under 42
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U.S.C. 1988 came too late when made over four months after
entry of a final judgment adopting a consent decree and
apparently ending active litigation in the case.
Quinaquisset fails to mention that the decision was reversed
over a decade ago by the Supreme Court on the very point at
issue. 455 U.S. 445 (1982). In any event, there was no
untimeliness here even under our original decision in White,
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so the objection is doubly without merit.
Attorneys' fees were not sought until after the separate
judgment in favor of Evergreen but Evergreen itself had no
claim to attorneys' fees. Rather, the guaranty ran in favor
of Sentry, now the RTC as receiver. The RTC did seek
attorneys' fees for all its work, including the defense of
Evergreen's actions, before a final judgment was entered in
its favor.
Lastly, we affirm the district court's decision that
each guarantor is individually responsible for the full
amount of attorneys' fees. Quinaquisset argues that the
attorneys' fee should have been apportioned among guarantors,
just as liability for the underlying debt was apportioned;
the guaranty made each guarantor liable for only $150,000 (or
$75,000 in a few cases) of the underlying $950,000 debt, as
provided in a schedule attached to the guarantee. The short
answer is that liability for costs and attorneys' fees rests
on a different provision of the guaranty that made the
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"Guarantors" liable for such costs and fees without
limitation.
A promise cast in these terms normally makes each person
liable for the full sum, whether the liability is described
as joint, several, or both. 4 A. Corbin, Contracts 928
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(1951). Distinctions among those concepts (joint, several,
joint and several) relate to other matters, such as joinder
and release, not to the amount of liability. The amount of
liability can be contractually limited by specifying that the
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promisors are liable only for specific amounts, Corbin,
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supra, 925, at 703-04, but in this case no such limitation
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was attached to the promise to pay collection costs and
attorneys' fees.
The judgment of the district court is affirmed.
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