USCA1 Opinion
UNITED STATES COURT OF APPEALS
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
FOR THE FIRST CIRCUIT
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No. 93-2040
DENNIS G. BEZANSON, TRUSTEE OF THE ESTATE OF UNITEX, INC.,
Plaintiff, Appellant,
v.
FLEET BANK - NH,
Defendant, Appellee.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
[Hon. Paul J. Barbadoro, U.S. District Judge]
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Before
Torruella, Cyr and Boudin,
Circuit Judges
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Graydon G. Stevens with whom Kelly, Remmel & Zimmerman was on
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brief for appellant.
Francis L. Cramer with whom Valerie A. Walsh and Sullivan &
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Gregg, P.A. were on brief for appellee.
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July 14, 1994
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BOUDIN, Circuit Judge. Unitex, Inc., a New Hampshire
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Corporation, made graphics equipment purchased by newspaper
and magazine publishers. In March 1985, Unitex defaulted on
a $3 million bank loan owed to Indian Head National Bank
("the bank").1 The loan was secured by all of Unitex'
assets and on March 8, 1985, Indian Head took possession of
Unitex' entire operation. The bank's object was to sell
Unitex as an ongoing business, but for the time being it
reduced Unitex' activities to servicing customers and
providing spare parts. A number of Unitex' customers told
the bank that they would cease using Unitex as a supplier
unless Unitex acquired new management by June 1985.
In late May 1985, after soliciting unsuccessfully for
buyers, the bank received an offer from Graphics Technology,
Inc. ("GTI"). GTI was a start-up company formed by three
principals in order to purchase Unitex. Two of them had
considerable experience in graphics technology and the
principals visited the Unitex plant and spoke with employees
and distributors. GTI aimed to purchase Unitex with borrowed
money and retained two firms to assist it in raising the
capital: A R Technology, Inc., a financial consultant, and
Parker Benjamin, Inc., a regional investment banker.
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1Fleet Bank-NH ("Fleet") succeeded to the interests of
Indian Head at some time after the transactions at issue in
this case.
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On May 22, 1985, GTI made a written offer to Indian Head
to purchase the assets of Unitex for $3,250,000. Ronald
Cote, the bank officer primarily involved in seeking a buyer
for the assets, spoke to a Parker Benjamin representative
several times and was told that it had a "high level of
confidence [the] deal can be done and rather quickly." A
representative of A R Technology, Inc. also told the bank of
Parker Benjamin's optimism. The bank drafted but did not
transmit a letter dated May 27 accepting GTI's May 22 offer.
On May 29, 1985, the GTI principals met with Cote and
the bank's president to discuss the May 22 offer. The bank
presented a draft proposal calling for a July 12 closing date
and a $200,000 nonrefundable deposit to be made when the bank
accepted the offer. GTI furnished a proposed interim plan
for GTI to take over operation of Unitex prior to the closing
(the bank having expressed a desire to surrender day-to-day
management). Indian Head objected to two aspects of the
interim operation plan and GTI offered modifications. GTI
balked at the $200,000 deposit and this issue was left
unresolved.
On June 1, 1985, GTI sent Cote a letter providing more
detail about the interim operating plan and increasing the
GTI offer to $3,400,000. The letter said that Unitex
customers, contacted by GTI, were enthusiastic and some had
expressed an interest in offering financial assistance to
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GTI, if required; also, according to the letter, key former
Unitex employees were willing to rejoin the company. There
was no mention of the nonrefundable deposit, but the letter
said that GTI was "rapidly reviewing the remaining few [open
points] for a final solution."
On June 3, 1985, Chorus Data Systems, Inc. ("Chorus"),
made the bank a competing proposal. In substance, it
proposed a joint venture between Chorus and the bank looking
toward the operation of Unitex for a period, followed by a
public offering of a rebuilt Unitex a year or so hence; the
bank's expected gain was projected to be between $3 million
and $8 million, depending on the price obtained in the public
offering. The bank was attracted by the prospect of sharing
in the value of a revived Unitex. In a June 4 meeting with
GTI representatives, the bank rejected GTI's offer.
On June 5, 1985, representatives of the bank and Chorus
met. Cote rejected the joint venture approach on grounds of
unspecified regulatory problems; he suggested instead that
Fleet take a note for $3 million from a proposed new company
(which would own the Unitex assets) and convert the note into
equity four months later. An agreement in principle along
these lines was reached either then or the next day. On June
6, GTI was told that the bank had decided to sell Unitex to
another bidder. Unitex' customers were advised that Unitex
would soon be operating under new ownership headed by Chorus.
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On June 20, 1985, Chorus and the bank signed a written
agreement. The details are complicated but in substance a
new corporation--called Cuneiform--was to purchase the Unitex
assets. A $3 million interest bearing note would be issued
to the bank by Cuneiform, and the note would be exchanged in
120 days for convertible preferred stock to be held by the
bank. If, as the parties anticipated, the new company were
ultimately offered to the public or sold to another company,
the preferred stock would be converted to common stock at an
agreed upon ratio and the bank would obtain 49 percent of the
business and thereby share in the upside profit. No deposit
was required from Chorus or the new entity, nor did Chorus
provide any guarantee of the $3 million note.
In July 1985, Unitex filed for bankruptcy. In
bankruptcy, the claims of unsecured creditors of Unitex
exceeded $3,700,000. On March 7, 1990, Dennis Bezanson,
trustee of the estate of Unitex, filed the present action in
district court against Fleet as the successor to Indian Head.
The complaint, so far as pertinent here, charged that Indian
Head had violated its duty under New Hampshire law by failing
to dispose of the Unitex assets in a commercially reasonable
manner.
The case was tried to a jury in March 1993. The jury
found in favor of the trustee and awarded damages of
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$379,779.21, effectively the $3,400,000 offer made by GTI
less the amount Unitek owed the bank.2
Fleet filed post-trial motions for judgment as a matter
of law or for a new trial, attacking the jury verdict as to
both liability and damages. In a decision filed on August
27, 1993, the district court found that the evidence
supported the jury's finding of liability but that Fleet was
entitled to judgment as a matter of law because the trustee
had not provided evidence of damages sufficient to permit a
reasonable jury to find that damages had been proved with
"reasonable certainty." The new trial motion was dismissed
as moot.
The trustee has appealed from the district court's
judgment in favor of Fleet. Fleet not only defends the
judgment but argues, in the alternative, that it was also
entitled to judgment as a matter of law on the issue of
liability. Fleet has not cross-appealed, but it is entitled
to defend the district court's judgment--that the trustee
take nothing--on any ground properly preserved in the
district court. See Martin v. Tango's Restaurant, Inc., 969
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F.2d 1319, 1325 (1st Cir. 1992).
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2Although the original loan to Unitex had been for $3
million, Indian Head was owed $3,020,220.79 in June 1985,
apparently because of expenses incurred by the bank for which
Unitex was responsible.
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We address the issue of liability first and then turn to
the issue of damages. The applicable law in this case is in
part state and in part federal. State law determines what
had to be proved, by whom and to what degree of persuasion.
Federal law determines the relationship between judge and
jury, including the standard--that no reasonable jury could
find otherwise-- for granting judgment notwithstanding the
verdict. Our review of such a judgment is de novo. See
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Biggins v. Hazen Paper Co., 953 F.2d 1405, 1409 (1st Cir.
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1992).
1. The Uniform Commercial Code, adopted by New
Hampshire, provides that sale of collateral to satisfy a debt
must be "commercially reasonable" in "every aspect" including
"method, manner, time, place and terms." N.H. Rev. Stat.
Ann. 382-A:9-504(3). We agree with the district court's
concise gloss on the "commercially reasonable" language:
commercial reasonableness normally depends on evaluation of
all the circumstances surrounding the disposition of
collateral; and in general "no single factor, even price,
will conclusively determine the commercial reasonableness of
a secured party's actions."3
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3See generally, e.g., C.I.T. Corp v. Lee Pontiac, Inc.,
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513 F.2d 207, 209 (9th Cir. 1975); Georgia Pacific Corp. v.
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First Wisconsin Financial Corp., 805 F. Supp. 610, 617 (N.D.
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Ill. 1992); 7 A.L.R. 4th 309 (1981) (collecting cases).
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Fleet argues on appeal that the party disposing of
collateral can never be deemed unreasonable if it accepts a
lower firm offer in preference to a higher but contingent
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one. This argument need not detain us long. Common sense
alone suggests that in some circumstances a higher contingent
offer will be far more valuable than a lower certain one.
The proverb says that a bird in the hand is worth two in the
bush; it does not say that a bird in hand is worth more than
any number of birds in the bush.
Even if there were a rule such as that urged by Fleet--
which there is not--it is doubtful that it would apply here.
The $3 million offer by Chorus appears to have been "certain"
only in a formal sense. In substance, nothing secured the $3
million note obtained from Cuneiform beyond the original
Unitex assets. This does not mean that the deal was a bad
one from the bank's point of view but only that the "firm"
offer Indian Head accepted gave it no more security than it
already had.
Whether the action of the bank was commercially
unreasonable judged by all the circumstances is a more
interesting question. Perhaps the apparent prospects of
Unitex as a going company would have made it prudent for an
actual owner of the assets to reject a $3,400,000 offer and
to prefer an equity stake while the business was
resuscitated. Similarly, a security holder, owed $5 million,
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who in good faith held out for more than $3,400,000 might
well have been able to defend this judgment as a reasonable
one, even if the strategy turned out badly.4
We need not pursue these issues because Indian Head was
not the owner of the property, and its actions as a secured
creditor were tainted by bad faith, or so the jury must have
found. One who possesses collateral for a loan in default
cannot walk away with the collateral if it is worth more than
the debt. Rather, the lender normally is entitled to the
value of the collateral up to the amount of the outstanding
debt. The balance belongs to the borrower or, if the
borrower is then bankrupt, to the bankruptcy trustee on
behalf of the other creditors. See N.H. Rev. Stat. Ann.
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382-A:9-504(2) (absent agreement "the secured party must
account to the debtor for any surplus"); Contrail Leasing
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Partners, Ltd. v. Consolidated Airways, Inc., 742 F.2d 1095
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(7th Cir. 1984).
In this case, the $3,400,000 offer by GTI was for more
than the balance owed the bank. If the bank had been
seriously concerned about the reliability of the offer or had
feared that customers would desert Unitex before the deal
could be completed, it might have rejected GTI's proposal on
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4Apparently in the event Unitex' technology proved to be
rapidly outmoded by developments in computerization. In this
respect, both GTI and Indian Head apparently were deceived in
thinking that Unitex had a bright future.
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those grounds. But what happened strongly suggests not that
the bank doubted that it could recover its full outstanding
debt but that it became interested in obtaining even more.
But anything more belonged to the creditors and not to the
bank. The jury probably thought that the bank's conduct was
deplorableandin nosensea"commercially reasonable"disposition.
In fairness to Indian Head, we note that there is also
some evidence consistent with its position that it acted in
good faith. For example, notes made by Cote say that on June
6 Cote spoke to Parker Benjamin "to clarify" its expectations
and was told that there was "a high probability" of raising
the money but that the financing depended on verifying
Unitex' assets and this would take three weeks. Still, it
was up the jury to weigh the conflicting inferences from all
the evidence and to conclude, as it apparently did, that Cote
was protecting the record after the decision had been made.
2. The question whether evidence is adequate to show
damages is closer. In this case, the district court held
that New Hampshire law required the damages be proved to a
"reasonable certainty." The district court concluded that no
reasonable jury could find it reasonably certain that GTI
would have been able to finance and carry through the
transaction if its offer had been accepted. Parker
Benjamin's expressions of confidence "that [the] deal can be
done and rather quickly" were, the court found, "nothing more
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than speculation . . . ." Under New Hampshire law, the
debtor may recover as damages "any loss caused" by the
secured party's unreasonable disposition of the collateral.
N.H. Rev. Stat. Ann. 382-A:9-507. See A to Z Rental, Inc. v.
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Wilson, 413 F.2d 899 (4th Cir. 1969) (damages based on
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rejected offer). In commercial litigation in New Hampshire,
as elsewhere, the burden of proof of damages is upon the
claimant who must show by "a preponderance" of the evidence
both the extent and amount of such damages.5 Our concern is
not with these propositions, but with the district court's
further conclusion that New Hampshire law required that the
damages be established with "reasonable certainty."
The district court borrowed its "reasonable certainty"
standard from two New Hampshire cases that impose this
requirement on the computation of lost profits in breach of
contract cases. Great Lakes Aircraft Co. v. City of
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Claremont, 608 A.2d 840 (N.H. 1992); Hydraform Products Corp.
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v. American Steel, 498 A.2d 339 (N.H. 1985). These cases are
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ones in which the claimant argued that a business would have
been profitable in a specified amount but for the breach of
contract or other wrongful conduct of the wrongdoer. Lost
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5See Baley v. Sommovigo, 631 A.2d 913, 917 (N.H. 1993)
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("The party seeking to recover damages has the burden of
proving by a preponderance of the evidence the extent and
amount of such damages."); Grant v. Town of Newton, 370 A.2d
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285, 287 (N.H. 1977) (claimant must show by preponderance
causation of "and extent and amount of such damages.").
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profits of this kind are often quite speculative; they depend
upon how a variety of variables affecting a stream of
revenues and expenses would have played out over time, if the
wrongdoing had not occurred.
Our case does not require such a complex conjectural
judgment: the only question is whether the specific
transaction in question--a $3,400,000 purchase of Unitex
assets by GTI in or around June 1985--would have gone forward
if the bank had pursued this transaction rather than
diverting its efforts to securing an equity stake. This is a
matter of prophesy, to be sure, but we see no reason in
policy and nothing in the New Hampshire case law to suggest
that the trustee needed to show anything more than the "more-
likely-than-not" prospect usually associated with a
preponderance of the evidence standard.6
The New Hampshire UCC pertinently provides that its
remedies shall be liberally administered "to the end that the
aggrieved party may be put in as good a position as if the
other party had fully performed" and the comment to the
provision notes: "Compensatory damages are often at best
approximate: they have to be proved with whatever
definiteness and accuracy the facts permit, but no more."
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6The phrase "lost profits" is too mutable to provide a
hard-edged test for when reasonable certainty is required;
but we doubt that the label well suits the claim of the
trustee to have an estate asset sold in good faith for as
close to fair value as circumstances permit.
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N.H. Rev. Stat. 382-A:1-106(1) and comment 1. Finally,
even if "reasonable certainty" were the standard in this
case, there is marked inclination to relax the test where the
defendant's conduct is willful. See A. Farnsworth, Contracts
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12.15, at 920-21 (2d ed. 1990).
Resolving credibility issues and all reasonable
inferences in favor of the jury verdict, see Putnam Resources
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v. Pateman, 958 F.2d 448, 459 (1st Cir. 1992), we think that
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the evidence is adequate to support the jury's view that the
GTI transaction would more likely than not have succeeded but
for the bank's misconduct. In considering whether financing
would have been secured, the jury was entitled to rely on the
rather general but also quite confident predictions
attributed to GTI's investment banker. These statements were
hearsay because they appeared in the form of notes made by
the bank representative who conferred with Parker Benjamin.
But there was no objection to admission of the notes and
recorded statements may therefore be considered for the truth
of the matter asserted. For all we know, a Parker Benjamin
witness might have been summoned if an objection had been
made.
Of course, such predictions would carry far more weight
if the Parker Benjamin representative had provided more
detail to underpin his conclusion--for example, by describing
preliminary efforts to raise the money, similar past
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transactions, or the commercial promise of Unitex. Still,
experts are allowed to testify to their bare conclusions, see
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Fed. R. Evid. 703, and the bare conclusion here is quite
favorable to the trustee. Further, the bank's action turning
down the $3,400,000 offer in favor of retaining an equity
stake might be viewed as a judgment by the bank that the
assets were worth at least $3,400,000 and, if the bank
thought so, the jury might suppose that potential lenders to
GTI would reach the same conclusion.
The district court expressed doubt that the investment
banker could make a well grounded judgment about financing
when GTI itself had still not received all of the information
about Unitex that GTI wanted from the bank. Based on the
testimony, there is no reason to believe that GTI was seeking
anything more than detailed verification about matters
represented in the offering "package" that the bank provided
to potential bidders. The mere fact that GTI was seeking
additional information or confirmation is not itself enough
to show that Parker Benjamin's prediction of financing was
irresponsible.
The bank points to a number of other uncertainties that
attended the GTI proposal. In addition to GTI's need for
financing, GTI requested a substantial period in which to
evaluate Unitex; the question of management of Unitex during
the transition and before closing remained to be settled; and
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the issue of the nonrefundable downpayment was never
resolved. Fleet's brief tries to develop these uncertainties
to furnish sound reasons why Indian Head would in good faith
have been justified in rejecting GTI in favor of Chorus.
The jury, however, was entitled to conclude that the
bank did not make such a good faith judgment but was
enthusiastic about the GTI proposal until its attention was
diverted by the lure of improper gain. GTI's own enthusiasm
for the transaction is unquestioned, and its efforts to
secure financing were underway and had been optimistically
assessed. Thus, a reasonable jury could have found that it
was more likely than not that the GTI proposal would
ultimately have been accepted, and financing for it achieved,
but for the bank's bad faith rejection of the GTI proposal.
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The judgment of the district court is reversed and the
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matter is remanded for further proceedings consistent with
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this opinion.
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