USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 94-1853
COMMAND TRANSPORTATION INC.,
Plaintiff - Appellee,
v.
B.J.'S WHOLESALE CLUB INC.,
AMES DEPARTMENT STORES INC.,
MORSE SHOE INC., LIONEL LEISURE INC.,
AND HOME INSURANCE COMPANY,
Defendants - Appellees.
____________________
LIBERTY MUTUAL INSURANCE COMPANY,
Defendant - Appellant.
____________________
ERRATA SHEET
The opinion of this court issued on August 9, 1995 is
amended as follows:
The coversheet should read "Hon. W. Arthur Garrity, Jr.".
___
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 94-1853
COMMAND TRANSPORTATION INC.,
Plaintiff - Appellee,
v.
B.J.'S WHOLESALE CLUB INC.,
AMES DEPARTMENT STORES INC.,
MORSE SHOE INC., LIONEL LEISURE INC.,
AND HOME INSURANCE COMPANY,
Defendants - Appellees.
____________________
LIBERTY MUTUAL INSURANCE COMPANY,
Defendant - Appellant.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. W. Arthur Garrity, Jr., U.S. District Judge]
___________________
____________________
Before
Boudin, Circuit Judge,
_____________
John R. Gibson* and Campbell, Senior Circuit Judges.
_____________________
_____________________
David J. Daly, with whom John E. Lecomte, Timothy J. Daly
______________ _______________ ________________
and Lecomte, Emanuelson, Tick & Doyle, were on brief for
_____________________________________
appellant Liberty Mutual Insurance Company.
Kurt Terwilliger, with whom Richard D. Bickelman and Deutsch
________________ ____________________ _______
Williams Brooks DeRensis Holland & Drachman were on brief for
_____________________________________________
appellee Command Transportation, Inc.
____________________
August 9, 1995
____________________
____________________
* Of the Eighth Circuit, sitting by designation.
-1-
JOHN R. GIBSON, Senior Circuit Judge. Liberty Mutual
JOHN R. GIBSON, Senior Circuit Judge.
____________________
Insurance Company appeals from the district court's judgment
denying its counterclaims against Command Transportation, Inc. to
recover freight damage claims Liberty paid to Command's shippers
and to collect insurance premiums from Command. Liberty argues
that the district court erred: (1) in failing to reduce freight
damage claims Liberty paid Command's shipping customers by the
amounts the shippers owed Command for freight services; (2) in
denying its motions to substitute or add the Resolution Trust
Corporation as a defendant or third-party defendant; (3) in
denying relief on Liberty's breach of contract claim against
Command for unpaid insurance premiums; and (4) in ruling on
issues of disputed material fact. We affirm the district court's
judgment.
It is unnecessary that we detail the complex facts
underlying the relatively simple issues in this appeal. This
litigation began when Command, an interstate trucking company,
became insolvent and attempted to collect freight charges from
its shippers, including B.J.'s Wholesale Club, Inc.; Lionel
Leisure, Inc.; Morse Shoe, Inc.; and Ames Department Stores.
These shippers filed counterclaims against Command for freight
damage and losses.
In 1980, Command had purchased a Motor Truck Cargo
Policy from Liberty. As required by the Interstate Commerce Act,
the policy contained an endorsement for cargo liability, commonly
referred to as a "BMC-32 endorsement." 49 U.S.C. 10927
(a)(3)(1988). Under the BMC-32 endorsement Liberty was required
to pay directly any freight damage claims of Command's shippers
for which Command may have been liable. Further, the BMC-32
endorsement provided, in part:
The insured agrees to reimburse [Liberty]
for any payment made by [Liberty] on
account of any loss or damage involving a
breach of the terms of the policy and for
any payment that [Liberty] would not have
been obligated to make under the
provisions of the policy, except for the
agreement contained in this endorsement.
The policy terminated on October 1, 1988, and was replaced by a
similar policy issued by Home Insurance Company. Command sued
Liberty and Home for breaching the insurance contract by failing
to pay shippers directly for their lost or damaged freight.
Although Liberty admittedly received the freight claims (and, in
fact, paid some), Liberty argued that it was entitled to
Command's accounts receivable from the shippers. Liberty alleged
that a surety relationship existed between Command and Liberty by
virtue of Liberty's payment of freight damage claims directly to
the shippers under the BMC-32 endorsement. As surety of an
insolvent principal, Liberty contended that it could set off
Command's freight charge claims against Liberty's obligation to
pay the shippers' freight damage claims.
In 1986, Command entered into a revolving finance
agreement with Comfed Savings Bank. The agreement granted Comfed
a security interest in certain of Command's assets, including
Command's accounts receivable.
-3-
By April 1989, Command was insolvent. Command sold its
assets to Munson Transportation and paid the proceeds to Comfed.
In December 1990, the RTC was named as conservator for Comfed,
and, in September 1991, the RTC was appointed receiver. Liberty
claimed that the RTC was the real party in interest which must be
substituted for Command or added as a third-party defendant.
During the litigation, the district court denied
Liberty's motions to substitute the RTC for Command or to add the
RTC as a third-party defendant. The court rejected Liberty's
arguments that the RTC, through Comfed, was the real party in
interest.
Ultimately, the parties resolved all their respective
claims, except for Liberty's counterclaims against Command for
setoff and for breach of contract.
The district court ordered that Command and Liberty
file an agreed stipulation of facts. The parties could not agree
to a joint stipulation of facts, so each party submitted its own
proposed stipulation of facts. The proposed stipulations were
almost identical except each party included some facts that the
other party either disagreed with or did not address.
After a hearing on March 28, 1994, the district court
denied Liberty's counterclaims. Command Transportation Inc. v.
_______________________________
B.J's Wholesale Club, Inc., Civ. No. 90-10188-G, slip op. at 16-
__________________________
17 (D. Mass. June 23, 1994). The court determined that the BMC-
32 endorsement obligated Liberty to pay shippers directly for
freight damage and loss. The court ruled that although this
-4-
obligation may supersede other provisions of the insurance
policy, "the endorsement must be read in conjunction with, not in
lieu of, the policy." Id. at 9. The court based this ruling on
___
the endorsement, which stated: "[A]ll terms, conditions, and
limitations in the policy to which this endorsement is attached
are to remain in full force and effect." After discussing two
cases considering earlier versions of the BMC-32 endorsement, In
__
re Yale Express Sys., Inc., 362 F.2d 111 (2d Cir. 1966), and
____________________________
Empire Fire & Marine Ins. Co. v. J. Transport, Inc., 880 F.2d
______________________________________________________
1291 (11th Cir. 1989), the court distinguished obligations
arising from the policy and obligations arising from the
endorsement. The court concluded that Liberty could be a surety,
entitled to a setoff only for payments it made to shippers
"solely" under the endorsement, and that Liberty failed to prove
that it made payments solely under the endorsement. Slip op. at
13. The court determined that Liberty failed to classify its
payments to shippers as an obligation from the endorsement or as
an obligation from the policy. The court pointed out that
Liberty omitted the cargo policy as an exhibit to the Stipulation
of Facts, and attached only a one-page form: "Motor Truck Policy
- Gross Receipts," which did not explain Liberty's obligation to
pay claims under the policy. Id. The court ruled that Liberty
___
was not entitled to set off freight damage claims with Command's
accounts receivable. The court acknowledged that Liberty could
have a valid setoff claim "to the extent that its payments
represent deductibles it would not have been obligated to pay
-5-
under the policy." Id. at 14. Once again, however, the court
___
concluded that Liberty failed to prove entitlement to a setoff.
The court referred to an affidavit submitted by Liberty, to which
Command did not stipulate, listing Liberty's total payments to
each shipper. Id. Because the affidavit showed only total
___
payments, the court could neither determine if Liberty had
already reduced the amount by the deductible, nor calculate the
date, amount, or number of losses. Accordingly, the court
concluded that there was no basis for ruling that Liberty was
entitled to a setoff for the deductible amount. Id. at 14-15.
___
Liberty also claimed subrogation rights arising from
indemnity agreements between it and Command, whereby Command
agreed to indemnify Liberty for any monies paid by Liberty in
connection with "bonds, undertakings and/or obligations of
suretyship or guarantee" issued on behalf of Command. Because
Liberty's recovery under this provision depended on proving a
surety relationship, the court did not address Liberty's claim of
subrogation. Id. at 15. The court explained that a further
___
obstacle to Liberty's claims existed because a non-party, the
RTC, held a secured interest in Command's accounts receivable.
Id. at 16.
___
Finally, the court held that Liberty failed to prove
its breach of contract claim. Id. The court reasoned that the
___
sole item of evidence, a September 20, 1989, Statement of
Account, did not prove that Command owed Liberty premiums under
the policy that lapsed in 1988. Without the terms of the policy,
-6-
including proof of coverage dates, the court refused to speculate
whether Command had failed to pay premiums due. Id. at 17.
___
Liberty filed a motion to amend judgment. At a hearing
on a different motion, Liberty's counsel stated that he did not
expect the court to enter judgment on the basis of stipulated
facts but thought there would be a trial. The district court
judge found this statement inconsistent with his recollection of
the March 28, 1994 proceedings when Liberty's counsel remained
silent after Command's counsel stated he expected the court to
enter judgment on the basis of the stipulated record. The court
construed Liberty's silence as assent. The district court denied
Liberty's motion, and Liberty appeals.
I.
I.
In its reply brief, Liberty contends that the parties
did not authorize the district court to decide disputed material
facts. Liberty asserts that although the parties wanted the
district court to decide the case based on stipulated facts, the
parties did not agree to stipulated facts. Arguing that the
standard governing the granting of a summary judgment motion
applies, Liberty contends that the district court erred by ruling
on material issues of genuine fact without a trial.
Liberty agreed, however, for the district court to
decide the case on the record before it. The first paragraph in
Liberty's memorandum submitted to the district court in support
of judgment in its favor states:
The following memorandum is submitted
pursuant to the agreement between
-7-
[Command] and [Liberty] that all
remaining issues in this case be decided
by the Court based upon a Stipulation of
Facts. No final agreement on the
Stipulation of Facts was reached by the
deadline imposed by the Court, so the
references in this memorandum are to the
"Stipulation of Facts" filed by Liberty
on March 23, 1994. Liberty also relies
on its previous briefs filed with respect
to this matter.
The record of the March 28 proceedings also shows that
Liberty expected the court to decide the case based on the record
before it. At the hearing, the district court judge asked:
"What are we doing here this afternoon?" The judge questioned
whether the proceedings were pretrial, cross motions for summary
judgment, or trial of the case. Command's counsel responded that
the court directed the parties to submit a stipulation of facts
and brief the issue of liability on Liberty's counterclaims. The
court then explained that it was unsure where to turn for
evidence of the payments, receipts and dates, and asked if the
submitted filings identified the amounts that Liberty, or anyone
else, paid the shippers. Command's counsel answered that
Liberty's affidavit showed the amounts Liberty paid and that
Command did not intend to submit further documentation.
Liberty's counsel agreed that he addressed every issue Command
raised in its briefs. After discussing the merits of various
issues, the court asked Liberty's counsel what he sought.
Liberty answered: "any monies which went to Command or may go to
Command in the future which were subject to the shipper's right
to setoff."
-8-
Furthermore, the district court's June 23, 1994,
decision made twenty-three findings of fact, incorporating all of
the stipulations of facts submitted by Liberty in its March 24,
1994 filing, except for Liberty's proposed stipulation that
Command had not paid certain premiums due. Liberty's argument in
this appeal does not identify a disputed issue of material fact
it claims to be wrongly decided by the district court.1 We
therefore reject Liberty's argument that the district court erred
by deciding this case and, indeed, are left with the impression
that Liberty has been less than candid in urging this position.
II.
II.
Liberty argues that the BMC-32 endorsement created a
surety relationship between Liberty and Command, and that the
district court's finding of no suretyship is clearly erroneous.
Liberty contends that, as Command's surety, it is entitled to
assert the shippers' right to set off unpaid freight charges.
The case law unequivocally supports the district
court's view that the mere existence of the BMC-32 endorsement
does not give rise to a surety relationship entitling Liberty to
set off its obligation to pay freight damage claims. A
suretyship is created only after the insurer makes a payment
____________________
1 Having failed to identify any material factual dispute,
Liberty's arguments that the district court should have viewed
the proceedings as cross-motions for summary judgment and held a
trial on the merits are contradictory. See Boston Five Cents
___ __________________
Sav. Bank v. Dep't of Housing & Urban Dev., 768 F.2d 5, 11-12
_____________________________________________
(1st Cir. 1985) (discussing difference between decisions based on
cross-motions for summary judgment and those based on a
stipulated record).
-9-
required solely under the endorsement, in other words, a payment
the insurer "would not have been obligated to make under the
provisions of the policy."
The Second Circuit considered an earlier version of the
BMC-32 endorsement in In re Yale Express, 362 F.2d 111. That
___________________
endorsement required the carrier to reimburse the insurer "for
any payment that the [insurer] would not have been obligated to
make under the provisions of the policy, except for the agreement
contained in the endorsement." Id. at 113. After the carrier
___
went bankrupt, the shippers asserted claims for lost and damaged
freight. Id. The carrier and insurer asserted conflicting
___
positions. The carrier demanded that the shippers pay all
freight charges to it. Id. The insurer asserted that it could
___
set off freight damage claims with the carrier's claims against
the shippers for unpaid freight. Id. The Second Circuit held
___
that the insurer was a surety only for the claims it paid solely
under the endorsement, not to those claims it paid also required
by the policy. Id. at 114. The court explained that suretyship
___
exists when "'one person has undertaken an obligation and another
person is also under an obligation or other duty to the obligee,
who is entitled to but one performance, and as between the two
who are bound, one rather than the other should perform.'" Id.
___
(quoting Restatement of Security 82 (1941)). The court
reasoned that, although the insurer and carrier were both
obligated to the shipper, the carrier's promise to reimburse the
insurer for any payments made solely by virtue of the endorsement
-10-
made the carrier, not the insurer, the principal who "should
perform." Id. The court distinguished claims that the insurer
___
paid under the endorsement exceeding the deductible: "[the
insurer's] position under the endorsement differs wholly from its
status with respect to claims exceeding [the deductible]; as to
the latter it is an indemnitor," not a surety. Id. at 114 n.1.
___
Because the deductible is an amount which the insurer would "not
otherwise be obligated to pay" except for the endorsement, the
insurer had surety status only for the deductible amount. Id.
___
The Eleventh Circuit rejected the very argument Liberty
makes here in Empire Fire & Marine, 880 F.2d 1291. The court
_____________________
remanded that case, in part, for a determination of whether the
insurance policy covered the loss at issue. Id. at 1298.
___
Likewise, in American Inter-Fidelity Exch. v. American Re-
__________________________________________________
Insurance Co., 17 F.3d 1018 (7th Cir. 1994), the Seventh Circuit
_____________
interpreted language virtually identical to the BMC-32
endorsement, concluding that an insurer is a surety only for the
deductible under the endorsement, the amount it would not have
been obligated to pay under the policy. Id. at 1022. Accord
___ ______
Ford Motor Co. v. Transport Indem. Co., 41 B.R. 433, 439 (E.D.
________________________________________
Mich. 1984), rev'd on other grounds, 795 F.2d 538 (6th Cir.
________________________
1986). Cf. Eastern Freight Ways, Inc. v. Seaboard Surety Co.,
___ ___________________________________________________
577 F.2d 175, 180 n.9 (2d Cir. 1978) (surety relationship
established because of issuance of bonds for cargo claims).
Because Liberty may be a surety only to the extent its
payments to shippers represent payments required "solely" under
-11-
the endorsement, we have no difficulty rejecting Liberty's
argument that the district court erred in requiring it to
distinguish between policy and endorsement obligations. Liberty
contends that Command did not allege that Liberty's liability
arose from anything other than the endorsement. Liberty points
out that, when it was called on to directly pay the shippers,
Command had already cancelled and replaced the cargo policy.
Thus, Liberty contends that the district court erred in requiring
proof that Liberty had no obligation to pay the shippers under
the policy.
Liberty's argument is circular. The endorsement, just
as in Yale Express and Empire Fire & Marine, specifically limits
____________ ____________________
Liberty's right to reimbursement from Command to payments Liberty
would not have been obligated to pay under the policy, and
Liberty bore the burden of proving entitlement to setoff.
Reliance Steel Prod. Co. v. National Fire Ins. Co., 880 F.2d 575,
__________________________________________________
577-78 (1st Cir. 1989). Liberty neglected to specify whether its
payments to shippers were also obliged under the policy. See In
___ __
re Yale Express, 362 F.2d at 114 n.1 (insurer not a surety for
_______________
amounts in excess of deductible under endorsement); American
________
Inter-Fidelity Exch., 17 F.3d at 1022 (insurer is a surety only
____________________
for deductible under endorsement).
We similarly reject Liberty's argument that suretyship
and insurance cannot co-exist and that, therefore, its right to
setoff is not subject to the insurance provisions of the cargo
policy. This argument is inconsistent with the cases
-12-
interpreting the BMC-32 endorsement and irreconcilable with the
language of the endorsement providing that "all terms,
conditions, and limitations in the policy . . . remain in full
force and effect." See Empire Fire & Marine, 880 F.2d at 1298
___ _____________________
(regulations which require the endorsement "do not alter or
affect the obligations between the insured and the insurer");
American Inter-Fidelity Exch., 17 F.3d at 1022 (same).
_____________________________
-13-
III.
III.
Liberty next argues that the district court clearly
erred in finding that the evidence was insufficient to prove
Liberty's counterclaim for premiums owed by Command under the
policy.
Liberty sought $656,330.04 in premiums allegedly owed
by Command under the cargo policy. The district court noted that
the "only policy before the Court is the Motor Truck Policy . . .
issued on November 1, 1980 and numbered K01-712-001357-04." Slip
op. at 16-17. The district court found that the only evidence
offered by Liberty to support its breach of contract claim was a
September 20, 1989, Statement of Account. Id. at 16. The
___
Statement of Account listed several policy numbers, and the only
policy number in the two-page statement which corresponded to the
policy number on the face of the policy differed by one digit and
listed a "Retro Adjustment" in the amount of $186,159. The
district court concluded that the evidence did not show that
Command continues to owe premiums under the policy which
terminated in 1988, only that Liberty made a "retro adjustment"
to that policy.
During the hearing, the district court asked counsel
which page of the policy defined "premiums owed under the
policy." Liberty's counsel remained silent when counsel for
Command stated that "it's not [Command's] burden" but "if there
is an answer to that question I would guess it would be located
in the policy."
-14-
On appeal, Liberty explains only that a "retro
adjustment is an increased premium owed by an insured based on
the cost to the insurer as shown by actual experience," and that
the "retro adjustment amounts listed on the Statement of Account
are 'Payable on Receipt.'" Liberty explains that the total
retroadjustments reflected in the Statement of Account are all
premiums for policies that are part of the cargo policy and,
therefore, Liberty should be awarded $444,262 on its breach of
contract claim. The shortfall of Liberty's contentions is that
it has presented no evidence to explain how it calculated the
"retro adjustment" or why Command still owes premiums under the
1988 insurance policy.2 Therefore, the district court did not
err in concluding that there was insufficient evidence to support
Liberty's breach of insurance contract claim.
IV.
IV.
Finally, Liberty alleges numerous errors in the
district court's refusal to substitute the RTC as the real party
in interest or to add the RTC as a party under Fed. R. Civ. P.
17(a), 19, and 20. Liberty alleges that Comfed, and subsequently
the RTC, is the real party in interest. Liberty also contends
that the RTC, acting through the corporate shell of Command,
attempts, through this litigation, to force Liberty to pay the
shippers' claims so that the RTC may collect the full accounts
____________________
2 Liberty's citation to Truck Ins. Exch. v. Webb Transfer Line,
________________________________________
Inc., 432 S.W.2d 25, 26 (Ky. Ct. App. 1968), is unpersuasive. In
____
that case, the parties did not dispute the computation of the
total amount of premiums payable, and the insurer presented
testimony as to the premium computation. Id.
___
-15-
receivable due from the shippers free from Liberty's right to set
off. Liberty contends that the RTC's collection without
affording notice or the opportunity to be heard deprived Liberty
of its property in violation of the Fifth and Fourteenth
Amendments to the United States Constitution.
Because Liberty failed to prove entitlement to a setoff
against Command's bankruptcy estate, Liberty's efforts to make
the RTC a party necessarily fail. In any event, we are persuaded
that a number of other reasons support the district court's
refusal to substitute or add the RTC as a party or a third-party
defendant, including Liberty's failure to exhaust administrative
remedies, see, e.g., Marquis v. FDIC, 965 F.2d 1148, 1151 (1st
___ ____ ________________
Cir. 1992), or to explain the superiority of its alleged
interest. See In re Yale Express, 362 F.2d at 117.
___ __________________
We affirm the district court's judgment.
______
-16-