USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 95-1505
HOPE FURNACE ASSOCIATES, INC.,
Plaintiff - Appellant,
v.
FEDERAL DEPOSIT INSURANCE CORPORATION,
as Receiver of Eastland Bank & Eastland Savings Bank,
Defendant - Appellee.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. Raymond J. Pettine, Senior U.S. District Judge] __________________________
____________________
Before
Torruella, Chief Judge, ___________
Lynch, Circuit Judge, _____________
and Stearns,* District Judge. ______________
_____________________
Karen A. Pelczarski, with whom John H. Blish and Blish & ___________________ _____________ ________
Cavanagh were on brief for appellant. ________
Kathleen V. Gunning, Appellate Litigation Section, Federal ____________________
Deposit Insurance Corporation, with whom Ann S. DuRoss, Assistant _____________
General Counsel, Colleen B. Bombardier, Senior Counsel, John P. _____________________ _______
Parker, Senior Attorney, Federal Deposit Insurance Corporation, ______
Christopher M. Neronha, Hinckley, Allen & Snyder and John P. _______________________ __________________________ _______
Parker were on brief for appellee. ______
____________________
December 6, 1995
____________________
____________________
* Of the District of Massachusetts, sitting by designation.
STEARNS, District Judge. The plaintiff-appellant, Hope STEARNS, District Judge. ______________
Furnace Associates, Inc. ("Hope"), appeals from the entry of
summary judgment against it, claiming that Eastland Savings Bank
("Eastland"), the FDIC's predecessor in interest, reneged on a
binding commitment to finance a Hope real estate development. We
disagree and affirm the judgment of the district court, although
on a different ground than the one articulated by that court.
BACKGROUND BACKGROUND __________
Hope originally brought suit in Rhode Island Superior
Court. Eastland was afterwards declared insolvent by the Rhode
Island Director of Business Regulation. The FDIC, appointed as
Eastland's receiver, removed the case to the federal district
court in Rhode Island where, in due course, cross-motions for
summary judgment were heard.
Hope accused Eastland of defaulting on its obligations
under a loan commitment letter by pretextually demanding that
Hope obtain an unobtainable state environmental approval. The
FDIC argued that because Hope was not designated as the borrower
in the commitment letter, it was barred from maintaining the
action by the D'Oench, Duhme doctrine and 12 U.S.C. 1823(e). _______ _____
The FDIC also contended that Hope had defaulted on several
conditions precedent of the agreement, thus relieving Eastland of
any duty to perform.
The district court adopted the D'Oench, Duhme argument _______ _____
proffered by the FDIC and granted it summary judgment. The
district judge reasoned that the loan commitment had been
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expressly extended to ENDA Associates, Inc., a partnership
affiliated with, but juridically independent from Hope. Hope
pointed unavailingly to bank records and to written admissions by
bank officials that should have alerted the FDIC to the fact that
the insertion of ENDA's name in the letter was the result of a
clerical blunder. The district court did not find it necessary
to address the contract issue, although it had been fully
briefed.
In light of the contemporaneous verification in
Eastland's records of Hope as the actual borrower, the FDIC no
longer relies on the D'Oench, Duhme argument. In its brief, the _______ _____
FDIC candidly and commendably makes the following concession.
The FDIC does not contend on appeal that
section 1823(e) [or D'Oench, Duhme] applies _______ _____
to bar Hope Furnace's assertion that it,
rather than ENDA, was the true borrower under
[the] Commitment Letter, or that it is the
proper party to contend that the Bank
breached its obligations thereunder. Here,
the record appears to reveal the clear intent
of the parties that Hope Furnace, rather than
ENDA, was the intended borrower despite the
Commitment Letter's express provisions to the
contrary.
Appellee's Brief, at 13-14.
The sole issue on appeal, therefore, is whether the
alternative ground for summary judgment urged by the FDIC before
the district court is valid. See Mesnick v. General Electric _______ _________________
Co., 950 F.2d 816, 822 (1st Cir. 1991). ___
FACTS FACTS _____
The commitment letter was signed on April 4, 1989.
Eastland promised to lend $1.5 million to finance a planned
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development in Scituate, Rhode Island, if Hope succeeded in
fulfilling certain conditions by June 5, 1989. On July 26, 1989,
Eastland extended the compliance date to August 31, 1989. Ender
Ozsezen and David Verardo, the joint principals of Hope and ENDA,
agreed to personally guarantee the loan. The commitment letter
required that the loan be cross-collateralized and cross-
defaulted with an outstanding loan to an ENDA condominium project
(the Tamarac loan) on which a balance was then owing of $572,195.
Hope planned to subdivide a 125 acre parcel of
undeveloped land into fifty-six single family lots. At least
sixteen of the lots were to have municipal water. The remaining
lots would require more expensive groundwater wells.
Approximately $300,000 of the loan proceeds were to be used to
install the municipal water connections. This entailed laying
two pipelines, each extending some 3,000 feet from the parcel.
At the time the commitment letter was signed, it was unclear
whether construction of the connectors would impact an adjacent
wetlands, a matter of no small concern to Eastland.1
The commitment letter imposed two pertinent conditions.
First, that Hope obtain a letter from the Rhode Island Department
of Environmental Management ("DEM") "indicating that a Request
for Applicability Determination has been filed with said
____________________
1 Eastland made clear this concern in the opening paragraph of
the loan commitment letter by including municipal water access in
its definition of the subject parcel. "It is our understanding
that the property securing this loan consists of a parcel of land
containing approximately 125 acres and that it will be developed
into 16 buildable lots ranging in size from 1 1/2 to 2 1/2 acres
each with adequate road frontage and municipal water service."
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department and that the subject parcel of land does not require a
Permit to Alter Wetlands." (Paragraph 37). And second, that
Hope provide Eastland with a certificate of a registered engineer
verifying the availability of utility service, storm drainage
facilities, sewerage connections and "such other facilities as
may be deemed necessary by the bank." (Paragraph 27).2
The commitment letter also contained several clauses
giving Eastland discretion to determine whether or not these
conditions had been met. Paragraph 39 provided that:
[t]he Bank shall reserve the right to cancel
and to terminate its obligations under this
commitment if any of the following occur:
a. Failure of the borrowers to comply, or
cause to be complied within the time
specified with any of the provisions or
conditions applicable to this commitment.
. . .
f. Any change subsequent to this commitment
deemed by the Bank to be material or
substantial in the assets, net worth or
credit standing of any borrower or other
person who shall become obligated to the Bank
under this commitment, or the taking of a
judgment against any said person which, in
the sole discretion of the Bank, materially
affect his credit standing . . . .
Finally, the letter stated that "[t]his commitment cannot be
changed, discharged, or terminated orally but only by an
____________________
2 The FDIC also claims that Hope breached Paragraph 38 of the
letter which required that Hope maintain any property in which
Eastland had a security interest (including Tamarac) free of
liens over the life of the loan. Hope argues, not implausibly,
that it was never in breach of Paragraph 38 because the loan was
never made. Moreover, Hope alleges that it had filed releases on
all liens on the Tamarac property on or before July 28, 1989.
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instrument in writing signed by the party against whom
endorsement of any change, discharge or termination is sought."
(Paragraph 46).
Eastland's attorney, Robert Branca, provided Hope with
a draft of an engineer's certificate that Eastland would deem to
satisfy Paragraph 27 (and by implication, Paragraph 37) of the
commitment letter, namely
[t]hat construction and operation of the
Improvements will not involve the filling or
alteration of any stream, brook or other body
of water or any wetlands area nor the
discharge of any fill or other material into
the ground water . . . .
Hope's engineer meanwhile determined that installation of the
municipal water connectors would in fact have a disruptive impact
on the neighboring wetlands. Consequently, he refused to sign a
certificate in the form dictated by Eastland. On May 31, 1989,
Branca, having been made aware of the engineer's refusal,
provided Hope with a second, more flexibly worded draft. It
stated, in pertinent part,
[t]hat construction and operation of the
Improvements will not involve the filling or
alteration of any . . . wetlands area nor the
discharge of any fill or other material into
the ground water, except as hereinafter set
forth. The construction of the portion of
the Improvements involving construction of
the water line along Hope Furnace Road from
Route 116 to the Premises will require stream
crossings, and as such, come under the
jurisdiction of the [DEM]. In our
professional opinion, we and the Borrower can
work with DEM incorporating any suggestions
it may make (without unusual measures being
taken or unusual costs being incurred) in
order for DEM to make a determination that
such construction involves an insignificant
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alteration of freshwater wetlands. There is
presently pending with DEM an application for
a determination of the impact on freshwater
wetlands of such construction and in our
experience, the same should be granted in 90
days . . . .
While the language of an acceptable certificate was being
negotiated, Hope's engineer declared bankruptcy. Before Hope's
new engineer (Gerhard Graf) could complete his investigation,
Eastland resolved to reject any engineer's certificate that
contemplated even an "insignificant" wetlands alteration unless
Hope obtained prior DEM approval.
On August 17, 1989, Eastland warned Verardo that
payments on the cross-collateralized Tamarac loan were past due
and reaffirmed the August 31, 1984 deadline for compliance with
the conditions of the commitment letter. Eastland also demanded
that Verardo "respond by August 25, 1989 as to how you plan to
resolve these issues." On August 19, 1989, DEM notified Verardo
that "[b]ased upon our observations and review, it is our
conclusion that Fresh Water Wetlands, as described by Section 2-
1-20 of the Fresh Water Wetlands Act, are present on or adjacent
to the subject property. These wetlands do fall under the
protection of the Department. . . . The approval of this
Department is required for any alteration proposed within the
above described wetland(s)."
The parties were unable to close on the loan by August
31, 1989, the date on which the loan agreement, by its terms,
expired. Four months later, on December 15, 1989, DEM reversed
itself. In a letter to Graf, DEM announced that "[i]t is the
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determination of this Department that this [project] can be
approved as an INSIGNIFICANT ALTERATION of a freshwater wetland
. . . ." Hope was unable to secure alternative financing and
lost the Scituate property to foreclosure.
STANDARD OF REVIEW STANDARD OF REVIEW __________________
As with all questions of law, this court conducts a de
novo review of a district court's entry of summary judgment. Inn ___
Foods, Inc. v. Equitable Co-operative Bank, 45 F.3d 594, 596 (1st ___________ ___________________________
Cir. 1995). Accordingly, an appellate court is not restricted by
the district court's rulings of law, but is "free, on appeal, to
affirm [the] judgment on any independently sufficient ground."
Polyplastics, Inc. v. Transconex, Inc., 827 F.2d 859, 860-61 (1st __________________ ________________
Cir. 1987). See also Massachusetts Mutual Life Ins. Co. v. _________ _____________________________________
Ludwig, 426 U.S. 479, 480-81 (1976). ______
Summary judgment is appropriate when, based upon the
pleadings, affidavits, and depositions, "there is no genuine
issue as to any material fact, and [where] the moving party is
entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c);
Gaskell v. Harvard Co-op Society, 3 F.3d 495, 497 (1st. Cir. _______ ______________________
1993). To succeed, "the moving party must show that there is an
absence of evidence to support the nonmoving party's position."
Rogers v. Fair, 902 F.2d 140, 143 (1st. Cir. 1990). "An issue is ______ ____
only 'genuine' if there is sufficient evidence to permit a
reasonable jury to resolve the point in the nonmoving party's
favor." NASCO, Inc. v. Public Storage, Inc., 29 F.3d 28, 32 (1st ___________ ____________________
Cir. 1994).
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DISCUSSION DISCUSSION __________
The FDIC's main argument on appeal is that Hope's
failure to fulfill the wetlands conditions of the loan agreement
discharged Eastland from any duty to perform. "A condition
precedent is an act which must occur before performance by the
other party is due." Wood v. Roy Lapidus, Inc. 10 Mass. App. Ct. ____ _________________
761, 763 n.5 (1980). As Professor Corbin explains, "[c]onditions
precedent . . . are those facts and events, occurring
subsequently to the making of a valid contract, that must exist ____________
or occur before there is a right to immediate performance, before
there is a breach of contract, before the usual judicial remedies
are available." 3 A. L. Corbin, Corbin on Contracts 628 (1960) ___________________
(emphasis added). Because of the confusion engendered by the
often subtle distinctions between conditions subsequent and
conditions precedent, the American Law Institute (ALI) prefers
the more catholic term "conditions." See Restatement (Second) of ___
Contracts, Ch. 9, Topic 5, Conditions and Similar Events, at 159
(1981). The ALI defines a condition as "an event, not certain to
occur, which must occur, unless its non-occurrence is excused,
before performance under a contract becomes due." Id. 224, at __
160.
Although the FDIC claims that Hope failed to fulfill at
least three conditions of the agreement, its focus is on
Paragraph 37. Hope argues that Paragraph 37 did not obligate it
to obtain prior DEM approval of any wetlands alteration. Hope _____
points out that it fulfilled the first requirement of Paragraph
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37 when it provided Eastland with the DEM letter of August 19,
1989, confirming Hope's petition for an Applicability
Determination. Hope gamely contends that this same letter
fulfilled the second requirement of Paragraph 37, namely that it
obtain a determination by DEM that "the subject parcel of land
does not require a Permit to Alter Wetlands." The essence of
Hope's argument is that the clause cannot mean what it says.
Hope argues that it was "inartfully drafted," and that
"technically, there is no DEM regulation or applicable law
pursuant to which one may obtain a letter from the DEM that a
parcel of land does not require a permit to alter wetlands."
A more plausible reading of Paragraph 37 is that it
reflected Eastland's unwillingness to extend the Scituate loan
without the protection of a comfort letter from DEM. Eastland's
circumspection in this regard was not unreasonable. Regulatory
entanglement can be the deathknell of even the most carefully
conceived development, particularly if its backers (as evidenced
by their irresolute performance on the Tamarac loan) are in a
parlous financial state. Perhaps more significant, the premise
of Hope's argument, impossibility, is fatally compromised by
DEM's December 15, 1989 letter. While Hope argues that DEM's
ultimate change of heart lends credence to its supposition that
Eastland seized on DEM'S August demurrer as a pretext for
scuttling the agreement, the December DEM letter appears to be
precisely the type of assurance that Eastland was looking for,
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and which Hope contradictorily maintains was impossible to
obtain.
Hope next argues that the engineer's certificate
contemplated by Paragraph 27 sufficiently addressed Eastland's
concerns regarding the water connections, including any interim
difficulties with DEM. In other words, Hope contends that
Paragraph 27 impliedly waived the requirement of prior DEM
approval of the alterations, so long as Hope could produce an
engineer who would promise that DEM would ultimately relent.
Hope also pounces on the fact that Paragraph 37 speaks of
wetlands alterations "on" the subject parcel, while the
alterations that Hope was to undertake would affect wetlands
adjacent to the site. This purported distinction is somewhat
beside the point. The clear intent of the disputed Paragraphs,
when they are read as a contextual whole rather than as
grammatical shards, was to protect Eastland from the eventuality
that disapproval by DEM would force the entire project into
default. That the construction of the two 3,000 foot pipelines
would occur in wetlands adjacent to rather than "on" the site
does not alter the fact that DEM opposition to the connectors
would impact directly on the project's viability.
The fact that Eastland's second draft of the engineer's
certificate would have tolerated "an insignificant alteration" of
the wetlands on the assurance that it would be ultimately
acceptable to DEM makes no difference. It still remained for
Hope to produce such a certificate in a timely fashion (it did
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not). Moreover, the draft did not commit Eastland to accept the
certificate of any engineer, particularly one that was bankrupt. ___
Even to the extent that Eastland's second draft certificate could
be seen as an offer to compromise the terms of Paragraph 37, the
offer was never effectively accepted by Hope. That Eastland
chose to withdraw the draft and revert to the more stringent
terms of Paragraph 37 is not under the circumstances surprising
or the least bit objectionable.3
As a last resort, Hope cites the deposition testimony
of two Eastland officers, Lenssen, and his supervisor, Fournier,
both of whom participated in the decision to allow the loan
commitment to lapse. Lenssen's testimony can be read to suggest
that, in his opinion, the lack of DEM approval of the connector
project would not ordinarily have been a deal breaker. Fournier
testified more or less to the same effect. Hope argues that this
evidence is sufficiently material to preclude summary judgment.
The opinion of a loan officer that a breach of a particular
condition might not in the ordinary course have caused the bank
to cancel a loan agreement does not alter the fact that material
conditions of this agreement were never fulfilled. Eastland's ____
____________________
3 So too with regard to ENDA's default on the cross-
collateralized Tamarac loan. Hope argued below that "Eastland
waived any ability to rely on any default' of the Tamarac
loan . . . [because p]rior to August 1, 1989, Eastland entered
into negotiations with ENDA for an extension of the Tamarac loan
. . . and Eastland previously had . . . not required ENDA to
repay [similar] loans on the due date." That Eastland had been
forced to renegotiate payment with Verardo and Ozsezen after
three successive defaults supports the inference that the
decision to withdraw the Hope loan was primarily motivated by
prudential concerns.
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motives in insisting on the letter of the agreement in refusing
to perform are not a matter with which the law is concerned.
CONCLUSION CONCLUSION __________
For the foregoing reasons, the judgment of the district
court is AFFIRMED. ________
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