USCA1 Opinion
October 11, 1996 UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 96-1218
No. 96-1523
FLEET NATIONAL BANK,
Plaintiff, Appellee,
v.
H&D ENTERTAINMENT, INC.,
(f/k/a DOVER BROADCASTING, INC.),
and H&D MANAGEMENT, INC.,
as general partner of each of
H&D BROADCASTING LIMITED PARTNERSHIP,
H&D MEDIA LIMITED PARTNERSHIP,
H&D RADIO LIMITED PARTNERSHIP, and
H&D WIRELESS LIMITED PARTNERSHIP,
Defendants, Appellants,
v.
PNC BANK, OHIO, N.A.,
CHARLES E. GIDDENS, individually, as receiver
and as general partner of MEDIA VENTURE PARTNERS,
Additional Counterclaim Defendants, Appellees.
____________________
ERRATA SHEET
The opinion of this Court, issued on September 24, 1996, is
amended as follows:
On page 8, 2nd line of footnote 2, add comma after "cert. _____
denied". ______
On page 15, 1st line of indented quote, replace "there" with
"[T]here".
On page 16, 1st full paragraph, line 10, replace "(1990);" with
"(1990)." and delete "Restatement (Second) of Contracts.". _________________________________
On page 19, 2nd full paragraph, line 2, replace "trustee" with
"trustees".
On page 22, line 1, replace "F. Suppp." with "F. Supp.".
On page 22, lines 7-8 of 2nd paragraph, delete "The borrowers
apparently did not even cross-examine Zitelman on this issue."
On Page 23, line 6 of 1st full paragraph, underline "Code of
Conduct for United States Judges" and delete comma after "Judges".
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 96-1218
No. 96-1523
FLEET NATIONAL BANK,
Plaintiff, Appellee,
v.
H&D ENTERTAINMENT, INC.,
(f/k/a DOVER BROADCASTING, INC.),
and H&D MANAGEMENT, INC.,
as general partner of each of
H&D BROADCASTING LIMITED PARTNERSHIP,
H&D MEDIA LIMITED PARTNERSHIP,
H&D RADIO LIMITED PARTNERSHIP, and
H&D WIRELESS LIMITED PARTNERSHIP,
Defendants, Appellants,
v.
PNC BANK, OHIO, N.A.,
CHARLES E. GIDDENS, individually, as receiver
and as general partner of MEDIA VENTURE PARTNERS,
Additional Counterclaim Defendants, Appellees.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nancy Gertner, U.S. District Judge] ___________________
____________________
Before
Torruella, Chief Judge, ___________
Boudin, Circuit Judge, _____________
and Barbadoro,* District Judge. ______________
____________________
*Of the District of New Hampshire, sitting by designation.
____________________
Stephen F. Gordon with whom Stanley W. Wheatley and Gordon & Wise _________________ ___________________ _____________
were on briefs for defendants, appellants H&D Entertainment, Inc. and
H&D Management, Inc., and claimants, appellants, Joel M. Hartstone,
Barry J. Dickstein, Hartstone and Dickstein, Inc., Barry Dickstein &
Co., Inc. and Joan Rory Hartstone.
John D. Hanify and Charles L. Glerum with whom Harold B. Murphy, ______________ _________________ ________________
Matthew P. McCue, Hanify & King, P.C., Paul E. Morton, Morton & _________________ _____________________ ________________ _________
McCrevan, Sara A. Walker, Joseph H. Zwicker, Terri L. Ross and Choate, ________ ______________ _________________ _____________ ______
Hall & Stewart were on briefs for appellees. ______________
____________________
September 24, 1996
____________________
BOUDIN, Circuit Judge. At issue in this case are two _____________
different appeals, which we have consolidated, whose source
is a lawsuit over unpaid bank loans. In one appeal, the
borrowers contest the grant of summary judgment in favor of
the lending bank; in the other appeal, the borrowers
challenge the district court's approval of a sale by the
receiver of borrower assets that secured the loans. In both
instances, we affirm.
The background facts are largely undisputed. Between
1983 and 1988, Fleet National Bank ("Fleet") provided various
interrelated loans and lines of credit to H&D Entertainment,
Inc., and other associated corporations and partnerships
(collectively, "the borrowers"); the borrowers were licensees
or had other ownership interests in radio stations in various
cities, and those assets secured the loans. In early 1994,
Fleet concluded that the borrowers were in default and
brought suit in two different federal district courts to
collect upon different notes made or guaranteed by the
borrowers.
On March 31, 1994, Fleet and the borrowers entered into
a written settlement agreement. In exchange for Fleet's
forbearance on the loans and dismissal of its law suits, the
borrowers agreed to a repayment plan based on the sale of the
radio stations. The settlement agreement provided that if
the borrowers failed to comply with the plan's terms, this
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failure would end Fleet's forbearance obligation and also
constitute the borrower's consent to the appointment of a
receiver who would muster the assets and pay the debts.
Fleet claims that on November 30, 1994, the borrowers
missed the first deadline established under the settlement
agreement. As Fleet reads the agreement, the borrowers were
required by that date either to have made a down payment of
$6.4 million or to have in force purchase agreements with
third parties obligating the latter to buy stations from the
borrowers for that amount or more. The borrowers dispute
this reading. The precise terms of the settlement agreement
and other pertinent facts are set forth below.
On December 2, 1994, Fleet brought the present action in
the federal district court in Massachusetts against the
borrowers seeking over $12.9 million plus interest based on
the notes and guarantees. Later, the borrowers
counterclaimed. In the meantime, Fleet moved for the
appointment of Charles Giddens as receiver for the stations.
Giddens had an extensive background in appraising and selling
radio stations and was a partner in a brokerage firm, Media
Venture Partners, experienced in this field. In the past,
Giddens had been appointed by courts to serve as receiver for
radio stations and his firm had acted as broker in their
sale.
-4- -4-
The district court designated Giddens as receiver and
thereafter approved his retention of Media Venture Partners
to act as broker in the sale of the stations, comprising four
principal properties in Connecticut, Illinois, Massachusetts
and New Jersey. Giddens also retained The Zitelman Group,
Inc., to prepare monthly financial statements for the
stations and certain tax filings. The Zitelman Group was one
of the few firms known to Giddens as experienced in radio
station accounting and prepared to do such work on a
temporary basis.
In March 1995, Media Venture Partners solicited bids
from several hundred possible purchasers, widely publicizing
the proposed sale. The largest bid, offering to buy all four
station properties for approximately $15.3 million, was made
by Spring Broadcasting, L.L.C. ("Spring"), which is
associated in ownership and management with The Zitelman
Group. The bid was subject to further examination by the
bidder and further negotiations. At Giddens' request, The
Zitelman Group resigned its bookkeeping tasks in June 1995,
so that Giddens could freely negotiate a definitive purchase
agreement with Spring.
Throughout the period, the borrowers made constant
objections to the receiver, the proposed sale, and many other
details. It appears that the prospective sale price being
negotiated would not even cover in full the borrowers' debts
-5- -5-
to Fleet plus interest, let alone leave any equity for the
borrowers. Thus, the borrowers had little incentive to
cooperate in the receiver sale. Still, as the district court
pointed out, the prospective deficiency did give Fleet reason
to obtain as much as possible for the stations.
During the spring of 1995, Fleet and the borrowers filed
cross motions for partial or complete summary judgment, the
central issue being whether the borrowers had breached the
settlement agreement. The cross motions were heard by a
magistrate judge in June 1995. In early July 1995, the
magistrate judge wrote a lengthy report and recommendation,
concluding that Fleet's motion should be granted and the
borrowers' motion should be denied. Ultimately, the district
court approved the report and recommendations of the
magistrate judge. This resolution would have disposed of
most but not all of the claims on each side.
Giddens and Spring negotiated a final purchase price of
just under $14 million during the summer of 1995, the lower
price reflecting some deterioration of the stations and other
adjustments. The magistrate judge held hearings, heard
objections, and ultimately approved Giddens' proposal as to
the procedures for completing the sale. This involved a
second round of bidding, effectively inviting others to
exceed the Spring offer. Information was furnished to
prospective bidders, but no such bids were made. During this
-6- -6-
period the borrowers conduct discovery. In October and
November 1995 the district court held hearings on the
proposed sale.
During the fall, Giddens and Spring modified the
proposed sale in certain respects. When the borrowers asked
for a new round of competitive bidding because of the
changes, Giddens conducted a third round of bidding ending in
January 1996. No better bids were made. Further discovery
was allowed to the borrowers. In January 1996 the district
court held a further evidentiary hearing and then approved
the sale from the bench. In April 1996, the district court
issued a lengthy decision explaining its decision to approve
the sale to Spring. Fleet National Bank v. H&D ______________________ ___
Entertainment, Inc., 926 F. Supp. 226 (D. Mass. 1996). ___________________
1. The borrowers have now appealed both from the order
resolving the summary judgment motions and from the order
approving the receiver's sale of the stations to Spring. At
the outset, the borrowers argue that the summary judgment
order is not properly before us, because it did not dispose
fully of all of the claims or all of the counterclaims.1 For
this reason, the district court directed, on approving the
____________________
1On Fleet's claims, seven of the eight counts involved
computation of damages and at least the interest component
remained to be resolved. As for the borrowers'
counterclaims, the claims against Fleet were fully resolved
but two other claims directed by the borrowers against the
receiver were not.
-7- -7-
magistrate judge's report and recommendation, "that final
judgment be entered, pursuant to [Fed. R. Civ. P.] 54(b) and
28 U.S.C. 1291."
The borrowers do not argue that the district court
failed to make or support the finding required by Rule 54(b)
for a separate judgment on less than all claims or parties,
namely, that there is "no just reason for delay." Rather,
they simply assert that there is case law forbidding the use
of Rule 54(b) as to any claim that has been adjudicated as to
liability but not damages. E.g., Liberty Mut. Ins. Co. v. ____ ______________________
Wetzel, 424 U.S. 737, 744 (1976). This is the status of most ______
of Fleet's claims against the borrowers, although Fleet says,
citing Herzog Contracting Corp. v. McGowen Corp., 976 F.2d _________________________ _____________
1062, 1064 (7th Cir. 1992), that the mere calculation of
interest due is ministerial and should not impair finality as
to those claims.
The borrowers' objection to their own appeal is an ill-
advised attempt to throw sand in the wheels. The district
court's order approving the sale of the stations to Spring is __
properly before us--because by judicial gloss, such an order
is treated as a final decision under 28 U.S.C., 1291,
because of its importance and irrevocable character.2 And in
____________________
2SEC v. American Bd. of Trade, Inc., 829 F.2d 341, 344 ___ ____________________________
(2d Cir. 1987), cert. denied, 486 U.S. 1034 (1988); Citibank, ____________ _________
N.A. v. Data Lease Fin. Corp., 645 F.2d 333, 337 (5th Cir. ____ ______________________
1981). See generally Forgay v. Conrad, 47 U.S. (6 How.) 201, _____________ ______ ______
203-04 (1848); 15A Wright, Miller, Cooper & Gressman, Federal _______
-8- -8-
reviewing the sale order, the borrowers are free to challenge
any other ruling of the district court that underpins the
sale order. E.g., Avery v. Secretary of Health & Human ____ _____ _____________________________
Servs., 762 F.2d 158, 161 (1st Cir. 1985); 16 Wright, Miller, ______
Cooper & Gressman, Federal Practice and Procedure 3921 ________________________________
(1977).
Here, the decision that the borrowers violated the
settlement agreement does underpin the sale. The borrowers'
violation is the central premise for the appointment of the
receiver and the authorization permitting the receiver to
sell the security. In short, the borrowers are free, in
challenging the sale order, to make their central claim that
they did not violate the settlement agreement. This would be
so even if Rule 54(b) had never been invoked as to the
summary judgment order, and even if the summary judgment
order were not before us except as a premise of the sale
order.
Conversely, the borrowers are mistaken in thinking that
if they successfully challenged the Rule 54(a) designation,
they could undo or invalidate the district court's decision
on summary judgment. At best, they might limit this court's _____
review to those aspects of the summary judgment decision that
directly underpin the order approving the sale. But, so far
as we can ascertain, the only attack made by the borrowers is ____
____________________
Practice and Procedure 3910 (2d ed. 1991 & Supp. 1996). ______________________
-9- -9-
on just such an aspect of the summary judgment decision,
namely, the ruling that the borrowers breached the settlement
agreement.
Thus, we have jurisdiction both over the order approving
the sale and, incident to review of that order, over the only
attack made on the summary judgment decision, regardless of
Herzog Contracting. Further, the district court's order ___________________
directed to the summary judgment motions is properly before
us under Rule 54(b) at least insofar as that order completely
disposes of most of the borrowers' individual counterclaims.
Since we have plenary jurisdiction over the summary judgment
order at least as to those claims, we are free to review--and
affirm--both orders against the only attack made upon them.
2. We turn now to the merits of that attack, namely,
the district court's ruling that the borrowers breached the
settlement agreement by failing either to make a $6.4 million
initial payment by November 30, 1994, or alternatively to
make sales agreements by that time in a comparable amount.
Summary judgment is proper if there are no genuine issues of
material fact and the law otherwise warrants judgment for the
moving party; inferences and credibility are taken in favor
of the opposing party; and review on appeal is de novo. Roy ________ ___
v. Inhabitants of the City of Lewiston, 42 F.3d 691, 694 (1st ___________________________________
Cir. 1994).
-10- -10-
The settlement agreement (in section 5(a)) required the
borrowers either to have paid Fleet $6.4 million by November
30, 1994--which did not occur--or to meet an alternative
condition stated as follows:
On or prior to November 30, 1994, members of the
Borrower Group shall have . . . entered into
binding [purchase and sale] agreements . . . which
shall have become fully effective as contemplated
below, providing for the sale, to one or more
purchasers, of two or more Station Combinations
providing for aggregate Net Sales Proceeds of not
less that $6,400,000 . . . .
Later dates were provided by which two further specified
payments (or sales contracts in like amounts) were to be
made. In addition, the settlement agreement provided (in
section 5(e)) a trio of corresponding dates by which
contracted-for station sales had to be completed. Thus, the
first sale--contracted for by November 30, 1994, for not less
than $6.4 million--had to be consummated by March 31, 1995.
The five-month lag time was set to permit the necessary
approval of license transfers by the Federal Communications
Commission. This provision also required the borrowers to
use their best efforts to obtain FCC approval, but it
provided for reasonable extensions of time if, despite the
borrowers' diligence, FCC approval were delayed past March
31, 1995 (or comparable dates for the other two
installments).
In this court, both sides agree that by November 30,
1994, the borrowers had paid only $1,050,000 toward their
-11- -11-
debt. But, on summary judgment, the borrowers said that they
satisfied the alternative obligation under section 5(a)-- ___________
quoted above--by entering into an agreement to sell stations
for enough money to generate the balance of the $6.4 million
first payment. The facts as to what happened are largely
undisputed; the disagreement before us turns on an issue of
contract interpretation.
On June 23, 1994, well in advance of November 30, 1994,
deadline, the borrowers contracted to sell two of the
stations to a third party for amounts that, taken together
with the prior $1 million payment, would have satisfied the
November 30, 1994, obligation. This June 1994 sales contract
conditioned the buyer's obligation on one of the radio
stations attaining a listenership ranking of number 1 or 2 in
the demographic category of adults age 25-54, as determined
by the Arbitron ratings service. In July 1994, before
consummation, new Arbitron ratings placed the station in
seventh place and, in September 1994, the buyer terminated
the sales contract.
On summary judgment and on appeal, the borrowers'
central position has been that they complied with the literal
terms of the settlement agreement because, in the words of
section 5(a) quoted above, they "entered into" the required
"binding" and "fully effective" contract "[o]n or prior to"
November 30, 1994. The borrowers say that it is no part of
-12- -12-
their problem that their June 1994 contract to sell the
stations lapsed well before November 30, 1994, and that no
such sales contract was in effect on that date. We join the
magistrate judge and the district court in rejecting the
borrowers' reading of the settlement agreement.
By its own terms, the settlement agreement is to be read
in accordance with Massachusetts law. Under the precedents,
ably parsed by the magistrate judge in his report adopted by
the district court, a contract governed by Massachusetts law
must be construed in accord with common sense, the likely
intent of the parties and (in commercial cases) "as a
business transaction entered into by practical [people] to
accomplish an honest and straightforward end." Shapiro v. _______
Grinspoon, 541 N.E.2d 359, 363 (Mass. App. Ct. 1989). In _________
short, words matter; but the words are to be read as elements
in a practical working document and not as a crossword
puzzle.
In all likelihood, the phrase "fully effective" in the
settlement agreement refers to the satisfaction of certain
conditions precedent specified in the settlement agreement
itself (e.g., the borrowers' filing of FCC applications for ____
license transfer within 20 days). The magistrate judge--
whose report the district court adopted--reasoned that the
term "binding," to avoid superfluity, should be read to
exclude "contingent purchase obligations which lapsed before
-13- -13-
ever ripening into absolute ones." Thus, he concluded that
even on the most literal reading, the borrowers failed to
meet the requirement.
In our view, it is uncertain whether the parties to the
settlement agreement entertained any very precise notion of
the meaning of "binding." The term is often used--
redundantly in most contexts--to mean legally enforceable,
Black's Law Dictionary 168-69 (6th ed. 1990), and lawyers _______________________
typically overwrite documents in this fashion. Further, at
least one condition subsequent--that of FCC approval--was
likely to remain unresolved until after November 30. But we
think that even if the term "binding" is given no special
meaning, the result is the same based upon a common-sense
appraisal, elsewhere stressed by the magistrate judge.
A self-evident aim of the settlement agreement was to
make certain, by November 30, 1994, that future payment to
Fleet of the $6.4 million was reasonably assured, assuming
that actual payment had not already occurred. By law, the
intended assurance would still be subject to the specific
condition of FCC approval of the license transfers; and, of
course, bankruptcy of the buyer or other intervening events
might otherwise have frustrated the sale. But a sales
contract that lapsed by its own terms prior to November 30
simply does not satisfy the obvious basic objective of
providing reasonable assurance to Fleet.
-14- -14-
To adopt this view does not require that we suppose that
the parties had an exact and identical view of how every
contingency or condition might satisfy or violate the
settlement agreement. It is enough that reasonable parties
would not have believed that this settlement agreement would
be satisfied where the seller and buyer built into the sales
contract a significant condition subsequent that defeated the
obligation to buy and led to the lapsing of the contract
prior to November 30. See generally Cooke v. Lynn Sand & ______________ _____ ___________
Stone Co., 70 F.3d 201, 204-05 (1st Cir. 1995). Other __________
variations might present more difficulties.
The borrowers have a fall-back position. They argue
that the settlement agreement is at worst ambiguous and that,
given the ambiguity, they are entitled to a trial to present
evidence. Further, they point to the affidavit of Joel
Hartstone, a leading figure in the management of the
borrowers, that in the course of negotiating the settlement
agreement,
[T]here were specific discussions regarding the
understanding that, if the Borrower Group fulfilled
its good faith efforts obligations by entering into
purchase and sale agreements, and if those
agreements then terminated, the Borrower Group
still would have until the principal payment
deadline to consummate a transaction with a
substitute purchaser.
Hartstone's gloss is highly unlikely as a statement of
the parties' actual intent in section 5(a) but not quite
impossible. It is highly unlikely because it is so serious a
-15- -15-
departure from the words and structure of the settlement
agreement. Nothing in section 5(a) suggests that the
contract signing was merely a "good faith efforts" hurdle; if
that was the intention, it could easily have been expressed.
Further, there is a lucid "best efforts" clause in section
5(e), pertaining to the borrowers' duty to seek FCC approval,
but none in section 5(a).
Still, this would be a more difficult case if there were
solid extrinsic proof--that is, evidence independent of the
words of the settlement agreement--that the parties mutually
intended section 5(a) to have the meaning claimed by
Hartstone. The contract could rationally have been drafted
as Hartstone urges, and sometimes parties fail to express
themselves clearly in their drafting. This looks, at first
glance, like a classic problem as to when extrinsic evidence
may be offered to assist in contract interpretation, an issue
largely governed by the parol evidence rule.
Somewhat simplified, the traditional version of the
parol evidence rule is that a contract provision is either
clear or ambiguous and that, in the former case, extrinsic
evidence of negotiations is prohibited (if the contract was
intended to be a complete integration). The modern approach,
embodied in the Restatement (Second) of Contracts (1981), __________________________________
allows extrinsic evidence to "interpret" even a seemingly
unambiguous contract, but not to vary or contradict its
-16- -16-
terms. Id. 212(1) and comment b, and 214(c) (1981). ___
See Farnsworth, Contracts 7.12 (1990). Massachusetts ___ _________
courts may tend toward the older view but not unequivocally
so. Compare ITT Corp. v. LTX Corp., 926 F.2d 1258, 1261-62 _______ _________ __________
(1st Cir. 1991), with Robert Indus. Inc. v. Spence, 291 ____ ___________________ ______
N.E.2d 407 (Mass. 1973).
In this case, the elaborate settlement agreement was
plainly intended as a complete integration and contains a
clause to this effect. Thus, if the Hartstone affidavit were
sufficient, it would pose nice questions as to whether
Massachusetts law requires an ambiguity before permitting
extrinsic evidence, (if so) whether the agreement is
ambiguous on the point at issue, and (above all) whether the
Hartstone gloss can be said to explain--rather than
contradict--the terms of the agreement. A factfinder might
also have to decide whether Hartstone's affidavit correctly
and fully described what was said at the negotiations.
But Hartstone's affidavit is not sufficient to raise a
genuine issue of material fact. The affidavit contains only
the conclusory assertion that in the negotiations there were
"specific discussions" adopting his best-efforts
interpretation. No dates, names or actual statements are
supplied; not a single "specific" is set forth to
demonstrate, or even illustrate, the content of the alleged
"specific discussions." There is only some lawyer-like
-17- -17-
argument in a further paragraph as to why Hartstone's "best
efforts" gloss conformed to the general tenor of the
agreement.
Thus, the quoted passage in Hartstone's affidavit did
not create a genuine issue of fact as to what happened at the
negotiations. Nor did it supply specific facts that, if
uncontested, might have affected the district court's own
reading of the settlement agreement. Cf. Lumpkin v. ___ _______
Envirodyne Indus., Inc., 933 F.2d 449, 456 (7th Cir. 1991) ________________________
(court may construe document if facts undisputed). It is
just the kind of conclusory affidavit statement that is
regularly disregarded by courts. Wynne v. Tufts Univ. Sch. _____ ________________
of Medicine, 932 F.2d 19, 27-28 (1st Cir. 1991); Posadas de ___________ __________
Puerto Rico, Inc. v. Radin, 856 F.2d 399, 401-02 (1st Cir. __________________ _____
1988).
3. The remaining issue is whether the district court
erred in approving the receiver's agreement to sell the
stations to Spring. The district court has wide discretion
in judging whether a receiver's sale is fair in terms and
result and serves the best interests of the estate. E.g., ____
United States v. Peters, 777 F.2d 1294, 1298 n.6 (7th Cir. ______________ ______
1985). On review, an abuse of discretion standard governs
such judgments, although subsidiary findings of fact are
reviewed under a clearly erroneous standard and propositions
-18- -18-
of law are subject to de novo review. Pye v. Teamsters Local _______ ___ _______________
Union No. 122, 61 F.3d 1013, 1018 (1st Cir. 1995). _____________
In this case, the borrowers make almost a dozen
different attacks on the sale, but only a few require
discussion. The first attack, and the one most vigorously
argued, arises from the fact that the winning bidder-buyer
(Spring) was closely associated with the company (The
Zitelman Group) that until June 1994 performed specified
accounting services for the seller-receiver (Giddens). For
present purposes, we omit the details of the association and
(arguendo) treat the case as if Spring and The Zitelman Group ________
were one entity.
Exceptions aside, a full-fledged fiduciary, such as
trustees or a court-appointed receiver like Giddens, may not
normally sell estate property to himself even if the terms
are fair. Restatement (Second) of Trusts 170 comment b _______________________________
(1959); Bogert, The Law of Trusts and Trustees 543, at 248 _______________________________
(rev. 2d ed. 1993); Scott & Fratcher, The Law of Trusts __________________
170.1 (4th ed. 1987); see, e.g., Attorney General v. Flynn, ___ ____ ________________ _____
120 N.E.2d 296, 302 (Mass. 1954). The central reason is
obvious: despite the safeguard of court oversight, the main
assurance that the estate will be maximized is the zeal of
the seller to secure the best price, and that zeal is likely
to be tempered if the seller is selling to himself. Bogert,
supra. The benefits of the general ban outweigh the risk _____
-19- -19-
that, in an individual case, the receiver might otherwise be
the highest bidder.
The borrowers in this case urge that The Zitelman Group
ought to be viewed as a fiduciary. While the label is not an
exact term, see SEC v. Chenery, 318 U.S. 80, 85-86 (1943); ___ ___ _______
Restatement (Second) Torts 874 comment a (1979), we agree ___________________________
with the district court that the specific accounting tasks
allotted to The Zitelman Group were narrow, mechanical, and
unrelated to the sale. The district court's findings to this
effect, 926 F. Supp. at 242-43, have not been impeached. If
The Zitelman Group had been engaged as the receiver's
financial advisor on the sale, our view might be different.
In the alternative, the borrowers urge that the general
ban on trustee buying trust property ought to extend with the
same force to anyone who is employed or engaged by the ______
fiduciary, as The Zitelman Group was in performing accounting
services. This is an arguable position (we ignore the
possible significance of the June resignation), and there are
a few cases that purport to support such a general ban on
those who assist a fiduciary. E.g., Donovan & Schuenke v. ____ ___________________
Sampsell, 226 F.2d 804, 811 (9th Cir.), cert. denied, 350 ________ _____________
U.S. 895 (1955); In re Q.P.S., Inc., 99 B.R. 843, 845 (Bankr. __________________
W.D. Tenn. 1989).
But, as the district court showed, it is not clear that
the ban is uniformly followed even in those few jurisdictions
-20- -20-
that purport to adopt it. 926 F. Supp. at 244 n.64. And the
greater weight of authority is that any judgments as to
disqualification of a non-fiduciary purchaser should be made
on a case by case basis, taking account of all of the
surrounding circumstances. Id. at 244; Restatement (Second) ___ ____________________
of Trusts 170 comment e; Bogert, supra, 543, at 254; _________ _____
Scott & Fratcher, supra, 170.6; see, e.g., Burlingham v. _____ ___ ____ __________
Worcester, 218 N.E.2d 123, 126 (Mass. 1966); Gunther v. Gove, _________ _______ ____
175 N.E. 464, 467 (Mass. 1931).
The central reason for disqualifying the fiduciary as a
buyer is that there is no one else who can similarly protect
the estate's interest. See Bogert, supra, 543, at 227-28. ___ _____
But where the purchaser is merely hired by the fiduciary to
perform a discrete and narrow function unrelated to the sale,
the fiduciary's guardian role is not automatically impaired.
On the contrary, the fiduciary should still have every
incentive to refuse to sell unless the purchaser is making
the most attractive available offer. Thus, there is often
little risk that the estate will be disserved by allowing the
bid.
The general rule, by disqualifying the fiduciary as a
bidder, might in some rare case foreclose the highest bidder,
but only one such bidder is lost. If courts extend that
circle of automatic disqualification, the risk becomes
greater of harming the estate by limiting those who might
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offer the highest price. This is especially so in cases
where the universe of serious buyers is likely to be small,
as may well be the case here. And, of course, even without a
rigid rule disqualification, an objecting party is free to
argue on particular facts against a proposed sale to someone
employed by the fiduciary.
Here, the borrowers do argue that The Zitelman Group's
access to inside information did give Spring an advantage in
framing its bid. If Spring had thereby bid less than it
otherwise would have, interesting problems of remedy might
arise--for it still might not help the estate to throw out
the highest bid made to it. In all events, the district
court specifically found that the information available to
The Zitelman Group was not "confidential information or even
raw financial data," 926 F. Supp. at 243, and was effectively
available to other bidders. Id. at 233 n.22. ___
On appeal, the borrowers make no effort to show that the
monthly financial statements or any other information
available to The Zitelman Group gave Spring any unique
advantage over the information available to all bidders. On
the contrary, the prospective bidders were supplied with more
detailed and pertinent information than the limited data
available to The Zitelman Group for accounting purposes. 926
F. Supp. at 233 & n.23. The borrowers' brief gives us no
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reason even to suspect error on this finding, let alone clear
error.
We turn now to a quite different attack made by the
borrowers on the sale. The borrowers assert that the
receiver or his associated brokerage company, Media Venture
Partners, accepted a "bribe" from Spring by agreeing to act
as Spring's broker to buy another radio station in the
Atlantic City area. Apparently, in April 1995, at virtually
the same time that Spring submitted the winning bid in the
first round, Spring offered Media Venture Partners a
commission to secure Spring a second station in the same
city.
To describe this offer as a proven bribe is a dramatic
overstatement. Zitelman (who headed The Zitelman Group)
himself testified at a hearing that the offer of a commission
to Spring to procure a second station in Atlantic City was an
arm's length agreement unrelated (except by Spring's desire
for a duopoly) to the receiver's sale of the borrowers'
stations. The district court did not discuss the episode,
perhaps because the borrowers developed very little evidence
about it in the district court. The borrowers apparently did
not even cross-examine Zitelman on this issue.
In this court, the borrowers simply repeat their charge
that the commission was a bribe. If it were, the matter
would be very serious. But the borrowers have adduced no
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evidence that the commission was intended by Spring as a
bribe, regarded by Giddens or Media Venture Partners in that
light, or that it had any effect on the sale of the
borrowers' station. Out of an abundance of caution we have
read what can be found in the record on the subject, and it
does not alter our conclusion.
The borrowers might have argued that, as a prophylactic
matter, a receiver who is selling property should be barred
from any other dealing with the buyer in the same time frame.
A federal judge, for example, could not normally accept a
gift from a lawyer litigating a case before that judge. 5
U.S.C. 7353(a)(1) (1994); Code of Conduct for United States _________________________________
Judges Canon 5(4). But the borrowers have made no effort to ______
offer citations or arguments for such a prophylactic rule
here; and it is certainly not self-evident that so broad a
rule would make sense in the context of ordinary business
transactions.
Finally, the borrowers offer a motley of other attacks
on the sale. These include charges that Media Venture
Partners helped Spring in "crafting" its bid by providing it
help not afforded to other bidders; that the receiver
concealed information from the court regarding bids submitted
by other bidders; that adjustments in the sales contract
between the receiver and Spring were unwarranted; that the
second and third rounds of bidding were too hasty; and that
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the sale price ultimately fixed for the stations was too low
in light of earlier appraisals.
These objections are answered in the district court's
lengthy opinion approving the sale. The objections turn on
the specific facts and the district court's opinion is
reported. In each case, we think that the district court's
discussion is sufficient and that no error occurred. In our
view, the district court and the magistrate judge have done a
very able job in handling this complex and contentious case.
Affirmed. _________
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